Texas Roadhouse (TXRH) Q4 2018 Earnings Conference Call Transcript

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Texas Roadhouse (NASDAQ: TXRH) Q4 2018 Earnings Conference CallFeb. 19, 2019 5:00 p.m. ET

Contents:

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  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good evening, and welcome to the Texas Roadhouse fourth-quarter earnings conference call. Today’s call is being recorded. [Operator instructions]. I would now like to introduce Tonya Robinson, the chief financial officer of Texas Roadhouse.

You may begin your conference.

Tonya RobinsonChief Financial Officer

Thank you, Rob, and good evening, everyone. By now, you should have accessed your earnings release for the fourth quarter ended December 25, 2018. You may also be found on our website at texasroadhouse.com in the Investors 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, undue reliance should not be placed upon them. We refer all of you to our earnings release in our recent filings with the SEC. These documents provide a more detailed discussion of the relevant factors that could cause actual results to differ materially from those forward-looking statements. In addition, we may refer to non-GAAP measures.

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If applicable, reconciliations of the non-GAAP measures to the GAAP information can be found in our earnings release. On the call with me today is Scott Colosi, president of Texas Roadhouse. Kent Taylor, our CEO and founder’s currently out of the country, unable to join us on today’s call. Following our remarks, we will open the call for questions.

Now, I’d like to turn the call over to Scott.

Scott ColosiPresident

Thank you, Tonya, and good evening, everybody. 2018 ended on a very strong note for us with double-digit revenue growth in the fourth quarter, driven by increasing guest counts and operating week growth. Comparable restaurant sales were up 5.6%, which included traffic growth of 3.2%., and that gave us our 36th consecutive quarter of same-store sales growth. For the full year, comparable restaurant sales were up 5.4%, of which included a 3.9% increase in guest counts.

While sales were very strong, we did experience significant restaurant margin pressure in 2018. A highly competitive labor market, and our own focus to increase staffing levels within our restaurants, drove both to the margin pressure. Our initiatives which include adding hourly employees in managers, reflect our long-term commitment to the employee and guest experience. And heading into 2019, we do expect labor pressures to continue along with some ongoing commodity inflation.

In response, we are in the process of finalizing an additional menu price increase of approximately 1.5%, which will go into effect at the beginning of our second quarter. We continue to view our business from the perspective of our nearly 600 managing partners in the restaurants they operate. And as such, we understand the unprecedented labor pressure that most of our operators are facing across the country. Combined with the 1.7% increase we took in November of 2018, this upcoming increase should help offset most of the margin pressure our operators are experiencing as a result of inflation.

Looking ahead to development, our new restaurant — our new roadhouse company restaurants continue to open with strong sales volumes at the overall are on track to deliver very good financial returns for us. For 2019, we are targeting a total of 25 to 30 company restaurant openings, including as many as four Bubba’s 33 restaurants. And we expect our franchise partners to open as many as eight restaurants, primarily in international markets. And this includes our first location on a military base that’s Camp Humphreys in South Korea that just opened last month.

While we expect our company openings to be more back-end loaded this year, we currently have 10 restaurants already under construction an additional 20 either fully approved or in the permitting process. We also plan to relocate as many as six of our company restaurants in 2019 . Over the last several years, we have relocated a handful of restaurants, which allows us to update them to our current a typical designed and/or obtained more favorable lease terms. With strong top-line momentum and continued focus on the fundamentals, 2019 is shaping up to be a very solid year for Texas Roadhouse.

As always, we do not take anything for granted and know that our operational execution is always the key to our continued success. On behalf of Kent and myself, I do want to thank all of our operators and partners for another great year and we look forward to seeing everyone at our upcoming annual conference. And now Tonya will walk you through the financial update.

Tonya RobinsonChief Financial Officer

Thanks, Scott. For the fourth quarter of 2018, revenue growth of 11.2% was driven by 6% store week growth and a 4.8% increase in average unit volume. Restaurant margin dollars grew 3.7% to $95.6 million and net income increased 6% to $30.3 million or $0.42 per diluted share. As Scott mentioned, comparable restaurant sales for the quarter increased 5.6% comprised of a 3.2% traffic growth in a 2.4% increase in average check.

Q4 comparable sales saw a 30-basis-points benefit from the positive impact of the calendar shift of the Christmas holiday, net of the negative impact of overlapping the post hurricane sales bump we had in 2017. By month, comparable sales increased 4%, 5.3% and 7.1% for October, November and December periods, respectively. For the first 54 days of 2019, comparable sales increased approximately 6%, including approximately 1.3% of positive impact from the calendar shift of the New Year’s holiday. At the beginning of 2018, we implemented the new revenue recognition accounting guidance, which resulted in the reclassification of certain expenses in credits.

The reclassification had no impact on net income and the comparative financial information has not been restated. As a result of the reclassifications in the quarter, we reduced sales by 0.7 million for gift card fees, net of gift card breakage income and increased other revenue 0.5 million for franchise-related items. Additionally, cost of sales decreased 1.5 million or 21 basis point. Other operating costs decreased 0.9 million or 15 basis points and G&A increased 2.3 million or 39 basis points.

No direct reclassifications were made in labor, however, the change in sales resulted in an increase of 4 basis points to labor as a percentage of total sales. For the quarter, restaurant margin decreased 112 basis points to 15.9% as a percentage of total sales compared to the prior-year period. The change in margin was primarily driven by an increase of 23 basis points in cost of sales and an increase of 120 basis points in labor, partially offset by a decrease of 33 basis points and other operating costs as a percentage of total sales. For cost of sales, the benefit of average check, and the impact of the reclassifications previously mentioned, was more than offset by the impact of approximately 3% commodity inflation.

Inflation for the quarter was above expectation due to higher deep prices in the back half of the quarter. As a result, commodity inflation for full-year 2018 was 1.4%. On the labor line, the main drivers of the 8.9% growth in labor dollars per store week by wage and other inflation of approximately 5% and growth in ours approximately 3.2%. For full-year 2018, labor dollars per store week grew 8.8%.

Finally, the improvement in other operating costs compared to the prior-year period was primarily due to the reclassifications previously mentioned, along with the benefit of lapping a 0.5 million donation made in the fourth quarter of 2017 related to hurricane relief. For the full-year 2018, restaurant margins were 17.4%, down 104 basis points compared to 2017. Moving below restaurant margin, G&A cost for the quarter increased 7.3 million to 5.9% as a percentage of revenue, which was a 67-basis-points increase compared to the prior-year period. The primary driver of the increase was the 2.3 million or 39-basis-points impact of reclassifications.

In addition, we recorded onetime cost approximately 0.5 million or 10 basis points during the quarter. Finally, higher costs related to share-based compensation, marketing expense, training materials and legal fees also contributed to the increase. Depreciation expense increased 1.5 million to 25.7 million or 4.2% as a percentage of revenue, which was a decline of 21 basis point compared to the prior-year period. The improvement was driven by a onetime favorable adjustment of 0.5 million.

Finally, our tax rate for the quarter came in at 5.8%, compared to the 19.8% rate in the prior-year period. The tax rate benefited from an additional 1.9 million adjustment related to tax reform that we recorded in the fourth quarter in conjunction with the filing of our 2017 tax return, which lowered the rate by approximately 5.5%. Moving to the balance sheet. We ended the year with 210 million in cash, up 59 million compared to last year.

During 2010, we generated 353 million in cash flow from operations, incurred capital expenditures of 156 million, paid dividends of 69 million, repaid debt of 50 million, and spent approximately 2 million to acquire one franchise restaurant. Moving forward to 2019, as announced in our press release, our board of directors authorized an increase in our quarterly dividend payment, increasing it by 20% to $0.30 per share from $0.25 in 2018. 2019 will also be a 53-week year for us. As such, the fourth quarter of 2019 will have 14 weeks versus our normal 13 weeks.

We estimate that the additional we could benefit full-year earnings-per-share growth by approximately 3.5%. We continue to expect approximately 1 to 2% commodity inflation with fixed prices on approximately 45% of our commodity basket at this time and mid-single-digit labor inflation for the year. On a G&A front, we expect 2019 cost to grow 12 to 13% on a 53-week basis compared to the prior year. The more significant drivers of the increase include investments in our regional operations support structure and higher effective share-based compensation cost.

In addition, we now expect the cost of our 2019 managing partner conference, which will be held in Marco Island Florida in late April, to be in line with 2018 costs. As a result of higher interest rates and higher cash balance, we expect to generate net interest income of approximately 2 to 3 million in 2019, depending on our usage of cash throughout the year. And our 2019 income tax rate is expected to be approximately 15%. We now expect to incur capital expenditures of approximately 210 million to $220 million.

The increase in capital expenditures in 2019 is being primarily driven by the timing of openings during the year and as many as six restaurants relocations. That concludes our prepared remarks. Rob, please open the line for questions.

Questions and Answers:

Operator

[Operator instructions]. And your first question comes from the line of John Glass from Morgan Stanley. Your line is open.

John GlassMorgan Stanley — Analyst

Hi. Thanks very much. First, just on the labor line. What’s your assumption — you talked about pricing and more of the inflation in 2019.

What’s your assumption on the underlying labor dollars per store? I understand wages are up 5. Are you still building in the incremental hours? Where does that taper off in 2019?

Tonya RobinsonChief Financial Officer

We are expecting that. That’s built in to that mid-single-digit inflation number for 2019. And that’s part of the reason for the updated the range also as far as how much will that be will be — will we see a taper off as we hedge the back end of 2019. But we are building in some additional growth in hours above and beyond what traffic growth would maybe generate.

Scott ColosiPresident

Hey, John, this is Scott. Just to elaborate a little bit more. So there is two due parts of the hours. One is just strictly related to just traffic growth.

We’re going to have some percent of our profit growth related to just increasing hours related to traffic growth. The other part is the staffing initiatives and sales, and there is two parts of that. One’s on the management side where we have been adding managers to certain restaurants for a number of reasons. One just to support the volumes that we’re doing.

Two is for quality of life for those managers. And so our management turnover continues to improve dramatically, and we’re almost at the single-digit level for management turnover, excluding managing partners. So that’s our kitchen managers, service managers, assistant service manager, assistant kitchen managers, that kind of thing, which is amazing, and we think we can still make some progress there. On the hourly side, we haven’t made much progress.

Our turnover still continues to be up slightly where we were a year ago on the hourly side. And that’s still a journey to figure out all the things that we can do in a 3% unemployment environment of how to hire the right people, because most of our turnovers is in the first 30 to 60 days and have to stay with us longer in a pretty busy environment that Texas Roadhouse has. So we haven’t pulled all of our 500 restaurants and asked them exactly where they are in their journey. We know some of them have hired or staffed up by the bit and they have more flexibility in their labor schedules.

Some are moving a little bit at a slower pace. Some have even gone backwards just because of their own turnover and the nature of their competitive dynamics in their particular market for talent. And then some have just decided they’re at a good place already and aren’t going to do much of anything. But we haven’t pulled everybody specifically, that we don’t have an exact answer of how much there is left.

We do think at some point in the year, we’ll probably level of as far as that particular initiative increasing overall hours for us.

John GlassMorgan Stanley — Analyst

And then just on the G&A increase. What would you be on a 52-week basis? Just of the understand the underlying G&A increase is. And maybe just breakdown. You said there is going to some higher staffing in the field levels.

I know exact comp is exact, but how much of it is restaffing or up staffing of the field? And how much is that if you have a G&A growth on a 52-week basis?

Tonya RobinsonChief Financial Officer

Yes, on the 50 — the extra week, the 53rd week, we estimate that’s probably about two and a half million. So I think that’s calculates that to about 2% of the growth. And then the additional regional support structure that we’re building that we built out starting in Q4, probably adds another 3 million of cost. So that’s a little more than 2%.

So those two items along. You add those up, you do get your point relate more reasonable G&A normalize, if you will, G&A growth number.

Scott ColosiPresident

This is Scott again, and I’ll elaborate sort of on the regional investment. So way, way back in the day, probably going eight or nine years ago, we had four regions. We went down to three. One of our regionals departed for another company.

And we stuck at three regions for very long time, and part of that was to help manage and limit our growth to G&A overtime. And 200 restaurants later, we finally decided to pull the trigger. And instead of just adding a fourth, we decided to go all the way to a fifth region and add two regions worth of folks, which we hope, keeps us for a long, long time, going forward, on the roadhouse side. And each of those regions — you do have a regional market partner, but you also have a human resources person people partner, you have a marketing person, a training person, probably food person as well.

So you’ve got a whole structure there that supports roughly 125 restaurants right now, and that number will grow over time. Because again, we think going to the fifth regional keeps us in a good spot for many years to come.

John GlassMorgan Stanley — Analyst

Great. Thanks.

Operator

Your next question comes from the line of David Tarantino from Baird. Your line is open.

David TarantinoBaird — Analyst

Hi, good afternoon. A question on I guess the margin outlook. Scott, you mentioned that the pricing that you’re planning to take will offset most of the inflation, which may be implies second offset all of it. So can you confirm that distinction is accurate? And then I guess, secondly, and does that imply that you do need to season traffic growth was a margin structure flat even with the pricing that you’re planning?

Scott ColosiPresident

So one of the — that statement is accurate when I say most of the margin. To the extent that, it depends. So couple of things, one is, remember, we’re not taking the 1.5% until beginning of second quarters, so we only have it for three quarters of the year. So if you net that against the 1.7 which we’ll have pretty much all year, you get a little bit less than 3% for the year.

So then it becomes, OK, what’s our inflation? So we’ve given a range on everything with regards to inflation. So if we we’re at the lower end of that range, we would have margin expansion, probably just based on the pricing actions. On the other hand, if we’re at the higher end of that inflationary range, without some traffic growth, it might be a little tough to keep those margin percentages flat for the year — at least for this year. And it definitely won’t fall near as much as last year.

So it’s really, where does that inflation check out as the course of the year wears on.

David TarantinoBaird — Analyst

That makes sense. And on the price increase that you decided to take. I guess, can you maybe elaborate on why is that amount was chosen not something more or less? And then I guess relatedly, you did say 1.7 which is a little higher-than-normal for the fourth quarter. Can you talk about how that’s flowing through so far? And what you’re seeing in response to that price increase?

Scott ColosiPresident

So the 1.7 is flowing through great. And we’ve had actually positive mix now for a while, probably good year ever, I would say, or so or six months, at least. The 1.5 that we are taking, a lot of that is focused on certain parts of the menu, combo, some of our plays, some salads. So we don’t know.

Could be a little bit of a negative mix there, will probably pretty slide. We have taken a number of stores up on the early dining program, which is a lot also back in November, but we are doing more here in April on that. So could have a little bit of negative mix. I don’t anticipate it to be very much, but it could be some there.

I will tell you, if you had 1.7 to 1.5 you got 3.2 so that three part a percent of pricing that were taking it roughly four months, why isn’t it higher? Well, just historically, that’s the second highest amount of pricing we’ve taken in the last 15 years. So we took a little bit more than that in 2012. We took close to that back in 2007 when you had really changes in minimum-wage both on the federal and the state level. For us to go from 2017 roughly 1.3 and 1.5 in 2018 to 3.2 back to back, that’s a pretty big jump for us.

So if we chose though that we are very serious and committed on the margin percent part of the business. Hopefully, that sends a message to investors on that point. And I wouldn’t rule anything out down the road as far as when we might take additional pricing whether it’s later this year, early next year, whatever it is, depending on upon again what the world’s doing and what our inflation estimates are and how we’re growing traffic and whatnot with the economy, unemployment and all that stuff is. Who knows, but hopefully, 3.2% in a matter of four months chose we’re pretty committed to drawing some lines in the sense of our margin percentages.

Tonya RobinsonChief Financial Officer

And one of the things we did a similar process what do we do at the end of the year when we took the 1.7. We send information to all of our market partners, kind of show them what their restaurants look like? How inflation would be impactful, things like that. And really I called with them over the course of a day to see where they landed, and we talked before giving them kind of three options showing them what that looks like. And so that’s very — the number we came too was very much a part of them being part of that process.

And they bring to a table a lot of information, as usual, about the competitiveness in that market, pricing, different things like that too.

David TarantinoBaird — Analyst

All right. Thank you very much.

Operator

Your next question comes from line of William Slabaugh with Stephens Inc. Your line is open.

William SlabaughStephens Inc. — Analyst

Yeah, thanks, guys. Just sticking with the pricing question. First, can you go back to when did you take a little bit high pricing back in 2012. I believe that’s before was highly inflationary.

Did you see any type traffic impact then or mix impact then that may be second-guess this decision or did that flow through pretty easily back then as well?

Tonya RobinsonChief Financial Officer

Yes, it flew through pretty well. I mean, we didn’t see anything that we have said hey maybe that was on the way to go. So I mean, historically, anytime look at mix for us, it tends to go anywhere from 40 or fifty basis points one way or the other, so not much more than that. So I would say, historically, we felt good about the increases we taken from that perspective.

Scott ColosiPresident

And Bill, I would tell you, on the traffic that, we really haven’t been able to draw a definite correlation between our pricing actions and traffic changes. And it’s more so driven by unemployment, over time, when you look at the direction of unemployment getting worse or getting better. It’s hard to say we have all this elasticity and pricing, and we’ve ever have believed that. So these price changes are that dramatic relative to what they could be in certain areas.

But we feel very good about the strength of our business, the momentum of our business, talking to our operators. We’re talking to our guests when these changes are going through, and what they’re hearing from them. So we’re very confident. We feel very good about what we’re doing.

And keep in mind, we’re doing this all at the same time. We are more staffed than we’ve ever been. Our food is as good as it’s ever been. Our size is heaping as it’s ever been.

Our hand-cut stakes are as good as quality as well cut, better than they’ve ever been. And we are very much on offense, so if we feel pretty good.

William SlabaughStephens Inc. — Analyst

Got it. And just a follow-up on labor as well. What extent are those internal labor initiatives you talked about going to be active in 2018?

Scott ColosiPresident

They’re active right now. I mean, we’ve been doing these things three years now. We’ve been challenging our folks to, in restaurant terms, are you fully staffed? A lot of restaurant people would say I’ve never been fully staffed because of the turnover. And so we’re challenging the concept of what it means to be fully staffed on the hourly level.

And even to a point were maybe even be a little more so to where you got more flexibility in your ability to schedule labor and get people the time off that they want. And then secondarily, on the management side, quality of life for them, you know, giving them some weekends off, having to close every day or open every day, just more flexibility. And that’s the No. 1 reason why they leave us, is this quality of life when they do leave.

And when you’ve got management turnover if then close to single digit, that is a huge competitive advantage for us as far as what it bodes for the future quality of the guests — what the guests are going to experience for us. So we know that, and it’s big part of our, I think, of our traffic growth right now. And it’s one of the things that makes pretty confident about the future.

William SlabaughStephens Inc. — Analyst

Thanks and congrats.

Operator

And your next question comes from the line of Nick Setyan from Wedbush Securities. Your line is open.And your next question comes from the line of Jeffrey Bernstein from Barclays. Your line is open.

Jeffrey BernsteinBarclays — Analyst

Great. Thank you very much. Two questions. One, looking past, I guess, the pricing, just had a question on Bubba’s.

And I know you were testing a smaller prototype and you’ve been doing other tweaks to the brand. I’m just wondering, what keeps you from accelerating that today? It would seem like, this year you’re taking maybe a slightly more cautious view and raise it up to four units. Last time it seemed like it was definitely four. So was just wondering, as you think about ’19, ’20, ’21, what keeps you from accelerating that growth sooner rather than later?

Scott ColosiPresident

So one of the things that — the one restaurant that is the smallest prototype still hasn’t opened yet, won’t open till later this year, and there were some development — not Bubba’s development but other development-related challenges on the site where it’s at, and so that has pushed certain elements back to get that store open. We’re ready to go. So when we get that open, we’ll know more about how some of the changes in size of that prototype have influenced the operational execution of that prototype, and that will help us determine where we’re going to go forward. Overall, on Bubba’s, Bubba has had a great sales year last year from a same-store sales perspective, and they’ve had a very strong first quarter.

So for the stores have been opened a while. A lot of sales momentum doing very well. The other side of it is, some of the stores that we’ve opened last couple of years, the opening volumes just haven’t been that great. Some have been really good, some haven’t been that great.

We’re not sure exactly why. We try to figure out and understand why. Every restaurant is cash flow positive. That part’s good.

We’re just trying to understand why some of the openings again haven’t done as well. It could be just like in the old Courthouse days, we opened some where very, very far away where there’s any other Bubba. So people just don’t know us and certain elements of it just don’t resonate at this point with folks where we’ve opened. But other places where we’ve had a little bit of history, we’re seeing a lot of sales growth.

It’s very exciting. The team’s very excited. So we’re going to keep plugging along and hopefully, will figure some of these things out. If you said well, what are you doing about it? Here’s some of the things that we’re doing.

So one is just being patient, because we’ve sort of been down this road before with Texas Roadhouse and in a lot of markets we started slow and would never know it today the huge volumes that we do. And it also gives us a chance just to get our execution just better and better, making and making hamburgers our service model in Bubba’s, which is a little bit different than Texas Roadhouse, just better and better and continue to do so. Local store marketing to help drive awareness of the concept in the community that we’re in. We’re working on that.

We’ve got a pretty big consumer research project plan where we’re going to those communities and just asking folks what they know about the Bubba’s concept and the pluses and minuses. We’ve already done this once before couple of years ago and some of our older transports locations and more of those folks are more familiar with the concept. So a lot of time has passed since then, we think it’s a good time to do it again. We are exploring the role of lunch.

So last year we did have lunch to one of the transports locations. Out of that 25 that are open, two have lunch everyday. And launch may, longer-term, play a bigger role. We do plan to add launched a couple of more locations later this year.

We’ll see how that goes. And lastly, the development front, we’re committed to more of the development being closer together. What I mean by that is for the most part, we’ve done the old roadhouse strategy, which is store one was in Indiana, store two was in Florida, store three it was like in Colorado, and four in Texas, all over the place. We could’ve done that will Bubba and so we kind of recognize that may be a little bit longer road than anybody would like and so for the majority of our development kind of going forward, you’re probably going to see us build more Bubba’s a little bit closer together.

So where we’ve got one in Houston already and Pasadena. We’ll probably build a couple of more in Houston. We are going to open Westby Chapel Florida, which is Tampa. Probably open a couple more in the Tampa DNA, close to the same time.

And Charlotte, that kind of thing, opened three in the Charlotte area versus just one in Charlotte and one somewhere else. So you will probably see that overtime from us is a little bit change departure from the traditional roadhouse strategy. So those are number of things that we’re doing at Bubba. But again, we’re excited about the momentum in the stores that have been around for a while and the guest are starting to figure us out.

And hopefully, will get over this home button on some of the new restaurants just starting a little bit slower than we’d like.

Jeffrey BernsteinBarclays — Analyst

Understood. And separately, can you comment on the international, and I mentioned Kent, there’s traveling internationally, as I speak, I think we’ll see franchise opening in ’19 are going to be international. But it does seem like using the data in the supplemental section, the international comps are running negative. So I’m just wondering whether it’s just certain market that is weighing down the average or what’s your range of strongest, weakest our should we think about the international performance?

Scott ColosiPresident

Well, the Middle East by far. So we’ve got most restaurants in the Middle East. The Middle East is really hurting. A lot of that is oil related, economic related.

The interesting thing though is that it’s a franchise business in the Middle East, and our franchisee in the Middle East is going to open three restaurants there next year. So they really love the Texas Roadhouse brand. They’re very committed to growing the brand. They understand some of the economic cycles that can occur outside United States.

What’s particularly tough in the Middle East, fewer folks traveling there. Again, the oil is tough there. So eventually, they’ll get turned around and going the right direction. But it’s exciting to see that all that going on and our franchise partners still open over three restaurants there.

Jeffrey BernsteinBarclays — Analyst

Absolutely. Thank you very much

Operator

And your next question comes from the line of Peter Saleh from BTIG. Your line is open.

Peter SalehBTIG — Anhalyst

Great, thanks. I just wanted to come back to the CAPEX increase. I mean, it looks like pretty sizable increase about $45 million or so. Could you just elaborate a little bit on why the increase is a truly related to the relocation or is it related to something else?

Tonya RobinsonChief Financial Officer

There’s a couple of things going on that line. So if you look at your 2018, it came in a little bit lower than we would forecasted it to. Typically, we would’ve expected more spending on 2019 openings in the back half of 2018. Anywhere from another 15 to $20 million.

So just kind of the timing between 2018 and 2019. And then you do have the six relocations. That adds probably another 15 or 20 million to that number. So those two things alone are really the biggest reasons for the increase in 2019.

And then as a support center here in Louisville, we’re doing some remodels and getting some more space and things like that in our existing site. So we’re seeing a little bit of an increase in 2019 that we typically would not have in a year, a little bit more than what we would normally see.

Peter SalehBTIG — Anhalyst

Got it, that’s very helpful. And then on — I think Scott, you mentioned, a little bit more back-end loaded in terms of development this year. Can you just give us a sense of the cadence on the development this year? And why a little bit more back-end loaded versus 2018?

Tonya RobinsonChief Financial Officer

I can give you a little bit of the — just the cadence of that. We expect one opening in Q1. That’s probably the bigger difference between this year ’19 and ’18. Q4 is going to be a lot more loaded front — a lot more loaded up, just like it was this year.

So right now, I think the cadence looks like one in Q1, seven in Q2, and three, and then about 15 to hit that 30, that’s just kind of what we have in the pipeline. So definitely let more back-end loaded. Kind of similar to what it was in 2018, to be honest. And we always assume that things are going to — even though we might have in want to development report a little earlier, we always, from a forecasting prospective, kind of assume they’re going to push a little bit.

Just because you always kind of get some hair on the deals from permitting or just different things that go on that caused them to move a little bit weather, things like that. So we made that assumption again too this year.

Peter SalehBTIG — Anhalyst

All right. Thank you very much.

Operator

And your next question comes from the line of John Ivankoe from JP Morgan . Your line is open.

John IvankoeJ.P. Morgan — Analyst

Hi. Thank you. I was hoping for some insight on the cattle cycler or the bee cycler at this point. Because obviously, some signs of the years of decline might be over.

But I was wondering, if you are seeing some of the increases might be short term in nature? Or I mean, as we kind of think about the overall supply demand environment over the next couple of years, if you’re preparing for an uptick in prices and if there’s anything that you’re doing specifically, to prepare for that?

Tonya RobinsonChief Financial Officer

Yes, I mean, right now, it certainly seems like demand is really good and supply is good too. So from that standpoint, that’s kind of the way it’s been. We did see an uptick, as I mentioned, in Q4 on inflation that we didn’t really see in the tea leaves, if you will. And really related to tenderloins and ribeye, we saw spike in those in the back half of the quarter.

Wildcat was up in the back half of the quarter. So one of the differences we’re seeing now is we’re heading into ’19, it’s a little tougher to lock price is more than six to nine months out. So we are much more locked time. In the front half of the year than we are in the back half.

And that the premium is just really high to get out any further than six or nine months. So that we’re seeing lot more on these than any other protein. So that’s one of the reasons for the 1 to 2% guidance. The 1 to 2% range is just knowing there potentially could be some volatility there in the back of the year.

But some of the things we’re hearing a lot — some of the imports and exports to China, the tariffs some of the issues maybe there fueling over there with some of the swine flu and things like that that are happening could be impactful in the back half of the year. We don’t know. Just as far as what’s getting — what needs to be exported and things like that. So I think that’s causing a little uncertainty too for 2019.

Scott ColosiPresident

John, this is Scott. I’ll tell you, you’re living in this world for a long time, you never know. And there is this tons of speculation up or down all the time. And all this tons of speculation Bubba doesn’t never happens and down, down, down doesn’t happen for three years after you think it’s supposed to happen.

We’re kind of used to live in that world. So again, we’re pretty patient bunch. It’s again more of a marathon, not a sprint. And is the prices do go up for next year, we’ll deal with it.

We’re not going to get rid of stakes or cut our stake smaller, anything crazy like that. Not those kinds of efficiencies or productivity or anything like that that you may hear about. But we’ll just stick what we know how to do and what the guests wants and get after it. But I’m just learning not to listen to too much until you get that much closer to the end of the year.

That’s sort of what when reality becomes reality.

John IvankoeJ.P. Morgan — Analyst

Understood. Thank you.

Operator

And your next question comes from the line of Christopher O’Cull from Stifel. Your line is open.

Christopher O’CullStifel Financial Corp. — Analyst

Thanks. Scott, I’m trying to understand if the staffing investment is really just a new flow through rate for traffic growth and a tighter labor market? And whether we should assume, it’s not going to slow until we see may be some more slack in the labor market?

Scott ColosiPresident

Possible. I think when — and here’s the thing, Chris. I mean, every single restaurant is its own situation. So that’s where — when we’re trying to forecast or we’re looking at the business, it’s a collection of 600 individual restaurants and there are 600 different stories of where they are in their own staffing journey.

Again, both on the hourly side, and there could be different within front back house and management and all of the above. So we are guesstimating, part of it based on history, part of it’s just based on talking to some of our operators and where ever we think it may all shake out. You could be right on that, I do think. But you got to remember, we got this partnership program and we’ve had it since day one.

So our managing partners are still paid. Their livelihood is based on a percentage of the profits in their restaurant. So they’re going to do what they need to do as far as making the right decisions for the long-term benefit of their business, but that’s how they get paid. So they’re not just going to hire people or get people hours, unless they think it really adds value to their business.

So ultimately, it’s about doing the right thing for our guests and for our employees, and we trust that our operators are doing that.

Christopher O’CullStifel Financial Corp. — Analyst

Just to be clear, the mid-single digit growth you’re guiding to for labor cost for operating lead that does reflect some investments , if you will, in staffing?

Scott ColosiPresident

Yes.

Tonya RobinsonChief Financial Officer

Yes, I mean, we are assuming again that we don’t see the normal flow-through that we would see on traffic. To your point, whether that’s from these initiatives or just the pressure on the labor line, don’t know. But it’s really doesn’t seem like the market — the labor market pressure is getting any better. I mean, you continue to hear more and more states talking about taking the minimum wage to $15 and doing away with that tip wage and things like that over the course of the next several years.

So we did build that into the mid-single range.

Scott ColosiPresident

There is one thing that’s kind of scary out there is that we will hear stories where someone may drive up to a drive-thru and drive-thru is closed. And they’ll go in and they’ll say, what’s going on? And then say, well, we don’t have enough people to open it drive-through at a particular location, not us obviously drive-thrus. But you hear stories like that. And so if you’re not really careful you could have a lot of bad shifts because you are understaffed, because that turnover — that hourly turnover if it’s anywhere near 100, can really, really impact you very fast if you’re not staying on top of just things, staffing, staffing in today’s world.

Easier eight, nine years ago when everybody’s turnover was quite a bit lower, but labor had so many choices. You probably get a good job the next day paying $15 an hour somewhere. And it’s a different world. So when I hear about or go by places and you could see it in certain restaurants, how understaffed they are.

And what it’s going to their guest experience and the loyalty of those guest house, it’s kind of scary. So again, we don’t just don’t take anything for granted about our future success, which is why in part we’re doing what we’re doing.

Christopher O’CullStifel Financial Corp. — Analyst

OK, that’s helpful. And then can you talk about what you’ve embedded in the 1 to 2% commodity inflation guidance inflation? And then, maybe just the cadence for the commodity patient you’re expecting this year?

Tonya RobinsonChief Financial Officer

Yes, we don’t really get too much into those numbers are part of the beach side, but I can tell you from a cadence perspective. It’s pretty evenly spread across the quarters. Obviously, with the spike we saw in the backup of Q4, there is an opportunity perhaps to have a little bit less pressure in Q4 of 2019. But right now, the way it looks, every quarter is inflationary, and there is not that big of a spread among any quarter.

And really, Chris, I’d tell you it’s not just it’s really not just beef, I mean, we’re seeing it in a lot of different areas with sweet potatoes, alcohol, soft baths, safe and things like that. So it’s a mixed — it’s kind of all across the commodity basket. And if you look at the proteins altogether, they’re actually a little bit deflationary.

Christopher O’CullStifel Financial Corp. — Analyst

That’s great. Thanks.

Operator

And your next question comes from line of Andrew Strelzik from BMO Capital. Your line is open.

Andrew StrelzikBMO Capital Markets — Analyst

Great. Thanks. Two questions for me. The first, you’re talking about how the labor environment isn’t getting any better and potentially the favorable beef cycling some of the other commodities onto so.

I guess if you assume that the environment for inflation perspective does not entirely comfortable continue to run your three-plus percent price over the next several years or whatever the time frame is? And the second question, just wondering if for 2019 that any patch or do anything with the menu? I note those are infrequent for you guys but just with the pricing maybe that gives an excuse. I’m just wondering what menu plans are?

Scott ColosiPresident

Andrew, this is Scott. We are never comfortable taking pricing, I’d tell you that, but we are more apt to take pricing if there are inflationary pressures that certainly been-that are certainly impacting everybody in the industry. So I will tell you that to a point. But we don’t know — all this stuff is speculation.

And so when I go back and look at the past 15 years of our performance, I think almost half the years, our margins were up and the other half, they were down. And so one way or another, we kind of figure out — like a lot of restaurant companies do, you figure out your way of how to handle and deal with the different inflationary pressures. And so I’m confident that we will, in our way, continue to figure that out without cheapening the experience for our guests or changing the way we pay our people. Cheapening that, if you will.

So I think we’ll figure it out, but we’re never comfortable with it. On the menu aside, looks like we’re going to roll out a new chicken sandwich. That may be our big new menu item in the last couple of years for Texas Roadhouse. So not a super game changer but something has been tested for a while and that’s pretty much it for the menu there isn’t anything currently that I would tell you is a dramatic change today.

Andrew StrelzikBMO Capital Markets — Analyst

Great. Thank you very much.

Operator

Your next question comes from the line of Brian Bittner from Oppenheimer. Your line is open.

Brian BittnerOppenheimer and Company Inc. — Analyst

Thanks, guys. Most of my questions have been answered. But I’ll just ask, just kind of above on the pricing margin topic that we’ve been on all call. I mean, should we think about this line in the same, Scott, that you kind of mentioned as you’re kind of willing to keep margins at 17% or above.

You really don’t want to see them slip below those levels, and you’re willing to do what it takes to do that. And just secondarily, Tonya, you talked about the G&A in ’19 and there is some things impacting G&A this year, clearly. But we’re mythic about your ability to manage your overhead cost finished company may be forward. How should we think about what can get past some of these investments? How G&A looks on hourly basis?

Tonya RobinsonChief Financial Officer

Sure. I can tackle that G&A question first. I think when we look at it, we’ve always talked about our long-term goal being that we grow G&A, we keep it below revenue growth. I think when we look at it as a percentage of revenue I mean, we’d like to see it closer to 5%.

At the same time, we know these investments are important to the operational unit to the business and how we are operates and we know we need to make those. So it really is the balance of those things. And for 2019, I don’t — when you bake in the 53rd week and these investments we’re making, we probably won’t be able to do that get to 5%. But I think over the long term, that’s what we would like to see happen.

Brian BittnerOppenheimer and Company Inc. — Analyst

So on the margin pricing margin question in line in the sand, yes, I mean, I think for us to take a 3.2% over pricing in four months is huge number for us to take. So I think that’s a big part of that answer. Now does that mean if you had to take 5% pricing next year would be do that? I don’t know about that if that was the case. But we may give up a little bit in that scenario, but who knows, depending upon where the world works.

But we’ve had a lot of conversation starting six months ago on this subject of, hey, what kind of line in the sand are we going to draw with relation to our margin percentages. And we always talk about you take dollars to the bank, no doubt, but the percentages do get important at some point. And so just looking at our history and see how they bounced around a little bit, that 17 number is one that we’d like to stay north of that number. As long as we think it’s reasonable to be there and I think right now, we still think it’s reasonable to be there and we felt like the three-pointer percent for the pricing is reasonable for us in the position that our business is in today.

So again, without us having to cheapening in anything for our guest not get acute again, we’re playing of that and that’s part of the recent buyer traffic growth is what it is. It’s part of the reason why we have $5.2 million AUVs last year, and they were well below 3 million at the beginning of the decade. So we’re never really happy about that as to what Scott is here in part, so we’re going to continue down that road.

Tonya RobinsonChief Financial Officer

I think one of the things to that’s important to remember is as we were sitting in December of 2017, heading into ’18, when new tax reform was coming, which took about 0.3% pricing in December of ’17 took another 0.8% at the end of March of ’18. So really not a lot of pricing even though we had a lot of labor inflation in ’17 and knew that was probably on the horizon again in ’18. But with the tax reform, we took that as an opportunity to see how the labor was going to pay out, not take a lot of pricing to offset that knowing that that tax reform was going to be such a big benefit in ’18. So we knew margins were going to take a little bit of dip in ’18 because of that since that’s on the net income — down to the net income not on the margin.

And I think now seeing how the labors played out pretty consistently across ’18, we think that could continue in the ’19. led us to say, hey, let’s look at those margins now in kind of see where we are.

Brian BittnerOppenheimer and Company Inc. — Analyst

Great. Great color all around. Appreciate it.

Operator

And your next question comes from the line of Jon Tower with Wells Fargo. Your line is open.

Jon TowerWells Fargo — Analyst

Great, thanks. Just to go back to the pricing piece because that’s a favorite topic of everybody. I’m just curious to hear your thoughts on if you do get some pushback from customers in the form of lower traffic type to the higher prices, how do you see yourselves responding to that? Meaning, will you perhaps, highlight value options or menu insert? Or do you plan on just absorbing some of that traffic hiccups if they we’re to come? And then separate, with up and you could comment on the relocations of 06 that you’re doing this year? How does that compare to recent history? Seems like a step-up. So if so why now? And historically, what sort of list have you seen from a sales standpoint on these relocations?

Scott ColosiPresident

Yes, I’m pushed back for pricing, I think we — if our traffic momentum slowed will be looking at our own execution within our four walls. We wouldn’t be blaming it on pricing for these price changes. For the most part, there not just that substantial and we’ve had similar price reasons before and haven’t seen that much of a reaction. So that’s one thing.

Second thing is look at our competition and we have value pricing every day in our menu and they’re only nine menu’s pretty aggressively priced. We have apes a couple of other programs that are very aggressively priced but our basic six- and eight-ounce sirloin meals you still get a baked potato and nice sized salad and ice bowl at Texas Roadhouse. A lot of concepts now you just get one side for a price that’s more than offset. If you want that second side, you got to pay another 1 99 or 2 99.

So we’re like already every extreme value on a good part of our menu. So and because we are staffed, and because we are friendly, and because we are so high-quality food and making out from scratching working hard, we read these levels right now, is our guest counts went down, we’d be looking at ourselves first before we blaming at menu pricing we would be saying well, maybe were not as staffed as well as we should be maybe the food is not as good as it should be maybe even got some execution-related issues or is something else in the economy before we would ever blame on menu pricing for this degree.

Tonya RobinsonChief Financial Officer

And on the relocations, we had two in 2018, and I think we’ve had a couple — maybe for the last couple of years, we’ve done a couple of those. So typically, on the flow through, I would say a lot depends on the volume of the restaurant that was relocated. So a higher-volume restaurant may be has a little less flow-through and then one that maybe at the average part I would say it’s probably 20% or more depending on that volume of that restaurant.

Scott ColosiPresident

And by the way, these reloads, they’re kind of — they are a number of different reasons. So some of them, you’ve got — where some of our older, older, older restaurants were conversions of something else. And you go and you walk in in the day, you’re not super proud of the size of the kitchen, how small it is, and we have so many employees and they’re all on top of each other. And even the front of the house is all caught up and chopped up.

So some of that is getting out of that situation and getting to a better location all round for both the employees and the guests. We have one that’s condemnation of our property. So we’re relocating a store because the city’s taking over our property and they’re compensating us for it but we got to move. So there’s all different reasons why you have these relocations, we just have a bunch coming in the same-year, but we are at the same time aggressively talking to our operators about our whole portfolio.

So don’t want to be in a position where we’ve got a stale, if you will, portfolio, and all of a sudden, you’ve got this huge amount of catching up to do to kind of ride that ship, both in our asset image or just the viability of locations particularly some trade areas do change over time. And especially, we are 26 in to this thing now. We got a lot of questions that are 20 years old, sometimes traded of change in such a waiver traffic bonds have changed or whatever it is and does make sense to relocate. And avoid a lot of capital spending let’s say, get a better lease deal, and ultimately, coming get a lot better sales longer term, even well beyond the 20% bump you might get plus about the 20% bump, let’s say, it’s more about the 10 years from now where you’re going to be, or 15 years from now where you’re going to be longer-term versus what you really drive these deals.

Jon TowerWells Fargo — Analyst

So is it too early to estimate whether or not this will be stepped up level of relocations to six more…

Scott ColosiPresident

No, no, know it would be lower than that. I mean, there won’t be that many — I think six is a very much an unusually high number.

Jon TowerWells Fargo — Analyst

Great. OK. Thank you.

Operator

And your next question comes from the line of Karen Holthouse from Goldman Sachs. Your line is open.

Karen HolthouseGoldman Sachs — Analyst

Hey, thanks. Just one I guess final one on the pricing front [Inaudible] going back to your answer…

Scott ColosiPresident

Hey, Karen, hey, Karen, you’re breaking up on us, Karen. You’re breaking up on us. We can’t hear you..

Tonya RobinsonChief Financial Officer

Sorry, just a little bit.

Karen HolthouseGoldman Sachs — Analyst

Going back to the pricing question from a couple of our pricing from a different couple questions. So I just want to make sure I heard that correctly that there wouldn’t be necessarily outright opposition to continuing a higher level of price beyond the 3.2% that you’d be running for a couple of quarters this year depending on your sense of the consumer, the competitive — consumer competition and just also, the inflationary environment?

Scott ColosiPresident

Karen, this is Scott. I mean, it’s doubtful we would do anything probably for the rest of the year being we’re already at above 3%. However, depending upon what happens with minimum wage, especially, there is a number of states that have passed new legislation in addition to the ones that are already going up north. Every year, depending upon just what that could’ve pressurized we’re not just going to set and do nothing.

So with that, so depending upon how that all checks out I could see us doing something at the beginning of the year to help deal with that. If there is more stuff on top of that, commodity related we’ll have to see what’s commodity cities and again, how are business doing but we know inflation is more likely to pop an ongoing reality in the world read write onto something dramatically changes in the economy i.e. recession. So we have to expect to continue to take more pricing as I expect most other people would as well.

Operator

And your next question comes from the line of Stephen Anderson with Maxim Group. Your line is open.

Stephen AndersonMaxim Group — Analyst

Yes. Good afternoon. Going back to the relocation question. Two of my questions for us, if you look at the remodel you see any opportunities if some of those markets to potentially a lunch scene if you have that and some of your locations is just a Friday lunch’s? And the second question is do seek construction costs for those locations above where you’re projected maybe and even a quarter ago?

Scott ColosiPresident

Steve, this is Scott. Our construction cost inflation hasn’t changed from a quarter ago, at least for us and for our projections. Though, it continues to be inflationary given the healthy economy, if you will, and the cost of construction labor let alone the cost of real estate. So that still and there is still inflation there.

By the way, a couple of reloads are actually — we’re calling them reloads but literally, there like in the same parking lot. We’re just not at the old stroll down with anyone basically the same parking lots of recalling something to reload that may be a rebuild and so forth I just want to clarify that piece of it but from a major remodel perspective, no, we’re not considering weekday lunch. We do have a lot of stores do for Friday lunch, but we are not there is no addition to do weekday lunch not happening.

Operator

And there are no further questions at this time. I will turn the call back over to our presenters for some closing remarks.

Tonya RobinsonChief Financial Officer

Thanks, Rob. Thanks everybody for joining us. We look forward to taking any questions. If you don’t have any, please feel free to give us a call.

Thanks, and have a great night.

Operator

[Operator signoff]

Duration: 62 minutes

Call Participants:

Tonya Robinson — Chief Financial Officer

Scott Colosi — President

John Glass — Morgan Stanley — Analyst

David Tarantino — Baird — Analyst

William Slabaugh — Stephens Inc. — Analyst

Jeffrey Bernstein — Barclays — Analyst

Peter Saleh — BTIG — Anhalyst

John Ivankoe — J.P. Morgan — Analyst

Christopher O’Cull — Stifel Financial Corp. — Analyst

Andrew Strelzik — BMO Capital Markets — Analyst

Brian Bittner — Oppenheimer and Company Inc. — Analyst

Jon Tower — Wells Fargo — Analyst

Karen Holthouse — Goldman Sachs — Analyst

Stephen Anderson — Maxim Group — Analyst

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