McCormick & Schmick’s Seafood Restaurants, Inc. Q2 2008 Earnings Call Transcript

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

Q2 2008 Earnings Call

August 6, 2008 5:00 pm ET

Executives

Emanuel N. Hilario – Chief Financial Officer

Douglas L. Schmick – Chairman and Chief Executive Officer

Analysts

Matthew Difrisco – Oppenheimer & Co.

Christopher O’Cull – Suntrust Robinson Humphrey

Jeffrey Omohundro – Wachovia Capital Markets, LLC

Nicole Miller – Piper Jaffray

Justin Maurer – Lord, Abbett & Co.

Colin Guheen – Cowen and Company

Presentation

Operator

Welcome to today’s McCormick & Schmick’s Seafood Restaurants, Inc. second quarter 2008 earnings conference. (Operator Instructions) And now at this time I would like to turn the conference over to Manny Hilario, Chief Financial Officer.

Emanuel N. Hilario

By now everyone should have access to our second quarter 2008 earnings press release. It may also be found on your website at www.McCormickAndSchmicks.com under the investor relations section. Before we begin our formal 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 condition.

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

Douglas L. Schmick

We have a number of things to discuss on our call today. I will provide some commentary on the overall environment, our second quarter results along with the various initiatives we have in place with respect to our restaurants, marketing efforts and development plans. Manny will then conduct a detailed review of our financials and after that we’ll be happy to answer any questions you might have.

We’re in a unique period of time with the consumer today. As I look back on what we have accomplished over the past 36 years I think the distinct nature of our brand is what has allowed us to endure and prosper in a competitive restaurant landscape, and I am therefore as optimistic as ever with respect to our long term potential even if the near term appears difficult to predict.

For the second quarter we delivered revenue growth of 11.2% which includes a comparable sales decline of 4.9%. Please also note that our comparisons were much more difficult in the second quarter than they will be in the second half of the year as we went up against a comp last year of a positive 2.3% in the second quarter 07. At the same time our results reflect a sequential improvement from the first quarter of 08. Earnings per share for the second quarter of 08 was $0.16 which reflected the challenging environment and a $452,000 charge of our exit from Restaurant K in Washington, DC or approximately $0.02 per share.

However, our year-to-date performance does keep us on track with respect to our full year guidance adjusted for the $0.02 charge. Overall, I believe that we are managing our operations well under the circumstances as I’ll elaborate on momentarily. On a regional basis our comparable restaurant sales in the Northwest held up very well as did the Southwest including Texas. We opened one restaurant in the second quarter in National Harbor, Maryland bringing our second quarter year-to-date total openings to four.

Due to continued disappointing profitability we closed our Restaurant K location in downtown Washington, DC which resulted in a charge of $452,000 for the quarter. This location served a modern American menu which was outside our core competency and we felt that given the economic conditions it made better sense to reallocate our focus and resources to our core McCormick & Schmick branded restaurants. To date in the third quarter we have opened one restaurant in Raleigh, North Carolina, our third in the state and one in Atlantic City, New Jersey in the Harrah’s Resort and Casino which we are thrilled to be participating in the transformation of that city into a recognized, upscale entertainment destination.

Now let’s discuss our revenue building initiatives. Throughout the year we have been communicating the value and broad appeal of our menu and targeting our most loyal guests. In the second quarter we used the specialty section on the right side of our menu to highlight wild halibut, wild Alaskan salmon and wild sea bass. We have found through our research and experience that select featured wild products have a great appeal with our higher end guests and continue to show demand with price points in the near $30.00 range. With a consumer with household incomes lower than $75,000 who visit us one to two times a year the majority of our menus have what we call a “value band” which is made up of anywhere from 10 to 14 items priced between $7.95 and $13.95. The value band accounts for only 3% to 5% of our menu mix but appeals with the middle income consumer especially in these economic challenging times.

Similar to last quarter we have seen stabilization at our suburban restaurants as well as some Friday day parts and Saturday dinner part which indicates to us that the decline in these guests’ dining frequency has at least plateaued and we do not see further erosion in this consumer base. To further bolster also our value appeal we have not taken pricing increase in the second quarter. The inflationary pressures we are facing in our direct costs were up between 4% to 5%. For the third quarter 08 we have taken a slight pricing increase of approximately 2% to 3% to offset some of these inflationary pressures. Our enhanced steak program reinforces our commitment to broad based appeal, value and eliminates the veto vote and now compromises approximately 12% of sales.

Average seafood entrées are around $22.00 and so the additional steak mix with the price point of up to $30.00 range has increased our average check. Our wine-by-the-glass program has also been a big hit for us. We continue to promote our two pour program which consists of a five and an eight ounce pour. The majority of our guests are trading up to the eight ounce which we are actually seeing positive comp on wine-by-the-glass sales. The wine program is particularly important given the fact that there are often shorter wait times because of lower traffic resulting in lower spillover into the bar, which has enabled us to effectively market the wine program at the dining room table.

We recently launched our national banquet sales initiative with the intention to drive sales from national accounts to a centralized system. Among many opportunities we are targeting: institutions that do road shows. Our national sales initiative allows them to call one number and set up banquets across our entire restaurant portfolio without having to call individual restaurants directly in each city. We have already seen success from the early stage development of this initiative as we have positive comparable banquet sales for the second quarter and we hope to see further up take in banquet reservations beginning in the fourth quarter of 08 and into next year.

We continue to focus our advertising efforts on business travelers and local business persons through the USA Today with both Thursdays and Mondays insertions as well as The Business Journal, Crain’s and in-flight publications. This has been a very successful strategy for us and in fact, whenever we run a USA Today ad we see a spike in our online reservation system. Also, American Express credit card utilization has been generally slack to slightly positive at our restaurant which exceeds the overall comparable sales results and suggests that we are benefiting from the participation of local businesses and business travel in our restaurants. For those of you who have noticed yourselves added to our extensive database of over 100,000 email address you will notice that we have also been e-marketing to you our Fresh Cod E-News. This is a very inexpensive means to reach guests who are interested in hearing from us with helpful hints and updates.

Aside from this we are utilizing our preferred guests database to do more direct one-on-one conversations as this group is our most enthusiastic guest type and can be more easily influenced to come back regularly. We have around 40,000 guests now in the preferred database with a goal of reaching between 50,000 to 60,000 by the end of the year. These preferred guests have certainly earned that distinction by coming in on an average of 12 times a year versus a typical guest who comes in three to five times and may spend as much as 30% more per visit than their counterparts. We have also been able to demonstrate internally those restaurants that have 400 to 500 plus members in their database outperform their peers’ comparable sales.

Even when in general guests counts are down there are still locations with capacity opportunities. Specifically, we are adding patio seating at two locations, a banquet facility to one location and looking to expand some of our existing banquet facilities as a response to the national sales program. In addition to our strong set of revenue initiatives I am very pleased with our progress in right sizing our current cost structure to the current environment and business needs. Our chief focus has been and will continue to be to eliminate all unnecessary costs out of our business model without impacting the guest experience. Manny will provide a detailed review of those initiatives and results in his report.

In regard to development our stated long term growth target has been to grow restaurants at a prudent pace of between 13% and 15% new units per year. Because of the current macroeconomic environment, particularly uncertainty regarding consumer spending, and in line with our disciplined capital utilization we are only accepting locations that provide for superior return on investments and provide for low revenue risk, low leasing risk and opportunistic lease terms and provide superlative market presence. Based on this approach we plan to open 11 restaurants in 08, six of which have been opened and six restaurants in 09. The 09 target may change in case we find additional locations that meet this strategy.

Lastly, we know that the best brands are those that stay true to who they are and never compromise on execution and service. These are the qualities that have enabled us to build the McCormick & Schmick brand for over the last 36 years and will us moving in the right direction.

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

Emanuel N. Hilario

Before reviewing the quarter I’d like to first acknowledge Doug in receiving the Ernst & Young Entrepreneur of the Year 2008 award for the Pacific Northwest which recognizes outstanding entrepreneurs who are building and leading dynamic, growing businesses. It’s certainly a well deserved honor and all of us at McCormick & Schmick’s are very proud of and appreciate his accomplishments in co-founding and leading this organization.

Let me now talk a little bit about the cost saving initiatives. In addition to all the revenue initiatives that Doug mentioned we are taking a very close look at our cost and what we can do to minimize them without impacting guest service. First, we are very actively managing our product mix to our menu offerings which help us mitigate some of the inflation impact. We have increased our focus on shrimp and tilapia which tends to be in the $7.00 to $8.00 price per pound range. On a relative basis such pieces are much more moderately priced than salmon, halibut and other species which are typically above $10.00 per pound. We have secured our shrimp pricing which is about 5% to 7% of our product mix along with 85% of our beef with is greater than 12% of our product mix.

We were able to negotiate a lower markup on our groceries through the Sysco system, adding items like dairy and some produce to our contract which we had always sourced locally to try to take advantage of more consistent pricing and of our scale. We have also changed our delivery process from our four weekly deliveries per restaurant to two in order to take advantage of a break in drop shipments which in turn yields lower freight and fuel surcharges.

On the labor side we have very aggressively examined head counts and salaries to ensure that we are not overstaffed in managers for the current volumes. We went back and took a close look at all our staff in both corporate and at restaurant level. Also worth noting that only 60 of our total 86 company owned restaurants are in the comp base right now. We are especially focused on bring those non-comp restaurants up to speed faster and have been working with the management teams there with the focus on effectively managing food costs and labor.

With regards to development we have stopped and in some cases received additional concessions from our landlords on CAM charges, better signage and even more favorable rent terms for the 2008 and 2009 leases. We are still planning on a 50/50 split between suburban and urban and given that it generally takes a year and a half to two years from the time a location is identified to the actual build out, we will not allow the current economics to compromise what we believe is a well balanced approach.

Let’s now review in detail the financial results for the quarter. For the second quarter ended June 28, 2008 total revenues increased 11.2% to $99.7 million from $89.6 million in the second quarter of 2007. Comparable restaurant sales decrease of 4.9% was comprised of a 5.4% decrease in traffic coupled with a 0.2% decrease into lower net pricing and that was partially offset by product mix of 0.7 positive. Please note that the restaurants are included in the comparable restaurant base in the first quarter following their 18^th month of operation. The second quarter of 2008 we had a total of 60 restaurants in the comparable base and will be adding to our comparable base three and six locations in the third and the fourth quarter respectively.

In regards to our restaurant operating costs and expenses as well as profitability for the period, not surprising our comparable sales results were the main case of deleveraging across the P&L. Food and beverage costs increased $4.2 million or 16.2% to $30 million in the second quarter 2008 from $25.8 million from the prior year. This increase was primarily due to the 14 restaurants added since June 30, 2007. Food and beverage costs as a percentage of revenues increased to 30.1% in the second quarter 2008 from 28.8% from the prior year primarily due to the higher percentage of new restaurants which typically run higher food and beverage costs as a percentage of revenues during the first 18 months of operation, as well as inflationary pressures impacting our commodity costs including the price of fish, poultry, dairy, fruits, produce and liquor. The fact that inflation is outpacing our net price increase has put pressure on this line item and as Doug discussed earlier we plan to have higher net pricing in the third and fourth quarter to alleviate this pressure.

Labor costs increased $4.5 million or 16.3% to $32.1 million in the second quarter 2008, $27.6 million in the third quarter in the 13 week period ended June 30, 2007. This increase was primarily due to the 14 restaurants added since June 30, 2007. Labor costs as a percentage of revenues increased to 32.2% in the second quarter 2008 from 30.8% in the prior year primarily due to deleveraging of revenues, coupled with the higher percentage of new restaurants which typically have higher labor run rates in the first 18 months of operation.

Operating costs increased $1.8 million or 13.2%; $15.4 million in the second quarter 2008 from $13.6 million in the prior year. Increase was primarily due to the 14 restaurants added since June 30, 2007. Operating costs as a percentage of revenues increased to 15.4% in the second quarter 2008 from 15.2% in the prior year primarily due to increases in utilities to advertising expenses and that was partially offset by a decrease in general liability insurance costs.

Occupancy costs increased $1.5 million or 19% to $9.3 million in the second quarter 2008 from $7.8 million in the prior year primarily due to the 14 restaurants added since June 30, 2007. Occupancy costs as a percentage of revenues increased to 9.3% in the second quarter from 8.7% in the prior year primarily due to deleveraging of revenues on fixed costs.

General and administrative expenses increased a modest $0.1 million or 1.6% to $5.1 million in the second quarter 2008 from $5.1 million in the prior year primarily due to lower legal and share based compensation. General and administrative expenses as a percentage of revenues decreased to 5.2% in the second quarter 2008 from 5.6%. We believe that the 40 BIPS or basis point decrease is reflective of the many costs and issues that I have discussed with G&A growing at a much lower pace than our restaurant growth.

Restaurant pre-opening costs were $0.7 million in the second quarter of 2008 compared to $0.5 million in the second quarter of 2007. We opened one restaurant in the second quarter of 2008 in National Harbor of Maryland compared to one restaurant in the second quarter of 2007. As well as we make preparations for four restaurants we intend to open in the third quarter, of which we have already opened two: one in Raleigh, North Carolina and one in Atlantic City, New Jersey. We are targeting approximately $350,000 of pre-opening expenses for each of our future openings. Amount also reflects the great focus on training which we think will pay dividends in terms of our new restaurant’s success with opening at strong sales volumes and ability to costs in line sooner.

Depreciation and amortization increased $0.8 million or 29% to $3.7 million in the second quarter 2008 from $2.8 million in the prior year. Increase was primarily due to the restaurants added since June 30, 2007. We took a $500,000 charged related to closure of Restaurant K as we felt it made more sense to focus on McCormick & Schmick’s and M&S branded restaurants. This charge reflects future lease payments as well as additional costs associated with our future assignment of this lease.

Operating income was $2 million in the second quarter of 2008 or 2% of revenues compared to operating income of $6.4 million or 7.2% of revenues in the second quarter of 2007. Interest expense was $87,000 the second quarter of 2008 compared to $104,000 of interest income in the second quarter of 2007. As of June 28, 2008 we had an outstanding balance of $23.5 million in our $150 million credit facility. We also had $3 million in cash at the end of the quarter. We also had $0.2 million in other income during the second quarter from business interruption insurance proceeds related to one of our comparable restaurants that was damaged by a tornado at the CNN Center in Atlanta, Georgia which caused the restaurant to close for repairs during the first quarter. The estimated revenues lost as a result of the tornado were substantial and the estimated impact to comparable sales in the second quarter was 0.4%.

Net income decreased $2.2 million to $2.4 million in the second quarter of 2008 from a net income of $4.5 million from the prior year primarily due to the decrease in comparable restaurant sales of 4.9% coupled with the lower restaurant operating margins and increase in depreciation and amortization as well as restructuring charge related to the close of Restaurant K.

As our press release stated we are pleased to announce that our Board of Directors have authorized the repurchase of up to $20 million of our common stock. We are committed to creating long term value for all our shareholders and we have a great deal of confidence in the long term prospects of our brand. We believe this program will help ensure long term value. For the current year we are maintaining our financial guidance of revenues between $410 million and $420 million and our comparable restaurant sales decrease between negative 2% and 4%.

Please note that our comparisons ease in the second half of the year as we go up against negative comps last year. Diluted earnings per share expected between $0.64 and $0.74 for the full year which is a wide range due to our limited visibility in the current environment. We believe that the $452,000 charge for Restaurant K will be made up in gained operating profitability. Please note that [inaudible] with regards to our year-over-year comparisons in second half of 2008.

Third quarter last year reflected a pretty tough operating environment for us as comps started trending downward in September and we had to begin adjusting ourselves to a more challenging environment with only a few weeks left in the quarter. Here, however, we believe we are in better position with respect to cost management given that we have been in this operating environment for close to a year. Second, our marking calendar in the third quarter 2008 is much stronger than we’ve ever had in this time last year. We are featuring wild fish which our consumer reviews and surveys have shown to have great appeal.

Lastly, in the fourth quarter 2007 we experienced a couple of challenged banquet weekends relative to weather where we shut down several restaurants in a lot of different places. The holiday banquet business was very choppy for us last year and we think that our execution coupled to the national sales program will enable us to have a stronger banquet performance in the second half of 2008. In terms of development we expect to open 11 domestic McCormick & Schmick restaurants in 2008. We have already opened six and for the fiscal year 2009 we expect to open six McCormick & Schmick restaurants.

Modeling purpose our intention is to open two in third quarter and then three in the fourth quarter. As we stated, last quarter we have and will continue to examine all facets of our operations so that we can continue to reduce cost without negatively impacting our guest experience. We are confident we have the right initiatives in place to move our business forward. We thank you for your continued interest in McCormick & Schmick’s.

We will open the lines for questions.

Operator

(Operator Instructions) Our first question comes from Matt Difrisco – Oppenheimer.

Matthew Difrisco – Oppenheimer & Co.

I’m just curious looking at the G&A. You mentioned that that’s going to lag revenues for the remainder of the year but do you think that at that tune of holding it flat with the year ago dollar level or are we going to see, does your forecast imply also some operating margin improvement within the restaurant level as we let some of those easier margin comparisons as well?

Emanuel N. Hilario

Matt, as we look at our G&A projections for the remainder of the year we’re looking at about that $5.5 million level per quarter so relative to last year we think we’ll continue to control that number pretty reasonably well.

Matthew Difrisco – Oppenheimer & Co.

Looking at the top line trends, Doug, you mentioned a lot of interesting good catalysts out there that you’re optimistic about but is there early data already in the third quarter that you’re seeing a uptick? Because it does look like you’re implying near positive comps almost for the back half of the year to get to around that 410 unless, I guess, you might be opening up these stores very early. Otherwise, given the change in operating rates it looks like you’re implying a pretty strong recovery in the comp from the negative four that we just saw in those last quarter.

Douglas L. Schmick

Well, we’re seeing an improvement in the comp to a large degree. Now if that’s because we’re going against [inaudible] and in fact negative comps in the fourth quarter so the comparable is going to be a bit easier. We’ve definitely seen, as we said earlier, that middle income, aspirational consumer, we’re no longer seeing a continuation decline of that customer. We’ve also seen continued strong results from the business traveler which I, as you’re aware, hotel occupancies and flights are down but I think because of our national advertising campaign and our price point relative to some of the higher end options in the industry we’re holding up that consumer pretty well.

So as we’ve implied earlier we’re definitely seeing stabilization and I think the initiatives we put in place are in fact are in fact very improved.

Emanuel N. Hilario

Doug, the other thing I would probably just mention there, is we plan to continue that $29.95 supported price point for the remainder of the year so that should help us with the average check as well as the pricing of 2% to 3% that we’re putting in in the second half of this year. So we think that those two items in line with all the other initiatives and the national sales program will help us with the average check as well.

Douglas L. Schmick

That’s right and as we’ve said in previous calls in the third quarter and fourth quarter of last year, we didn’t really have a strong focused marketing campaign on a premiere product box which this year, the wild program has really come out strong for us and we’ll continue that through the end of the year as well as the modest pricing.

Matthew Difrisco – Oppenheimer & Co.

Last question, just looking at your cash flow situation I think you mentioned you have $3 million at the end of this quarter. You had $3 million at the end of last quarter as well. Mid-20s left on the credit facility and $20 million in share repurchase. Should we view the share repurchase as something opportunistic as when you start getting more positive free cash flow with the slower growth in 09 or would you use your credit facility also to tap into, despite having to use some of that for growth? Are you going to be able to use that to buy back shares as well?

Emanuel N. Hilario

Matt, the answer to that is it is optimistic so we’ll certainly be doing the share buyback in a very optimistic basis and then the other item, from a capital utilization perspective we already have put in a big chunk of our costs for this year’s development in our program so our facility balance already reflects bringing in a bunch of that capital expenditures already. And then the other thing is planning out only six restaurants for the 09 year at this point. I think that we don’t really plan to tap into the credit facility above and beyond where we’re at today.

Operator

Your next question comes from Chris O’Cull – Suntrust Robinson Humphrey.

Christopher O’Cull – Suntrust Robinson Humphrey

Just a question on the pricing. You said you didn’t take any pricing in the second quarter. Where does your confidence come from to go ahead and take 2% to 3% in the third?

Douglas L. Schmick

On several levels. First of all, everybody around us from the grocery store to casual dining to the high end have obviously been taking price throughout the year. We didn’t want to be in the early stages of doing it and where we’re taking the price is more at the midpoint of our menu. We’re not letting the high end of the menu go any higher than it’s been throughout the year. We’re making sure that the lower range pricing products of items under $20.00 remains such. So we’re taking selective pricing increases in like a $22.00 item going to $22.95 or an extra dollar for dessert. Those kind of discreet pricing that, from an optical perspective, we don’t believe they’re going to be that noticeable to the consumer.

We’ve also felt that we’ve had a little bit of room and opportunity in our lunch program which we believe has been underpriced for some time relative to the market and so we’re taking some modest increase in those items as well. So I don’t think from the consumer perspective it’s going to be that noticeable.

Christopher O’Cull – Suntrust Robinson Humphrey

The commodity inflation that you’re expecting in the back half of the year, at least in the third quarter, is it going to be similar to what you’ve seen in the first half of the year?

Emanuel N. Hilario

Well, right now we’re not anticipating any relief going into the second half of the year, that is correct.

Christopher O’Cull – Suntrust Robinson Humphrey

The pre-opening costs for the quarter seemed to be pretty, I mean it was a little lower than we were modeling and I guess we were expecting some of those third quarter openings, that pre-opening cost to fall into the second quarter. Manny, are you doing anything in particular to control costs on the pre-opening side of that or was it again just a timing issue?

Douglas L. Schmick

I would say on all elements of our costs we have done a better job of control. It’s a much more focused, more stringently administered portion of our program than it’s ever been. Our pre-opening costs have stabilized very effectively at that 350 range and what we’ve done is some of the pre-opening costs that we were doing early out we’ve moved to the back side of the project to get a little more immediate supervision and support right as we get the stores opened. So it’s a bit more compressed and it’s definitely controlled.

Christopher O’Cull – Suntrust Robinson Humphrey

One last question, just a modeling question. Manny, the tax rate for the back half of this year. You think what we saw the second quarter is reasonable for the back half?

Emanuel N. Hilario

Yes, we’re going to be in at 23% to 25% range.

Operator

Your next question comes from Jeffrey Omohundro – Wachovia Capital Markets, LLC.

Jeffrey Omohundro – Wachovia Capital Markets, LLC

First, a housekeeping item. Does that full year guidance incorporate the $0.02 charge just taken in Q2?

Emanuel N. Hilario

It does, Jeff. We assumed that the charge would impact us and we would get some operating relief from Restaurant K, almost offsetting the whole charge in the second half.

Jeffrey Omohundro – Wachovia Capital Markets, LLC

On your steak items, how does the mix attract on that and what are you thinking in terms of your beef and any contracting on that?

Douglas L. Schmick

Well, first of all this last quarter the beef/steak section ran about 12% which is obviously at the high point of what we have historically done. A year ago, that’d have been running closer to 6% to 7%, 7.5%. And in terms of the beef pricing we’re contracted, Manny, through March, is that correct?

Emanuel N. Hilario

We have a 85% contracted to March of 2009.

Jeffrey Omohundro – Wachovia Capital Markets, LLC

Any update on the acquired Boathouse restaurants? That’s all I had.

Emanuel N. Hilario

I’ll update the, The Boathouse had a fantastic second quarter for us. As a matter of fact, they’re not part of our comp sales year-over-year but if they were part of the comp they actually did deliver a positive comp for the quarter of about 3% on the Canadian dollar basis so that’s adjusted for currency. It was a very strong operating quarter there. The P&L was exactly where we thought it would be so it was a strong performance there and as I’ve mentioned before, the second and third quarter are the stronger performing quarters from a seasonality perspective. So they were on track. In general the operation has been very solid. Retention of the GM level and executives there has been very strong so we think that operation has done very well for us. Doug would you like to add some more color on that?

Douglas L. Schmick

No, we couldn’t be happier.

Operator

Your next question comes from Nicole Miller – Piper Jaffray.

Nicole Miller – Piper Jaffray

Did you give us the third quarter to date comp number? I hopped on a little late, sorry.

Emanuel N. Hilario

No, we didn’t give a comp for the third quarter although Doug did mention that sales have been pretty solid the last couple weeks of the quarter.

Nicole Miller – Piper Jaffray

They’re not too much of a change from what you saw in Q2?

Emanuel N. Hilario

I would say, if I looked at the last couple weeks, I think for the whole quarter I think July was in line with we had experienced for the previous part of the year and I think in August we’re starting to see an uptick on there. We think the three day holiday had an impact. Probably on vacation schedules they had a bit of a seasonal impact on sales but we’re starting to see a pretty strong August building up right now in sales.

Nicole Miller – Piper Jaffray

I saw you had a store closure. Are you there any other planned closings at this time?

Douglas L. Schmick

No.

Nicole Miller – Piper Jaffray

Was that a drain on earnings? Is there a benefit from that store going forward that we should model or how should we think about that?

Emanuel N. Hilario

That store or that restaurant, we’re taking a $450,000 charge for it on the P&L and we think for the rest of the year we’ll make that up. So basically it’s a push between the charge and the operating profitability for that restaurant. It was a pretty large amount of cash flow for us.

Nicole Miller – Piper Jaffray

You talked about 09 guidance for development. How should that be spread out on a quarterly basis?

Douglas L. Schmick

Right now, I think you could spread it pretty much evenly through the year.

Emanuel N. Hilario

We’ll probably do just, looking at it right now, two in the first quarter, probably one in the second, one in the third and then two in the fourth quarter next year.

Operator

Our next question comes from Justin Maurer – Lord, Abbett & Co.

Justin Maurer – Lord, Abbett & Co.

The breakdown again; sorry I missed it. The traffic was 5.4. You said mix was 70 BIPS positive and price?

Emanuel N. Hilario

That’s 20 BIPS negative.

Justin Maurer – Lord, Abbett & Co.

Just want to make sure you said you would not tap the revolver for development next year?

Emanuel N. Hilario

Our plan right now is we’re about in the mid $23 million range on a revolver and right now our plan is keep it at that level, as a matter of fact, because we’ve already have paid for a substantial amount of this year’s development. Even with a buyback we’ll keep it around that $20 million level.

Justin Maurer – Lord, Abbett & Co.

And the idea is, you’re committed on six but what’s your thought relative to flexing up from there?

Emanuel N. Hilario

We are, just to be clear, that we are committed on four. We have four of those leases are pretty signed. We have two of them that are done; the leases are sitting here with us for signature so we still have two that we have flexibility on. We have not executed those yet.

Justin Maurer – Lord, Abbett & Co.

So regardless, though, it’s going to be 09 development’s going to be down from 08.

Emanuel N. Hilario

That’s right.

Douglas L. Schmick

Right and beyond the six we’ll just keep our eyes open for opportunities. We’re very successful in the projects that we had tentatively looked at 09 to being able to move then in to 010 to be more in line with co-tenancy of major developments. So that was very positive for us and will bode well to the 010 developments.

Operator

Your next question comes from Colin Guheen – Cowen and Company.

Colin Guheen – Cowen and Company

It’s actually Colin for Paul and most of my question’s been answered. Just clarification on a couple things that were said. The $5.5 million is going to be the average G&A in the third and fourth quarter or is that actually the quarter dollar amounts that we should be looking at?

Emanuel N. Hilario

Well, that’s our view right now is that each one of the quarters will be about around $5.5 million in G&A.

Colin Guheen – Cowen and Company

Just on the tax rate as well. You said 22% to 25% for the back two quarters.

Emanuel N. Hilario

23% to 25%

Colin Guheen – Cowen and Company

23% to 25% for the back two quarters?

Emanuel N. Hilario

That’s correct.

Colin Guheen – Cowen and Company

Just one more similar question. Four units in the third quarter will be the total and three in the fourth? Is that the correct development?

Emanuel N. Hilario

That’s correct and we’ve already done two so we have two more to do in the third and three in the fourth.

Operator

And it appears we have no further questions at this time.

Douglas L. Schmick

Want to once again thank everybody for your interest and for covering us and we look forward to just continued stabilization and improvement here and into the future. Well, thank you much.

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