California Pizza Kitchen, Inc. Q1 2008 Earnings Call Transcript

California Pizza Kitchen, Inc. (CPKI)

Q1 2008 Earnings Call

May 8, 2008 4:30 pm ET

Executives

Richard L. Rosenfield – Co-Chairman, Co-President and Co-Chief Executive Officer

Susan M. Collyns – Chief Financial Officer

Analysts

Jeff Farmer – Jefferies & Company, Inc.

Destin M. Tompkins – Morgan Keegan & Co.

David E. Tarantino – Robert W. Baird & Co.

Brad Whittington – KeyBanc Capital Markets

Nicole Miller-Regan – Piper Jaffray

Steven C. Anderson - MKM Partners

Mitchell J. Speiser – The Buckingham Research Group

Bryan Elliott – Raymond James & Associates

Larry Miller – RBC Capital Markets

Presentation

Operator

Welcome to the California Pizza Kitchen first quarter earnings conference call. (Operator Instructions) Mr. Rosenfield, you may begin the conference.

Richard L. Rosenfield

Thanks for joining us on our first quarter 2008 earnings call. My name is Rick Rosenfield, Co-CEO of California Pizza Kitchen. With me on the phone today is my Co-CEO, Larry Flax, as well as Sue Collyns, our Chief Financial Officer.

Before we begin I need to remind everyone that part of our discussions this afternoon will include forward-looking statements. They are not guarantees of future performance and therefore undue reliance should not be placed upon them. We refer all of you to our filings with the Securities and Exchange Commission for a more detailed discussion of the risks that may have a direct bearing on our operating results, performance and financial condition.

I am going to talk briefly about the first quarter and the current state of our business before turning the call over to Sue to review our financials and guidance.

The first quarter was, of course, better than our expectations. I think a fair question on many people’s minds is whether we’ve experienced the worst or are beginning to enter a period of stabilization. We believe it’s probably a bit premature to call the bottom today, but then again, we do not purport to be economists. At the same time, we’re somewhat hopeful that conditions will not fall materially from here and our updated 2008 guidance assumes a continuation of current circumstances.

For the quarter ended March 30, 2008, we grew total revenue 10.3% to $164.7 million. Our first quarter comp results of .4% were slightly above our annual expectations of (1%) to 0% and we were on top of a 4.7% increase in the first quarter of 2007.

We did experience some meaningful weather-related issues during the quarter and unfortunately, much of it was on the weekends when, frankly, it mattered most. I know that in the current economy you all have a heightened interest in our performance in California. Comp sales in California, which is home to about 42% of our comparable base, as measured by the number of units, were down 1.8%, and that was against a positive 4.2% comparison from last year and followed a sequential result of 0.02% in the fourth quarter of 2007.

I would like to emphasis once again that despite the softness in comps, our California stores in the comp base delivered sales volume of approximately $70,000 weekly. And that’s 9.1% higher than the rest of the country and it’s more than 200 basis points better in profit. Excluding California the rest of the country delivered positive comps of 2.4% in the quarter. And again, those results were achieved despite the bad weather that negatively affected us.

The new menu items that we rolled out last November are doing very well and we’re about to inaugurate our annual summer menu roll out in a couple of weeks. As usual, we’re quite excited about these menu items. The twice-annual rollouts are an important part of our culture and have an excellent history of creating new customers and enticing our most loyal guests to visit us more frequently.

We do not traditionally engage in significant expenditures on promotional activity, as evidenced by our annual marketing spend, which is about 1% of revenues. However, in light of the current environment, we decided to reinstitute a fun and historically successful marketing promotion we ran about ten years ago, which we call the Thank You Card Program.

It began on April 16 and here’s how it works. After dining at any of our full-service restaurants our guests are given a thank you card in a sealed envelope, which contains a guaranteed prize ranging from 10% off a meal to a deluxe trip for two to anywhere in the U.S. to $25,000 in cash. The key here is the envelope can only be opened by a CPK manager upon the guest’s return visit, which has to be before June 16.

Given the magnitude of this campaign, about 1.8 million cards in all, we believe each full-service restaurant will have hundreds of winners. Ultimately, the Thank You Card Program is our way of further connecting with our loyal guests while promoting increased business for our customers and fun for everyone.

Turning to the development front, in the first quarter we added five full-service restaurants. These were in Anaheim, California; Boca Raton, Florida; Philadelphia, Pennsylvania; Tukwila, Washington; and Marietta, Georgia. We are on track to build 12 full-service CPK restaurants this year. Two of the five restaurants, which opened in Q1, are in the smaller, just over 4,000 s.f., footprint, we believe this format with its less expensive construction costs, and lower ongoing operating costs will provide additional flexibility and growth.

With regard to ancillary revenues, our franchising royalty stream continues to grow as we focus on expansion in this area. During the first quarter our franchise partner added a full-service restaurant in the Santa Fe area of Mexico City, our second in that country, with a third location presently under construction.

We also recently signed an agreement with the Gourmet Gulf Company, a leading regional restaurant-holding group in the United Arab Emirates, to open a minimum of three CPK restaurants within the next two years, including one in Dubai, which will open later this year. HMSHost will also be building four new airport locations this year as they ramp up their CPK development.

This stream of pre-tax income is an important and growing part of our operating model and is especially helpful to our bottom line as we navigate through the current environment.

Our relationship with Kraft continues to also be an important part of our growth. In April we launched a terrific single-serve pizza product called California Pizza Kitchen Pizza For One, which is microwaveable in under three minutes. We are also continuing to explore opportunities with Kraft to further expand our product portfolio.

Our brand equity is certainly enhanced by CPK frozen pizzas, of which we are very proud, being available across 17,000 locations in all 50 states, as well as the advertising dollars Kraft spends on our company. Given the increased marketing spend many of our peers have undertaken this year to spur sales we are pleased that Kraft is sponsoring greater mind share at no out-of-pocket costs.

Turning to our core business, while we certainly cannot control the macro environment, we are in an offensive model and working hard to cut costs where we can, with new technology and greater efficiency, and also by allocating capital in the way we think is best.

Our real estate team understands full well that while we have scaled back development this year, we will do every “A” location that we are offered, because returns on building full-service restaurants in prime locations are very compelling.

We also feel very good about our accelerated repurchase program. We execute against this program because we believe it creates value for our shareholders and it’s an excellent vehicle to returning capital. While we are generally risk averse, and although we are taking on more debt than we have in the past, we are very comfortable with this strategy and we’re very pleased with the new $150 million line of credit that was secured yesterday which Sue will talk about in greater detail.

Overall we consider our positioning of targeting higher income demographics and providing a quality experience at a relatively lower price line, a key stress of CPK As always, and our goals are quality, consistency, execution, and to provide a great return on investment to shareholders that stands the test of time.

And with that, I’ll pass it over to Sue.

Susan M. Collyns

Total revenue for the first quarter, as Rick said, increased 10.3% to $164.7 million. This is consistent of comp sales growing at 10.1% to $162.8 million, royalties from Kraft increasing approximately 22.3% to $900,000, and franchise revenue from both domestic and international growing approximately 33% to $1.1 million.

Our first quarter comp sales increased 0.4% and did include 5.4% of price, 5.1% of negative guest count, and about 0.1% of public mix.

Our monthly comps broke down as follows: January was 1.1%, which was on top of 3.9% the previous year; and February and March were flat, which compared to 4.9% and 5.4% respectively last year.

We did have 32 closure days due to poor weather in the quarter and as Rick mentioned, many of these were on the weekend when the sales volumes are normally most robust. Company-wide, though, full-service CPK restaurants delivered a weekly sales average of $65,489, which as 0.6% down from the prior year at $65,904. Our food, beverage and paper supplies for the quarter were a real highlight at 24.4%, which was 20 basis points better than last year and 60 basis points better than the fourth quarter last year.

We benefited from favorable comparisons on produce as last year rain in Mexico and Florida did yield a poor crop. However, dairy costs went the other way and they were up this quarter by roughly 30 basis points. We are currently locked in on 25% of our dairy and now we’re estimating that cheese prices will be $1.80 per pound this year for the average.

Our wheat remains an area of concern with reduced acreage and an increase in demand from Europe, but we’re locked in on pizza dough for another few months, with a 12% increase over last year, while our pasta needs are locked in for the full year.

As commodity pressures show no signs of easing, we recently made some changes to the handling of our chicken, which has already reduced our cost per entrée, resulting in less waste and also allowed some more consistent product for our guests.

As part of our food costs best practices program, we sent many store management teams to local project houses this quarter, which educated and changed some behavioral practices and helped to lower our produce food costs. Examples include educating managers on contracted supplies, case pack efficiencies and quality standards.

Finally, we also reduced our paper costs by changing to a new supplier on our pizza boxes. Our offensive assault on all line items in costs and goods really demonstrates our ongoing commitment to manage costs proactively and we’re very proud of these results. We are not changing and portioning or quality standards and we are trying to think outside the box, to manage our costs in ways in order to maintain our high levels of guest satisfaction.

Moving on to labor, our labor expense was up 20 basis points to 38.2% of sales as was due to three key factors. The first one being lower sales leverage which drove the numbers to 38.2% due to seasonalities since Q1 is our lowest WSA quarter.

The second key driver on labor was minimum wage increases over the last year. We had minimum wage increases across seven states and those seven states represent approximately 60% of our sales base. And the third key component was that we did add five new stores during the quarter and that was on the heels of seven new stores in Q4, so we had some new store inefficiencies going on there.

Direct operating and occupancy costs were up 100 basis points to 20.4% of sales compared to the prior year. They were largely higher due to higher repairs and maintenance, credit card charges, advertising, and increasing rent charges, again, in the lowest WSA quarter of the year. Taken together this resulted in operating margins of 17.1%.

G&A expense increased 70 basis points to 7.9% of total revenue and this includes 7% of what we call core G&A and 90 basis of stock option expense which totaled approximately $1.4 million. We saw leverage in the core G&A number, which was better than last year by 10 basis points but we saw most of the improvement in G&A came from our stock option expense number, which as many of you may recall from last year, was saddled with an additional $600,000 of accelerated vesting on some restricted stock shares. We didn’t have that this quarter which really helped that result.

Moving on to depreciation, those costs were 6.6% of sales and they were 110 basis points higher than last year’s first quarter due to a $730,000 charge associated with termination costs for slowing new store developments.

You may recall that we put an extra filter on this year’s new store openings although some of the restaurants we had originally planned for late 2008 were already in the early stages of development. Excluding this $730,000 charge, depreciation would have been around 6.2%, which is in line with the sequential quarter and where we actually expect the balance of the year to be.

Our pre-opening costs turned $1.7 million compared to $1.4 million last year and included five full-service restaurants that we opened in the first quarter compared to three last year as well as approximately $300,000 in expansion rent charges.

Our net interest expense was $501,000, which was right in line with our expectations, and that compared to interest income of $86,000 last year.

Our income tax expense totaled $1.1 million in the first quarter and represented an effective tax rate of around 31%. That compares to 34.6% last year due to continuing benefits from tax credits and a lower earnings before tax number.

All of this resulted in a first quarter EPS of $0.09, which was $0.01 higher from the top end of the range that we guided to on April 8. This compared to $0.12 for the same period of 2007. Our diluted share count ended up at 26.8 million and that was down from 30 million shares on a year-ago basis, with adjusted, but in line with our estimate of approximately 27 million shares.

We repurchased and retired approximately 2.8 million of our shares during the first quarter, under our 50 million buy back authorization, and that includes the 46.3 million accelerated share repurchase that we spoke about on the last earnings call.

You might remember, on the last earnings call we spoke about the fact that the accelerated share repurchase straddles around a 2.5 to five month period so only part of the share retirement is factored into the Q1 count. We don’t get all the benefits on the 2.8 million shares we purchased in the first quarter because, as you might remember, shares repurchased get prorated in line with the dates that they are purchased within the quarter.

Moving on to the balance sheet, we ended the first quarter with $12.4 million in cash and $70 million of debt and in Q1 we still had the $100 million line of credit in place and that was reduced only by this $70 million of debt and the $6.1 million letters of credit that we had.

However, concurrent with today’s earnings release, we also announced the closing of our $150 million syndication deal, which has a $50 million accordion feature. It matures on May 7, 2013, and it replaces the company’s existing $100 million line of credit with Bank of America. We anticipate using the proceeds for working capital, capital expenditures, share repurchases, and other general corporate purposes.

Moving on to capital expenditure, our Q1 CapEx totaled $15.6 million and that included approximately $13.7 million in new restaurants with the remainder related to maintenance in our existing locations. We moved nicely along the minor remodel front and completed nine of the 20 mini-remodels that we previously discussed in the first quarter, so we are very pleased with that progress.

We plan on completing three other substantial remodels in the fourth quarter of 2008 and the balance of the mini-remodels throughout the rest of the year. Our goal here is to protect and defend our market share and to provide extra value to consumers, because we know remodels drive check outreach as well as guest satisfaction scores.

Our total CapEx for 2008, including these remodels, capitalized maintenance, as well as new stores, was still estimated at approximately $62 million before tenant improvement allowance, which we still estimate at approximately $4 million.

Moving on to the second quarter, we anticipate flat comps right now, opening up three full-service CPKs, and our franchise partners will be opening three international full-service CPKs, two of which have already opened. The third is due in Mexico before the end of the month and we’re excited about that.

These key drivers model out an EPS between $0.16 to $0.17 in the second quarter and it includes a diluted share count of 26 million shares.

In terms of our full-year guidance that we included in the press release, until we see consistent up ticks in traffic, we will remain cautious and believe that a (1%) to 0% comp number for the full year is the right range for us to forecast. Although of the 28 states that are in our comp base, we had 11 states improve over the fourth quarter, including Florida, Virginia, and Massachusetts. So we did have 17 states worsen in the first quarter, including California which moved from 0.2% in Q4 to (1.8%) in Q1.

We’re also updating our guidance by $0.03 for the full year to $0.59 to $0.65 EPS and we reiterate that we are on track to deliver 12 new full-service CPK stores for the year, one L.A. restaurant, six internationals, and four airport openings, with our partner HMSHost.

And with that, I’ll turn the mic back to Rick for closing comments.

Richard L. Rosenfield

I want to conclude our discussion today by giving you some insights into a few action items that we believe will drive our organization forward in 2008.

First, we revamped our bonus structure to focus on sales and profitability, which better aligns shareholder and operational goals. Second, in Q2 we are implementing a number of technological improvements, including wireless curbside payment and online ordering, which are intended to make CPK more efficient and enhances the guest experience.

Third, we are developing our management team by providing them the training and tools they need to succeed and grow within our CPK culture. Ultimately people determine the performance capacity of an organization and CPK has always been about people.

And finally, in addition to our core of full-service restaurants, we’re focused on the expansion of our ancillary revenue streams, including international full-service, domestic airports, alternative venues, and Kraft. We’ve already made great progress in this area but the runway is still quite long. Although some of these items are more immediate in nature, these are initiatives that will also affect the longer term, which is our main concern.

I hope you can appreciate our focus on continued improvement, prudent allocation of capital, and enhancing EPS growth.

And with that, I would like to open the line for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Jeff Farmer - Jefferies & Company.

Jeff Farmer – Jefferies & Company, Inc.

You’ve been able to control your food costs better than most over the last couple of quarters. Do you expect to see continued food cost favorability for the balance of the year or do you think you’ll be lapping some of the initiatives you’ve put in place toward the back half of last year?

Susan M. Collyns

Food cost has been an area that we think we have strength in for a couple of reasons. One, because we have a very experienced and tenured back of the house, and CPK has always been about quality, in terms of people as well as food cost items, I think that’s been an ongoing strength. Last year we ended up around 24.7%, I think last quarter we said 25% for the full year. That’s what we’re anticipating with some ongoing pressures and having to renegotiate some items toward the back end of the year.

So Q1 was disproportionately strong, I would like to think we could continue that momentum. We’ve certainly got the action plans in place, but I haven’t built that up side into the back end of the year at this point. I’m still giving for a full number 25%.

Jeff Farmer – Jefferies & Company, Inc.

On your intensified promotional efforts, do you really see that as a short-term initiative or perhaps could this turn into something longer term? And the longer-term question is what the plan is for next year when potentially you are going to have to lap some favorable same store comparisons as you roll over this bounce back promotion?

Richard L. Rosenfield

Jeff, we treaded into this carefully. One thing we’ve always been careful about is we don’t want to start being thought of as discounting and we don’t think of ourselves as it. This was a one-time promotion in our mind that we brought something back from 10 years ago that was a lot of fun, very successful. We thought we would really be rewarded and appreciated by our guests in this environment.

And we’ll have to think about it before next year in terms of lapping the comps. But, ultimately our goal in lapping comps is always to provide new menu items, great service, attention to quality and it has worked for us in the past and hopefully by a year from now we will be in a better economic environment.

Susan M. Collyns

Jeff, is even normal circumstances, lapping a 5.4% comp of last year was going to be challenging. And so this promotion, as Rick said, really provided an insurance policy to hold the comp to at least that flat percent number that we were talking about in a tough environment.

Jeff Farmer – Jefferies & Company, Inc.

And understanding you have what looks to be probably still five weeks left to redeem this promotion, what are you seeing so far? Have you seen some traction on the traffic side?

Susan M. Collyns

I would say that it’s going in line with our expectations.

Jeff Farmer – Jefferies & Company, Inc.

And just from a gross cost of the promotion, is this going to meaningfully impact the P&L?

Susan M. Collyns

Not at all, we have those baked into the 0% comp and the EPS guidance of $0.16 to $0.17.

Operator

Your next question comes from Destin Tompkins - Morgan Keegan.

Destin M. Tompkins – Morgan Keegan & Co.

I think you mentioned flat same store sales for Q2 and given that comps were positive in Q1 and the comparisons get materially easier in the back half of the year, should we just read conservatism into the negative 1% to flat guidance for the full year?

Susan M. Collyns

I think that’s a good place to start.

Destin M. Tompkins – Morgan Keegan & Co.

I think you talked about the smaller prototype. There’s two of the five that opened in Q1, a little over 4,000 s.f. What would be the expectation on average weekly sales trends for those units?

Susan M. Collyns

They’re actually doing pretty nicely. They started out higher, they’re settling out into the 60s, the early 60s, each. And so at a capital cost that is significantly lower than our existing stores they ran at an average of 2.2 million to 2.3 million. We’re still hitting the ROI hurdles that we’re looking for, which is nice.

Richard L. Rosenfield

At these numbers it looks very good to us. And they feel good to us, too. These are smaller stores. Every thing about them feels good. And as I mentioned earlier, I think it gives us another aspect of flexibility in our footprint, as we look at all the real estate available around the country.

Destin M. Tompkins – Morgan Keegan & Co.

And just an update on the Kraft business, if you can give us any color on the early trends of the single-serve pizzas. And then I believe you had talked about an assumption for 23% growth in the Kraft business for the full year. Can you just give us a couple of updates there?

Richard L. Rosenfield

We really don’t have an update on it because it’s just selling in right now. So, there’s no news for us. Other than we’re very enthusiastic. I encourage all of you to go try it. They’re really an exciting product.

Susan M. Collyns

I think we’ve got a total number of around $170 million at the retail line, modeled for Kraft this year. That’s what we’re working toward with them.

Operator

Your next question comes from David Tarantino - Robert W. Baird.

David E. Tarantino – Robert W. Baird & Co.

Could you talk about what type of comps you’ve seen to date in the quarter, Q2?

Susan M. Collyns

Well, I think the fact that we’re guiding 0% comp so far in Q2 says it all. And if you think about the fact that January was 1.1%, February and March were flat, the fact that we are still saying 0% comp, knowing that we have this promotion in place, would tend to imply that things have decelerated. And that would be a fair assumption. So I think, as Rick started off the summary today by saying that we’re not economist, that we don’t think we’ve seen the bottom yet, I think that’s right.

David E. Tarantino – Robert W. Baird & Co.

And just to clarify were you impacted at all by the Easter shift and would that have been a factor early on in the quarter?

Susan M. Collyns

Yes, Easter did impact us, but to be honest, it was more relative to the weather. Easter was like 0.1% effective comp, whereas the 32 store closure days associated with weather equaled about 0.6 % for us.

And then we also had ongoing construction issues surrounding our restaurants as the landlords that were in continued to upgrade and develop those properties, so we actually estimate the construction was almost 1% of comp. But that’s more of an internal number rather than something that we report ongoing. It was really the weather and Easter that was a 0.7% comp in total.

David E. Tarantino – Robert W. Baird & Co.

The core G&A down 10 basis points, is that the type of performance you would expect for the balance of the year or do you think you can get a little bit more leverage there?

Susan M. Collyns

I think we’re shooting on a full-year percent, on the core line item, close to that 6.8% number is what we’re looking at.

Operator

Your next question comes from Brad Whittington - KeyBanc Capital Markets.

Brad Whittington – KeyBanc Capital Markets

You increased your line of credit and I believe on the last call you said that the goal was to have all the debt paid down by the end of 2009?

Susan M. Collyns

That’s correct.

Brad Whittington – KeyBanc Capital Markets

So, is that strategy still in place or should we assume that maybe debt stays in a little longer now?

Susan M. Collyns

No. The new line of credit was just to give us additional flexibility up from the Board for other general corporate purposes as we say in the press release. We have the same level of debt that we did have with having completed this accelerated share repurchase, or it will be completed I should say, by July. That will conclude that particular authorization.

What this does is give the Board flexibility for another share repurchase or, as I say, any other corporate purposes. But in the absence of another authorization, we will be on track. With our new store openings, our remodels, paying down the debt to pay it all off by December of next year.

Of course, if we engage in another repurchase, we would have to re-evaluate and give you some additional modeling.

Brad Whittington – KeyBanc Capital Markets

And on pizza dough, what percentage of however you want to do it, revenues or same store food costs, does that represent?

Susan M. Collyns

Well, pizza sales are approximately 1/3 of our total sales, but the pizza dough itself is immaterial relative to our total costs of goods. It’s less than 3% of our total cost of goods line, for the full year, 3% of our cost of goods.

Brad Whittington – KeyBanc Capital Markets

Should we assume that with Easter having just a very slight negative impact on the first quarter, that Easter not being in the second quarter would be a similar, just maybe 10 basis points of positive impact?

Susan M. Collyns

That’s probably a fair way to look at it. To be honest, as I say, Easter wasn’t a key driver for us this year. The weather was. And I also think, after speaking to some other CFOs in retail, the way that spring break broke across the country was very different this year.

Operator

Your next question comes from Nicole Miller - Piper Jaffray.

Nicole Miller-Regan – Piper Jaffray

I was just wondering if you could go over the historical redemption rates for the bounce back program and what you’re seeing right now?

Susan M. Collyns

We weren’t a public company last time we ran this program so suffice it to say the number was double digit in the redemption that helped us tremendously. Right now, as I said, the program is going in line with expectations and we’re pleased about that.

Nicole Miller-Regan – Piper Jaffray

And is any potential up side factored in the guidance?

Susan M. Collyns

No upside is factored in beyond the expectations that we do have for the bounce back, as well as our new menu, as well as other operating initiatives. Like the wireless curb side and the online ordering. So, we think we’ve got a number of initiatives already baked in there at the 0% comp number.

If something else were to happen beyond what we’re seeing for the first six weeks into this quarter, it would have to be pretty significant to change that comp number and the EPS range. Not to say that it couldn’t happen, what it is to say is that we haven’t seen that for the first six weeks, therefore we haven’t baked that in?

Nicole Miller-Regan – Piper Jaffray

On a franchise side internationally, does Kraft provide you an opportunity to take your frozen items international?

Richard L. Rosenfield

To the best of my knowledge Kraft does not distribute their frozen items internationally. Not to say that they wouldn’t, we’ve talked to them about it as well, but I don’t think there are any real present plans.

Nicole Miller-Regan – Piper Jaffray

Do they have manufacturing ability for like a pipeline to produce anything like that?

Richard L. Rosenfield

That would require new manufacturing. They don’t presently have that capacity.

Nicole Miller-Regan – Piper Jaffray

And what is an update on expected additional item logs with Kraft? Are there incoming this year?

Richard L. Rosenfield

It doesn’t look like we’re going to get non-pizza products out this year. We’re still working on them. And we’re working on a wide variety of products with Kraft but, as I say, not only non-pizza products, but also non-frozen products. But we don’t have any we can say are going to happen this year, at this point.

Nicole Miller-Regan – Piper Jaffray

Sue, historically you haven’t leveraged G&A as much as you might [inaudible]. Is there a reason for that? Like maybe it’s been the way you account for recalls and if that is the case can you talk about an ability for that to reverse itself?

Susan M. Collyns

We take a very conservative position, depreciating our assets and rather than taking them over the life of the lease together with the option, which many of our peers do, we simply depreciate them over, in accordance with individual policies but over the term of the lease. So that tends to be, for example, a 10-year period or shorter compared to a 15-year period that might be used for our peer group.

We are looking at whether or not that is something we want to consider changing going forward, but have not done so at this point in time.

Operator

Your next question comes from Steve Anderson - MKM Partners.

Steven C. Anderson - MKM Partners

A question on the interest cost line, have you provided any guidance for the balance of the year on that line?

Susan M. Collyns

I think we said, Steven, that the full-year number is expected to be approximately $3 million in interest expense.

Operator

Your next question comes from Mitch Speiser - Buckingham Research.

Mitchell J. Speiser – The Buckingham Research Group

On the new stores, I believe the target is for $65,000 for the new store AUVs. Can you give us an update on how those new stores are running?

Susan M. Collyns

They’re actually running in line with our expectations. They certainly did in Q1 so we were pleased to see that. In fact, it was north of that. We’re happy with the results so far, for the portfolio.

Mitchell J. Speiser – The Buckingham Research Group

I just wanted to make sure that I got it right that you’re expecting cheese to be $1.80 for the year?

Susan M. Collyns

Yes. It seems optimistic, doesn’t it? We do have 25% hedged and we have one month of that hedge this quarter with two months of that hedged in Q4 at a significantly lower price than $1.80.

Mitchell J. Speiser – The Buckingham Research Group

And I believe you’re lapping about 3% pricing in June. Can you give us an update, will you be thinking about 3% price in the summer menu?

Susan M. Collyns

No. It won’t be that high. Actually, it will be running closer to 1.4%. That’s what we plan to roll on. And you’re right, we’ll have around 3.1% roll off. So right now we anticipate approximately 4.2% to 4.3% for the full year.

Mitchell J. Speiser – The Buckingham Research Group

Is that perhaps one reason why you’re keeping with the flat to down one that the pricing will come in a bit?

Susan M. Collyns

Yes, it is.

Mitchell J. Speiser – The Buckingham Research Group

You did mention that things have decelerated. Is it a mall traffic issue or is it just general deceleration? Can you give us further comment on that?

Susan M. Collyns

I’m not sure it’s related to any particular environment. What we’re seeing is dinner fall off a little bit and off-premise sales also being impacted, relative to the double-digit comps that they were all trekking out last year. That’s also come off.

Mitchell J. Speiser – The Buckingham Research Group

On the promotion, how will the redemptions flow through the income statement? Will that flow through the direct operating and occupancy line?

Susan M. Collyns

No, the way that works, Mitch, is it is basically a discount, just off sales in terms of the 10%, 20% or 50% off. And then the other line items, the trip for two, the $2,500 in cash, the $5,000 in cash, and the $1,000 in cash, they actually don’t total that much. That’ll just be going straight through the direct operating and occupancy lines.

Operator

Your next question comes from Bryan Elliott - Raymond James.

Bryan Elliott – Raymond James & Associates

Just a clarification to the stock repo details, are you done? Did you get it all finished? Did you say?

Susan M. Collyns

Yes. Well, the way it works is there is this minimum that they deliver and Bank of America has completed that minimum delivery, and then on top of that there is a 2.5 to 5 month period by which the rest of the shares are delivered and settled. So that won’t actually occur until the end of July, so we have approximately 2.7 million shares that we have received, associated with the initial purchase, and then on top of that, we actually, also, before we did the ASR, we went out on the open market, you might remember. And we managed to scoop up around 335,000 shares at around $11. So we also have those.

Bryan Elliott – Raymond James & Associates

So in the Q1, when the Q is out, do you have a cash amount of repurchase that will show up?

Susan M. Collyns

Well, we had to actually deliver to Bank of America the full $46.3 million so that cash did leave our camp and go across to Bank of America. $46.3 million was the dollar value associated with the ASR.

Bryan Elliott – Raymond James & Associates

Any net settlement in the future, fairly minimal, that’s the bulk of the money.

Susan M. Collyns

We have given them all the money. The questions will be how many shares we receive.

Bryan Elliott – Raymond James & Associates

And can you give us some indication of the terms of the new credit line that you just announced?

Susan M. Collyns

Well, everything will actually be filed with our 10-K tomorrow, so you will be able to peel through that in as much detail as you would like. But it matures on May 7 [2013]. It replaces a $100 million line we have. It’s $150 million, which has a $50 million accordion. There were five banks involved in the syndication, who are new partners and we are very excited to have those with us. We’ve got B of A being the lead and JP Morgan being the agent. And there are various other details in line with covenant provision and you can read about them tomorrow.

Bryan Elliott – Raymond James & Associates

How about rate?

Susan M. Collyns

It varies, but around L plus 125 then steps down.

Operator

Your last question comes from Larry Miller - RBC Capital Markets.

Bryan Elliott – Raymond James & Associates

Can you give us a pretty good run down on comps for sales throughout the quarter and you broke out California? Can you give us a trend for California throughout the quarter and possibly into the current quarter, if you have anything there? Along those lines, a lot of folks have been talking about some very regionalized weakness in some parts of California. Have you looked at segmenting trends in California further? Have you given any thought on that?

Susan M. Collyns

We have. We break up California six different ways, depending upon the markets that we’re in. And I think the best word to describe it, unfortunately, is choppy, without stabilization. I think the best comment we could make at this point is that so far in Q2, or for the month of April, California stabilized, so it did not improve from where we were at in Q1, but it did not decrease, either. And again, we actually attribute that right now to our bounce back program.

Bryan Elliott – Raymond James & Associates

There’s no stimulus factored into your same store sales guidance, is that correct? [inaudible] rebate checks.

Susan M. Collyns

It’s all part of the 1% comp.

Richard L. Rosenfield

But we’re not counting on significant width from the stimulus package.

Bryan Elliott – Raymond James & Associates

And just for comparability. You said $1.80 for cheese on an average. What was that in 2007 on average?

Susan M. Collyns

I don’t have that in front of me. I can get that to you.

Operator

At this time there are no further questions. I will return the call to you for closing remarks.

Susan M. Collyns

I actually have that number. The full year number [2007] for cheese was $1.70 per pound.

Richard L. Rosenfield

And with that ending on the cheese note, we thank you all for joining us and we look forward to hearing from you and talking to you again next quarter.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: [e-mail]. Thank you!