Morton’s Restaurant Group, Inc. Q1 2008 Earnings Call Transcript

Morton’s Restaurant Group, Inc. (MRT)

Q1 2008 Earnings Call

April 30, 2008 5:00 pm ET

Executives

Thomas J. Baldwin – President and Chief Executive Officer

Ronald M. DiNella – Senior Vice President and Chief Financial Officer

Analysts

Paul Westra – SG Cowen

Bryan Elliott – Raymond James & Associates

Jeff Omohundro – Wachovia

Michael Podhorzer –Sidoti & Company

Barry Stouffer – BB&T Capital Markets

Amy Greene Vinson – Avondale Partners

Robert Kosasky – O’Brien Consultants

Robert Weiler – Piper Jaffray

Presentation

Operator

Welcome to the First Quarter 2008 Morton’s Restaurant Group, Inc. earnings conference call. (Operator Instructions) I would now like to turn the presentation over to your host for today’s call, Chief Executive Officer of Morton’s Restaurant Group, Tom Baldwin.

Thomas J. Baldwin

Thank you for joining us for Morton’s conference call to discuss our 2008 first quarter results, which ended on March 30, 2008. I want to welcome all of our callers, as well as those listening to our web cast on the Internet.

This conference call follows our earning news release issue earlier today and with me to discuss our financial results are Ron DiNella, our CFO and SVP, who will now provide comments on forward-looking statement.

Ronald M. DiNella

Before we begin our formal remarks I must remind everyone that our discussion today may include forward-looking statements. Except for the historical information, the matters to be addressed are forward-looking statements that involve certain risks and uncertainties.

These statements are not guaranteed for future performance. Actual results could differ materially from those contained in the forward-looking and therefore undue reliance should not be put upon them. We refer all of you to our recent filings with the SEC, including our recent Form 10-Q and Form 10-K for a more detailed discussion of the risks that could impact our future operating results and financial condition.

At this time I will turn the call back over to Tom Baldwin.

Thomas J. Baldwin

Before we begin our more detailed discussion, I would like to briefly discuss the current macro environment and more importantly, how Morton is addressing it.

You know, I joined Morton’s nearly 20 years ago, in 1989, when there were just nine Morton’s Steakhouses. Next month we’re planning on opening our 80^th Morton’s. And many members of our senior management team also have many years of Morton’s or relative industry experience. Over the years we’ve encountered recessions, weak economic business cycles, wars, as well as many other business challenges.

Today’s environment presents some of the same challenges. It is clearly evident that the restaurant industry and Morton’s revenues have been pressured by challenging and uncertain macro economic environment in the U.S. and the industry headwinds that we are facing which resulted in weaker guest traffic throughout the industry. But we clearly recognize that we cannot predict the future and fully understand that the external environment is well beyond Morton’s control.

While we certainly hope for a more stable environment, we understand that hope is not a strategy. We are not in any way being passive, but rather working harder than ever to actively and aggressively manage those elements that are within the company’s control. Very simply stated, execution, marketing, and cost control.

Now without releasing competitor information, these are some of the action steps that we’ve taken to drive revenues, profits, or otherwise enhance stockholder value.

During March we closed a non-profitable Bertolini’s. During February we introduced our historically successful steak and seafood program and this program has proven to be favorable for Morton’s. We are working to build our Morton’s brand and we place great emphasis on execution and our training standards. We do fully believe that our execution and our operations are better than ever.

Now, to continue to broaden our appeal, we are continuing to test market new menu items and are currently introducing several new menu items throughout all of our Morton’s. We stepped up marketing and public relations programs and initiatives, we’ve undertaken certain profit enhancement or cost control programs which will not impact our guest experience and will focus more on G&A type levels programs.

Our private dining room board business is a key area of focus. Initiatives like our investment and technology and velocity are yielding tangible benefits. Our Bar 12-21 program continues to pay off and we will continue investing in this aspect of our business.

During Q1 the Board of Directors authorized a stock repurchase program of $10 million. As of April 29, 2008, the company had repurchased $6.3 million of company stock at an average price of $7.70. Given our thirty years of operating history with our solid Morton’s brand, coupled with the leadership, the confidence and the perseverance of our management team and of our employees, our 5,000 person marketing department, we fully believe that Morton’s will emerge a stronger company when the economy rebounds.

Now, I believe it’s always important to note that [inaudible] with a prior statement hasn’t always been the case with Morton’s, we’re focused on high end consumers, business travelers and special occasion users. All within the context of our high-end Morton’s brand.

Airline travel, hotel occupancy and rail car indicators have been slightly positive for the first quarter for the forecast to be soft for 2008. We believe those indicators are highly correlated to our business as we estimate that approximately 80% of our revenues are expense report or business related.

Now let’s look at the quarter. Revenues grew for the first quarter of fiscal 2008. We continue our growth and our expansion for Morton’s and our Morton’s brand with record-setting first quarter revenues of $94.4 million, up 6.2% over the first quarter of fiscal 2007. We reported an increase in Morton’s comparable restaurant revenues of 0.7% or the quarter. This reflects approximately 4.2% of pricing impact versus the first quarter of 2007. The balance of that change is associating the product mix and the decrease in guest counts.

We must highlight that due to the timing of fiscal 2007 year end first quarter results for fiscal 2008 include revenues for New Year’s Eve, which were not included in that first quarter of 2007. Excluding the first day of both fiscal quarters comparable restaurant revenues for Morton’s Steakhouses would have declined 2.1% in the fiscal 2008 first quarter.

The company generally experienced declines in comparable restaurant revenues in Arizona, Nevada, California, and Florida, as well as some certain other areas in which we operate. On a very positive note, international operations have been very strong.

In the first quarter of 2008 the company reported GAAP net income of $2.4 million, or $0.14 per diluted share, which compares to GAAP net income of $5 million or $0.29 per diluted share for the first quarter of 2007.

And Ron will go into more detail about our current thinking about our beef purchasing program, but it is still our preference to forward-contract our beef purchases. But at this time we’ve only contracted a portion of our needs due to our current thinking about current market conditions and realized a slight benefit to cost of sales for the first quarter.

Our new restaurants continue to outperform our base restaurants. We are pleased to report that Morton’s Steakhouses opened in 2005, 2006, 2007, on average generated revenues of approximately 8% above restaurants opened prior to 2005.

Our goal is to build our business through appropriately managing our very strong Morton’s brand. Our core objectives are to further leverage our business experience and increase the revenues and operating income of our current restaurants. We also plan to open new Morton’s Steakhouses in existing markets and selected new and domestic and international markets.

With regard to our forward growth initiatives or catalyst for growth we continue to broaden our appeal. We are currently introducing several new menu items including new apps, salads, and entrees. We are currently test marketing the number of other menu items in certain of our Morton Steakhouses in select markets. As you would expect, every one of these products is perfectly aligned with our high-end Morton’s Steakhouse and our brand profile.

Additionally, to enhance our guest experience we made a decision to better our wine program. And just two years ago we had just a handful of sommeliers in the company. Today we have more than 60 sommeliers. Further, our new Morton’s Steakhouses now feature new temperature controlled display wine rooms. And last year every eligible Morton’s has received the Wine Spectator Award of Excellence. Our Bar 12-21 continues to be very well received and at quarter end 35, or 44%, of our Morton’s were outfitted with the Bar 12-21.

These are key opportunities for Morton’s. We continue to see strong results from our Bar 12-21 business and during 2008 we expect to retrofit up to 8 bars. Now of course, all new restaurants will include a Bar 12-21 with each new Morton’s Restaurant and retrofit Bar 12-21 is becoming an increasingly more important component of our business.

Our private boardroom business continues to be an important part of our business. In 2007 we added additional boardroom capacity to our Morton’s Steakhouse in Nashville and in 2008 we’ve executed documents and expect to renovate and expand our Morton’s in Atlanta and are currently evaluation several other options for expansion. We continue to work on building this business and are very proud of our sales management team. Now all but our original Morton’s have such boardroom facilities and we believe we have a true national competitive advantage in this segment.

We’re also pursing disciplined new restaurant growth. During the first quarter of 2008 we opened a new Morton’s Steakhouse in Naperville, Illinois; during 2007 we opened Morton’s Steakhouses in Annapolis, Boston in the Seaport District, Woodland Hills in San Jose, California, and in the spectacular new Macau Venetian Hotel and Resort Casino. We also relocated our Cincinnati, Ohio, restaurant in February 2007; we opened our Trevi Italian Restaurant in Las Vegas for 2008 we expect to open a total of 4-6 new Morton’s Steakhouses and quarterly openings are currently anticipated to be 1 in Q1, 1 in Q2, 1 in Q3, and 1-3 in Q4.

With regards to development, new development activities remain active. We continue to evaluate new Morton’s opportunities in the U.S., parts of Asia, as well as other certain strategic areas. The company has signed leases for new steakhouses in: Coral Gables, which is expected to open this June; Leawood and Overland Park, Kansas; Miami Beach on Collins Avenue; Brooklyn, New York; Ft. Lauderdale; and Indian Wells, California.

Based on a strategic assessment of trends, the company closed its Bertolini’s in Indianapolis in March 2008.

I truly take great pride that Morton’s owns and operates all of its restaurants, which we believe is a major competitive advantage, giving our absolute control over our restaurant operations, our Morton’s brand, and our Morton’s brand management.

Now at this point I ask Ron DiNella, our CFO and SVP, to discuss our financial results in more detail as well as the company’s guidance for the second quarter and full year fiscal 2008.

Ronald M. DiNella

We reported record-setting first quarter revenues for the 3-month period ended March 30, 2008. Revenues increased $5.6 million dollars, or 6.2%, to $94.4 million for the first quarter of fiscal 2008 from $88.9 million for the first quarter of fiscal 2007. Revenues increased $5.5 million due to the opening of six new restaurants, 1 in fiscal 2008 and 5 in fiscal 2007.

Revenues increased approximately $0.7 million at our Trevi Restaurant in Las Vegas when compared to the former Bertolini’s restaurant in that location which was closed during January 2007. Revenues increased $0.4 million due to an increase in revenue from comparable restaurants.

Revenues decreased approximately $0.8 million due to gift card breakage from a legacy gift certificate program that had expired in the first quarter of 2007, which we did not have in 2008.

As a reminder, when we refer to comparable restaurants, we mean restaurants open for all the 3-month periods, and in March 30, 2008, and in April 1, 2007. Morton’s comparable restaurant revenues for the quarter increased 0.7% due to the timing of the fiscal 2007 year end, first quarter results for fiscal 2008 included revenues from New Year’s Eve, which were not included in the first quarter of fiscal 2007.

Excluding the first day of both fiscal quarters, Morton’s comparable restaurant revenues would have decreased 2.1%. This includes a pricing increase of approximately 4.2% for the quarter. The balance of the change was driven by product mix and a decrease in guest traffic. And revenues reflect the impact of menu price increases at our Morton’s Steakhouses of approximately 2% in June 2007, 1.5% in December 2007, and approximately 1% at February 2008.

Now on a sequential basis January saw continuation of the relatively weak sales as was the case in December 2007. February and March sales were mixed but slightly better. And as far as the second quarter to date, comparable restaurant revenues are essentially flat, however, we believe the shift of the timing of Easter and Passover reflected these results.

Food and beverage cost increased $1.2 million to $31.3 million for the first quarter of fiscal 2008 versus $30.1 million last year. These costs as a percentage of revenues decreased 70 basis points to 33.2% versus 33.9% last year.

Now regarding our outlook for beef, I remind you that historically it has been our typical practice and preference to forward-contract our meat purchases with our suppliers. Our goals are to lock in the quality, quantity, and purchase costs and with that attempt to remove commodity risks as an issue. For the second quarter of 2008 we had the majority of our prime and approximately half of our filets locked in. The balance of our needs are being purchased on the spot markets.

For the second half of 2008 we have contracted for approximately 1/3 of our anticipated volume requirements and continue to monitor pricing being offered for the balance of the year versus market conditions. We’re analyzing these costs and will attempt to contract if we believe the prices being offered are commensurate with market conditions.

Now, we expect meat purchase costs to increase approximately 5% over full year 2007 levels, however, we have seen purchase prices come down over the past few weeks, primarily due to lower U.S. demand and slightly better grading.

Restaurant operating expenses, which include labor, occupancy, and other operating expenses increased $5.1 million to $45.8 million, or 48.5% of revenues for the first quarter of fiscal 2008, from $40.7 million, or 45.8% of revenues for the first quarter last year.

Weaker comparable restaurant revenues adversely impacted earnings due to the de-leveraging of the fixed cost base. Re-opening cost remains constant at $1 million for both periods. We expense all costs incurred during restaurant start up activities, including pre-opening costs as incurred. The number of restaurant opened and timing of restaurant openings will affect the amount of these costs.

General and administrative expenses increased $1.7 million to $7 million for the quarter compared to $5.3 million for the first quarter of fiscal 2007. The increase is primarily due to increased compensation and benefits costs, as well as increased legal expenses primarily related to certain wage and hour and similar labor claims filed against us in 2008. Some of these costs are front-end loaded and at this time we expect G&A to approximate 6%-6.5% for the full year.

Marketing and promotional expenses increased $0.4 million to $1.9 million for the first quarter of fiscal 2008 as compared to $1.5 million last year. These costs as a percentage of revenues were 2% for the first quarter versus 1.6% for the first quarter of fiscal 2007. Full year 2008 marketing expenses are expected to approximate 2% of full year revenues.

Our interest expense decreased approximately $132,000 for the quarter to $749,000. As of March 30 we had $52.8 million of our $115 million senior revolving credit facility drawn and outstanding.

Provisions for income tax consisted of an income tax expense of $1.1 million for the quarter, compared to $2.1 million last year.

We reported GAAP net income of $2.4 million, or $0.14 per diluted share for the first quarter of fiscal 2008 compared to GAAP net income of $5 million, or $0.29 per diluted share for the first quarter last year.

During the first quarter of fiscal 2008 our Board of Directors authorized the repurchase of $10 million of our common stock. The stock repurchases may be made through the open market or in private negotiated transactions. The time and amount of any repurchases will be determined by management based upon its evaluation of market conditions and other factors. The stock repurchase program will be funded using our cash balances or our revolving credit facility which we believe are adequate to support the stock repurchase program and our operating business. As of April 29, 2008, the company had repurchased approximately $6.3 million of Morton’s common stock at a weighted average price of $7.70 per share.

At this time the company believes it has limited ability to provide guidance given the current uncertainly of the U.S. economy and external environment. The company cautions that the guidance provided herein could differ materially from actual results.

The company expects second quarter fiscal 2008 revenues to range between $89 million-$91 million including decreases in comparable restaurant revenues from Morton’s Steakhouses of approximately 1%-2% as compared to the second quarter of fiscal 2007. Second quarter diluted net income per share is expected to approximate $0.10-$0.13. This range includes estimated compensation expense, net of related income tax, pursuant to Statement of Financial Accounting Standard Number 123R which requires the expensing of stock issued to employees of approximately $0.02 per diluted share.

This range also includes expectations that the company’s effective income tax rates for the second quarter of fiscal 2008 will approximate 26%. During the second quarter of fiscal 2008 we expect to open 1 Morton’s Steakhouse, which will include a Bar 12-21 and a new temperature controlled display wine room.

The company currently expects fiscal 2008 full year revenues to range between $380 million to $385 million, including increases in comparable restaurant revenues for Morton’s Steakhouses of approximately 0% to 1.5% as compared to fiscal 2007.

This range reflects that fiscal 2008 will consist of 53 weeks as compared to 52 weeks; the fourth quarter of fiscal 2008 will consist of 14 weeks compared to 13 weeks in the fourth quarter of fiscal 2007. Furthermore, fiscal 2008 is schedule to include revenue from 2 New Year’s Eves, December 31, 2007, in the first quarter, and December 31, 2008, in the fourth quarter. Fiscal 2007 did not include revenue from New Year’s Eve.

Diluted net income per share is expected to approximate between $0.57 and $0.62. This range includes approximate compensation expense net of related taxes of approximately $0.08 to $0.10 per diluted share. This range also includes expectations that our 2008 effective income tax rate will approximate 27.5%. And during fiscal 2008 we expect to open four to six new Morton’s Steakhouses, each of which will include a Bar 12-21 and a new temperature controlled wine display room.

In addition, during fiscal 2008 we expect to retrofit up to 8 Morton’s Steakhouses to include Bar 12-21.

At this point I will turn the call back over to Tom for some closing remarks.

Thomas J. Baldwin

We fully believe that Morton’s is the most recognizable brand in fine dining and the leader in the high-end segment. Morton’s is a world-class brand with world-class opportunities before us. We are working hard to create and seize those opportunities with just one strategy: great hot food, hot plates, great service.

For Morton’s, for our management team, it’s all about execution. At Morton’s we are clearly and fully focused on our Morton’s guests, execution, and operations, Morton’s brand and brand management and our business model. As our campaign highlights, Morton’s offers the best steak anywhere.

At this point Ron and I thank you for your time and now invite any questions that you might have.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Mr. Paul Wister - Cowan.

Paul Westra – SG Cowen

I wonder if you wouldn’t mind repeating your monthly comp trend conversation. You said February and March were a little better?

Ronald M. DiNella

Yes, that’s right. I will repeat it specifically, but January was generally consistent with December and soft and we saw mixed and slightly better results in February and March.

Thomas J. Baldwin

But, Paul, I think it’s important to note that there were no discernable trends to drop from. It was, I’ve heard the term lumpy used. So it was, I don’t know that we have any clear trends to drop from here.

Paul Westra – SG Cowen

I assume that excludes the January New Year’s effect.

Thomas J. Baldwin

Yes.

Paul Westra – SG Cowen

And then could you give a little color on the check change? I assume it was negative and to what degree it was?

Ronald M. DiNella

The average check was not negative. It was generally consistent and we do have some pricing that we have pricing in. And we’re seeing . . .

Paul Westra – SG Cowen

I’m sorry, not the check. The mixed. Excluding pricing.

Ronald M. DiNella

Not necessarily. No, we have not seen any significant change in our mix.

Paul Westra – SG Cowen

Is pricing still 4.2% in the first quarter from when? When was the price taking again?

Ronald M. DiNella

2% in June 2007, so that will roll off in June. 1.5% in December 2007. And 1% in February 2008.

Paul Westra – SG Cowen

With the current outlook I assume that’s a complete roll off with no additional pricing?

Ronald M. DiNella

Yes. That’s the current outlook.

Paul Westra – SG Cowen

And question on cost of goods. I’m a little confused. You mentioned beef costs. Even year to date, some of the trends we looked at, it looks like prime has been down, kind of all year, but more so here of late. Didn’t you see a benefit in the first quarter and then why would you predict up buy pricing for beef.

Ronald M. DiNella

First of all, if you recall, last year we were locked in for the full year. I think we had some very good prices last year, probably below market for most of the year. We have locked in some of our beef purchases and we did earlier in the year and some in December as well. And we also are anticipating that there will be an up tick in costs for the balance of the year. So we did see some benefits during the quarter, but generally that’s our guidance.

And again, we have limited visibility, just a cautious outlook.

Paul Westra – SG Cowen

And I think your latest public disclosure, you were still floating about 75% of you needs in the first quarter. Is that a recent pricing here for the second quarter needs?

Ronald M. DiNella

Again, it is our preference to contract our beef purchases. That is our preference. So we are going out and taking strips of 10% or 20% or 30% of our needs if we think the market is at a point where we’re comfortable with.

Paul Westra – SG Cowen

And can you give us a quantification of what the extra week . . .?

Ronald M. DiNella

I’m sorry, in the fourth quarter?

Paul Westra – SG Cowen

Yes.

Ronald M. DiNella

Yes, it’s worth about 2%, the 53^rd week is worth about 2% on the full year. And that’s how we’re really looking at it.

Paul Westra – SG Cowen

On both the revenues and the earnings?

Ronald M. DiNella

It flows through a little bit better on earnings, but generally that’s the range.

Paul Westra – SG Cowen

And what was the sales impact of the Bertolini’s closures, on an annualized basis?

Ronald M. DiNella

It had lost money, not a big loser, but it was probably worth about $0.01 a share. For the full year.

Paul Westra – SG Cowen

How about in total sales dollars?

Ronald M. DiNella

I think it’s a pretty small number. A couple of million dollars.

Operator

Your next question comes from Bryan Elliot - Raymond James.

Bryan Elliott – Raymond James & Associates

A couple of clean up questions. What was the actual Q1 stock repurchase. You have given us YTD which is helpful, but Q1 dollars?

Ronald M. DiNella

I think it was $5.8 million.

Bryan Elliott – Raymond James & Associates

And was there any measurable cash on the balance sheet on the end of the quarter?

Ronald M. DiNella

$3 million.

Bryan Elliott – Raymond James & Associates

How should we think about tax rate for the year? First quarter and now it’s going to drop again in Q2, is the blended rate for the first half a good guess for the full year?

Ronald M. DiNella

The 27.5% in the guidance is a good blended rate for the full year.

Bryan Elliott – Raymond James & Associates

And the 6.5% G&A guidance is ex-stock comp it looks like, right? Ex the options expense?

Ronald M. DiNella

No, it’s all in.

Bryan Elliott – Raymond James & Associates

And then you mentioned you’re kind of flat in April but calendar shift had some impact. Guestimate on that calendar shift?

Thomas J. Baldwin

Brian, with the Easter/Passover holiday, it’s really hard to wrap your hands around. And an early Easter typically hurts our business, so it’s really hard to wrap our hands around, quite frankly.

Bryan Elliott – Raymond James & Associates

But it’s a negative for sure, right?

Thomas J. Baldwin

Let me say it this way. We believe it is a negative when the holidays are split. We believe it’s a negative when there’s an early Easter.

Bryan Elliott – Raymond James & Associates

But as far as April specifically, it helps then, right?

Thomas J. Baldwin

We didn’t see any great help, frankly, but the Passover holidays were in late April so it was really hard to get a read. It was a lot of activity in both months for holiday interruptions and things like that.

Bryan Elliott – Raymond James & Associates

Just making sure I understand the full year same store sales guidance, Ron. Are you including the extra week in that? Are you sort of a 53 week all end sales divided by the last year’s 52 week sales?

Ronald M. DiNella

Yes. And this came up last quarter. So the comparable restaurant revenue guidance does include the 53^rd week.

Bryan Elliott – Raymond James & Associates

Which is worth about 2 points on the full year.

Ronald M. DiNella

For a comp, yes.

Operator

Your next question comes from Jeff Omohundro - Wachovia.

Jeff Omohundro - Wachovia

I guess first just to follow up on Bryan’s question on the G&A. That 6% to 6.5% is a full year; it’s not Q2 through Q4, on that guidance?

Ronald M. DiNella

Yes. Full year.

Jeff Omohundro - Wachovia

The Q1 7% is suggesting some pretty favorable G&A comparisons. I’m wondering what’s changed there? Are you not growing costs, are you cutting costs in G&A, what’s going on?

Thomas J. Baldwin

Jeff, we got dinged for some legal costs in the first period for some law suits that were filed. Some of that got factored in. Ron then factored that into the full year. And there are some cost reduction programs that are coming to play.

Jeff Omohundro - Wachovia

You made some remarks in your prepared comments about international. I wonder if you can give us a little more color on Asia and your thinking about growth opportunities there, at this time?

Thomas J. Baldwin

Yes. The Asian operations in particular were strong. The mature operations in Singapore and Hong Kong continue to grow. The Macau operation, which opened in conjunction with the Macau Venetian Casino continues to build, but obviously it’s a longer build. The Asian economy is quite healthy. Asian operations, the economy is quite healthy. And it is an area that we are placing great emphasis on for future development.

Jeff Omohundro - Wachovia

And what would be a timing for pick up of development in Asia?

Thomas J. Baldwin

We have several discussions in the advanced stage, so it’s hard to fairly respond to that question. Obviously we’re working diligently to grow there as well as other parts of the world. Even from a logistical standpoint, it’s a little harder to execute because of the distance and the time changes specifically, but we are working diligently to get something completed.

Jeff Omohundro - Wachovia

You made some commentary about some of the indicators around business dining for this year. I’m wondering if you’re seeing within the business dining component of your sales changes in spending patterns. Anything observable perhaps around alcohol or anything else.

Thomas J. Baldwin

No, Jeff, we really haven’t seen any real discernable changes in our beverage check or anything like that. Some of our convention cities have noted some less attendance at some of the conventions.

Ronald M. DiNella

That’s traffic, however.

Operator

Your next question comes from Michael Podhorzer - Sidoti & Company.

Michael Podhorzer –Sidoti & Company

Regarding the Bertolini’s closure, how are the two remaining locations performing and are there any thoughts of closing those as well?

Thomas J. Baldwin

Well, both are a cash flow positive and at this point there is no reason to make any changes.

Michael Podhorzer –Sidoti & Company

How did Trevi perform and do you expect traffic to climb, stabilize?

Thomas J. Baldwin

Trevi, as we indicated, is one of our top volume restaurants. The counterpoint is that the Nevada markets have been soft and we’ve observed some of the gaming companies statements where some convention activity has been of shorter duration with fewer participants. So that kind of activity which some of the gaming companies are talking about obviously has an impact on us. Nonetheless, it’s one of our top volume restaurants and we think there’s an even greater potential as the economy rebounds.

Michael Podhorzer –Sidoti & Company

So it’s still basically doing into $11 million on an annual basis?

Thomas J. Baldwin

That’s not what we said.

Michael Podhorzer –Sidoti & Company

And it is still a top volume restaurant?

Thomas J. Baldwin

It is in that range, yes. It is a top volume restaurant.

Michael Podhorzer –Sidoti & Company

And on the increase in balance on the credit facility, I assume that’s for stock repurchases?

Thomas J. Baldwin

Primarily, Michael. The stock repurchase and just timing of CapEx.

Michael Podhorzer –Sidoti & Company

And you had mentioned that comps are flat so far in the quarter but you had estimated for it to be down 1%-2% for the quarter, so are you assuming traffic will get worse in May and June?

Thomas J. Baldwin

It’s really what we’re seeing now on a traffic basis and also we do think, again, it’s very difficult to quantify, but there was some positive effects at some point in April from the Easter flip. But down in general.

Michael Podhorzer –Sidoti & Company

So really from an expectation standpoint, we’ve got limited visibility and we’ve kind of extrapolated what we’re seeing and if the economy gets worse, we would expect our traffic to get worse. If the economy improves to some extent, we would expect some benefit there as well. It’s really just a position that we have extremely limited visibility.

Operator

Your next question comes from Barry Stouffer with BBT Capital Markets.

Barry Stouffer – BB&T Capital Markets

I have a G&A question. In absolute dollars that was up 32% year-over-year. I was just wondering if you would quantify if there was unusual stuff like legal versus what sort of a run rate.

Ronald M. DiNella

Tom talked about that, that we did get dinged with some legal fees in the quarter and just the timing of certain expenses, some of which are front-end loaded, but from a run rate basis, we believe today that the full year G&A will approximate 6%-6.5% of full year revenues.

Barry Stouffer – BB&T Capital Markets

Can you quantify the extra legal expenses in the first quarter? In terms of dollars?

Ronald M. DiNella

We would rather not. But you could probably figure it out based on the other quarters.

Thomas J. Baldwin

We’ve got active litigation going on so we’re trying to be somewhat cautious in terms of the requisite disclosure.

Barry Stouffer – BB&T Capital Markets

It would seem to me you’re going to have that continue the balance of the year, but it sound like you’re not incorporating that in your guidance.

Ronald M. DiNella

We don’t know that we’re going to have that continuing. And we’re comfortable right now with the guidance.

Barry Stouffer – BB&T Capital Markets

And you have an increase, I think you said, in average hourly rate rates in the quarter?

Ronald M. DiNella

I don’t have that Barry, but it’s not anything that’s jumped off the page for us. Nothing that is a surprise to us, I guess I’ll say.

Barry Stouffer – BB&T Capital Markets

Can you share with us the current interest rate on your credit line?

Thomas J. Baldwin

Well, the pricing of the facility is LIBOR plus 75 basis points. That’s where we are right now.

Barry Stouffer – BB&T Capital Markets

I don’t know where LIBOR is.

Thomas J. Baldwin

I don’t have what it is today but that’s pretty regularly available.

Operator

Your next question comes from Amy Greene - Avondale Partners.

Amy Greene Vinson – Avondale Partners

Have you seen any difference or any shifts between you suburban and your more urban stores?

Thomas J. Baldwin

We haven’t seen any notable difference among suburban or urban locations. We have seen, we believe some tail off in some social business on the weekends. But, again, it’s hard to specifically quantify.

Amy Greene Vinson – Avondale Partners

Now, the steak and seafood promotion that you’re currently running. Are you mirroring the time period and duration of when you did it last year, or do we have any mismatch there?

Thomas J. Baldwin

Last year we introduced it early in the second quarter and this year we introduced it about mid-first quarter. So we did, we believe, get a little bump from it.

Amy Greene Vinson – Avondale Partners

And is it more successful this year than you saw it last year? Does it look like people are appreciating that price break?

Thomas J. Baldwin

I think we’ve seen slightly higher usage on it. I don’t have that number readily available. The program is an excellent program, the offerings are terrific, and it has historically been well received and the utilization of the usage has been a little higher in the 6 to 8 weeks since we rolled it out.

Operator

And you have a follow up question from Bryan Elliott - Raymond James.

Bryan Elliott – Raymond James & Associates

What was CapEx in the quarter?

Ronald M. DiNella

CapEx in the quarter was $5.8 million.

Operator

Your next question comes from Robert Kosasky - O’Brien Consultants

Robert Kosasky – O’Brien Consultants

Are you sticking to that $30 million CapEx budget for the year?

Ronald M. DiNella

Yes, we are. We don’t expect any surprises and the guidance for new restaurants and bars hasn’t changed.

Robert Kosasky – O’Brien Consultants

And if the year goes according to plan, what is the debt balance at the end of the year?

Thomas J. Baldwin

It really will depend on what the operating results are and just changes in timing and CapEx and things like that.

Operator

Your next question comes from Robert Weiler - Piper Jaffray.

Robert Weiler – Piper Jaffray

Looking back to 2001 and 2003 tax rebates, could you remind us of any benefits you guys saw or what you’re expecting in this year’s from?

Ronald M. DiNella

You’re testing our memory. It’s hard to specifically that we will have a direct dollar impact. And I think this year there’s a cap on the earnings. The rebates are not applicable to higher earners, which would typically be more of our guests. So I don’t know that we’ll see any direct benefit, but I clearly think that the multiplier effect in the economy will benefit overall business trends. But that is just speculation based on what I’ve read in the papers, that I’m sure you read. We just don’t have a guess and it’s just hard to speculate on that.

Robert Weiler – Piper Jaffray

And then on Bertolini’s, did you guys provide the same store of sales for this quarter or a system-wide same store sales?

Thomas J. Baldwin

No, it wasn’t in the press release. I mean, there’s just two restaurants left. But it was a negative 8.8%. And it will be in our 10-Q.

Robert Weiler – Piper Jaffray

And then lastly, promotions. Are you guys extending promotions? Are you doing anything different? I say you mentioned this steak and seafood; is there anything else? Are you extending weeks or anything like that going forward?

Thomas J. Baldwin

For the balance of the year we expect at this point that the programs would line up pretty much in sync with where they were for this past year.

Operator

And you have no further questions.

Thomas J. Baldwin

Well, again, we thank you for your time and if there are any additional questions, please feel free to contact us either by phone or by e-mail. And I thank you very much.

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