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Ruby Tuesday (NYSE:RT)

Q2 2014 Earnings Call

January 08, 2014 5:00 pm ET

Executives

Jill Golder - Senior Vice President of Finance

James J. Buettgen - Chairman of the Board, Chief Executive Officer and President

Michael O. Moore - Chief Financial Officer, Executive Vice President and Assistant Secretary

Todd A. Burrowes - Chief Operations Officer and President of Ruby Tuesday Concept

Analysts

Joseph T. Buckley - BofA Merrill Lynch, Research Division

Robert M. Derrington - Wunderlich Securities Inc., Research Division

Jeffrey D. Farmer - Wells Fargo Securities, LLC, Research Division

Alton K. Stump - Northcoast Research

Keith Siegner - UBS Investment Bank, Research Division

Bryan C. Elliott - Raymond James & Associates, Inc., Research Division

Peter Saleh - Telsey Advisory Group LLC

Rosemary Sisson

David Hargreaves - Sterne Agee & Leach Inc., Research Division

Bryan C. Hunt - Wells Fargo Securities, LLC, Research Division

Operator

Greetings and welcome to the Ruby Tuesday Inc. Second Quarter Fiscal Year 2014 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jill Golder, Senior VP of Finance for Ruby Tuesday. Thank you, Ms. Golder. You may begin.

Jill Golder

Thank you, Gloria, and good afternoon, everyone, and welcome to the Ruby Tuesday Second Quarter Fiscal 2014 Earnings Call. As we get started, let me quickly remind you that there are likely to be forward-looking statements in our comments and I refer you to the note regarding forward-looking information in our press release and most recently filed Form 10-Q.

Our second quarter earnings are released today after the market closed. A copy of the press release can be found on the Investor Relations section of our website at rubytuesday.com and is also available on Business Wire, FirstCall and other financial media outlets. We plan to release third quarter fiscal year 2014 earnings in early April. On our call this evening, you'll hear from J.J. Buettgen, Ruby Tuesday's Chairman, President and Chief Executive Officer; Michael Moore, Executive Vice President and Chief Financial Officer; and Todd Burrowes, Ruby Tuesday's Concept President and Chief Operations Officer. Following the remarks, we will take your questions.

And I'll now turn the call over to J.J.

James J. Buettgen

Thank you, Jill, and welcome, everyone. We appreciate you joining us this evening. I will start the call by providing a brief overview of our quarter and a more detailed review of our brand transformation strategy and an update on where we are in the process. After that, Michael will provide a more detailed review of the quarter then Todd will provide an update of our operations initiatives and progress. As you saw on our earnings release, we reported a second quarter diluted loss per share from continuing operations of $0.58. Excluding special items, our loss per share from continuing operations was $0.43.

Following a challenging first quarter, the second quarter started out soft but improved in the last 2 months of the quarter. Our company-owned same-restaurant sales which were down 7.8% for the second quarter showed improvement over the first quarter results as our new product news, improved operations and brand-building TV advertising began to have a positive impact.

Our guest counts also improved during the last 2 months of our second quarter. We took pricing of 1.9% with our mid-November menu rollout which helped to offset a 3% investment in new menu products. We also made progress during the quarter building our lunch day part, particularly weekday lunch, as our new menu products, along with our Garden Bar, address guest desire for affordability and more everyday dining occasions. Michael will provide more detail on sales, guest and check in his remarks.

Beginning in our late second quarter and into our third quarter, we aggressively implemented a number of significant cost savings measures. In November and December, we eliminated a total of 70 positions, almost exclusively from our restaurant support center. While decisions that directly impact the lives of team members and their families are very difficult, the changes were necessary to ensure that the company is operating more efficiently.

Not including certain transition costs related to the corporate restructuring, we expect the impact of these eliminations to reduce SG&A expense approximately $3.5 million in fiscal '14, and by approximately $7 million annually beginning in fiscal '15.

As custodians of the brand, we will continue to be focused on reducing cost in ways that will not negatively impact the guest experience. We have also identified cost savings opportunities in supply chain and procurement. Additionally, we are actively working on tools that will enable better hourly labor forecasting in the field and technology tools that will help us better control food waste. We plan to implement many of these initiatives during the remainder of our fiscal year and we believe these tools will help us improve our operating excellence and the guest experience while also lowering our costs.

Before we begin the discussion of results, I would like to take a few minutes to share my perspective over the last year and our repositioning strategy and then where we are in the brand repositioning process. In the mid-2000s the company began a significant shift in strategic direction, attempting to reposition the brand from -- to what management described as high-quality casual dining. Essentially, the intent was to elevate Ruby Tuesday from the Bar and Grill segment to a more polished casual concept.

Success, in large part, was dependent upon raising the execution and perceptions of the brand to a much higher-level and on attracting a more affluent guest base. The reality of this transformation effort was that the changes did not resonate with Ruby Tuesday core users, many of which viewed the new Ruby Tuesday as too expensive and too formal and were disappointed to see many of their menu -- favorite menu items go away. As a result, many loyal guests quickly stopped visiting as frequently or stopped visiting at all.

Additionally, the brand was not able to attract new more affluent polished casual diners. As a result, the brand experience sustained guest count and sales declines and a decline in brand relevance.

In retrospect, the attempt to differentiate Ruby Tuesday from the other large bar and grill competitors was the sound strategic decision. But the execution strayed too far from the equity and heritage to the brand and from what core casual dining guests want and expect from Ruby Tuesday. So a logical question might be why we believe the new current brand transformation strategy will be successful.

Our brand transformation strategy today is focused on reclaiming Ruby Tuesday's heritage as a casual, affordable, energetic and approachable brand, on delivering what guests want and expect from Ruby Tuesday. The development and implementation of our strategy is based on market opportunity and consumer research and informed by management experience and insights. We believe this positioning will make the brand more broadly appealing and appropriate for a wider variety of dining occasions.

As we leverage our investment in higher quality food in our Garden Bar and greater menu variety and a broader range of price points, we believe that this positioning allows us to draw from a broader audience and will make us relevant for more occasions. Over time, this should lead to increased frequency from current guests are also helping us attract new and lapsed users.

Over the course of the year, we built a strong management team whose decisions are driven by research and extensive industry experience in mainstream casual dining. We've spent a great deal of time and effort assessing our business and developing our strategy. Given the guest declines we've experienced over the past few years and the importance of value and affordability in casual dining, we determined that our most pressing need was to address value and variety with the value and variety perception of our brand.

We've took direct and aggressive steps to begin addressing these issues in mid-August with introduction of pretzel burgers and flatbreads, all priced under $10. This was the first major menu change in over 7 years. These new menu items generated immediate and significant guest trial and continue to drive strong preference. The success of these items confirmed our guest's desires for new, broadly appealing and affordable menu offerings.

That brings us to where we are today and I'd like to shift gears to spend a few minutes talking about our continued repositioning plans which are built around the 4 pillars of food, service, atmosphere and communication, each of which will work together to transform the brand and build our business.

Over the past year, we've focused our priorities and activities against a wide array of consumer touch points related to each of these 4 pillars. Let me start with the work we have underway on our menu. As I noted a moment ago, our first menu rollout in August was geared to address value and provide additional choices for -- choices under $10. This was followed up in mid-November with introduction of fresh and breaded southern style chicken tenders, which were featured in our range of menu items starting at price points as low as $7.99.

As we look out to the back half of the fiscal year, we remain intently focused on reengineering our core menu through both innovation and simplification and ensuring we have a wide range of price points and compelling value throughout our menu. As an example, some of you may have noticed that this week, we launched our latest promotion featuring 20 items under $10, which dimensionalizes the depth of affordable choices on our menu today.

Much work is being done in support of our 4 pillars and is touching all aspects of our business, and all being done under the strategic umbrella of repositioning Ruby Tuesday into a more affordable, casual and more energetic brand. While we've aggressively moved quickly in some areas such as the menu, we're also making progress on other fronts.

Last quarter, we spoke about some of the work underway in both service and atmosphere and Todd will provide an update on the work we are doing in operations, our service platform and other opportunities later in the call.

Before I turn the call over to Michael for a more detailed walk-through of our financial results, I want to leave you with a few thoughts. I believe it's important for all of us to have a common understanding of where we started and where we're going. Our management team, our team at the restaurant support center and our teams in the field are all aligned with 1 goal: improving traffic at Ruby Tuesday. It's our most important metric and as traffic improves, given our flow-through on incremental sales, there will be an immediate impact on the business.

Our teams in the field are excited and supportive about our strategy and they are first to see the positive guest response. There's great opportunity as we continue to transform Ruby Tuesday, making it more energetic, casual and affordable. We remain focused on opportunities that will result in enhanced services and in a more energetic atmosphere. Our priority is on growing same-restaurant guest counts and traffic over time which will drive increased shareholder value.

I'd like to thank each of our team members for the great work they're doing every day, and for the passion and commitment to the Ruby Tuesday brand. I'll now turn the call over to Michael for a more detailed financial review of the quarter,

Michael O. Moore

Thank you, J.J. Since we exited 3 non-core concepts in our last fiscal year, we have been treating their current and historical results as discontinued operations. All of my comments regarding financial results will pertain to continuing operations.

Total revenue for the quarter was $276.2 million, a decrease of $23.9 million from the prior year, primarily due to lower same restaurant sales at the Ruby Tuesday Concept which declined 7.8%. This decrease represented an improvement over the first quarter same-restaurant sales decline of 11.4%. This 7.8% decline was comprised of a 6.3% decrease in guest counts and a 1.5% decrease in net check. The 6.3% decline in guest counts compares to a 10.8% decline in first quarter. Our net check decrease of 1.5% compares to a 0.6% decrease in the first quarter as the second quarter was the first full quarter that our initial wave of new menu items was available at all locations.

Our sales trends improved during the second quarter, with September, same-restaurant sales down mid-double digits while October and November were down low mid-single digits. Both guest counts and net check also improved in the last 2 months of the quarter. For the quarter, we reported a net loss of $30.7 million compared to our prior year net loss of $4.2 million. Excluding special items, we realized a net loss of $25.9 million compared to a net loss of $2.9 million in the prior year.

The special items identified total $9.7 million of pretax and $8.8 million net of tax. On a pretax basis, these items include $5.5 million for closure and asset impairment expense primarily related to 30 restaurants that we are planning to close in third and fourth quarter. $2.5 million for severance and other costs related to our recent corporate restructuring; $1.3 million for deferred financing fees and debt prepayment penalties related to our new credit facility; and $0.4 million for executive transition cost.

Our profitability was also negatively impacted by $8.6 million in pretax closure and impairment charges, primarily noncash related to open and closed company-owned locations not identified as a special item. For the quarter, we reported a diluted loss per share of $0.58 compared to a diluted loss per share of $0.07 in the prior year. Excluding special items, earnings-per-share were a loss of $0.43 compared to a loss per share of $0.05 in the prior year.

The company did not open or close any new Ruby Tuesday restaurants during the quarter. Domestic and international franchisees opened 2 and closed 1 Ruby Tuesday restaurant. 1 company-owned Lime Fresh restaurant was opened and 1 was closed during the quarter. There were no Lime Fresh franchise openings or closings.

Restaurant-level operating margin was 12.5% for the quarter compared to 16.5% a year earlier or a decline of 400 basis points primarily due to a loss of leverage on lower sales. Cost of goods sold was 28.3% of sales versus 27.7% in the prior year, or unfavorable by 60 basis points. This increase was driven by the loss of leverage on lower sales and inflation in some commodities. Both labor cost and other restaurant operating cost increased as a percent of sales due to the loss of leverage on lower sales.

SG&A expenses were $37.0 million compared to $38.5 million last year, or a decrease of $1.5 million. Total marketing and advertising decreased $4.8 million versus last year while all other SG&A increased by $3.3 million. As J.J. mentioned earlier, our television marketing spend was front-loaded in fiscal 2013. We are spreading our television and other marketing dollars more evenly by quarter during fiscal '14 to provide for a more consistent communication strategy. For the remainder of the fiscal year, both media and coupon spend will be above year-ago levels.

As I mentioned earlier, all other SG&A increased by $3.3 million. The increase was primarily due to a charge of $2.5 million in the quarter for severance and other cost due to the corporate restructuring that we have identified as a special item. Interest expense of $6.6 million for the quarter compared to $6.8 million in the same quarter the prior year. Excluding debt prepayment penalties and the write off of deferred financing fees totaling $0.6 million, interest was $6.0 million or a 8 -- $0.8 million lower than last year due to a reduction in debt of $36 million from the prior year.

In the quarter, we reported a tax benefit of $1.9 million compared to a tax benefit of $6.7 million last year. Although pretax income was a loss of $36.6 million this year compared to a loss of $10.9 million last year, during the second quarter, we recorded an increase in our tax valuation allowance reserve of $14.6 million versus $0.2 million in last year's second quarter. Our tax valuation allowance reserve currently totals $45.4 million. We expect to eventually reverse this reserve when we generate sufficient levels of pretax income in the future.

Turning to the balance sheet. Our book debt was $273 million at the end of the second quarter compared to $309 million for the prior year quarter or a reduction of $36 million. We had $23.6 million in cash on our balance sheet at the end of the quarter compared to $25.6 million in the prior-year quarter.

We did not repurchase any bonds or stock and did not prepay any mortgage debt during the quarter. However, subsequent to quarter end, we've prepaid an additional $5 million for mortgage debt. Going forward, we will consider utilizing excess cash to continue to opportunistically reduce debt and lower our financial leverage.

On December 3, we closed on a new 4-year $50 million secured revolving credit facility with the option to increase the facility by up to $35 million. This facility was right-sized from our prior $200 million facility which will lower unused line fees by $600,000 annually. Also, the new facility provides for more flexible financial covenants. In conjunction with the new facility, the company recorded a pretax charge of $900,000 for the write-off of certain unamortized loan fees from the prior credit facility.

As announced in our first earnings release, we have undertaken a comprehensive review of the company's cost structure. Since last quarter, we have made good progress in reducing our cost structure. First, in the second quarter, we eliminated 50 positions at our restaurant support center and 3 field management positions.

Subsequent to quarter end, we eliminated another 17 positions at our restaurant support center. In total, we have eliminated 70 positions since the beginning of November. These reductions are expected to reduce SG&A expenses on an annual basis by $7 million starting in fiscal '15. The impact of the current fiscal year is expected to be $3.5 million reduction in SG&A expenses, excluding the transition-related cost.

We have also conducted a review of our restaurant Real Estate Portfolio and have made a decision to close 30 restaurants, 15 of which will be closed upon lease expiration. 27 of the restaurants are expected to close in third quarter with the remaining 3 expected to close on the fourth quarter. 8 of the locations to be closed our owned properties that will be marketed for sale following the closure of those restaurants.

In conjunction with the closing of these restaurants, we expect to incur a charge of $2 million in the third quarter for lease reserves and other closing cost, the majority of which will initially be non-cash. Additionally, we have identified initiatives to reduce cost of goods sold which are expected to save approximately $6 million annually beginning in fiscal '15. The impact of the second half of this year is expected to be $2 million in reduced cost of goods sold. We'll continue to work on identifying additional cost reductions and report on our progress in our third quarter earnings release.

Now moving on to our outlook for the remainder of the year. As noted on our earnings call last quarter, as a result of the strategic initiatives we are implementing in fiscal '14 to reposition our brand combined with the casual -- challenged casual dining environment, we are not providing earnings guidance for fiscal '14. There are however, certain items which we would like to highlight, including the following.

We anticipate same-restaurant sales to be down mid-single digits in the third quarter and down low single digits to flat in the fourth quarter. We do not anticipate recognizing a benefit from FICA Tip and Work Opportunity Tax Credits generated during fiscal '14. The historical income tax benefits of these credits has been $2.2 million to $2.4 million per quarter.

As was the case in our second quarter, further taxable losses in fiscal '14 would result in additional tax valuation allowances above historical levels as credits previously utilized in prior years would become limited due to carryback in fiscal '14's net operating loss to those years.

Capital expenditures are estimated to be $29 million to $33 million for the year, inclusive of approximately $5 million in capital initiatives to drive expense savings. For the full year, we expect to generate $12 million to $15 million in cash proceeds from the disposition of excess real estate. In the first half, we realized $8.4 million in cash proceeds from the sales of surplus real estate. I will now turn the call over to Todd to provide an update on our operations.

Todd A. Burrowes

Thank you, Michael, and good afternoon, everyone. In our quest to make Ruby Tuesday America's favorite restaurant, we've made solid progress over the past quarter with our disciplined approach to what we call the operational basics of the business: Delivering consistently great food, providing friendly and attentive service, all the while in a spotlessly clean environment.

Today, I'll provide an update on our progress and share some high-level thoughts on what our near-term focus areas are. One of the fundamental strategies that J.J. mentioned in his remarks is our focus on delivering high-quality food. In partnership with our culinary team, we've recently initiated multiple-line production and recipe simplifications which improve food quality while also reducing complexity in our kitchens.

In this process we've identified several other areas of simplification that we're currently prioritizing and plan to activate in the near future. And as we roll out new menu platforms, we'll continue director-led cascading meetings that not only master the new food items, but also to sharpen skills on existing menu items.

As the restaurateurs, we believe that one of our primary goals is to make real connections with every guest. Recently, we initiated the first phase of our guest service platform. The goal in this phase is to increase the frequency of managers and team members, engaging in a more personal way with guests in our dining rooms so that we can recognize them the next time they visit. As our guests are recognized and warmly welcomed, we believe this will build strong relationships that will encourage repeat visits and more frequent dining occasions, including family dinner, drinks with friends or lunch with coworkers.

Later this fiscal year, we'll roll out additional service enhancements that better enable our team members to ensure the proper pacing of the dining experience, most notably at lunch. As we build on our lunch day part, where we saw strength over the past quarter, we want to make sure that we exceed our guest expectations regarding speed of service.

We'll also be evolving our team member uniforms later this fiscal year. You may know that our current serving uniforms are black and appear formal. The new look will be more casual and approachable. We believe that when our team members are dressed in a more comfortable and relaxed way, this will allow them to be more natural and engaging with our guests.

In December, we initiated a Guest Satisfaction survey program and we're evaluating the initial results. We'll share more detail on our next call but our initial read is that our guests are pleased with our new direction in terms of menu, price, service and atmosphere. As I said earlier, we simplified some of our routines and processes that our restaurateurs use everyday which has helped to eliminate distractions from serving our guests.

Additionally, we'll be introducing refinements to the tools we use to manage our 2 biggest cost centers: hourly labor and cost of goods sold. On a daily basis, these new tools will enable managers to better staff our restaurants while producing the appropriate amount of fresh food for our guests. Our primary focus here is not cost reductions. It's to ensure that we are more consistently delivering a superior guest experience each and every day. We plan to activate these tools in the fourth quarter of this fiscal year and we expect to fully realize the benefits beginning in fiscal -- FY '15.

One of the enduring strength in Ruby Tuesday is the passion and pride that our team members and managers feel for our brand. Our success as a company depends upon their continued commitment and enthusiasm. Over the past 2 months, J.J. and I have traveled throughout the country and met with over 350 of our general managers. And over the course of the next 2 months we plan to visit the rest of the GM team. These interactions are critical for us to get valuable feedback and validates that the company is truly interested in their input and solidifies that we're all partners of the same vision.

We're proud that our retention at both the team member and manager ranks continues to outperform the industry average. The Star [ph] program that I mentioned last quarter, our internal program that recognizes and rewards great individual and team performances, continues to exceed our expectations.

And so, while we're pleased with our progress, we know that we have a long way to go to achieve our ultimate objective of being America's favorite restaurant. Our disciplined approach on the basics of the business is a strong foundation. We believe to continue our relentless focus will lead to growth in same-restaurant guest counts and sales over time, improve our financial results and create more value for our shareholders.

Before I turn the call back to J.J., I want to take a moment to thank all of our restaurateurs for the great job that they're doing every day to return Ruby Tuesday back to greatness.

And with that, I'll pass to call back to J.J.

James J. Buettgen

Thanks, Todd. As a management team, we're committed to our brand transformation and we believe we're on the right path to success. We're making progress in all aspects of our brand transformation and our guests are changing the way they use and perceive the Ruby Tuesday brand. We have an experienced and energized team and we are methodically testing and introducing new menu items. Our teams in the field are excited about our operations initiatives and service initiatives and we will maintain our focus and execution as we move through the remainder of the year. And with that, we'd like to open it up for your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Joe Buckley with Bank of America-Merrill Lynch.

Joseph T. Buckley - BofA Merrill Lynch, Research Division

A couple of questions on the 30 store closures. Would there be income EBITDA or operating income benefit from closing those 30 stores or those 30 stores operating at a loss?

James J. Buettgen

They are operating a loss but the income pickup will be less than $1 million annually.

Joseph T. Buckley - BofA Merrill Lynch, Research Division

Okay. So kind of -- at that spacing, what the operating loss for the 30 stores, say, compares 12 months?

James J. Buettgen

Yes, for all those stores, it's a -- it'll save us a little less than $1 million. There was more reasons to close those stores than just EBITDA. Many of those stores had very negative sales trends. They weren't necessarily losing a lot of EBITDA but they were trending very negatively. We also felt those stores were in markets where we didn't -- where we didn't have a good position in the market and we decided not to go forward.

Joseph T. Buckley - BofA Merrill Lynch, Research Division

Okay. And I think you said about half of them were lease expirations? Do you get a lot of lease expirations coming together all at once? Is there some better insight around that?

James J. Buettgen

A lot of lease expirations [indiscernible] towards the end of the year. Around the end of the calendar year.

Joseph T. Buckley - BofA Merrill Lynch, Research Division

Okay. Are there leases that you're renewing outside of these 15?

James J. Buettgen

Absolutely. Those are just ones that we've chosen not to go forward with.

Operator

Our next question comes from the line of Robert Derrington with Wunderlich Securities.

Robert M. Derrington - Wunderlich Securities Inc., Research Division

Couple of questions. J.J., if I could, obviously we've seen a lot of really harsh weather here in this quarter to date. You've given us a range of guidance for sales expectations. Can you give us any kind of a read where we are versus that guidance at this point in time?

James J. Buettgen

I guess, like saying we're making good progress. The earning or the sales guest count trends we saw in the second quarter compared to where we were in the fourth quarter give us a lot of encouragement. And as Michael noted, the beginning of the second quarter was actually weaker than our first quarter results which means we got a lot of pick up in October and November as the benefit in the impact of some of the changes we had made started to take hold. And that momentum has continued pretty well. So you started off by mentioning things like weather -- we can't really control that. We're just -- we're focused on the improvements we're making in the business and the improving trends we've seen so far and we feel good about our ability to keep making progress.

Robert M. Derrington - Wunderlich Securities Inc., Research Division

The follow-up to that, J.J., how do we -- how should we think about the promotional cadence for the balance of the year? A combination year-over-year? Coupons, discounts, TV advertising, can you give us some kind of color there?

James J. Buettgen

Certainly. I'd characterize it a couple of ways. First off, I would say that we feel great about the concepts in the news that we have to introduce in the second half of this year versus last. And the reason I say that is as we've talked about before, the mid-August rollout was the first of the new products that were introduced in conjunction with the current strategy. So for the back half of the year, we've got some items that we're pretty excited about that are on-strategy, more affordable and are resonating better with guests than what we've promoted last year. Secondly, as we've talked about our overall level of marketing spend, we have a much more balanced approach this year versus last. So we will have a higher and more consistent level of marketing support in the second half of this year versus last year. And then on top of that, there are couple of places where we're becoming more effective and efficient in the way we're developing our marketing. So as an example, the concepts that we plan to promote are scoring well because they're on-trend and on-strategy. We've been making progress in terms of our recent development of the advertising we've run has been scoring higher so we feel good about the direction we are on creatively. And then we've also learned a great deal in the past couple quarters about how to effectively compete from a promotional basis in terms of pricing and coupons, but do it in a way that's effective to our guests but efficient and cost-effective from us. So as you've seen recently, we're not running the really deep-discount offers anymore, the Buy-1-Get-1s, but at the same time, we've come back from some of the lower-value offers we ran in the first quarter and we're now at a place where we feel good about being able to deliver at or above last year level of coupon pressure, at a below-last-year level of coupon spend. So those things all give us confidence in the second half.

Robert M. Derrington - Wunderlich Securities Inc., Research Division

And one last question, if I may. When you look at the check as we move into the second half of the year, do you anticipate the menu pricing you've taken, will that be a contributor? Do you anticipate that, that will be offset by discounting or how should we think about that?

James J. Buettgen

I guess I would answer that they're both true in the sense that they will contribute but net-net, the pricing we've taken is less than the investment we've made into the check, so far. So we've touched on it briefly in my comments. The invest -- the new products that we've introduced so far are about a 3% discount versus where we were if we hadn't changed the menus. The pricing, by contrast, is about 1.9. So net-net, it's still a little bit negative. In between that, there has been more movement. As we mentioned at the -- in our first quarter call, when we introduced the pretzel burgers and the flatbreads at the end of first quarter, we had some pretty major preference swings to those items and our check went down more than we had planned. We've made some changes to the layout of the menu, to the merchandising, but in addition, the introduction of the chicken tenders, which touched a number of products across our menu, has helped spread some of that preference out. So our check has come back a little bit and it's more stable than it was in the early part of the -- latter part of the first quarter and the first part of this quarter.

Robert M. Derrington - Wunderlich Securities Inc., Research Division

Last question, and I apologize. J.J., when you -- it's been a very interesting 12 months since you've joined the company. What has probably been the biggest surprise that you've seen? Has it proven to be a tougher task turning the business than you anticipated?

James J. Buettgen

I think a couple of things were a little bit surprising. I think my perception of the stability of the business was greater until about halfway through our third quarter of last year than since. And the reason that's important is the pace we're making on repositioning was partially driven by -- it's influenced by how we were doing at that time. And things -- if you look at the last half of last year and the first quarter, we were pretty soft and there was a gap where business was weak but we weren't yet ready to launch the first wave of new products. So that caused a bit of a challenge for us, and we got surprised by that. So we're catching up on that. The other thing I would say is it's maybe a learning, more so, than a surprise. It's in hindsight, I'm not sure I have been as clear as I could have been with our investors about what we were planning to do versus what we had actually done. So in the second half of last year, as well as the first quarter of fiscal '14, I think there are a couple perceptions that were -- some of -- one of which was fair but the other wasn't necessarily correct. So the one that was fair is by the first quarter, for me it was the third quarter of my tenure with the company and people were expecting improvement, and we didn't get improvement in the first quarter and instead we got deterioration. And it's totally fair for anyone to look at that and say it's on my watch and we should be making an improvement and we're trying to fix that. But I think where the perception was a little off was people read that as the repositioning strategy was not working, when in fact, the repositioning strategy didn't start to get implemented until August. So I own the results, they are what they are and we're trying to make them better. But I am not sure I communicated as clearly as I could have the difference between what we were planning to do and what had actually hit the restaurants. So to me, that was -- it was a learning.

Operator

Our next question comes from the line of Jeff Farmer with Wells Fargo.

Jeffrey D. Farmer - Wells Fargo Securities, LLC, Research Division

Can you discuss the pros and cons in your mind you're pursuing some additional sale leaseback transactions in coming years?

James J. Buettgen

Yes. Let me take that. Obviously, the pros and cons is you can generate some cash and then you could re-purpose the cash. But if the cons are -- you have less flexibility with the real estate. When you own a piece of real estate like we do on 316 land and building, we are closing this quarter 8 owned properties. Where if we did a sale leaseback, we wouldn't have the flexibility. We'd typically be in a 15-year lease and we couldn't even easily make that choice. We can choose to close those facilities and convert and go and sell those facilities. So I think that's a negative. Secondly, it increases our rent expense, it increases SG&A and, therefore, reduces EBITDA. It also puts more pressure on our bank covenants because it adds rent, which is part of the fixed charge coverage ratio, and puts pressure on the covenants.

Jeffrey D. Farmer - Wells Fargo Securities, LLC, Research Division

Okay. And then somewhat related, have you guys explored the opportunity to -- I know it's been a long time since this has happened and you've actually acquired some of the franchise restaurants, but in terms of sort of turning the table and potentially looking at the opportunity to re-franchise any of these company-owned restaurants, if you're able to stabilize sales and margins, is that a discussion you guys have?

James J. Buettgen

This is J.J., I'll take that one. We haven't had that discussion. The way we viewed it is one of the things that our company-owned restaurants and our team, as a whole, share with our franchise partners is that we've got work to do to reposition the brand and build same-restaurant guest counts and sales trends for all of us. And until we do that, you could argue that our main priority is get the business, overall, turned around and the more we can do to improve the business, overall, the better opportunity that presents, not only for us but for franchise partners to want to be involved and to want to invest more capital in the business. So we've been focused on the transformation and repositioning effort, overall, and engaging our franchise partners in helping us with some of their ideas, but also making sure that we're doing everything we can to best support them. And other decisions about how much to franchise, where to franchise, we see as kind of secondary initiatives right now.

Jeffrey D. Farmer - Wells Fargo Securities, LLC, Research Division

And then just last question, out of just curiosity, realizing there's not a lot of units out there, but what type of same-store sales are you seeing from Lime Fresh, either company or franchise?

Todd A. Burrowes

We have not historically disclosed same restaurant sales for Lime Fresh.

Operator

Our next question comes from the line of Alton Stump with Northcoast Research.

Alton K. Stump - Northcoast Research

Just a quick question on the comp sale front, a pretty dramatic improvement over the last 2 months, of fiscal 2Q. Obviously, you mentioned new products starting to take hold. Is there anything else in your view that drove that improvement over the last 2 months of the quarter?

James J. Buettgen

Certainly, there is -- there are a number of things that we feel drove it. And in fairness, some are a little bit harder to pinpoint to a specific period of time than others. But in general, while it's taken us a while, and again, the first kind of meaningful product change, as well as advertising change that was visible throughout our system and to consumers was the introduction of the pretzel burgers and the flatbreads and the new advertising that supported it in August.

With that said, we've done a lot of work over the last year and over the past couple quarters on a number of fronts, anything from training initiatives and service initiatives with our teams to improve the level of guest experience. We've reprogrammed the music in the restaurants to bring up the energy level for our guests. So we've been doing a lot of things to help improve the business. That was probably the most meaningful and visible.

Also, we've done a lot of work, as I touched on briefly, to make better, more effective use of our marketing and promotional efforts, and we're getting better at driving some guest counts and returns from that. And then on top of that, I would say, if you just take last year -- fiscal '13 and compare it to fiscal '14, in fiscal '13, if you looked at both -- either the marketing spend level, as well as the comp trends in sales and guest counts, both started out pretty high during the year and fell as we went through the year. So our best comps and our most aggressive spend were in the first quarter and the early portion of the second quarter and then started to smooth out or soften later.

So the way we look at it is we're learning more about our business, we're improving our offering, we're improving the effectiveness of our marketing vehicles as we're going against progressively weaker comps and lower spending from last year. So I think that's part of what's caused the plus or minus versus our own last year.

And I would say that the changes that we've made to the experience we're delivering in the restaurant, as well as the offerings and the marketing efforts, is what helped us over the quarter, start to close the gap to the industry or at least lessen our gap to the industry. We're still not all the way too bright but we're much closer to the industry benchmarks than we were, say, in the first quarter.

Alton K. Stump - Northcoast Research

I actually have a quick follow-up to that, and I think you already touched on it. But I'm not sure if you recall what the 3-month or what separate-month comps were in 2Q last year, but was there a major fall off in comps that made the comps easier over the last 2 quarters or over the last 2 months of the most recent quarter?

James J. Buettgen

No. I forget the last year second quarter was...

Michael O. Moore

That was 0.3 positive.

James J. Buettgen

Was 0.3 positive. Directionally, it was relatively consistent except for -- like a lot of retailers when you got post-Thanksgiving. But that's late in the quarter and didn't impact much of the second quarter. The change versus last year was much more about our trends this year than the direction of the trends within the quarter last year.

Alton K. Stump - Northcoast Research

And then there's just -- I have one last question and I'll jump back in the queue. Obviously, there was some news flow out that you guys responded to publicly. Recently, I think you referenced to a buyer of assets. It's not a nit-pick on the word usage, but I think if I recall your response was that you didn't originate the rumor. Is there anything to add to that or any more color as to if you're looking at any strategic alternatives or not. Obviously, you can't talk about if there are any that are in process or not, is there anything you can give us as to how real those rumors, whether or not they originated from you, if they are indeed real or not?

James J. Buettgen

No. There's no further comments with our -- I think we stand by our release as is.

Operator

Our next question comes from the line of Keith Siegner with UBS.

Keith Siegner - UBS Investment Bank, Research Division

J.J., thanks for the walk-through about kind of what the strategy was in the mid-2000 and how that's changed. And to kind of go back to that for a second, that old strategy had kind of a tagline that was "We want to have a $20 casual dining experience for $15." You talked about how maybe that was a little too expensive and too formal. If the brand now is a casual, affordable energetic brand and approachable brand, what's the right dollar check average for that? And how does that compare to where the current average check is?

James J. Buettgen

I'll answer it in a couple different ways. Part of the challenge we think that -- with the former strategy is you said -- I guess I talked about it as a $20-experience. And what was the price point you have given me?

Keith Siegner - UBS Investment Bank, Research Division

For $15.

James J. Buettgen

I think part of the challenge what -- there are a couple of challenges with it. One of which was it was defined a number of different ways whether it was to the outside world or to our team. It wasn't very specific. We weren't real clear about where we were trying to go and how that was going to be executed. And then if you think about it, the idea of trying to move a brand towards polished casual, even if you thought you could execute it when you had over 700 locations in less than half the country, there's just not a market that big.

There's a reason there aren't more than about 200 to 250 of any one polished casual brand. So I think there was some, I guess, some aspirations that were, I guess, more positive than the reality at the market, so there was some challenge there. In our case, our current -- our check, going forward, would be directionally lower than where we are, but it's not so much about taking down prices as much as it is about rebuilding the middle and bottom thirds of our menu.

So one of the things that happened over time, partially related to the strategy that started in 2000 and partially in response to declines that have happened in guest count since then, was through a number of menu additions and deletions, as well as positioning on the menu and things that we would promote, we deemphasized to remove the bottom portion of our menu.

So if you were to go back prior to 2000, it's not so much about absolute price points as it is about range of offerings. We had a wide range of sandwiches and things like that. We featured a lot of draft beer and things that were at the bottom of the menu. And then, for a while, swung to the other end where a lot of the sandwiches went away, the burgers got deemphasized, the beer went to the back of the menu and instead we were featuring a wide range of wines by the glass, all of which kind of downplayed the parts of the menu that we were more affordable or more casual and approachable.

So as we move forward, I would expect our check to either decline slightly or not increase as much as you've seen some others in our category do. And it will happen for a variety of reasons. You'll see some of our preference swing to items like we've introduced recently, whether that's the burgers, the flatbreads or the chicken tenders, which, for the most part, are anywhere from a low of $7.99 to as much as maybe $10.49.

But then, it's not like all of the occasions are swinging there. Some of those dollars are being made up with appetizers and beverages. So in some cases, people have an absolute lower check. In other cases, they'll get more for their dollar. And that we're hoping will happen as well is some people will still want to come in and have a more expensive dinner at some point, but they'll see that we brought back some more affordable items that will start to show up as either increased dinner frequency or increased frequency at lunch.

And as what's mentioned in our comments, lunch is one of the day parts where we're starting to see more traction. And I think that's because the current -- the former strategy and the change in menu put us at pretty much of a disadvantage in that lunch because most of our menu, essentially, looked like a dinner menu. So as we started to add a broader range of items, we think frequency will improve.

Operator

Our next question comes from the line of Bryan Elliott with Raymond James.

Bryan C. Elliott - Raymond James & Associates, Inc., Research Division

Just a couple of quick clarifications, really. You talked about, Mike, the -- I think I got this right, the assets sold to date at the end of your prepared remarks. I think you said $8.4 million in the -- is that the to date number? And then for the full year or first quarter...

Michael O. Moore

First quarter and second quarter.

Bryan C. Elliott - Raymond James & Associates, Inc., Research Division

Okay. And then for the full year?

Michael O. Moore

In the first quarter we sold $5.4 million and then in -- excuse me, in the first quarter, we sold $2.5 million and only sold $5.8 million in Q2, for a total of $8.4 million for the half.

Bryan C. Elliott - Raymond James & Associates, Inc., Research Division

And your projection and expectation, really, in the guidance of $12.15 million for the full year that includes this $8.4 million, right ?

Michael O. Moore

That includes the $8.4 million.

Bryan C. Elliott - Raymond James & Associates, Inc., Research Division

Yes. All right. And how many sites actually is the underlying assumption? How many actual sites is that?

Michael O. Moore

I think it was about 6 land parcels and 4 buildings with land.

Bryan C. Elliott - Raymond James & Associates, Inc., Research Division

And -- I'm sorry, and that's year-to-date?

Michael O. Moore

Yes, that's year-to-date. That's for the $8.4 million.

Bryan C. Elliott - Raymond James & Associates, Inc., Research Division

Okay. And then do you have -- could you give us even rounded numbers, cash flow from ops and CapEx year-to-date? I missed those.

Michael O. Moore

I have to take that offline, the CapEx, year-to-date.

Bryan C. Elliott - Raymond James & Associates, Inc., Research Division

Do you have a cash-flow-from-ops number, year-to-date, handy?

Michael O. Moore

No. I do know the CapEx, year-to-date, is $17.7 million. I don't have the cash flow handy, but we can speak later.

Operator

Our next question comes from the line of Peter Saleh with Telsey Advisory Group.

Peter Saleh - Telsey Advisory Group LLC

Great. So, Michael, just wanted to ask about the -- can you give us an update on the total owned pieces of land and maybe just a breakout in terms of what's secured on the debt and what's still available?

Michael O. Moore

Well, in total, we have 316 owned building and land and 207 are unencumbered. In our most recent credit facility, we pledged 47, which includes the encumbered.

Peter Saleh - Telsey Advisory Group LLC

Okay. And then in terms of CapEx, just following up on that question, it seems like CapEx has come down about $10 million over the past couple quarters in terms of your expectations for the year. Can you just give us an update on where that reduction is coming from and what your maintenance CapEx is per store?

Michael O. Moore

Well, if you -- we gave guidance for this year of $29 million to $31 million -- $33-million range. So call it $31 million. And how that would break down is about $23 million in maintenance capital; $5 million in capital design to generate some expense savings, which I mentioned; and $3 million in growth capital, primarily due to the 4 Lime Freshes that we've opened this year, so far.

Peter Saleh - Telsey Advisory Group LLC

Okay. Great. And then any update on commodity inflation for the balance of the year? What you guys are expecting on the commodity side?

Michael O. Moore

Starting in January, we think inflation will be less than 1%, 0.5% to 1%.

Operator

[Operator Instructions] Our next question comes from the line of Rosemary Sisson with Lazard.

Rosemary Sisson

I wanted to just follow-up for a second on the land parcels. Those numbers, Michael, are they post the mortgage pay-down that you also did post the end of the quarter?

Michael O. Moore

When I was talking about unencumbered?

Rosemary Sisson

Yes.

Michael O. Moore

Yes, they're posts. They're post, post purchase [indiscernible]. But...

Rosemary Sisson

Okay. And then the properties that you sold that generated the $2.5 million and the $5.8 million, you said 6 of them were land only. What were those properties? They didn't have restaurants on them or are -- was it...

Michael O. Moore

No, they were parcels we've either purchased at some point in the past and we chose not to build a restaurant on them. We land bank them at some point in time and we've done our recent review of all of our land parcels and determined that these parcels will not go forward.

Rosemary Sisson

Okay. All right. And then I wanted to check on your basket for buying back bonds. I know that those -- the last bank agreement you were limited to 15 per fiscal year, and this new bank agreement is 20. Is that -- do you still have, for this fiscal year, do you still have room of 5 to 7 or so? Am I calculating it right?

Michael O. Moore

So far this year, we bought back $12.9 million of bonds. So the balance of that we would have available. In our prior facility, we had a basket of $15 million and that was increased to $20 million.

Rosemary Sisson

Right. Okay. And then also, I wanted to check with you just in terms of the add-backs and whatnot back in this quarter. I just wanted to make sure that I was getting EBITDA correct. Could you tell me what you guys calculate EBITDA for the quarter to be and versus last year's number?

Michael O. Moore

Are you talking about the senior notes' EBITDA?

Rosemary Sisson

Yes.

Michael O. Moore

Yes, that's -- TTM is $76 million.

Rosemary Sisson

$76 million, okay. And then one sort of overall question that I have, and I'm not even sure how to exactly put this, but I'm curious about the impact of the menu items on different -- on stores in a different location, possibly, or different types of demographics or different size of stores. Is there any -- have you noticed any difference in terms of the way that certain groups of stores react to the new menu?

James J. Buettgen

No. Rosemary, this is J.J. We have not seen much difference regionally or by restaurant. The response to the new items has been pretty consistent and very solid. I think, overall, given the lack of new product news, frankly, that we had, had over the prior couple years and the fact that we had not introduced any items that were kind of more casual and more affordable in quite some time. The response to them has been strong across the system and then continues to be strong. So they've been pretty well-received overall.

Rosemary Sisson

Okay. Is your sense that any customers that are coming into the stores that haven't been in a while, are they being driven in by, can you tell, by TV advertising or the couponing, still, or what -- how were you getting people back, so far?

James J. Buettgen

We're -- it's a little hard to differentiate between the 2 because they tend to go in conjunction. We could obviously read the redemptions, but it's hard to tell at times if people have redeemed the coupon if they didn't see the new products on television, but we're seeing some response to both. The other thing that seems to be happening is with -- in some of our markets, it looks like that the new products might be driving a little bit of increased frequency, because we're seeing the build more over time.

I think as people come to kind of learn the new products and understand that there's new news and there's more affordability, we're starting to see more momentum. And that has started to show up probably more quickly at lunch than it has at dinner. And I think that's probably where the affordability piece has made the biggest difference to our guests in those lunch occasions.

Rosemary Sisson

And how can you measure whether you're getting the repeat visits from people, whether it's on a monthly basis? If you're decreasing -- I assume that part of your strategy here is to get people to visit the restaurant more frequently than they have been. How do you measure that?

James J. Buettgen

It's -- in the short term, it's a little harder to measure and it tends to be a little more subjective. We hear from our -- we spend a lot of time talking to our restaurateurs who are pretty familiar with their guests and they give a lot of feedback about what they like and what they don't like and they can tell who starts to show up a little bit more often.

On a longer-term basis, we do, do periodic brand tracker studies that give us a sense of how the guest base is changing. And we also have the ability, through some of our Guest Satisfaction tools, to track frequency. But so far, it's been more on the subjective side, what we're hearing and seeing from our partners in the field.

Rosemary Sisson

Okay. And then one more sort of just a question about how your service -- you were talking of this more about personal connection with the customer and whatnot to try to get people to come back in. Are you rewarding the store management based on the production of the store or how do you kind of build in the incentives to make that all happen?

Todd A. Burrowes

Yes, it's a good question. What we started with is recognizing, rewarding our team members and having the management team take the lead in that with our directors.

James J. Buettgen

There's a couple things that we're doing. Part of it -- before it even gets to how we reward them for it, part of it is Todd and his team have done a lot of work, changing the nature of the service from instead of having the typical casual dining list of the 10 things you need to say each time someone greets you at a table, really opening them up to use their own personality and talk a little bit more about the exciting -- or the items that they like best on the menu and to treat the guest in a more of a personal approach and then starting to, to Todd's point, recognize the frontline team members first for helping build the connections with the guests and just kind of driving more natural interaction versus managing them based upon a list of things that they need to check off at every table.

Rosemary Sisson

Okay. All right. Great. And, Michael, when would you put up the -- be able to put up the bridge for EBITDA to get to that $76 million of last-12-months number? Put up on your website. I just wondered when it might be available so I can see the detail.

James J. Buettgen

Yes. That will probably be tomorrow, Rosemary.

Operator

Our next question comes from the line of David Hargreaves of Sterne Agee.

David Hargreaves - Sterne Agee & Leach Inc., Research Division

Can you give us an idea, pro forma sales for the sales that you're doing, how many units you have that would still be EBITDA-negative? Are there any now?

Michael O. Moore

Yes, there'd certainly still be a handful of EBITDA-negative restaurants.

David Hargreaves - Sterne Agee & Leach Inc., Research Division

But not a lot.

Michael O. Moore

No.

David Hargreaves - Sterne Agee & Leach Inc., Research Division

And could you give us an idea what your annual lease expense will look like, pro forma, for the changes?

Michael O. Moore

We'll report that out in the Q. I'll then refer you to that. We'll have one more question we'll take here and then we'll end the call.

David Hargreaves - Sterne Agee & Leach Inc., Research Division

Is there a place you'd recommend visiting in the Northeast that would be a good representation of the changes you've made if we want to go check out one of your units?

James J. Buettgen

The menu items that we've put in place are in the whole system, so depending upon where you live in the Northeast, if you happen to live near the city, I think Times Square is probably the best one. But let us know where you are and we can give you a list of locations to try. But the products are available systemwide.

David Hargreaves - Sterne Agee & Leach Inc., Research Division

I just wanted to reiterate, if there's a time that works for you, we'd like to bring down a group of investors to meet with you folks and check out things firsthand at some point.

Michael O. Moore

Sure. Why don't you reach out to me and we can coordinate something.

And operator, we'd like to take -- we'll have time for one more question.

Operator

Certainly. Our next question comes from the line of Bryan Hunt with Wells Fargo Securities.

Bryan C. Hunt - Wells Fargo Securities, LLC, Research Division

When I -- when you look at the restaurants you're closing, historically, I think you've been selling units at about $2 million a pop on sale leasebacks and closed units. Considering that these sound like they are in a little bit less desirable places, I mean, is it closer to a $1-million level more appropriate for land and building where there's not an operating location?

James J. Buettgen

Well, yes, we did the sale leaseback at $2.2 million. We've said the 316 land and building locations would probably have a market value of $500 million to $600 million, which would be, at per unit value of 0.16 to 0.19, but I'd say locations we're closing would be probably more on the $1 million to $1.4 million or $1.5 million.

Bryan C. Hunt - Wells Fargo Securities, LLC, Research Division

Okay. Great. And then my next question is when -- you lowered guidance, I guess, for fourth quarter, if I look at last quarter's transcript, you all were anticipating fourth quarter same-store sales to be up, and now you're looking at them to be flat to down slightly. Can you talk about what's the -- what's causing your changing sales tempo anticipation?

Michael O. Moore

Well, let me first clarify, it's not much of a change. We said we would expect to have positive comps in the fourth quarter and now we're projecting down low-single digits to flat in the fourth quarter.

Todd A. Burrowes

And part of it is just kind of trying to be prudent between the progress we're seeing, as well as the fact that we have a lot of work to do. And it's still a pretty choppy environment out there, we're just trying to be prudent about what the guidance we're giving. We're still making great progress, and to Michael's point, still pretty close to where we started and planning on making sequential improvement throughout the rest of the year.

James J. Buettgen

Thank you very much for the question, and I'd like to thank all of you again for joining us this evening. We really appreciate your time and interest, and we look forward to continuing to speak again in April, and to continue to update you on the progress there that we're making. Thank you again for your support. Good evening.

Michael O. Moore

Thank you.

Operator

Thank you. This concludes today's teleconference. You may disconnect your lines this time, and thank you for your participation.

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