Welcome to the Red Robin Gourmet Burgers, Inc. second quarter 2008 financial results conference call. (Operator Instructions) It is now my pleasure to turn the floor over to your host, Katie Scherping, Chief Financial Officer of Red Robin.

Before I get started I need to remind everyone that part of today's discussion, particularly but not limited to our outlook and development expectations, will include forward-looking statements. These statements will include but not be limited to references to our earnings guidance, margins, new restaurant openings or NROs, trends, costs, and administrative expenses, and other expectations. Also these statements are based on what we expect as of this conference call and we undertake no obligation to update these statements to reflect events or circumstances that might arise after this call. These forward-looking statements are not guarantees of future performance and therefore investors should not place undue reliance on them. We refer all of you to our 10-K and 10-Q filings with the SEC for a more detailed discussion of the risks that could impact our future operating results and financial condition. I also want to inform our listeners that we will make some references to non-GAAP financial measures today during our call. You will find supplemental data in our press release on Schedules 1 and 2 which reconciles our non-GAAP measures to our GAAP results. Now I’d like to turn the call over to Denny Mullen, Chairman and Chief Executive Officer.

We also have Eric Houseman, our President and Chief Operating Officer. Eric will provide an update on some of our key initiatives that have been underway to drive guest traffic and sales in this very challenging business environment. Katie will review in detail our most recent financial results as well as update our 2008 guidance. For the quarter, total revenues increased 15.6% while company-owned comparable restaurant sales decreased 0.4% compared to the second quarter of 2007. GAAP diluted earnings per share was $0.49 compared to $0.29 a year ago. On a non-GAAP basis, after considering one-time charges in both quarters, our diluted EPS for the second quarter 2008 was $0.52 per share versus $0.44 last year for an 18.2% improvement. Katie will provide today more detail on the year-over-year comparisons in a few minutes. The second quarter was clearly challenging for the casual dining industry as a whole due to the difficult economic environment and for Red Robin specifically as we lapped our first and very successful national advertising campaign of a year ago. Despite disappointing sales trends, we were pleased with the overall performance in the second quarter as we achieved revenue growth, controlled our spending, and continued strengthening the Red Robin brand. We continue to believe we have good visibility generally on the cost side of our business for the balance of 2008 but our visibility for revenue in the second half of the year is less clear. We will be lapping our toughest comp of the year in Q3 with the consumer environment remaining under pressure from macro economic influences. We will be on advertising in three weeks in the fourth quarter this year when we were dark in all of the fourth quarter last year. As we have laid this out in our press release, and…

In the second quarter of 2008 our comp store sales decreased 0.4% which consisted of a 4% increase in price and mix which was offset by a 4.4% decrease in guest traffic. For comparison, we reported a 3.1% comp store sales increase in the second quarter of 2007 which was driven by a 2.4% higher price in mix and a 0.7% increase in total guest cap. You will recall that a restaurant enters our comparable base 5 full quarters after it opens. Our second quarter had 207 company owned comparable restaurants out of the 281 total company owned restaurants. Average weekly sales for the restaurants in the comp base were $64,842 during the second quarter which compares itself to $65,090 for those same units last year. Average weekly sales for our 43 non-comp restaurants was $56,233 during the first quarter of this year compared to $59,979 for the 50 non-comparable restaurants last year. The 17 franchise restaurants that we acquired in the second and third quarters of last year are not currently included in the comp base but will be included beginning the third quarter of this year. Their average weekly sales were 61,254 in the second quarter of 2008. The 15 existing franchise restaurants that we acquired in the second quarter of this year will be included in the comp base beginning the third quarter of 2009. These 15 restaurants [AVs] were $54,905 for the period of time we owned them in the second quarter of this year. Our second quarter 2008 restaurant level operating margins of 18.6% were 140 basis points lower than 20% margins in the second quarter of last year. However, do remember that includes an incremental 50 basis point contribution to our national media fund. In late June we implemented approximately a 2.7% price increase…

Now let’s talk about the results for the second quarter 2008 which was a 12 week period ending July 13, 2008. If you haven’t already seen our news release on the quarter’s results, you can find it on our website at redrobin.com in the investor relations section. Total revenues for the second quarter of 2008 which consists of restaurant sales and franchise royalties grew 15.6% to $206.4 million from $178.6 million last year. Restaurant sales grew 16% to $202.9 million from $174.9 million and consisted of $157.7 million in sales from our 207 comp restaurants, $12.3 million from the 17 acquired restaurants in 2007, $6.7 million from the 15 restaurants acquired in the second quarter of this year, and $26.2 million in sales from our 43 non-comparable restaurants. As Eric mentioned, the franchise restaurants acquired in mid-2007 and the 15 franchise restaurants acquired in the second quarter of 2008 have not been included in our comp store sales metrics yet. Franchise royalties and fees decreased 7.4% in the second quarter to $3.4 million and exclude the royalty contributions from the 17 acquired restaurants in 2007 and the 15 restaurants acquired in the second quarter this year, from which we recognize a combined $816,000 in royalty revenue in the second quarter of last year. The 87 comp restaurants in the US franchise system reported a 1.5% decrease in same-store sales while the 18 comp restaurants in the Canadian franchise system reported a 4.5% increase in same-store sales for the first quarter. Our restaurant level operating profit margin was 18.6% which compared to the 20% reported last year. The 140 basis point margin decline is attributed to approximately 60 basis points of higher food and beverage costs, approximately 15 basis points of increased operating costs, and 50 basis points of increased occupancy…

Looking ahead, we remain focused on the things we can control in a difficult operating environment. Taking care of our guests, managing costs, and deploying our cash to the most effective use of capital. We believe our talented and unbridled team members are staying focused on limiting our values, building our brand, and delivering an unbeatable guest experience with our fantastic gourmet burgers. We’re ready for questions.

(Operator Instructions) Your first question comes from John Glass with Morgan Stanley.

Katie, maybe can you just flesh out a little bit the second half earnings guidance and why it’s going to be so much worse than it was in the second quarter? It would look like your comp expectations aren’t going to get worse, in other words, if the 1% is a good number. Is there something specifically in the margins that are going to be excluding the advertising shift which I think is essentially a wash in the back half or even the benefit. Is there anything else in the margins that is unusual relative to the first half?

Other than replying to leverage G&A which is on a positive note, we’re going to lower our tax rate as well to 29% from the previous guidance of 30% but really it’s all sales and the change in our assumptions around our comp store sales. For year-to-date we’re running about 2% and our full year guidance is built around a 1% to 2% same-store sales expectation.

But in the second quarter your comps were slightly negative right, and do you expect them to get any worse than slightly negative in the back half of the year?

Q3 is the most difficult comp of the year so I guess the answer would be from a guest count standpoint, yes, and we’re going to be rolling off price.

There’s no more incremental acquisition expense related in that guidance other than the $0.03 or is there?

No, just the Q2 expense.

Then when you think about free cash flow, you talked about free cash flow generation, first of all can you just... can you maybe just talk about the theoretical CapEx for next year on that lower number of stores or if not can you at least just talk about what the maintenance CapEx of this business is excluding growth so we can figure that out and how do you intend to deploy that? I mean at this point given the leverage that you have maybe you could take on more debt but wouldn’t it be prudent to start paying some of that down just based on the environment?

Let me answer your first question about the expectation for CapEx. Our current investment per unit is running around $2.2 million of capital spend plus the pre-opening costs associated with that. Our maintenance CapEx historically has run between 12% and 15%. We’ll re-evaluate that for next year and we’ll give you more specific guidance as we give our 2009 visibility overall but that’s kind of our historical trend. Then from a debt versus how we use capital, we have a very low cost of capital. As you can see in the second quarter we ran a 3.7% interest rate, so that’s a very low cost of capital, but certainly we’d weigh in the opportunity to pay down debt, buy back stock, or continue to develop more restaurants. Those are all options for our cash flow as we move forward.

Can you explain the lower interest rate, the 3.7%, and how long do you have that rate for?

We locked $120 million of debt in a swap until March of 2010. Then we’ll roll of $50 million of that so we’ll have $70 million swapped for another year and it’s a LIBOR plus so we locked in 2.7925% as that interest rate, then we pay a margin on top of that based on our leverage ratio which is currently sitting at 1%.

Your next question comes from Brad Ludington with KeyBanc Capital.

I just wanted to look at the new $50 million repurchase authorization. I know that goes through 2010 but should we expect that there will be any measurable repurchases in the second half of ’08?

We’ll report on that when and if we buy as we go through each quarter in the 10-Q.

Then on the labor line, it was controlled pretty well this quarter. Can you go into a little more detail on where you were able to cut some of the controllable labor costs out?

We’ve been talking for numerous calls that that’s been one of our focuses and really the focus is in the heart of the house and the kitchen looking at preparation efficiencies and various initiatives but also managing our proprietary labor management system that we refer to as new stars.

Your next question comes from Jeff Farmer with Jefferies. Jeffrey Farmer - Jefferies & Co: Eric alluded to some 15-second commercials highlighting your bottomless fries and drinks. I guess considering how visible your casual dining appears to have been in terms of advertising their own value offerings, do you think you’re going to need to get a little bit more aggressive in coming quarters for heading into ’09?

We will not get more aggressive on television in terms of values or discounting the balance of ’08. ’09 we will probably move more away from branding and more to product specific featuring more like [inaudible] burgers but not in terms of discounting. Jeffrey Farmer - Jefferies & Co: Any idea whether or not you’d introduce a price point in any of this advertising?

It’s too early to tell for ’09. Jeffrey Farmer - Jefferies & Co: And then chicken, it’s your greatest commodity exposure and you’ve talked about this for a while, but it looks like you’re contracted for what amounts to 100% of your need through December ’09. I’m just curious if that’s a fixed price contract or I guess more specifically if chicken were to jump in ’09, would you guys be covered?

It is a fixed price contract subject to Act of God clauses which all contracts probably have. Material adverse change. Jeffrey Farmer - Jefferies & Co: Okay, and then just following up on a labor question real quick, I think you guys began your initiatives in the fourth quarter of ’07. Is it fair to assume that you’ll begin to roll of that as we get into the fourth quarter of ’08 or do you have anything else up your sleeve as we roll in to ’09?

We will roll off those initiatives but the initiative that started with the NRO efficiency initiative and there’s been really not to comps and non-comps is never ending.

Your next question comes from Jeff Omohundro from Wachovia.

Another labor question. I wonder if you could just talk about turnover and also staffing levels and service scores.

Actually we’ve seen a reduction in our management turnover by about 8% year-over-year. Restaurant turnover continues to run in the mid to low 90s so well below the 100% to 150% mark for hourly team members. Continuing obviously always focused on guest service. We are piloting a IVR program with a company called [Impathica] to make sure that we are staying in touch with our guests, but it’s something that service scores, our mystery shopper scores, we haven’t seen any material impact.

And your staffing levels?

Staffing level standards have stayed the same. Obviously we review our guest to time report every day per restaurant per region and it breaks down to even tables per server.

My other question was any new trend on new unit performance?

We’re very pleased from both the retention side as well as the initiatives that we’re putting in place. We’re seeing good traction so we’re not out of the woods yet but it’s a never ending journey.

Your next question comes from Joe Buckley with Banc of America.

Just a follow up on that. The reduction and expansion plans on the company side for ’09 down to 17 to 20, is that related in any way to new market concerns or issues or what is sort of driving that decision?

In no way related to new markets or existing market issues. As you know we are 18 months out in development so we just want to take a more cautious look as we look out into ’09. Many of those ’09 transactions are already done so it’s just a matter of slowing down a few and pushing a few into 2010 and getting a better feel for the economy.

It will reflect a more aggressive stance perhaps on share repurchase? I know you added 50 million to the buy back but is that part of the capital deployment decision going on?

It’s not a more aggressive approach, we are free cash flow, we will be materially larger free cash flow with that lower development and one of the options we want to have open to us and that’s why it’s an open purchase is additional stock buybacks or as John said earlier, debt repayment before we deploy more capital into buildings.

Question on geography, do you see any material difference in California or other sub-prime mortgage markets or any geographical variances you’d highlight across the chain?

We highlighted in the last call, so called CanMark, it’s California, Arizona, Nevada. They continue to be under lots of pressure for us. It’s probably not getting any worse but it’s certainly not getting any better.

Could you quantify it at all just to --

We quantified it in the first quarter call that we would have been up over 6% if it wouldn’t have been for those three markets. I don’t have the percentages at hand but I assume it will be similar to that.

It wasn’t quite as dramatic this quarter, primarily because we were down in almost all regions. It didn’t have quite as order of magnitude as in Q1.

Lastly I know you said you’re going to highlight the bottomless strengths and bottomless fries. As you’ve moved pricing, have you moved pricing on either of those categories and how do you feel about beverage price perhaps as you go forward?

We haven’t moved beverage pricing in the last couple price increases, especially in our Freckled Lemonade and our Monster Milkshakes, so we feel pretty good there.

Obviously we haven’t moved fries since they’re included anyway and have been bottomless forever.

Any thoughts of maybe taking some price in those categories or are you --

We haven’t made any decisions that we can publicly talk about pricing but I would say we’re nervous about pricing in this economy.

Your next question comes from Matt Difrisco with Oppenheimer. Matthew Difrisco – Oppenheimer: This is Jake Bartlett in for Matt. I had a question about the new prototype and just was wondering if you’re getting similar sales levels from the smaller size store and margins from the smaller prototype as well as for 2009, how many of the 17 to 20 do you expect to be the new prototype?

The seat configuration is the same in the new prototype so it’s not smaller in that vein, it’s just smaller square footage slightly, and there’s on difference in sales between the current one and the older prototype so to speak. We may have 40 prototypes in the system anyway. A lot of the new restaurants we’ve opened in the last couple years have been in caps modifications of different prototypes and what was the last part of your question?

Will they all, new development, be the new prototype. Yes. We’re using that floor plan as our go forward prototype. Matthew Difrisco – Oppenheimer: And then in terms of the 2009 development, you mentioned you have 18 month look out. Is that to assume that it’s going to be more fun in loaded development and that you’re really pulling back in the back half of the year as we model 2009?

Yes. Matthew Difrisco – Oppenheimer: And is there any regional focus for the 2009? Are you remaining in certain, keeping development in certain developments that you identified as stronger rather than any others that are kind of noticeably weaker?

It’s pretty much across the board. Even if the next question is, “Are we building in California” the answer is yes. California is still one of our strongest AUV markets, has been forever, and still is, even though it’s down, and we will be building there. Matthew Difrisco – Oppenheimer: A number of concepts have talked about the July 4 effect. Did you see any shift in sales given the date of July 4 this year?

It’s [half dollar] Friday so it’s a bad weekend. Shift and/or loss, however you want to determine it. Matthew Difrisco – Oppenheimer: Is there any way you can quantify that or it’s not --

No.

Your next question comes from Steven Reiss with JP Morgan.

As you finish up fiscal ’08 with significant increase in advertising, how are you going to measure I guess the return or the effectiveness as you think about I guess whether or not to continue to grow that in 2009?

It’s always a tough question. A good question, but a difficult question. We know in the past what happens when we go dark. We will have some experience later this year when we go dark again. We also know what’s happened to some competitors when they went dark so you have to make a business judgment on whether or not sales would have dropped materially if you were off markets. We think that we saw last year with the successful introduction of very good returns. This year we have some timing differences in lapping up against last year’s but we feel confident that TV is in terms of branding and now moving out of branding into product promotions will be a real benefit for us.

Okay and I think you said three weeks versus zero in the fourth quarter, but what is the actual weeks in the third quarter versus last year?

What do you mean, last year, you mean actual calendar days?

No, the planned advertising weeks in the third quarter versus the third quarter last year.

We’ll be on 7 weeks this quarter, this year, for the third quarter this year versus five last year.

And then just on the ’09 development, it sounds like you cut what you could I guess this far into the pipeline. Would you have cut more if you could have?

I’m not going to speculate on that.

Katie, can you just give us the expected maintenance CapEx for 2008?

It’s about 15% of our total CapEx that we gave guidance of $80 to $85 so about 10% to 15% of that.

And you think that’s probably a rough estimate for 2009?

That’s what we’ve run historically.

Your next question comes from Conrad Lyon with Global Hunter Securities.

I want to ask you more about the menu pricing. Average check over the last four quarters has been about 4%. How do you look at it going forward? I mean clearly I think you said it’s a very touchy environment here but can you help us look in terms of how far out that may go because it looks like we may run into a point where you may not be able to take some price for some time and it may put some pressure on margins. Is that a fair statement, how we should look at menu pricing?

I’m trying to quantify that statement. All we said is that we haven’t decided on further pricing at this point certainly because the environment is part of it. Obviously we just took price not too long ago so we’re still measuring the effect of price mix on that. On a macro basis we monitor and will continue to monitor food at grocery stores versus food away from home and see what that relationship is. We don’t want to be accelerating price in excess of what’s going on at grocery stores and other factors and advice have come into play.

And then let me go back to this. I think this may have been asked but where would the likely places be for pricing?

Again, we sell hamburgers. So pricing has been on hamburgers across the board. Pricing up an item that sells 1/10 of 1% doesn’t get us much.

Short answer would probably be on the menu.

But beverages, I think you were talking about the beverages.

I mean, our menu stands kind of on its own in terms of the food products. Beverages, everybody sells beer, so you have to be more conscious of what some of those factors and then, alcohol is not a big part of our business. Lunch is 50% so we have to be, and the menu is the same at lunch at dinner, so we have to be very careful for the lunch price value equation.

Let me ask you a different question now with respect to the company. Now that you’ve gotten over 400 stores, how do you look at growth or how should we look at growth with respect to the company and where the earnings gross is going to come from going forward. More from company growth, more from margin management?

It’s kind of all of the above in terms of the runway, we’ve got 400 stores, there’s plenty of room for quite a few more Red Robin stores around the country over time, so we don’t think that’s an issue. The issue is then on terms of top line growth, we’re always trying to build sales as part of the whole marketing push and operational push, and then what we do in 2010 and beyond, we’ll determine that as we see how the economy works out and how we go forward. We have a number of stores and it’s in our investor presentation, stores that do under $2.5 million. There are opportunities for us to move those up. Our system average is $3 million plus, so to the extent we can move those up, there’s tremendous operating leverage, same as there’s been negative operating leverage when revenues go down.

Some areas, such as Canada, seem to be doing very well. Do you guys see that as an opportunity maybe potentially acquiring some of these stores or maybe going to that territory and/or both?

Our franchise partner in Canada certainly is doing well. They’ve done a number of remodels. I can point out the system average is substantially lower up there than it is here in Canadian and/or our dollars, so they’ve been a nice push on remodels and doing a great job operating. We always can learn from them and hopefully they can seek knowledge from us. In terms of acquiring, we wouldn’t talk about that until it was done anyway, and in terms of expansion in Canada, our franchisee up there is now under construction with the first one that’s been built in many, many years, so we look forward to them continuing.

Your next question comes from Dustin Tompkins with Morgan Keegan.

I wanted to follow up on the questions around new unit performance. It looked like the non-comp restaurants, the average weekly sales were a little bit slower than what they had been in past quarters and I calculated around 86% or 87% of the comp base. Is there any update? Am I missing something? Is that on plan or are those stores trending a little bit softer than they had been?

Dustin, we’ve been running around that 86% to 87% for like the last four quarters since Q4 of ’07 essentially. Q2 and Q3 we saw big influence from our national advertising campaign, particularly where a lot of those restaurants are a new market that are in our non-comparable base. So you saw that influence of that advertising campaign really shoot that number up in Q2 and Q3 last year when we went dark in the fourth quarter, we came back down to 86% run rate, so that’s kind of where we’re sitting right now and as dynamic as you move restaurants in and out of that base and things like that, so it’s hard to really wrap your arms around what’s really causing that, but we kind of use that 86% to 87% as just a barometer of percentage of comp but that’s it.

That kind of leads to my second question on the advertising. As you mentioned, Q3 is your hardest comparison. Obviously the advertising was a big success in Q3 last year. As you look at Q3 this year, given that you’ve got distractions from the Olympics and the elections, do you expect your advertising to be less effective even relative to maybe how effective it was in the second quarter? How should we look at that effectiveness?

There’s a lot of variables which is why we took down our full year guidance because there’s so many unknowns and we’re going up against our toughest comparison in Q3 and Q4. As we come into the elections, we’re going to be on advertising and we weren’t last year, so we quite honestly, the visibility on exactly what’s going to happen, we don’t have that great of visibility so we’re kind of doing our best to estimate what the upside and the downside could be and that’s where we got the 1% to 2 same-store sales.

Denny as you were describing 2009 development, it sounds like you guys are pretty committed on the 17 to 20. How flexible is that number? Could it be lower if you wanted it to be?

We don’t want it to be so at this point we’re committed to do that. We think they’re all great sites and this is not a shut down, this is just a slow down to be more prudent and push some things out.

Your next question comes from Nicole Miller with Piper Jaffray.

Katie, can you give us an update, what is the actual debt ratio and how does that compare to your allowable debt covenant?

We have two debt covenants. We have a fixed charge ratio and we have a leverage ratio. Our leverage ratio max is 2.5. We’re well underneath that and our fixed charge ratio, we’ve got plenty of cushion under that as well, so even rolling out our visibility through the end of this year, we are not in any threat of hitting either of those ratios.

If you were to extend the line of credit to the total amount available under your current guidance, would you still be within those ranges?

Yes, we would watch good visibility to what we think our 2009 cash flow is going to be obviously to have more certainty to that but I think... We are very comfortable we would to hit that leverage ratio.

That helps us consider then when and how you could potentially buy back stock. Is there an actual authorization in place?

Yes.

For how much?

$50 million.

Another $50 million.

Right.

In the ’09 development, is that also the 17 to 20 that you’re seeing for ’09?

Yes.

But ’08 is unchanged, correct?

Correct

And then in July or end of June was there a menu price increase and how much was that?

The late June increase was actually the lat week of June. It was bout 2.6%, 2.7%.

And we roll off next week.

Roll off how much?

3%.

And actually Denny, is that what you said, interest was early on the price because you have to be careful with the value I guess of lunch proposition? Could you in fact just split your menu into lunch and dinner and take prices at dinner time?

We haven’t since 1969 so it’d be a difficult sell around here to do that and we haven’t thought about it. We just wanted to point out that lunch is 50% of our business which is a great thing and it’s the same menu lunch and dinner.

Katie, I think last year you said it was like a 2.2% comp if I remember correctly you’re required to cover the $10 million to $11 million in marketing. What is the comp percent this year and how are you measuring that?

It’s about the same. It’s a little over 2%, between 2% and 3%.

We’ll take a follow up question from Joe Buckley of Banc of America.

I have another two questions I guess on share repurchase. Could you talk a little bit about trends of same-store sales during the quarter. You obviously executed the $50 million sometime in May, I forget when you announced that you had done it. Was the outlook for the quarter significantly better at that point could you say, just because of sales trends?

Our share repurchases were executed the last week of May and the first week of June. As we saw gas prices rise significantly in June and July is really when we started to see the impact to our same-store sales and probably more particularly in the back half of June as we entered our last period of the quarter. So that’s what’s causing us to take a more conservative view on the back half of this year as well from the macro economic impact that we’re seeing currently.

Okay and then the guidance, I know the guidance obviously includes the effect of the $50 million that was done. Are you assuming anything done with your additional $50 million in the guidance or is that...?

No, the only assumption that we’ve made includes the $5 million that’s been completed.

That does conclude the question and answer session.

Thank you for your time and thanks to all our great team members out there. We’ll talk to you in a quarter.