McCormick & Schmick’s Seafood Restaurants, Inc. F1Q08 (Quarter End 03/29/2008) Earnings Call Transcript

McCormick & Schmick’s Seafood Restaurants, Inc. (MSSR)

F1Q08 Earnings Call

May 7, 2008 5:00 pm ET

Executives

Emanuel N. Hilario – Chief Financial Officer

Douglas L. Schmick – Chairman of the Board & Chief Executive Officer

Analysts

Jeffrey Omohundro – Wachovia Capital Markets LLC

Lawrence Miller – RBC Capital Markets

Christopher O’Cull – SunTrust Robinson Humphrey

Julie Welter – Piper Jaffray

Jake Bartlett – Oppenheimer

Jonathan Waite – McKay Capital Management

Presentation

Operator

Welcome to the McCormick & Schmick’s Seafood Restaurants first quarter of 2008 earnings conference call. (Operator Instructions) Now, at this time for opening remarks and introductions I’d like to turn the conference over to the Chief Financial Officer, Manny Hilario.

Emanuel N. Hilario

By now everyone should have access to our first quarter 2008 earnings press release. It may also be found at our website at www.McCormickandSchmicks.com under the investor relations section. Before we being our opening remarks I need to remind everyone that part of our discussion today will include forward looking statements.

These statements are not guarantees of future performance and therefore you should not put undue reliance on them. We refer all of you to our recent filings with the SEC for a more detailed discussion of the risks that could impact our future operating results and financial conditions.

With that, I’d like to turn the call over to Doug Schmick, Chairman and Chief Executive Officer of McCormick & Schmick’s Seafood.

Douglas L. Schmick

We have a number of things to discuss on our call today. I will provide some commentary on our first quarter results, our restaurant and marketing initiatives and an update on our development plan. Manny will then conduct a detailed review of our financial as well as reiterate our annual guidance for the fiscal year ‘08. After that we’d be happy to answer any questions you might have.

All in all we’re pleased with our first quarter’s performance given the current economic climate. As we’ve said in the past, we estimate that for every percentage point in comparable sales there is a $0.04 to $0.05 impact to our EPS year-over-year. Given the 5.8% decline in comparable restaurant sales, that alone explains for $0.24 to $0.30 change in the earnings per share. When you add up the higher pre-opening expenses due to the timing of new restaurant opening along with some higher G&A and where we ended up the quarter we believe that we have had overall well managed our operations.

While comparable sales were sequentially below what we had experienced in the fourth quarter of 07, within the first quarter itself trends actually began to stabilize. The shift of Easter to March did help our third period while the tornado in Atlanta on March 14 caused our CNN restaurant to close for about six days resulting in approximately $150,000 of loss sales. Reduced traffic patterns to the CNN Center as a result of the storm damage affected approximately an additional $130,000 in loss sales for a total loss of approximately $280,000 of sales for the quarter.

Importantly, our weekend sales particularly on Saturday appear to be holding steady which we think suggests the loss of [aspirational] guests have slowed. We certainly recognize that many of our guests including what we refer to as our [aspiriational] customers will be receiving tax rebate checks in the coming weeks and we anticipate that they will consider spending some of that money with us. Still given where gas prices are currently at and the state of the mortgage crisis, we have not put undue reliance on discretionary spending in our financial projections. At the very least the rebate checks coupled with a further lowering of interest rates by the Federal Reserve will take time to work through the economy so we are not forecasting any significant impact in the near term.

On a regional basis our eight comparable restaurants in California were particularly challenged. The Pacific Northwest held up well as did the Northeast and Texas. However, if we exclude California as well as the impact from the Atlanta Tornado, first quarter comps would be down only approximately 4.9%. I should also mention that our beverage sales fell approximately 4.5% on a comparable basis compared to a more significant decrease in on premise liquor consumption in the broader economy. We believe that we have one of the most compelling cocktail and wine programs in the industry and attribute our performance to a knowledgeable professional staff whose service style and ability to execute is second to none.

Turning to development, we opened three restaurants in the first quarter. In Anaheim California, adjacent to Disneyland Park, Cherry Hills New Jersey in the Townplace Development at Garden State Park and Milwaukee Wisconsin at the Mayflower Mall. We also made preparations for our only opening during the second quarter which will be in National Harbor Maryland. Our non-comp restaurants are currently generating average weekly sales in the $79,000 range which is in line with our seasonally adjusted target which include our recent California openings in Anaheim during the first quarter and Santa Ana in the second quarter of last year. Excluding these two locations, average weekly sales are actually in the $80,000 to $81,000 range which is above our seasonally adjusted target.

Throughout the year we have been communicating the value and broad appeal of our menu as we target our most loyal guests with our marketing dollars. During the first quarter our seafood and steak combinations highlighted three different shrimp preparations as shrimp is probably our most opportunistic cost purchase for the year. And, you will see other additional shrimp promotions in upcoming months.

In the second quarter we have been using the specialty section on the right side of our menu to highlight wild halibut, wild Alaskan Salmon and wild sea bass. We are finding that wild products have a great appeal within our higher end guests and are capable of withstanding price points in the near $40 range. Even in this challenging product cost environment our guests seek to enjoy the best products available and we will continue to seek opportunities to deliver a variety of wild offerings to meet our guests requirements.

Our enhanced steak program is now in high gear and has been comprising approximately 9% of our entrée sales in the first quarter. As I stated before our average seafood entrees are around $22 and so the additional steak mix sales with a price point of up in to the $30 range will increase our average check. This effort has been a true win-win for us. Based upon the popularity and sales response it has helped eliminate the veto vote among diners who are looking for a different approaching option and is also having the auxiliary benefit of raising the per person check average.

Once again we utilized USA Today as our primary advertising vehicle and to a lesser extent written journals such as [Cranes] and in flight publications. Every time we’ve run ads in the USA Today we see a substantial spike in our online reservation system suggesting that our messaging is reaching its target audience. We are also increasing the frequency of email communications which is a very cost effective means to reach our most loyal guests and track their responsiveness.

We have more than 7,000 members in our eClub which is growing every day and hope to have a much larger population by the end of the year. In March continuing our PR efforts to educate the public about the health importance of seafood consumption we launched www.SeafoodHealth.com. It features recent health research and studies, news articles, government nutritional recommendations as well as seafood recipes and preparation tips for seafood. This website also kicked off our campaign to encourage the public to eat seafood twice a week as we are highlighting two new tasty and healthy seafood recipes from our own chefs to help make it easier for consumers to eat healthy by fitting seafood in to their diets.

The situation on the ground although far from ideal seems to be bottoming out. Our focus is on initiatives which we believe will help navigate through this environment. The decrease in comparable sales we believe is a reflection of weak consumer spending and the general economy. The decreased comparable sales combined with higher commodity and labor costs resulted in lower operating margins for the quarter. We have not had any indication that our [aspirational] guest will be resuming their previous dinning frequency in the near term. However, we are hopeful that we’re entering a period of general economic stability and that our decreased comparable sales will ease in the back half of the year.

As experienced restaurant operators we have a definite approach to managing the business in uncertain times. We feel that we have a very strong balance sheet including owing a $20 million drawn on $150 million credit line at the end of the quarter. We are reaching out to the strongest segments of our customer base with targeted messaging, have broadened our menu to enhance the appeal of our offerings and are being vigilant and active in our cost controls to limit the full impact of commodity and labor cost increases. We have focused on the core fundamentals of our concept, value being a cornerstone. These are all qualities that have enabled us to build a McCormick & Schmick’s Seafood brand over the last 36 years and we are confident that we will emerge from this challenging economic period a stronger organization.

With that, I’d like to turn the call over to Manny to go through the financial results and reiterate our annual guidance.

Emanuel N. Hilario

For the first quarter ended March 29, 2008 total revenues increased 13.4% to $92.3 million from $81.4 million in the first quarter 2007. Comparable restaurant sales decreased 5.8% quarter-over-quarter which reflected approximately 7% traffic decrease offset primarily by pricing and a slight positive product mix. Please note that the restaurants are included in the comparable restaurant base in the first full quarter following their 18^th month of operation. In the first quarter of 2008 we had a total of 60 restaurants in the comp base and we’ll be adding to our comp base zero, three and six locations in the second, third and fourth quarters respectively.

Let’s now review our restaurant costs and expenses as well as our profitability for the period. Not surprising, our comparable sales results were the main cause of the leveraging across the P&L. Food and beverage costs were $28.1 million in the first quarter of 2008 or 30.4% of revenues compared to $23.5 million or 28.9% of revenues in the first quarter of 2007.

Lower comparable sales coupled with higher commodity costs for key items such as seafood steak and liquor all negatively impacted this ratio. We have been negatively impacted by the decline of the dollar against the Euro on our imported liquor purchases and in particularly vodka. Last but not least, in addition to the higher ingredient costs, higher food costs in new restaurants which tend to run higher cost of goods in the first 18 months of operations negatively impacted this line item.

Labor costs were $30.4 million in the first quarter 2008 or 32.9% of revenues compared to $25.8 million or 31.7% of revenues in the first quarter 2007. The increase in labor costs as a percentage of revenues was primarily due to lower comparable sales and training labor at the new restaurants which tend to run higher labor costs in the first 18 months of operations. Operating cost were $14.5 million for the first quarter of 2008 or 15.7% of revenues compared to $12.2 million or 14.9% of revenues in the first quarter of 2007. Operating costs as a percentage of revenues increased primarily due to lower comparable sales as well as higher advertising costs resulting from additional national advertising. Occupancy costs were $8.8 million for the first quarter of 2008 or 9.5% of revenues compared to $7.5 million or 9.2% of revenues in the first quarter of 2007 primarily due to the deleveraging of fixed occupancy costs at the comparable restaurants.

General and administrative expenses were $5.6 million in the first quarter of 2008 or 6% of revenues compared to $4.7 million or 5.8% of revenues in the first quarter of 2007. We continue to seek cost savings with our vendors and we are continuing our close watch on discretionary costs such as travel and wage increases.

Restaurant pre-opening costs were $1.2 million the first quarter of 2008 compared to $.4 million the first quarter of 2007. We opened three restaurants in the first quarter of 2008 compared to one in the first quarter of 2007 as well as making preparations for the one restaurant we intend to open in the second quarter. We are targeting approximately $350,000 of pre-opening expenses for each of our future openings. This amount reflects the great focus on training which we think will pay dividends in terms of our new restaurant successfully opening at strong sales volumes and ability to get cost in line sooner.

Depreciation and amortization expense was $3.4 million in the first quarter of 2008 or 3.7% of revenues and $2.8 million or 3.4% or revenues in the first quarter of 2007. The increase in depreciation and amortization expense as a percentage of revenues is primarily due to the deleveraging of comp sales. Operating income was $0.4 million in the first quarter of 2008 or .5% of revenues compared to operating income of $4.5 million or 5.6% of revenues in the first quarter of 2007. Interest expense was $0.3 million in the first quarter of 2008 compared to $0.2 million of interest income in the first quarter of 2007. As of March 29, 2008 we had an outstanding balance of $20 million on our $150 million credit facility.

For the current year we’re maintaining our private expectations of revenues between $410 million and $420 million and our comparable restaurant sales decrease between -2% and -4%. Please note that our comparisons are much more difficult in the second quarter than in the back half of the year as we go up against comps last year of positive 2.3%. Diluted earnings per share is expected to be between $0.64 and $0.74 for the full year still a wide range. We expect to open 12 domestic McCormick & Schmick’s Seafood Restaurants in 2008 of which we have already opened three in the first quarter. For modeling purposes our intention is to open one in the second quarter and four each in both the third and fourth quarters.

We fully realize the challenges our business faces and are therefore examining all facets of our operations so that we can continue to reduce costs without impacting the guest experience. These include large items such as negotiating both contracts for proteins, groceries and even professional services as well as smaller things such as trying to reduce our Fedex rates. We have also sought and in some cases received additional concessions from our landlords on cam charges and even more favorable rent terms for the 2008 and 2009 signed leases. All in all, we are leaving no stone unturned in our guest to take out unnecessary expenses out of our business. We are where we expect to be at this point in the year and emphasize that we have a lot of initiatives in place that are enabling us to face the tough environment head on. We are lapping easier comparisons in the third and fourth quarters.

As experienced operators we have a record performance that suggests that we will emerge from this period as a stronger brand with significant opportunities ahead of us. We thank you for your continued interest in McCormick & Schmick’s Seafood. Operator, can you please open the lines for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Jeffrey Omohundro – Wachovia Capital Markets LLC.

Jeffrey Omohundro – Wachovia Capital Markets LLC.

Could you talk a little bit more about your efforts to drive traffic? And, in particular efforts behind the USA Today print media, perhaps mailers with some of your competitors have embraced when they’re looking at driving a value message?

Emanuel N. Hilario

We have two other items that we’re putting specific focus behind. One of them is our national sales initiatives driving sales from national accounts to a central system. That’s an item that we have launched just recently and we think we’ll begin to get some payouts from that in the third and fourth quarter this year. The other item that we believe will continue to help us driving traffic this year is our focus on our loyalty guest program. We think that those guests are more easily influenced to come back to the restaurants more readily so we’re putting quite a bit of focus behind actions and incentives that will actually bring those guys back to the restaurants more often.

Jeffrey Omohundro – Wachovia Capital Markets LLC.

And when you look at the value band that has been added to your menu, how has the mix on those products performed and has that met your expectations?

Douglas L. Schmick

Jeff, it’s definitely met our expectations. It’s driving around 3% to 4% of the sales mix and I think most importantly I think it is just restating that there is range and value to our menu. I think that component of our menu direction is increasingly important as we look at having the opportunity to put these wild products that we’ve been discussing the wild halibut, salmon, and so on in to the menu which are going to drive the average entrée price for those particular items up in the $39 range so again, keeping that range there is very important to us.

Jeffrey Omohundro – Wachovia Capital Markets LLC.

Finally, your first quarter results did come in a bit below first call expectations and our expectations yet you are maintaining your full year guidance. Is there any unusual benefits in the out quarter that would give you confidence in achieving those full year expectations?

Emanuel N. Hilario

There is a couple of items that when we look at our third and fourth quarter we feel pretty comfortable about it. Number one, is that last year you may recall in the third quarter we had a pretty tough operating quarter so we think relatively year-over-year that we’re lapping a quarter where we’ve gotten much better and savvier operating the cost line items. So, we think we’ve got a good chance in that quarter. The other thing is our marketing calendar going in to the third quarter is also much stronger than we’ve ever had in the third quarter. We’re going to be featuring wild species in that quarter, wild fish and so forth which our consumer reviews and surveys have shown that that is going to be a very wide appeal activity for us in the third quarter. So, we feel very strong about the strength of that marketing calendar which typically the third quarter because of the fourth of July holidays and other stuff is a very weak quarter for us. So, we believe in the strength of the marketing calendar. And lastly, in the fourth quarter, you may recall that there were a couple of really rough banquet weekends relative to weather where we were shut down in a lot of places so the holiday banquet business was very choppy for us last year and we think that our execution coupled with a national sales program will certainly help us have a stronger performance on banquets than we did last year in the fourth quarter.

Douglas L. Schmick

We also definitely felt in the first quarter particularly second, third periods that the concerns we’ve been having about the [aspirational] diner on the weekends, that has definitely flattened out so we feel, as I said earlier, that we’re starting to enter a more stable environment that we can start growing from.

Operator

Your next question comes from Lawrence Miller – RBC Capital Markets.

Lawrence Miller – RBC Capital Markets

If I could just follow up on that question about guidance. Manny, it would imply that operating margins would improve pretty significantly the second half of the year and again, relative to our expectations I think what Jeff was talking about is I think operating profits at least in the margin line were a lot lower than we’ve probably ever seen them in your company. Can you kind of give us a sense of how you view the operating margin trend, at least for the full year, or even some progression in the quarters?

Emanuel N. Hilario

I think from a progression, without getting in to specific numbers, I think that particularly in the third quarter and fourth quarter in 2008 I think we’ll see a much better labor performance than we saw last year. I think that we’ve gotten better at scheduling labor in lower volume patterns so I think you’ll see better performance there. I think the other thing you’re seeing right now is we only have 60 restaurants out of a base of 86 that are on the comp base so we do have a large amount of new restaurants right now in our portfolio because we did have a pretty large growth rate the last couple of years. So, right now, I think that our ad focus and really bringing those restaurants up to speed faster or really working with the management teams there and operating the food costs as well as labor more effectively, I think we’ll do a much better job of managing the margin that third and fourth quarter as well. Once again, the other thing that will help us too is the fact that our focus on wild species in the third quarter will drive average checks and there’s also an opportunity here to drive some incremental penny profits coming out of some really good higher priced menus items in the third quarter.

Lawrence Miller – RBC Capital Markets

Doug, can you review for me a little bit deeper the customer mix commentary. You said you’re starting to see some stabilization. When did you start to see that? And again, how do you kind of measure that? And, can you also give us some sense of how the basic consumer is acting because it looks like some of the revPAR metrics that we track are starting to roll over. And, in particularly throughout the quarter if you have any kind of color on that.

Emanuel N. Hilario

Sure. We’ll segment that in to two parts, the [aspirational] consumer metric, typically our view where the [aspirational] impacts us the most is usually on the suburban restaurants and as well on the Saturday dinner part, as well as some Friday day part. What we have seen starting the middle of February this year is that we were having very strong negative comps previously on those two days of the week and we started seeing much more stable and more in line comp sales for those particular two days. So, we think that’s an indication that that group is not eroding as quickly as it was before. So, we’ve seen a stabilization of comp sales on those two days and on suburban stores. In terms of the business traveler, I think our success story there has been with promoting in USA Today and being very targeted with both Thursdays and Monday and I think we’re seeing still very strong sales on the business days of the week meaning Thursdays and Mondays and Tuesdays continue to be a very strong comp base for us right now. We haven’t seen any particular erosion on the business traveler yet.

Lawrence Miller – RBC Capital Markets

Then last question for me and I think it’s something that I asked last quarter about the food costs and we sort of see that spike up in food cost and I think your answer last quarter was you were being a little more conservative on the pricing. It sounded like there was some pressure on some of the commodities as well. What’s your view on the right amount of pricing that you should be taking in this environment? And then, what is the kind of outlook for food costs control the next several quarters?

Emanuel N. Hilario

Our approach on pricing right now is very, very conservative. As you look at our comp sales for the first quarter this year I would say we took about 1% in pricing this year relative to the previous year and that’s relatively low compared to what inflationary pressures were in the quarter. Our focus right now is through both the value bands is really to maintain the value on the menu to really try to manage the loss of traffic. We think that if we went too much more on the pricing it could impact that traffic at this point. So, our focus right now is to the extent practical is to hold pricing and the only way that we’re taking pricing right now is through the feature of premium species. We think that there is still an opportunity to voluntarily get people to take the higher price points. As a matter of fact, when we bring in the wild higher premium species we typically sell out of that fish species so that tells us there’s still a lot of demand for the right high end product which means our high end consumer is still taking that on.

Douglas L. Schmick

Product mix is really where the opportunity is but we feel for longer term positioning we need to stay very conservative on pricing through this year.

Operator

Your next question comes from Christopher O’Cull – SunTrust Robinson Humphrey.

Christopher O’Cull – SunTrust Robinson Humphrey

Just a follow up question on the business traveler, Manny could you give us an update just in terms of AMEX spending? I know that’s probably a good proxy for business usage. Have you seen any change in that as a percentage of your credit card mix?

Emanuel N. Hilario

Chris, we have not. But, once again it’s because our USA strategy is very much targeted toward that business traveler so [inaudible] would not have expected to see any erosion on the American Express spending.

Christopher O’Cull – SunTrust Robinson Humphrey

Then in terms of development, can you talk a little bit about how far out you are in terms of construction and when you would probably be able to, when you think about development for the back half of this year and even in to 09, what factors you’re weighing in terms of deciding whether to continue to develop at this rate?

Emanuel N. Hilario

We’re locked in on the majority of the leases, as a matter of fact, we’re locked in on all of them. What we’ve been able to and we’ve found out is we’re going back and to the extent practical we’re being pretty pesky about things like signage and some of the things with landlords and some of the things they had originally said no to. We’re going back and getting some concessions which we think are very favorable on the longer term. The 09 plan is starting to shell in but I just want to be clear, for the 09 plan that our internal focus here is to really focus on eight markets and eight locations within the markets so we’re being very careful and very discreet about making sure we are only taking on sites that clearly pass our ROI hurdles when we model them and take a look at them. So, I guess we’re really being very careful about which sites we take on. As a matter of fact, from a development team perspective we keep reminding our development team that it is more important to focus on the quality of real estate rather than focus on the pure number of sites we’ve got to get to. It’s really focusing on making sure we have very, very good real estate on the plate right now.

Douglas L. Schmick

And, I think it’s important to realize that again, what we’ve experienced in the past through cycles such as this is that an opportunity for a company like ourselves that is prudent in its development and has got a good opportunity to go in to new markets there are for strategic reasons the ability to continue to grow the brand where the competition has backed off on development and allow us to get in to filling out markets or entering new markets that longer term are going to be very important to be a part of. It’s really a cost effective time from a development perspective to be looking at those opportunities now. As long as what Manny said and we stay true and stay very disciplined. We still see development as opportunistic.

Christopher O’Cull – SunTrust Robinson Humphrey

The last time you guys I think gave an update was in your K and I think you mentioned 14 units in 09, is that still a reasonable expectation?

Emanuel N. Hilario

That’s within our 13% to 15% stated goal so we have not revised that 13% to 15% rate but once again we’re more focused on the bottoms up approach meaning that we’re really making sure that the quality of the real estate ultimately will drive the number. Yes, internally our stated number is still to be within that 13% to 15% growth rate.

Christopher O’Cull – SunTrust Robinson Humphrey

One last question, what’s the mix on the wild seafood items that you’re serving?

Emanuel N. Hilario

I don’t have that specifically in front of me, I would say probably about a third of our products.

Douglas L. Schmick

Ken, one of the things that we have found is that the consumer through focus groups and so on is putting more and more emphasis on the importance of wild product and we’re just starting this to really create actual sections and focus on wild product and really try to underline that in all of our promotional abilities. I think we’ll be able to have a more clear understanding what percentage mix that will drive here within the next two to three months. The initial response has been very positive.

Operator

Your next question comes from Julie Welter – Piper Jaffray.

Julie Welter – Piper Jaffray

Can you give any commentary on April trends to date?

Douglas L. Schmick

We feel good about April. Like I said before into the second and third quarter when we saw the weekend business start to stabilize we’re seeing a continuation of that. Again though we’re going against strong comps of last year the plan that we put together to come up with our year end projections is still very much in place.

Emanuel N. Hilario

In regards to just in general the second quarter, and I think we talked about this in our last conference call, we said that for the first and second quarter this year we probably will see traffic down in the 6% to 7% range so quite honestly we still feel pretty good that that’s our view for the first and second, well the first quarter obviously is over, but we’re still on track with that view for the second quarter this year.

Julie Welter – Piper Jaffray

Given the negative traffic, you said it was about 7% and then with price and mix, obviously your same store sales ran about a -5.8%. Do you think most of that was from price or was it more from the new mix from the wild salmon and the wild initiatives you had?

Emanuel N. Hilario

On the first quarter 1% was pricing and about 0.002% was product mix.

Operator

Your next question comes from Matt Difrisco – Oppenheimer.

Jake Bartlett – Oppenheimer

Doug, I had a quick question on whether, given the residential real estate market and the weakness of the residential consumer, is there any thought to shifting back towards the urban areas for future development in 2009 and beyond?

Douglas L. Schmick

We continue to stay focused on diversity meaning about a 50/50 split between suburban and urban and when you figure it takes a year and a half to two years from the time you find a location to actually build it out, I wouldn’t let any of the current economics compromise what I believe is a well balanced approach and that’s staying very well diversified between urban and suburban. The short answer is no, we’re holding with our 50/50 mix.

Jake Bartlett – Oppenheimer

I know you’re an old brand but you’re started to grow more in the last 10 years, do you see opportunity to gain comps through remodels? Become more attentive to a remodel program?

Douglas L. Schmick

We’ve continued as we have for many years to make sure that repair and maintenance and upgrade is an important part of what we do. We are constantly looking for new ways to add capacity. We’ve got a couple of programs in place now to add patio seating in two of our restaurants that currently don’t have it. We’re also looking to add a banquet facility in one of our locations and also to enhance the size of capacity and build out of some of our existing banquet facilities as a response to the national sales program that we’re putting in place. So we’re constantly looking for ways to increase the capacity side as well as the refresh and remodel but do remember the concept itself, one of the beauties of it is it’s built around a traditional and early deco look. It doesn’t require going in with a complete revamp in terms of look and aesthetic.

Jake Bartlett – Oppenheimer

One bookkeeping question for Manny, could you give us the Boathouse sales in the quarter, the total sales at the Boathouse concept?

Emanuel N. Hilario

The Boathouse sales for the quarter were about $6 million.

Operator

Your next question comes from Jonathan Waite – McKay Capital.

Jonathan Waite – McKay Capital Management

Just a couple housekeeping questions, first tax rate, what is that going to be for the year?

Emanuel N. Hilario

It’s going to be around 30%.

Jonathan Waite – McKay Capital Management

Last year you were much lower than that in the back half of the year, is that any cause for concern or are we going to use the tax rate again to get to our annual guidance?

Emanuel N. Hilario

Our tax rate could be lower than the 30%, it’s possible. One of the big factors that drives our rate is we do get a substantial credit for FICA tips which is usually pegged a pretty fixed number around $2.5 million. So depending on how our pre-tax income flacks it could be a different rate than the 30% that I mentioned there.

Jonathan Waite – McKay Capital Management

Interest expense, what do you expect that to be for the year?

Emanuel N. Hilario

Right now we finished the quarter at around $20 million drawn on the credit facility. I think that depending on how we do for the year we’ll probably have an outstanding balance somewhere between $20 and $25 million so I would factor in our interest, maybe 5.25% interest rate against that average balance out.

Operator

There appear to be no further questions at this time.

Douglas L. Schmick

Thanks again for everybody’s attention and focus today and like I said, I do feel very confident we’re on track to meet our projections for this year and the initiatives we put in place are definitely the correct initiatives and we feel very confident moving forward. With that, thank you very much.

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