Ruby Tuesday, Inc. (RT) Q4 2015 Earnings Call July 23, 2015 5:00 PM ET
Executives
Jill Golder - Chief Financial Officer, Treasurer & Executive VP
James J. Buettgen - Chairman, President & Chief Executive Officer
Todd Burrowes - President, Ruby Tuesday Concept and Chief Operations Officer
Analysts
Brittany Whitman - Longbow Research
Imran Ali - Wells Fargo Securities LLC
Neil Herman - Ticonderoga Securities LLC
Operator
Greetings, and welcome to the Ruby Tuesday Fourth Quarter and Fiscal Year 2015 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded.
I would now turn the conference over to your host, Jill Golder, EVP and CFO. Thank you. Please begin.
Jill Golder - Chief Financial Officer, Treasurer & Executive VP
Thank you, Laurel. And welcome, everyone, to the Ruby Tuesday fourth quarter fiscal-year 2015 earnings call, which is being broadcast live over the Internet. Our fourth quarter earnings were released today after the market closed. A copy of our 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 first quarter fiscal-year 2016 earnings after the market close on October 8.
Before we begin our remarks, I would like to remind everyone that there are likely to be forward-looking statements in our comments today and I refer you to the note regarding forward-looking information in our press release and most recently filed Form 10-Q. Throughout this conference call, we will be presenting non-GAAP financial measures, including adjusted EBITDA, adjusted net income from continuing operations and adjusted EPS. This information is not calculated in accordance with U.S. GAAP and maybe calculated differently than other companies' similar non-GAAP information. Reconciliations of our non-GAAP financial measures to their most directly comparable GAAP measure appear in our earnings release and on our website.
On our call today are JJ Buettgen, Ruby Tuesday's Chairman, President and Chief Executive Officer; and Todd Burrowes, Ruby Tuesday's Concept President and Chief Operations Officer. Following our prepared remarks, we will open the call for questions.
I'll now turn the call over to JJ.
James J. Buettgen - Chairman, President & Chief Executive Officer
Thank you, Jill. Welcome, everyone. We appreciate you joining us this evening. As you saw in our press release, we reported fourth quarter diluted earnings per share from continuing operations of $0.07 compared to a diluted loss per share from continuing operations of $0.01 in the same quarter of the prior year.
On an adjusted basis we reported adjusted EPS in the fourth quarter of $0.12 versus $0.06 in the same quarter last year. We are pleased with the headway we made in our brand transformation in business model initiatives in fiscal 2015. Our progress is measurable and compelling, as indicated by the stabilization of the top-line and improved bottom line results.
Same restaurant sales were nearly flat in fiscal 2015, down just 0.5%. This is a significant trend improvement from the 5.3% same-restaurant sales decline in fiscal 2014. Same-restaurant guest counts fell 1.4%, again a substantial trend improvement from last year's decline of 4.8%. Traffic for the year was flat to the Knapp Track industry benchmark.
On the year, our operating performance also reflects continued business model improvements. We implemented foundational business tools and right-sized our cost structure, which in turn drove restaurant-level margin expansion and reduced SG&A. The impact of these efforts is highlighted by a 52% increase in adjusted EBITDA to $80.6 million this year.
The flow-through resulted in a stronger balance sheet that is reflected in improved liquidity and credit metrics. Jill will provide specifics around our business model successes in FY 2015 and additional measures in FY 2016 that we expect will further improve restaurant-level margins and profitability.
While we made notable progress during fiscal 2015, we had hoped to outperform the casual dining industry on the top line. The sector has experienced a sustained decline in traffic, and while our guest count results for the fiscal year were in line with the category and a trend line improvement from our recent past, the goal for our guest count is to exceed the casual dining sector.
We remain confident that our guest facing strategies are the right ones that will in time lead to market share gains. As we have shared in the past, these strategies were specifically designed to strengthen the brand by enhancing the guest experience through improved food quality, providing memorable service in an energetic and approachable atmosphere, and effectively communicating these changes through our marketing communications programs. These elements have become our four pillars of menu, service, atmosphere and communication. I would like to briefly touch on our accomplishments in fiscal 2015 and our plans for fiscal 2016 around these four pillars, which Todd will share in greater detail later in the call.
In terms of our menu, we continue to innovate and improve our core offerings, which has resulted in improved guest satisfaction ratings on food taste and food quality. Menu innovation is an ongoing process and our menu strategy includes regular reviews to eliminate or improve current menu items that do not meet our guest expectations. We have multiple menu products in test across the system that impact over 50% of our menu preference. Of course, not all of these items will make it to the core menu, but we have a number of new or improved items that will expand or build our culinary offerings. And we are excited about our 2016 menu innovation pipeline.
The second pillar of our brand transformation is service, and our restaurant teams are at the heart of this initiative. To further support our operations teams in delivering a consistently great guest experience every day, during fiscal 2015 we focused on improved training and staffing efficiency, which were enabled by the rollout of our Memorable Service Training platform and our labor management system. As a result of these efforts, we improved guest satisfaction scores on server attentiveness and pace of meal while driving higher add-on sales, which also contributed to check growth.
Our third pillar is centered on the restaurant atmosphere and making the Ruby Tuesday in-restaurant experience more energetic, approachable, and fun. In fiscal 2016, initiatives aimed at improving the in-restaurant atmosphere will include investing in our Garden Bar, which offers a unique point of differentiation, and implementing a remodeled testing program. These are visible changes that our guest will see and experience, and these investment dollars will impact a significant part of our restaurant base in fiscal 2016.
The fourth pillar of our brand transformation is our marketing and communication initiatives. You may have seen our press release on Tuesday announcing Dave Skena as our new Chief Marketing Officer. We're excited to have Dave join the Ruby Tuesday team. He's a seasoned and accomplished executive with over 20 years of marketing experience, most recently serving as Vice President of Premium and Value Brands at PepsiCo. We look forward to his leadership and contributions to our marketing strategy.
As we look at our communication and marketing plans for 2016, we expect to focus our effort in four areas. First, utilizing television advertising to communicate new product innovations and the great everyday value and variety available at Ruby Tuesday. Second, growing our presence on social media platforms. Third, increasing both membership and engagement with our So Connected database. And fourth, implementing new targeted local marketing programs aimed at families with kids. These vehicles include a range of new outlets to reach existing and new audiences in an efficient and cost-effective manner.
As we look ahead to fiscal 2016, we will invest in new and more initiatives to drive guest traffic and improve the guest experience, and continue our disciplined approach growing restaurant-level margins and bottom line performance.
I'd like to conclude this section by sharing some thoughts on what we believe is a meaningful and positive cultural shift within our organization, one that's based upon our core values, including teamwork, work ethic and passion for the business. We began fiscal 2016 with a General Manager conference. We're honored to host every single one of our 658 general managers at our restaurant support center home base here in Maryville, Tennessee. This was long overdue. The last Ruby Tuesday General Manager Conference was more than a decade ago. These meetings provided the ideal form for our leadership team to engage with our operations leaders in restaurant tours, celebrate their achievements and share our vision for the future.
That also gave our Restaurant Support Center team a chance to connect with our operators and gain alignment on our key business priorities as we focus on delivering improved results. When you think about the magnitude of change that our operating partners have implemented over the past couple of years, it's not only impressive, but it's a testament to their commitment to the brand. They were truly agents of change, as we rolled out a steady stream of initiatives over the last two years, from new products and menu launches to physical upgrades to our restaurant interiors to new labor and inventory management tools, new training platforms and management labor guidelines.
This was a substantial amount of change in a short time, but our team has stepped up and accepted the challenge. And now they are beginning to see the effect of their efforts within their restaurants. As a result, they have a heightened sense of passion and pride and an even greater commitment to executing our collective strategies. They have genuinely embraced our vision of being one team with one dream and our goal of becoming America's favorite restaurant.
Their enthusiasm is exciting and motivating and was infectious amongst our management team. It gives us even more confidence, the confidence in our teams, the confidence in their commitment to delivering exceptional guest experiences, and improving our operating performance, which we believe will ultimately drive profitable same-restaurant sales and guest count growth, creating value for our shareholders.
With that, I'd like to hand it over to Todd for an update on our brand transformation initiatives in the fourth quarter and some additional highlights of our efforts underway for fiscal 2016.
Todd Burrowes - President, Ruby Tuesday Concept and Chief Operations Officer
Thanks, JJ, and good evening, everyone. We realized that consumers have many choices for their dining dollars. And to accomplish our goal of driving profitable same-restaurant sales growth, we must consistently provide a competitively superior guest experience. This begins with our menu and continues with memorable service in an inviting and energetic atmosphere.
Today I'll share our progress as well as our near-term plans on the four pillars of our brand transformation strategy; menu, service, atmosphere, and communication. Regarding our menu strategies, we spoke in our last call about the creation of a cross-functional team that we call our kitchen cabinet. This team is actively engaged and accelerating our progress on food quality with a clear focus in three areas; product improvement, product innovation and operation simplifications.
Regarding product innovation, we've introduced multiple menu enhancements in the fourth quarter. We successfully launched three new rib dishes as part of our American rib festival promotion. We also introduced the Living Large cocktails and Make It A Mega draft beer.
In addition, we rolled out two new sharable desserts and two broadly appealing kids' menu items. Together, these items increased average check and were well received by our guests. Also, as a result of the team's efforts, we rolled out a feature menu on June 8, followed by a new core menu on June 29. The feature menu included our Grill House Steak platform, featuring three new flavorable steak options; Cajun Rib Eye, Asiago Peppercorn Strip and Bella Mushroom Sirloin. These items have garnered high preference and strong guest satisfaction scores.
The new core menu also includes our fresh, hand-cut in-house [audio skip] (13:30), and the addition of a grilled salmon Caesar salad designed to leverage this guest favorite. We also extended the dessert line with the introduction of our Strawberry Shortcake Sundae. We continue to make progress on operation simplification and plan to introduce more product innovation throughout fiscal 2016, and we will provide an update on the next call.
Now let's turn to the second pillar of our brand transformation strategy, service. As you may recall, we activated our memorable service platform in the second half of fiscal 2015. In the fourth quarter, these service initiatives have positively contributed to check growth while stimulating improvement and the key guest attributes of server attentiveness, pace of meal and taste of food.
And as JJ mentioned, we recently held our general manager leadership series. One of the key messages was that focus, drive, success. Our restaurant teams are highly focused to accelerate the improvement we're seeing on these key attributes. Our managers are devoting more time to personally connecting the guests and we have empowered our team members to own delivering memorable service experiences that create lifelong loyal guests.
Also, some of you have asked about our approach to tabletop technology. Today, we're pleased to announce that we signed an agreement with Ziosk to test tablets beginning in the second quarter. We'll have more information on the test results later this year.
Regarding the third pillar of our brand transformation strategy, atmosphere, our efforts center around making the restaurant experience more fun, inviting and energetic. A research shows that the prior strategy to move the brand to a more upscale positioning resulted in a sizable loss of a core segment of our guest base, families and especially families with younger children.
So, in an effort to re-establish Ruby Tuesday as more fun, engaging and welcoming for families, earlier this month, we launched a national rollout of Tuesday is kids' night, featuring a kids eat free offer that includes a redesign menu, free balloons and kid cups with bendable straws. This is part of our strategic plan to regain the core family demographic while connecting in a meaningful way that surprises and delights our guests.
Additionally, we're thrilled that our Garden Bar made Parent Magazine's list of the top 20 best kids' menu dishes in 2015. This year we'll also be tackling other projects that will enhance our restaurant atmosphere, including Garden Bar enhancements and a remodel program. Regarding our Garden Bar, we want to leverage this core brand equity by testing guest-facing equipment and signage that will have a more modern look and feel.
We also plan on exploring our Garden Bar menu offer to optimize sales and guest satisfaction. On the last call, we shared that we've completed the conceptual work on our remodel program. We're currently developing a remodel testing plan and expect to begin this in the first half of fiscal 2016. This testing plan involves identifying suitable restaurants for test, developing three prototypes at varying investment levels and determining hurdle rates and other financial and guest satisfaction metrics to gauge success in return on investment.
Thus far, we've identified a handful of sites and continued to refine the design. Upon completion of this design package, we expect to have a testing period of at least six months, after which we'll assess results and determine our go-forward strategy.
The final pillar, communication, is focused on attracting and engaging current and future guests in a way that converts every guest to a loyal Ruby Tuesday guest. Specifically in the fourth quarter, we engaged a social media partner to help build out our capabilities and guest engagement via Facebook, Twitter, Instagram, directory sites and social media ad placement.
At the beginning of the first quarter of fiscal 2016, we began search engine marketing and an online video plan that will work in concert with our television advertising. We were on air with television advertising for seven weeks during the fourth quarter with our American Rib Festival as compared to 10 weeks of television advertising in the same quarter last year. As the media was turned on, our guest counts improved throughout the quarter.
We began the first quarter with an on-air promotion of our grill house stakes, which started July 7. This compares to our Mini Masterpieces promotion last year. We continue to refine and test the boundaries of our marketing spend, seeking the ideal balance between effectiveness and efficiencies. We'll continue to fine-tune our efforts in fiscal 2016.
So, to sum it up, while we've made a lot of progress over the last year, we know that our work continues. I want to take a moment to thank all of the members of our Ruby Tuesday family, both in the support center and our restaurants, for their continued commitment, passion and focus, as we seek to reach our big goal of becoming America's favorite restaurant.
With that, I'll turn it over to Jill to update you on our fourth quarter and fiscal year performance and outlook for fiscal 2016.
Jill Golder - Chief Financial Officer, Treasurer & Executive VP
Thank you, Todd. As a reminder, my comments regarding financial performance pertain to continuing operations noted in today's release. For the quarter, total revenue was $296.8 million, a decrease of $10.5 million versus the prior year. This decline was primarily due to operating 10 net fewer company-owned Ruby Tuesday restaurants since the fourth quarter of last year and a 1.7% decline in same-restaurant sales.
The decline in same-restaurant sales resulted from a 4.6% decrease in same-restaurant guest counts, partially offset by a 2.9% increase in net check. Same-restaurant guest counts were 280 basis points below the Knapp Track industry benchmark for the quarter, while check growth was in line with the industry. Both same-restaurant sales and guest count performance improved throughout the quarter and into the first quarter of fiscal 2016.
Now, turning to earnings. For the quarter, we reported net income of $4.3 million compared to a prior-year net loss of $881,000. This improvement was primarily due to a reduction in SG&A spending and lower impairment and income tax expense. On an adjusted basis, we more than doubled our net income to $7.2 million this quarter versus $3.5 million last year.
Restaurant-level margins of 18.5% were equal to last year. Cost of goods sold increased to 27.4% of sales from 27.1% last year. This was primarily due to inflationary cost pressures, as we wrapped (21:17) on cost savings initiatives implemented in the back half of fiscal 2014. Payroll and related costs were 32.8% of sales, an 80 basis point improvement over last year, primarily resulting from lower health insurance and workers' compensation costs, along with savings from our new management labor guideline. Other restaurant operating costs were 21.3% of sales compared to 20.8% last year. The increase resulted from sales deleverage and higher repair and maintenance expenses, which we had deferred from earlier in the year.
SG&A expenses totaled $28.2 million, a decrease of $1.6 million from last year. Marketing was $2.3 million lower due to reduced media and production spending. G&A expense was $700,000 more than last year, resulting from higher bonus expense. We recorded closure and impairment charges of $4 million this quarter, substantially all of which were non-cash. We ended the quarter with 736 Ruby Tuesday restaurants, 658 of which are company owned, and 26 Lime Fresh Mexican Grills, 19 of which are company owned.
Interest expense was $6 million for the quarter compared to $5.6 million in the prior-year quarter. The increase is due to fees related to certain mortgage pre-payment. In the quarter, we recorded a tax expense of $1.4 million compared to a tax expense of $3.2 million last year. This includes non-cash charges related to our valuation allowance for deferred tax assets of $1.9 million in fiscal year 2015, and $3.7 million in fiscal year 2014.
Our tax valuation allowance, which provides a reserve against our employment tax credit, state net operating loss and other deferred tax assets, is $62.8 million. We expect to eventually recover a substantial amount of the deferred tax assets to the extent the company generates sufficient levels of income.
For the quarter, on a GAAP basis, we reported diluted earnings per share of $0.07 compared to a diluted loss per share of $0.01 in the prior year. On an adjusted basis, we reported adjusted earnings per share of $0.12 compared to $0.06 last year.
Before we dive into fiscal 2016 guidance, I'd like to highlight the substantial progress we've made on our business model initiatives since fiscal year 2014. The success of our initiative is most evident by the $27.5 million improvement in adjusted EBITDA despite a decline in sales. In fact, adjusted EBITDA margins improved 260 basis points, 7.2% of sales in fiscal 2015. This was achieved by the following actions.
Improving restaurant-level margins 160 basis points to 16.7% as a result of business model enchantments that strengthen the guest and team member experience while reducing low value-added costs. Initiatives that drove this improvement included introducing the new labor management system, manager labor guidelines, as well as product negotiations. In addition SG&A was reduced by $21.8 million. Marketing spend was reduced by $17.8 million to 4.4% of sales. This was achieved by implementing a more efficient and effective marketing plan.
G&A reduction of $4 million resulted from the fiscal 2014 corporate restructuring. In addition, we continued to strengthen our balance sheet by reducing debt and building cash reserves. Our year-over-year cash balance increased $24 million to $75.3 million. Book debt was reduced by $13.7 million to $245 million at the end of the year. Subsequent to the end of the fiscal year, we paid off another $8.3 million of mortgage debt, eliminating one of our mortgage lenders and further simplifying our debt structure.
Now let's turn into our outlook for fiscal year 2016. We estimate fiscal 2016 adjusted earnings per share, excluding closures, impairments, severance and other items outlined in today's release, to be in the range of $0.12 to $0.17. This guidance is predicated upon the following factors. Same-restaurant sales of flat to up 2% for the full year. In the first quarter, same-restaurant sales quarter-to-date are in line with this range. Annual restaurant level margins up 17% to 17.5% compared to 16.7% in fiscal 2015.
SG&A of $116 million to $120 million, which compares to $115.3 million in fiscal 2015, a net reduction of 11 to 14 company-owned Ruby Tuesday restaurants. We expect an effective tax rate of approximately 44%. As a reminder, we will not be able to recognize the full benefit from generated FICA Tip and Work Opportunity Tax Credits until we move into a three-year cumulative pre-tax income position. Included in this guidance is an expectation that we will incur an additional non-cash charge to evaluation allowance.
Capital expenditures of $34 million to $38 million is above last year's expenditures of $30.6 million. As Todd discussed, the increase is driven by corporate initiatives, including remodel testing, Garden Bar enhancements and some catch-up on deferred maintenance.
Our priorities for use of cash remain unchanged. Our top priorities are to invest in the brand to drive value creation. We will continue to maintain adequate cash levels to support business needs while appropriately investing in our brand transformation initiatives. Following that, we will look to pay down debt to improve our credit metrics.
I will now turn the call over to JJ for closing comments.
James J. Buettgen - Chairman, President & Chief Executive Officer
Thank you, Jill. In closing, I would like to thank all of our team members and leaders for their passion, their loyalty, and their daily efforts to support our journey to greatness. While we have made significant progress over the past two years, we expect more progress to come. Our teams in the field and our executive leadership teams are committed to the Ruby Tuesday brand and we remain confident that we are executing the right strategies to improve future performance and create shareholder value.
We appreciate your time and your investment in Ruby Tuesday. And we will now open up the call for your questions.
Question-and-Answer Session
Operator
Thank you. We will now be conducting a question-and-answer session. Thank you. Our first question comes from the line of Alton Stump with Longbow Research. Please proceed.
Brittany Whitman - Longbow Research
Hey, guys, it's actually Brittany on for Alton today. I just had a quick question on the tablets. Are these going to have payment capabilities or what – I guess what are some of the features that you're hoping to provide customers with these?
James J. Buettgen - Chairman, President & Chief Executive Officer
Thank you for your question. The in-restaurant tablets that Ziosk produce do have payment capabilities at the table. It also has the capability to allow ordering of drinks and desserts and menu items if you need. And then it also has the ability to sign guests up for things like loyalty programs and also has the capabilities to be able to play video games for the table as well.
Brittany Whitman - Longbow Research
Okay. That's great. And then just a quick follow-up. Can you provide your franchise comps for the quarter? I'm not sure if I missed that.
Jill Golder - Chief Financial Officer, Treasurer & Executive VP
Yes. Our same-restaurant sales for the franchise were up 0.4% for the quarter and their airport locations have continued to do very well. So if you exclude the airport locations, they were down 2.5%.
Brittany Whitman - Longbow Research
Okay. Okay, great. Thank you very much.
Jill Golder - Chief Financial Officer, Treasurer & Executive VP
You're welcome.
James J. Buettgen - Chairman, President & Chief Executive Officer
Thank you.
Operator
Thank you. Our next question comes from the line of Imran Ali with Wells Fargo. Please proceed.
Imran Ali - Wells Fargo Securities LLC
Hi. Good afternoon. Thanks for taking my questions.
James J. Buettgen - Chairman, President & Chief Executive Officer
You're welcome.
Imran Ali - Wells Fargo Securities LLC
You mentioned that your comps improved throughout the fourth quarter into Q1. What factors drove that sequential improvement? And did you see any meaningful differences by day part or by geography?
James J. Buettgen - Chairman, President & Chief Executive Officer
Thank you for your question. Our comps did improve throughout the quarter starting out week in March and improving throughout. In terms of factors that drove the overall trend during the quarter, to some degree, we think it was driven by timing of media and promotion. We had a hiatus earlier in the quarter while we cleared some room for some other initiatives that we're working on. As we got back on air with our American Rib Festival, in the tail end of the quarter, we saw both guest count and sales comps pick up strength, which has continued.
The other trends you mentioned regionally, we've seen relative weakness not only comparing across our own regions but versus the category in a couple areas over the last quarter. Part of it was in the mid-Atlantic as well as parts of the Northeast and the upper part of the Midwest. And if you look at some of the recent data, say, from the credit card companies, those regions have been relatively soft in overall consumer spending, and we've seen it in our business. But in some cases our relative gap to the industry has been weak in those areas as well.
Imran Ali - Wells Fargo Securities LLC
Great. Thank you for – thank you for the color. And just shifting gears a bit, can you talk about what your cost savings opportunity is in fiscal 2016? I think you've executed a number of cost savings initiatives in recent years. So just curious to see how much more room you have in terms of finding further efficiencies this year.
Jill Golder - Chief Financial Officer, Treasurer & Executive VP
Thank you for the question. Yeah. We continue to look for ways to help improve our restaurant-level margin while ensuring that we maintain a strong guest experience. I think in past calls we talked about our new inventory management system, which we had tested in fiscal 2015 and was fully rolled out at the end of – at the start of this quarter. So we expect to see savings of the range of $4 million from that initiative similar to our labor management system. We also think that we have the opportunity to build on the labor management system which we had previously rolled out to continue to help us manage wage rates as well as staffing level.
Imran Ali - Wells Fargo Securities LLC
Great. Thank you very much.
Operator
Thank you. Our next question comes from the line of Neil Herman with Herman Advisors (sic) [Ticonderoga Securities LLC] (33:28). Please proceed.
Neil Herman - Ticonderoga Securities LLC
Two questions. Could you give us a sense in terms of whether your cocktails and desserts were completely rolled out for the whole quarter, or how much impact those had on the quarter? And then the second question is totally separate regarding Lime Fresh, clearly Chipotle's had a lot of success in the marketplace. Looks like you guys have a great concept with Lime Fresh, and I'm wondering what your thought process is regarding that going forward.
Todd Burrowes - President, Ruby Tuesday Concept and Chief Operations Officer
March 28. March 1, it was March 28.
James J. Buettgen - Chairman, President & Chief Executive Officer
The new desserts and the new beverages were rolled out in a menu that came out at the end of March. So it would have benefited roughly two-thirds of the quarter.
Jill Golder - Chief Financial Officer, Treasurer & Executive VP
And Lime Fresh?
Todd Burrowes - President, Ruby Tuesday Concept and Chief Operations Officer
Can you repeat the question about Lime Fresh, please?
Neil Herman - Ticonderoga Securities LLC
Yeah. It looks like Lime Fresh is a very good concept. We've been to a couple of your restaurants here in South Florida, and I was wondering what your long-term thoughts are with regard to Lime Fresh.
James J. Buettgen - Chairman, President & Chief Executive Officer
Right now, the majority of our focus is on the Ruby Tuesday turnaround. And that's – 90-some-odd percent of our effort has been on making sure that we can start to grow same restaurant and guest counts at Ruby Tuesday right now.
Neil Herman - Ticonderoga Securities LLC
Got you. Thank you.
James J. Buettgen - Chairman, President & Chief Executive Officer
Thank you.
Operator
Thank you. Our next question comes from the line Vincent Muscolino with Aegis. Please proceed.
Unknown Speaker
– [010FDY-M Vincent Muscolino]>: Ah, yes. I had a quick question. Because the historical margins are a little bit distorted with some of the strategies that happened two, three, four years ago, whatever we want to call it, can you get this – these initiatives to get you back to the long-term operating target model where you can see the double-digit margins that you saw in the mid-2000s?
James J. Buettgen - Chairman, President & Chief Executive Officer
Over the longer term, we feel we can, for a couple reasons. Our current strategy with a more kind of consumer-friendly pricing, the gross margins on food are a little bit lower, but we've done a lot of work to make sure that we're streamlining our operations and get efficient in terms of our labor. And then there's a tremendous amount of upside in terms of financial leverage once we start to grow guest counts and sales on a same-restaurant basis.
We have much smaller and much tighter boxes compared to many of our competitors, and with a little bit more volume, we'll start to see some pretty significant leverage, which we can – we think can bring our margins up to the level we've seen earlier in our history with a concept.
Unknown Speaker
– [010FDY-M Vincent Muscolino]>: Okay. And just as a follow-up, obviously when you look at the equity in trading at 0.8 times book value, can you give us a general sense of kind of the real estate value in the portfolio? I mean, when you look at something like TGI Friday and apply what that was purchased for, I would suggest that there's tremendous value that's just kind of underappreciated here. But is the real estate portfolio significantly different in value versus what we see on the reported balance sheet?
Jill Golder - Chief Financial Officer, Treasurer & Executive VP
Well, let me give you a couple of ways to think about the real estate. So, currently we have 303 properties that we own, 206 are unencumbered after the mortgage payoff in early July. And so, as you think about how to value that base, here's some data points along the way. So, back in fiscal 2012 and 2014, we completed sale-leaseback transactions of land and building for 37 properties, with gross cash proceeds of $82.5 million, which equated to an average per unit price of $2.2 million each. So that's one data point.
And then back in December of 2013 when we closed on our full year $50 million revolver credit facility, we put up 49 properties for collateral. So, at that time, an independent appraisal of those properties was performed and the value was listed at $101.4 million, which equated for just over $2 million per property.
So – and then another data point is, on some of the properties that we've chosen to close, which were underperforming restaurants, so they might have been in less desirable size, those have generally sold in for like $1 million to maybe above $1 million. So, with those data points, I would let you think about how you would value that.
Unknown Speaker
– [010FDY-M Vincent Muscolino]>: And then, do you guys benchmark specifically against something like TGI? I know that they've had some interesting promotions recently as they try to [ph] recreate (38:38) their business.
James J. Buettgen - Chairman, President & Chief Executive Officer
We pay attention to a number of competitors, including what Friday is doing. Obviously it's a value seek – a variety-seeking category. And we pay attention to what people are doing in terms of product innovation and promotion offers. We don't pay disproportionate attention to Friday's. We look at a lot of things that are going on in the category. And I would say, more than anything, we're focused on what we can do to continue to control our own destiny by improving our menu and our experience in the atmosphere in our restaurants. We feel we have a tremendous amount of upside if we can continue on the path we're making our own improvements.
Unknown Speaker
– [010FDY-M Vincent Muscolino]>: Okay. And if I can, just two more follow-ups. So if we look at the comp for the fourth quarter, I think you had guided to low negative single-digit. And it was within line of that. And you seem to have alluded to in the last question that you had some sort of control of your marketing spend. So, do we kind of – and based on your forward guidance, we kind of place less importance on the underlying currents of that fourth quarter versus the go-forward business and the go-forward menu strategies?
James J. Buettgen - Chairman, President & Chief Executive Officer
Yeah, we – as I said, we saw a lot of softness early in the quarter, somewhat unexpected, some maybe driven by media hiatus. But as we got back, we built momentum over the quarter partially because of a promotion that we put in place. If you think about the go-forward, our marketing in absolute is going to be in a – we expect it to be in a similar range next year. But we're doing – we're learning a lot about some other ways to go to market.
So we brought on a new digital agency in May. We started to do some testing in late May. We're doing some more things this summer. And we're also doing some testing around local marketing initiatives. And what we're trying to do is find the most effective and efficient ways to get out and re-attract the families with kids segment, which was by far the single largest segment that we lost guest counts with when we repositioned the brand to be more upscale. And we've got a number of menu items in promotion concepts that have resonated well with their target and we're trying to find the best way to attract as many of those guests back to our restaurant as we can.
Operator
Thank you. We've reached the end of our Q&A portion. I'd like to hand it back over to Mr. Buettgen for any closing remarks.
James J. Buettgen - Chairman, President & Chief Executive Officer
Thank you. Well, I would again just like to thank you all for your time and for your interest on our call today. And we look forward to speaking to you again with an update in October. Thank you, everyone.
Operator
Thank you. This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.
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