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Bravo Brio Restaurant Group, Inc (NASDAQ:BBRG)

Q4 2013 Earnings Conference Call

February 24, 2014 4:30 PM ET

Executives

Jim O'Connor - Chief Financial Officer, Treasurer, Secretary

Saed Mohseni - Chief Executive Officer, President

Brian O’Malley - Chief Operating Officer

Analysts

J.R. Bizzell - Stephens Incorporated

Josh Long - Piper Jaffray

Chris O'Cull - KeyBanc

Jay Donnelly - Wells Fargo

Peter Saleh - Telsey Advisory Group

Michael Halen - Sidoti

Steve Anderson - Miller Tabak

Andy Barish - Jefferies

Operator

Please standby. Good day, ladies and gentlemen. Thank you for standing by, and welcome to the Bravo Brio Restaurant Group's Third (sic) Fourth Quarter 2013 and End of Year Earnings Conference Call. At this time all participants have been placed in a listen-only mode. And the lines will be opened for your questions following the presentation. Please note that this conference call is being recorded today, February 24, 2014.

On the call, we have Saed Mohseni, President and Chief Executive Officer; Jim O'Connor, Chief Financial Officer; and Brian O’Malley, Chief Operating Officer.

Now I would like to turn the conference over to Jim O'Connor. Please go ahead.

Jim O'Connor

Good afternoon, everyone, and thanks for joining us today. At the market close, we issued our earnings release for our fourth quarter and full year 2013 financial results, which can be also found in the Investor Relations section of our corporate website at www.bbrg.com.

Please be aware that part of our discussion today will include forward-looking statements. These forward-looking statements are not guarantees of future performance and one should not place undue reliance upon them. Forward-looking statements are also subject to numerous risks and uncertainties that can cause actual results to differ materially from what we expect. We refer you to our recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition. And like all of our earnings and other press releases, webcasts and presentations, these filings can be accessed through our corporate website.

I’d like now to turn the call over to Saed Mohseni, our President and Chief Executive Officer, for some opening remarks. Saed?

Saed Mohseni

Thank you, Jim, and good afternoon everyone and thank you for joining us today.

With a strong performance in December, we were able to deliver fourth quarter pro forma adjusted EPS that was in the upper end of our implied guidance that drove our success here was an exceptionally strong banquet business, which not only positively impact comp sales through an average check, but also had a better flow through to an operation margins.

Of course, banquets have always been equivalent top-line drivers in the fourth quarter. But in 2013, comp banquet sales were up impressive 17% over the prior year period. We made a cautious decision to go after banquet sales in the fourth quarter with two primary reasons. First, banquet represents guaranteed revenue and commands a higher average check and profit margin in al carte dining. Second, banquet provides an effective means to promote our brands to guest who may have never dinned with us before. Still as pleased as we are with our banquet success, the discontent with the headwinds from the fourth quarter had affected overall sales in guest counts particularly at BRAVO!.

First, we believe that our aspirational, more sensitive guests were either enticed by competitive discounting or simply stayed home in a phase of economic uncertainties. Second, we rolled over inauguration of our loyalty program in the fourth quarter of 2012, which made guest counts comparison tougher. You may recall that as part of launching loyalty program, we provide a welcome gift to our new loyalty members to use in our restaurant which translated into higher guest counts in the fourth quarter of 2012 and the first half of 2013.

As always we have and will strive to be the best local Italian restaurant in every market, and we believe that the quality of our food, exceptional service, ambiance, and great value still sets us apart within the upscale affordable segment. [indiscernible] by being disciplined and focused on the guest experience, our brand will continue to grow and thrive over the long-term. To promote our brands, we will continue to engage our current and potential guests at the local market level by being part of their community and through the use of social media as well as more traditional marketing channels.

We’re also especially grateful when our current guests share their brand enthusiasm by purchasing gift cards for friends and family. Gift card sales volume increased almost 5% on a comp 13 week basis, 2012. We’re hopeful that by welcoming new friends into our restaurant, we will extend our relationship beyond initial trial and convert them into a life long guest. For 2014, we will be executing on several fronts that Brian O’Malley will detail shortly. We will rely more on social media and local grass root marketing to educate our current guests about our brand as well as widen our appeal to broader demographic.

Also, we will be opening six new restaurants this year compared to eight in 2013, so we can focus on other areas that can increase long-term value for our shareholders.

So, now let me turn the call over to Jim, who will provide financial update; Brian will then discuss some important initiatives, and then I will wrap up with some thoughts on development and capital allocation before we take your question. Jim?

Jim O'Connor

Thanks Saed. Now, let’s delve into our fourth quarter results for the 13-week period ended December 29, 2013. Note that the fourth quarter of 2012 was a 14-week period with the last week being a holiday week, which historically has been one of our highest volume and most profitable weeks of the year. Adjusted diluted earnings per share related to week-53 in fiscal 2012 was approximately $0.07 per share. Please keep this in mind in reviewing our year-over-year financial performance.

Total revenues decreased $5.9 million or 5.2% to $106.1 million from $112 million. The decline in our top line was the consequence of the aforementioned additional calendar week in 2012, and lower comparable sales was partially offset by 58 additional net operating weeks exclusive of the additional calendar week in 2012. Net operating weeks were provided by eight restaurant openings in 2013 and two restaurant openings in the fourth quarter of 2012 that were partially offset by three restaurant closures in 2013.

Consolidated comparable sales decreased 1.4% on the 13-week basis and consistent of a 4.2% decrease in guest counts partially offset by a 2.8% increase in average check. As Saed mentioned, we’re enjoying a very healthy banquet business at both BRAVO! and BRIO with comparable banquet sales up 17% in the fourth quarter. This provided an important boost to our December comparable sales and average check metrics as well as enabled us to reach the upper-end of our implied adjusted EPS outlook we offered on our third quarter conference call. There were 93 restaurants in our comparable sales base at year end and they consisted of 45 BRAVO!s and 48 BRIOs.

Restaurant revenues at BRAVO! decreased 11% $39.9 million compared to $44.8 million in the prior year period. Comparable sales decreased 1.3% as guest counts decline of 7.1% was only partially offset by 5.8% increase in average check. Average weekly sales for comparable BRAVO! restaurants were $65,500. Restaurants revenues at BRIO decreased 1.4% to $65.6 million compared to $66.5 million in the prior year period. Comparable sales decreased 1.5% due to softer guest counts, which were down 1.7% and offset by 0.2% increase in average check.

Average weekly sales for comparable BRIO restaurants were $88,300. Note that 20% of our BRIO restaurants are not included in the comparable base because of its higher rate of development than BRAVO! in the recent past.

The guest response to our Lighter Side of Tuscany and Lighter Side of Rome menus remain high with dinner guest counts still tracking at over 19% at BRIO and 15% at BRAVO!. Also the impact of our Light menu mix on average checks, particularly at BRIO, was also mitigated by the introduction of separate lighter side menus at lunch and at dinner.

Now let's review our expenses in greater detail. Cost of sales as a percentage of revenue improved 100 basis points to 25.4% from 26.4% as we benefited from a favorable change in menu mix along with a menu price increase. These more than offset higher commodity costs principally for poultry and seafood. As a percentage of revenue, labor costs rose 60 basis points to 33.6% from 33%, operating cost rose 100 basis points to 15.5% from 14.5%, and occupancy cost rose 120 basis points to 7.1%. The explanation for all these variances were similar, sales deleveraging associated with the decrease in comparable restaurant sales along with not having the benefit of the additional calendar week.

Taken these four expense categories together, total restaurant operating cost decreased $2.8 million or 3.2% to $86.6 million from $89.4 million in the same period last year. Our overall restaurant level operating profit decreased $3 million to $19.5 million from $22.5 million, while restaurant level margins fell to 170 basis points to 18.4% compared to 20.1% in the year ago period.

General and administrative expenses decreased 16.2% to $5.5 million compared to $6.6 million in the same period last year. This decrease was driven by the additional week in the prior year quarter, lower incentive compensation, legal and professional costs. As a percentage of revenue, G&A decreased to 5.2% from 5.9% in the fourth quarter of last year. Preopening costs, which were driven by the timing and number of restaurants opened in the given period were $1.1 million compared to $0.9 million in the year-ago period.

In the fourth quarter of 2013, we opened 4 restaurants whereas in the fourth quarter of last year, we opened 2 restaurants and had 2 locations under construction.

Non-cash impairment charges were $14.2 million in the fourth quarter of 2013 related to 5 restaurants compared to $4.2 million in the fourth quarter of 2012 which were 2 restaurants.

Depreciation and amortization expenses held steady at $5.2 million in both periods but rose 3 basis points to 4.9% of revenue due to the decrease in comparable restaurant sales as well as the impact of the extra week in fiscal 2012. And interest expense declined to $273,000 from $345,000 because of lower average outstanding debt. Outstanding debt at quarter end was $15.7 million compared to $23.1 million in the year-ago period, a decrease of $7.4 million. We also had a income tax benefit of $4 million compared to income tax expense of $1 million in the fourth quarter of last year.

GAAP net loss was $2.7 million or $0.14 per diluted share compared to the GAAP net income of $4.4 million or $0.22 per diluted share in the same period last year. However, on an as adjusted basis net income was $6.1 million or $0.30 per diluted share compared to an as adjusted net income of $7.3 million or $0.35 per diluted share.

I will refer you to the reconciliation table in the earnings press release, which demonstrates how we arrived at the as adjusted non-GAAP net income from GAAP net income.

And now I would like to provide our annual expectations for 2014, which like 2013 is a 52-week period. As most of you know first hand, we are experiencing one of our harshest winters in recent memory. The severe weather had been particularly challenging in our core Midwest and Mid-Atlantic markets.

Currently, on a quarter to-date basis our comparable sales have decreased approximately 5%. Our quarter to-date financial results have been factored into our – annual 2014 guidance and should be taken into consideration as you update your financial models particularly for the first quarter. We certainly expect credits to improve somewhat with warmer temperatures when spring finally arrives.

So given where we are today, our annual revenues up between $420 million and $430 million and that includes an estimated range from comparable sales of minus 2 to positive 1% as well as revenue contributions from six new restaurants consisting of two new BRIOs and four new BRAVO!s. Note that this is down from our previous range of six to seven restaurant openings.

In addition, we closed an underperforming location in January, which is also factored into our annual revenue range. New BRIOs are being modeled at an average unit volume of 85,000 per week, while new BRAVO!s are being modeled at 65,000 per week. These assumptions both reflect the historical median volumes at both brands and are unchanged from the prior year.

Preopening cost will be between $3.5 million and $4 million while net capital expenditures are projected between $22 million and $24 million. And similar with last year, CapEx will be in funded entirely through operating cash flows.

Looking into other costs, we see commodity inflation of 2.5% to 3.5% driven mostly by increases in shrimp and salmon and this is unchanged from the earlier guidance we provided in November. Our labor lines will be also modestly pressured due to minimum wage increases in key states such as Ohio and Florida and higher health care cost.

Our annual diluted earnings per share range was between $0.78 and $0.84 which assumes an estimated diluted with share count of 20.4 million shares and an estimated annual effective tax rate of approximately 28%.

Finally, as you already know, our Board of Directors has approved the $20 million share repurchase program that expires at the end of fiscal 2014. In the fourth quarter, we repurchased approximately 133,000 shares at a cost of $2.1 million, it’s the fourth quarter of 2012 when the program began, we repurchased approximately 633,000 shares at a cost of $9.4 million.

Our share repurchase program is consistent with our focus on increasing long-term shareholder value by both investing in our business as well as returning capital to our shareholders through share repurchases.

Now, I would like to turn the call over to Brian O’Malley, our Chief Operating Officer to discuss operations after which Saed will wrap up our formal remarks. Brian?

Brian O’Malley

Thanks Jim, and good afternoon. The Lighter Side menus continue to be one of the most successful initiatives for both brands. This year we are working on expanding the programs add more variety. We will also be incorporating the light menus as part of our core menu versus a single pay standout as we strive to be healthy choice in Italian dining segment, while continuing to execute our popular traditional Italian favorites.

In the first quarter, we rolled out our new Happy Hour Bar program between the hours of 3:30 and 6:30 pm called Bar BRIOSO for BRIO and BRAVO! Hours for BRAVO!. These programs replaced our [indiscernible] programs. The price points will be chaired between $4 and $6 and will include several new food offerings such as full course sliders, Crispy Eggplant Fries and Beef Carpaccio along with the variety of specialty cocktails, beer and wine designed to drive guest trial and frequency.

Our marketing campaign features life style and product imagery, social and digital media and local store marketing initiatives designed to reach a broader audience. Guest continued to share a very positive feedback about the quality of food, the variety of the menu offerings and the overall value provided by these new programs.

In the second quarter this year, we will be launching our new weekend brunch program for both BRAVO and BRIO. Our goal is to capture an increasingly important day part that we believe has an opportunity to grow long-term. Our new brunch offerings will be added to our current weekend lunch menu to ensure that our guest have these options readily available as well as the ability to chose from their long time favorites.

New brunch items include Sicilian Omelet, Mcmuffin Stuffed French Toast and a Roasted Turkey and Sweet Potato Hash just to name a few. The price points will be competitive and the quality and quantity of food match that of the current menu.

In addition, we have expanded our BRAVO! Viva Vino in our BRIO Uncork Your Thursday bar programs. These programs along with $5 Martini Wednesdays, a part of the BAR BRIOSO and BRAVO! Hours programs.

New merchandising and external marketing support materials to take both product and lifestyle imagery which capture the quality and liveliness of the actual restaurant experience.

With respect to marketing, we continue the focus first on a specific local opportunities within our communities schools, churches, local businesses and neighborhood involvement are important to our core guest. Social media will continue to play a large role in all of our marketing efforts locally and nationally to ensure that we are reaching not only our current base but our future base as well. All of these channels are essential to communicating with our guests who view us as their local Italian restaurant of choice.

The expansion of our loyalty program continues. We are currently testing a new face of the program called Eat Repeat Reward which initially has been very well received by our members. Our goal is to continue to provide greater benefits for our members to ensure that their expectations are exceeded each and every day.

With that said, I would like to turn the call over to Saed, who will wrap up our formal comments. Saed?

Saed Mohseni

Thank you, Brian. Here are just a few concluding thoughts before taking your question. Our two great brands are unwavering in their commitments to providing great food and great service and our team members know how to go to the extra miles to create highly satisfied guests. We’re proud of the culture that we have fostered at BBRG and I thank each of our team members for their hard work and dedication.

Brian articulated some of the initiatives we have in place or will be implementing this year to drive sales. But we are cautious on what 2014 holds for casual dining and exceptionally cold weather that we have been content with during the first quarter as storm may not make things any easier.

Just to put the other issue in context almost 60% of our restaurants are located in our Midwest and North Mid-Atlantic region. This concentration has resulted in disproportionate impact in our business compared to other restaurant companies with strong presence places like California, Texas and Florida.

That being said in places like Florida or Las Vegas we’re seeing positive trends as guest counts are not been impacted by snow or rigid temperature. In fact, this is one of the reason why we are continuing to build and market like Florida. With this in mind, we view our annual outlook as realistic as to what we can recently achieve this year from a revenue growth and earnings standpoint and should our forecast change, we will provide an update as we move through 2014.

Now lets turn our attention to development, currently we operate 46 BRAVO!s and 60 BRIOs as well as one BRIO been operated under management agreement. In the fourth quarter, we opened a BRIO on Long Island New York, Rancho Cucamonga in California, Princeton, New Jersey and Chestnut Hill, Massachusetts. Overall, we are pleased with performance of our 2013 class thus far.

For 2014, our expansion plan consist of six restaurants, two BRIOs and four BRAVO!s. Our development in food, the second BRIO location set in California, BRIO and BRAVO! expansion both costal Florida including Sarasota, Jupiter and Plantation as well as a BRAVO! in Ann Arbor Michigan and Charlotte, North Carolina. Our expansion plans are skewed to the back half of the year with one BRAVO! opening in Q2, one BRIO in Q3 and three BRAVO! and one BRIO opening in Q4.

In summary, our plan over near term is to ensure that our best position to grow our market share improve our comp sales, continue to build our restaurant base and continue to build our restaurant and continue to use our excess cash in shareholder [indiscernible]. So with that said I thank each one of you for your time and interest in BBRG. Operator, would you please open the line for questions?

Question-and-Answer Session

Operator

Absolutely. (Operator Instructions) We’ll now go to Will Slabaugh from Stephens Incorporated.

J.R. Bizzell - Stephens Incorporated

Yes, this is J.R. Bizzell here on for Will. Thanks for taking my questions. Guys I was just wondering, could you kind of talk us through the progression throughout the quarter, it seems like you accelerated a bit at least from the outside looking here, and I was just wondering if you could clarify that month to month?

Brian O’Malley

Sure. In the fourth quarter, I think we did have a linear improvement from both Q3 but its certainly a linear improvement in terms of the sales for the quarter with December being the strongest month of the three given that the banquet business which both Saed and I both commented on.

J.R. Bizzell - Stephens Incorporated

Great. And then switching to that quarter-to-date number that you speak of, down negative 5 and that exposure like you said on an extremely rough weather you’ve experienced in those regions, just wonder if you quantified what percentage of that is weather and kind of some detail around that if you don’t mind?

Brian O’Malley

Yes. I think the best way to say it, I will give you a data point here is that we had more than 100 restaurant days where we had either a closure or a day part closure in a restaurant due to weather, and just with that alone, that accounted for about half of our decline in comp sales from where we are today. So it was, the weather had a meaningful impact on where we are to-date right now.

J.R. Bizzell - Stephens Incorporated

Great. Guys thanks.

Brian O’Malley

Thank you.

Operator

We’ll now go to Nicole Miller Regan from Piper Jaffray.

Josh Long - Piper Jaffray

Great. Thanks guys. This is Josh on for Nicole. Had a couple of quick clarifications. Jim could you provide the sales by brand during the quarter, I know you went through the average weekly sales but the actual sales dollars for each brand?

Jim O'Connor

Sure no problem. So for BRAVO! it’s $39.879 million and then for BRIO $65.560 million.

Josh Long - Piper Jaffray

Great. Thank you. And so then when we talk about those quarter-to-date trends, are those fairly balanced across both brands, I know you talked about the general geographic exposure, but was that weather impact really, we’re seeing kind of half and half across both of those brands or is it just proportionate to one over the other?

Saed Mohseni

Josh, this is Saed. BRAVO! has a larger concentration of restaurants in Mid West and therefore BRAVO! been impacted greater than BRIO. As I mentioned, BRIO has some restaurants in Florida and frankly they’re doing extremely well. So that combined number is -- substantial part that is BRAVO!.

Josh Long - Piper Jaffray

Got it. Thank you for the clarification. And so then on the development side, has this weather early on in the year -- has that pushed any of the, caused any of the plan development to slip through the year thus far and should we expect any sort of kind of movement as we go through the year, I know its always hard to tell, but just curious if anything had really been impacted as of yet or if that the timelines really more or less stayed on track?

Saed Mohseni

No. I think the timeline that we outlined, we should be able to meet that timeline. As I mentioned, we’re opening a BRAVO! in Q2 and BRIO in Q3, and then the remaining projects opening in the later part of the year. As you know, most of our projects are either part of another project where a landlord needs to deliver site to us. So it’s really driven by those factors, weather in this case would not [affect it], based on the fact that where we are building restaurants.

Josh Long - Piper Jaffray

Great. That’s very helpful. And then my last one for Brian, could you talk about the new bar program and how that kind of – have you wrapped up your learnings from the lighter fare menus or may be even your previous bar lights program into may be the menu mix or how this new product was engineered. I know there was -- may be a surprising amount of preference for some of these newer items that you’ve rolled out, just curious how you’re taken those learnings and rolled it into this new initiative that we’ll see this year?

Brian O’Malley

Well, I think obviously the light menu has had a nice large impact on the company overall, and we have taken some of that and applied that through the bar program that we’re currently rolling out and what we’ve really tried to do with the bar program is really try to re-image the whole package. We’ve introduced price tiers not only for food, but with specialty cocktails, beer, and wine.

And more importantly, what we’re really doing is, mostly in the past this has been promoted internally, and now what we’re doing is we’re using social media and using some other outlets to get the message out. So the whole image in point of sales that we’ve worked with has changed completely.

Josh Long - Piper Jaffray

Great. Thank you Brian.

Brian O’Malley

Thanks Josh.

Jim O'Connor

Thanks Josh.

Operator

Our next question comes from Chris O'Cull from KeyBanc.

Chris O'Cull - KeyBanc

Thanks. Good afternoon guys.

Jim O'Connor

Hey, Chris.

Brian O’Malley

Hey Chris.

Chris O'Cull - KeyBanc

Saed, how did you drive the banquet sales so much year-over-year?

Saed Mohseni

As we mentioned before Chris, banquet has always been a focus of ours three years ago that became the initiative, and we mentioned that we expect to see banquets to grow sometimes in double digits. In this case, we were preplanning calling prior year event coordinators who have booked events with us, reaching out to local businesses who actually will hold holiday parties and realizing the fact that whether it might be a factor in Midwest, we feel that banquets could have been a guaranteed business and therefore became a corporate focus throughout the country and ended up in a good growth and a safe vehicle for us.

Chris O'Cull - KeyBanc

You mentioned something that was interesting, you said banquet sales could be a good brand building opportunity, I assume that means that there could be some people who attend the banquet events that may not be a regular user of the brand, how did you capitalize maybe on new trials during the holidays from these sales?

Saed Mohseni

Well, in some cases and in some parties, we actually gave $10 gift card for the people who attended a banquet event. And they would be redeeming it in the first quarter of 2014, so in other words, there were definitely some people who were invited to a party, who might have never been to BRIO or a BRAVO! and we feel that that’s a good enticement to bring them back.

Chris O'Cull - KeyBanc

Excellent. So there was a bounce back. Is there – can you quantify maybe what you expect to get from that in the first quarter or first half of the year, I mean do you expect to – maybe seen any redemptions out of those bounce backs?

Saed Mohseni

We obtained some but obviously, first quarter yet-to-date, the numbers skewed substantially because of the weather. So it’s not a meaningful impact yet. But again, we expect to see banquets continue to grow. And again, they don’t make a large segment of our business but in the fourth quarter they sure were a major contributor to our success.

Chris O'Cull - KeyBanc

Great. Thanks Saed.

Jim O'Connor

Thanks Chris.

Operator

We will now go to Jay Donnelly from Wells Fargo.

Jay Donnelly - Wells Fargo

Hi. This is Jay Donnelly on for Jeff Farmer. Thanks for taking my questions. I think you have been able to reduce your labor costs – on a dollar cost [indiscernible] week basis over the last few several quarters. Is that a function of staffing to your traffic levels or you have been able to drive incremental cost efficiencies?

Brian O’Malley

I think what we really try to do is, is play on the history of where the traffic has come, we have been very fortunate and one of the things over the course of the fourth quarter is actually with the drive in the banquet business, it does allow you to do a larger revenue dollar with your people who had the opportunity to get some benefits there. And as you look at the business and cost, we have also streamlined and continue to look at the number of managers, chef who takes half-way at the restaurant and the staffing that it takes to – from an hours perspective internally.

Jim O'Connor

I think one thing you noted about our P&L and I think Brian and his team has done a great job of managing the cost of running our business. So even if we had slightly negative, we would been able to improve on the cost of goods and as you pointed out even the labor delivered deleveraging would minimize because of managing it.

Jay Donnelly - Wells Fargo

Okay. Thank you. And then, another question on the last call you noted that approximately 20% of the BRIO comp-based was being impacted by competitive encroachment, I guess switching back over the last two or three years, how long did the same-store sales headwind persisted?

Jim O'Connor

I think for us 2013, we think it peaked. I think you always have restaurants coming in that in and out of developments. When we talked about 2013, it was just unusual the number of restaurants in the big Type A Malls that we have with some of our most highest volume restaurants that were impacted.

So the good news is, I think we are – on a few of those restaurants that we saw a heavy impact in the mid part of the year, couple of them have turned positive in Q4 and while most of the other ones are still getting impacted. We know at one point in time, here we are going to comp over that and that headwind will be mitigated.

Jay Donnelly - Wells Fargo

Okay. Thank you very much.

Jim O'Connor

You are welcome.

Operator

We will now move to Peter Saleh from Telsey Advisory Group.

Peter Saleh - Telsey Advisory Group

Great. Thanks. Just a question on the brunch menu that’s been launched this spring, are you going to be opening stores, the restaurants earlier or are you opening the same time or how should we thinking about this new menu helping us, I guess impact the sales?

Brian O’Malley

Our hours of operations will remain the same. The main goal here for us – especially the four new menu and the new push for us. So the chef has done a great job of putting together a whole core menu with omelets and some of the other items that I have mentioned. And what we have done now, it’s used to be part of just a card that we hand out. We now made it a focus. It’s actually on the menu that we hand out to the guest so every guests gets an opportunity to see it, we’ve retrained our staff front and back of the house and just made it a complete priority operationally to be successful because we believe this is the day part that we’d not put a lot of time and effort into it in the past, in that early morning weekend business that we know that we can get part of going forward.

Peter Saleh - Telsey Advisory Group

Thanks. And then just on the gift card sales were up about 5%, any thoughts on how many I guess outlets that you’re in today or how many more door you can into with your gift card sales, try and drive some of that in 2014?

Brian O’Malley

Well, I think our points of distribution have certainly expanded us we have expanded. So I think we will continue to get into more points and we will -- as we go up to places for example like Southern California, we opened our first restaurant in Los Angeles. Since these networks like Black Hawks you kind of track where you are before they add you as a point of distribution certainly as we continue to develop and enter into new markets our points will increase -- point of distribution will increase as we just get bigger.

Saed Mohseni

But I think it’s important to note, the majority of gift cards still slow at our restaurant both through our website. So while Black Hawk is just another channel for us to sell our gift cards majority of our gift cards are sold through BBRG family of restaurants.

Peter Saleh - Telsey Advisory Group

Great. Thank you very much.

Jim O'Connor

Thank you.

Operator

Our next question comes from Michael Halen from Sidoti.

Michael Halen - Sidoti

Good afternoon. Can you give any color on the loyalty program enhancements that we mentioned in the release?

Saed Mohseni

Yes. We are testing right now in markets, the Eat Repeat Reward where if you come and dine with is X amount of times, we have the opportunity to get up to $10 off on your fifth visit. And so its one of those – its an incremental fees that we’re adding in – not in replacement but also in addition to the surprising delight where the guest that are dining with us especially at lunch core business is in once or twice a month -- few times a month we have that opportunity to get them in for an incremental visit.

So far based on initial feedback and some surveys that we’ve done in those markets the feedback has been overwhelmingly positive something that the guests are very excited about.

Michael Halen - Sidoti

All right. Great. Are you willing to talk about how some of your locations like Florida some locations that aren’t being impacted negatively by the weather how they are holding up here in the first quarter?

Saed Mohseni

As I mentioned, I mean Florida we’ve got a positive comp sales for the state, so it has been a great season for Florida, and frankly one that we would expect to see it continue to grow.

Michael Halen - Sidoti

That’s a good news. Where did Florida shake out last year in terms of the comp?

Brian O’Malley

We were down a little bit in Florida just modestly and for that in Q1 of last year, but certainly we are seeing the flip side of the harsh weather on the East Coast and the Midwest. We are seeing that better for the sales. Again as Saed said, we are also seeing in the Southwest, we don’t have a lot of penetration out there but the restaurants that we do have out there are comping positive.

Michael Halen - Sidoti

Okay. Great. I guess the last one – I’m sorry, go ahead Saed.

Saed Mohseni

Well, I was going to say any part of the country that is not getting the perfect temperature of Florida and Nevada, Louisiana, Arizona, these are all, we have seen positive comps.

Michael Halen - Sidoti

Okay. Thanks. And I guess the last one, if you want to talk about downtime day at all, how many of your units were impacted by that weather here in the first quarter?

Saed Mohseni

I’m not – I mean, we had a good Valentine. We certainly could have added much better one but overall we were pleased with Valentine we ended up. It was a Friday versus a Thursday last day. So there is that shift alone that impacts the overall week of the business. But weather has been a factor throughout the year so far. So overall Valentine was a good made [ph] for us.

Michael Halen - Sidoti

All right. Great. Thanks for your time and congrats on a good fourth quarter.

Saed Mohseni

Thank you.

Operator

We will now move to Steve Anderson from Miller Tabak.

Steve Anderson - Miller Tabak

Yes. Good afternoon. Just a quick question for modeling purposes, what was the one underperforming restaurant closed, is it BRAVO! or BRIO?

Brian O’Malley

It was a BRAVO!.

Steve Anderson - Miller Tabak

Okay. Thank you.

Brian O’Malley

You are welcome.

Operator

(Operator Instructions)

We will now go to Andy Barish from Jefferies.

Andy Barish - Jefferies

Hey, guys. Little bit more color I guess on the impairment in the fourth quarter and is that closure that happened in the first quarter one of the – I assume one of the units that was written down?

Brian O’Malley

Yes. In terms of the closure that was written down previously.

Saed Mohseni

Andy, these were some restaurants that date back some of the older restaurants as well as, they all continue to operate. But these were the ones that from accounting standpoint staying out of the cash flow to justify their investment over the new term. So that it is – both combination of BRIO and a BRAVO!.

Andy Barish - Jefferies

Okay. And all my other questions have been asked. Thanks.

Saed Mohseni

Thank you, Andy.

Jim O'Connor

Thanks Andy.

Operator

We will now take a follow up question from Nicole Miller Regan from Piper Jaffray.

Josh Long - Piper Jaffray

Hi, guys. One more. Instead of calendar just we should be worried about this year as some of your peers have either on Easter or Linton Shift and just curious about something that we will be discussing with your brands?

Brian O’Malley

I think Easter shift to Q2 this year and that that will have – little bit of an impact on Q1, because Easter was the last day of the quarter, last year. Now, that is probably the most significant shift we have for the year.

Josh Long - Piper Jaffray

Okay, great. And then on the inflation guidance that you provided or outlook rather, have you been able to contract any portion of your basket right now or is that an opportunity or just where do we stand on the overall contracting opportunity?

Brian O’Malley

On annual basis right now, we are a little bit over 40% contracted in terms of what we can be contracted. Again, we are always very opportunistic in terms of the getting the [indiscernible] contracts. But, for us this year, when you kind of cut through it all, we are looking at shrimp being a pretty big driver as well as a little bit of salmon inflation. The rest of it is pretty benign from a commodity view point.

Josh Long - Piper Jaffray

Great. That’s helpful. And then last one from me, you have done a really good job on managing the corporate expenses per usual, but just thinking about this year as you have been able to pay back some of your development and then also focus on a lot of the restaurant level cost.

From a SG&A perspective, is that something we should see, you are expecting more or less inline fiscal 2014 with fiscal 2013, any sort of moving parts that we should be aware of?

Jim O'Connor

As you mentioned I mean G&A has always been well-managed with this organization, so from a budgeting purposes, I could continue to budget same percentages as of 2013 -- for 2014.

Josh Long - Piper Jaffray

Very helpful. Thank you.

Jim O'Connor

Thank you.

Brian O’Malley

Thanks Josh.

Operator

And it appears there are no further questions. I will turn the conference back over to you Saed for any additional or closing remarks.

Saed Mohseni

Well, thank you everybody for joining us today. Should you have any question, myself Brian O’Malley, Jim O'Connor would be available throughout today and tomorrow. And again, thank you so much for your interest in BBRG. Have a wonderful evening.

Operator

This concludes today’s presentation. Thank you for your participation.

Jim O'Connor

Thank you.

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