Good afternoon, everyone and welcome to the Red Robin Gourmet Burgers, Incorporated Fourth Quarter and Full Year 2018 Earnings Call. Please note that today's call is being recorded. During the course of this conference call, management may make forward-looking statements about the company's business outlook and expectations. These forward-looking statements and all other statements that are not historical facts reflect management's beliefs and predictions as of today and therefore are subject to risks and uncertainties as described in the Safe Harbor discussion found in the company's SEC filings. During the call, the company will also discuss non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with Generally Accepted Accounting Principles, but are intended to illustrate an alternative measure of the company's operating performance that may be useful. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures can be found in the earnings release. The company has posted its fiscal fourth quarter and full year 2018 earnings release and supplemental financial information related to the results on its website at www.redrobin.com in the Investors section. Now I'd like to turn the call over to Red Robin's President and CEO, Denny Post.

Good afternoon and thank you all for taking the time to join us today. I'm pleased to have two members of our executive team with me on the call this time. Guy Constant, who is of course not new to the team, but new to the role of Chief Financial Officer and Lynn Schweinfurth, who recently joined us to replace Guy as Chief Financial Officer. You'll hear from both of them today on our operations plans and financials guidance for 2019. After I wrap up 2018 and speak to our priorities for the year ahead. 2018 was in sum a very disappointing year for us. It brought a lot of hard earned learning which we are using to urgently set new plans to turn our performance around, as I will speak to shortly. Q4 sales and guest trends continue to be soft. Although we did see some improvement in operational metrics as we moved through the quarter. Dine-in traffic was down by a total of 4.2% for the year, which clearly is not sustainable and undermines the growth of our off-premise business. We market tested three new tactics to improve dine-in traffic and will be implementing the most promising of them immediately. We saw the gulf [ph] widened between enclosed mall units and free standing units, raising our urgency to reassess our real estate portfolio. We continued to seek buyers for the regions that we had identified previously as refranchising priorities and while we have nothing to announce on the call today. We have made good progress. We have also decided to engage an outside firm to dial at the pace on certain markets and to support the sale of any future regions, we may choose to refranchise. With 2018 now behind us and all of the learning that we…

Thank you Denny and good afternoon, everyone. To build off what Denny has outlined, we are heart at work to improve the execution within our restaurant operations. As we detailed last quarter, we had experience some challenges that negatively impacted the guest experience to the middle of 2018 and the fourth quarter marked our urgent efforts to address not just the immediate issues, but also to lay the foundation for sustained and reliable performance for the future. And the good news is, that we indeed saw improvements not just in the sales performance as the quarter progressed. But in some of the service underpinnings to drive ongoing improvements as highlighted by some of the leading metrics. As we progressed through the fourth quarter, we saw steady reductions on the number of guests that we're working away. Both versus what we saw earlier in the year and even compared to the fourth quarter a year ago and we saw steady decline in the number of guest complaints related to the time waiting to be seated and related to table cleanliness. Two areas we're targeting as key metrics that require improvement. And even as weekly guest counts increase through the fourth quarter due to typical holiday seasonality, we were able to hold kitchen time steady and we were able to slow the growth in year-over-year wait time and in both cases, post numbers that were improved versus where they earlier in the year. All very positive initial first steps in the turnaround of our restaurant execution and done while generation some of the best restaurant labor productivity numbers we've seen with overall 2018 hourly labor productivity improving approximately 9% versus what we saw in 2017. But there's still a great deal of work to do. While we made some progress we're still…

Thank you Guy and good afternoon everyone. Let me begin by first reinforcing the intensity of focus we share in executing our 2019 plans to turn performance around and in preparing the company for long-term sustainable growth to deliver value to our shareholders. As I walk you through the highlights of our fourth quarter 2018 financial results. Please note we had an extra week in fiscal 2017. In the fourth quarter of 2017, the extra week represented $24.3 million in restaurant revenues. Q4 total company revenues decreased 10.8% to $306.8 million down $37.1 million from a year ago. Excluding the impact of the extra week in 2017 revenues decreases by 3.7% down $12.8 million from a year ago. Comparable restaurant sales declined 4.5% driven primarily by a 4.4% decline in guest traffic and a 0.1% decline in average guest check. Overall net pricing after taking into account discounting was 0.1% while mixed decline 0.2% in the fourth quarter. As a result of being off air for several weeks through the end of Q3, as we focused on operational execution. Comparable restaurant sales were weakest at the beginning of Q4 and improved sequentially through the quarter resulting in two years stacked traffic that was slightly better than competition as measured by Black Box. Additionally off-premise continues to have meaningful growth and in Q4 represented 10.6% of total food and beverage sales. The fourth quarter restaurant level operating margin was 19.4% down 110 basis points versus a year ago driven by the following factors. Cost of sales is 23.6% with favorable 10 basis points versus a year ago. Favorability and food waste is measured by actual versus theoretical performance in favorable ground beef cost were partially offset by higher steak fried cost and usage and higher dairy cost. Restaurant labor cost of…

Thank you Lynn and let me join Guy in welcoming you to Red Robin. You're great addition to our talented executive team and we know that you will be a refreshing change of pace from the old CFO. In closing, let me reiterate what we know that we know, what we need to do to get our momentum back and separate Red Robin from the pack again and to ensure that the brand is here to separate to serve, generations of families to come. We're moving with focused urgency and precision. We recently held our leadership conference here in Denver with all of our GM's and field leaders in attendance. Our breakout focused on many of the basics, many of the fundamentals Guy referred to. Which are critical whether you've been in leadership role for 10 years or 10 months? Our message from the stage was clear. We must turnaround our performance and get back to winning. Stabilized dinning with superior service and we can once again, gain share from competitors. Then drive off-premise and we can set ourselves up for high growth in future. The vision is clear. Now it's up for all of us to deliver with urgency. With that, let's take questions.

[Operator Instructions] we'll go first to Gregory Francfort from Bank of America. Your line is open.

My first question is just on the pricing and the mix in the quarter and maybe, how much of it was due to the changes around the value platform emphasis and versus. I think you had said that pricing would be around 1% for the quarter and it came in a lot lower than I guess. I'm trying to figure out what the delta was.

Our pricing actually came in a little above that number, but it was offset by some discounting that we implemented during the quarter to invite guest back into the restaurant to experience the improvement in operation.

And then maybe on a go forward basis, is it the plan to run 1% pricing more than that, any rough framework for your expectations on that front.

While we haven't made all of our pricing decision for 2019, we do believe that will begin the year with about 1% of price and then we'll potentially take pricing during the year 2% to 2% plus depending on final decisions made.

And Greg I can also say, as I share with you. We've test marketed some bundles that have proven to be profitable in driving traffic more so than perhaps what we did in fourth quarter and are also very focused on this overall value proposition and some other tactics that don't rely on the kind of deep discounting we did to drive traffic in those limited markets.

Got it, thanks. And maybe if I could sneak one more, just on the mall performance. Anything else you can sort of talk to there in terms of how much wider that gap is running, that it's run the past and how much of drag it will in the quarter.

Lynn, you want to give them highlight of the number and then we can kind of speak to it. Highlight.

Yes our mall performance was down about 5.5% in the fourth quarter, so that certainly was a - let's say a difference of about 3.6% for our non-mall location.

And I think you know - Greg we've seen this get worse now, three quarters in a row. If you remember back earlier in 2018. We have seen a down quarter and up quarter, a down quarter and in fact the fourth quarter of 2017 as I remembered it kind of surprised us. But now three quarters in a row of decline has us looking with great urgency of that element of our portfolio.

Thank you appreciated.

[Operator Instructions] we'll go next to Brian Vaccaro from Raymond James. Your line is open.

I just wanted to circle back on the fourth quarter comps and you said, that they improved as the quarter progressed and could you comment on how your gap versus the industry trended through the quarter and sort of how much of the improvement you would attribute to ops improvements versus broader industry trend that seem to improve in December.

Well I can certainly tell you that the gap versus the competitive set improved throughout the quarter. We did publish in our supplemental deck today that we were better on a two-year basis by 20 basis points. And I might ask Denny or Guy to address the second part of your question.

Yes, I was going to say - I wouldn't say it was industry in fact, if anything this relates back to Greg's prior question about the investment and some discounting. We bought some traffic to certain extent in Q4. There's certainly health desk narrow that traffic gap somewhat, but I also believe that it was important as Lynn pointed out to do so, to have guest experience the positive improvements that our operations group has implemented, so that we see that benefit coming into Q1 and beyond. So but we did see a quite a change from the beginning of the quarter to the end. I know we don't usually talk about period by period performance but it was a significant shift. Guy, do you want to talk about? What you feel like operations contributed?

Yes, Brian. I think we felt like the improvements we were making operations would have two sets of benefits or two streams of sales that could help us improve. The first would be, if we executed better we would just be able to take care more of the people that were on way during busy holiday season. As you know, this the late in the fourth quarter time of year where we have pretty significant wait. So if we do a better job with throughput and addressing wait time issues, there is traffic to capture. The second piece, was little bit longer term which is for those guests who may not have had a good experience in Q2 or Q3, when we weren't operating well. We'll take time to build up the trust that we can deliver on the promises and better execution and performance that I think is the second wave of benefit we'll receive from operating on a more consistent and more elevated basis.

Okay, that's helpful color. And back to the marketing spend and sort of ways. I think in the third quarter, you highlighted that you were down year-on-year in the third quarter. Can you comment on what your marketing spend? How many weeks more you were on this quarter over our waits [ph] were in the quarter on a year-over-year basis?

Well we did eliminate some of the marketing in Q3 and added back into Q4. I'm looking right now for the exact numbers in terms of week-over-week or year-over-year numbers of week on air. I think it translated a little more of local marketing activity, it was about $2 million more in investment that we flip from one quarter to other, so it wasn't so much incremental spend in year as timing, is what you get for.

Shift in timing, yes. Okay.

We have one [indiscernible] basically it was one more week of national advertising, is that what you got [indiscernible]. One more week of national advertising in Q4.

Okay, that's great, that's straight. And if we could shift gears to the refranchising and it's obviously an initiative we've been working on now going on for two years and can you just give us a little color. It seems like there's obviously clear demand for these units and just sort of what the hang up is, from a refranchising perspective?

Guy?

Yes, I don't know that freeze [ph] it is, hang up, Brian. But we had some work to do. Whenever you turn on a refranchising effort there are some documents that you have to work on and information that you have to prepare in order to make sure that you have, the right disclosures. And then starting up from scratch like you would, even if you were starting to build new unit. There is a period of time where you have to get that on the move, but we're certainly well into that now. We're speaking with some high quality potential partners. We continue to work actively on the effort and we're making really good progress. So nothing to announce at this time, but certainly it's still an active an ongoing strategy.

All right, that's helpful and then last one, I just had two questions on the guidance just to clarify. On the SG&A guidance, could you break that down a little bit further between G&A and selling expenses. I'm just trying to get a sense of, I understand there's a new marketing plan that you're working towards and trying to get a sense of how much Ad spend might be up, year-on-year in 2019 versus 2018 and if you - could you provide any more granular color on G&A versus selling that's embedded in that annual guide.

Yes I would just round numbers. Selling expenses are about $64 million and about the same percent of sales as 2018, with the balance being the G&A component.

Okay, great. And then last. I'm sorry, go ahead.

If you have a fairly back loaded plan, to your point we're not looking spend [indiscernible] more dollars, but we're holding back some weight and some investments for the new campaign.

Okay and I guess last one from me on the labor front. Where did wage inflation settle out for you in 2018? How does - what wage inflation are you expecting in 2019 and as an offset to that I know you saw significant productivity savings in 2018. What level of productivity savings have you embedded in your annual EBITDA guidance?

Well I would say for 2018 as well as what we expect for 2019. Round numbers, mid single-digit inflation. Now we did experience some productivity improvements which we have incorporated into our plan for 2019, however in addition to those items we're also expecting some initiatives to help us to offset some of the wage increases we're experiencing. So those initiatives include many simplification items and wide versus preps decision to help again offset some of the inflationary influences to the business.

Okay, thank you.

And next we'll go Chris O'Cull from Stifel. Your line is open.

It's actually Mitch on for Chris, good afternoon. Just to follow-up on the refranchising front. What level of AUV and store cash flow margin these stores operating at today. Maybe relative to the company average.

Well I think on balance, Mitch the markets that we've identified are less about the ongoing performance of the existing markets than they are about where we think once we've improved our four wall economics and what to potentially drill in the future would be markets that would be lower on the list for us to invest in at that time. So allowing our franchisees to potentially pick up territory that would have some development upside while we're developing in one part of the country when we're ready to do so, that we could allow our franchisees to develop along with us in those areas of the country, where we would feel like wouldn't be as higher priority for us to develop in the future.

Okay and then on the new marketing program, you expect to launch later this year. And sorry if I missed this, but how will that evolve or differ from the current program?

Well I think we're going to look at value Mitch much more from a standpoint of differentiated value and the total value that Red Robin brings our core target, so more meaningful levels and just pure [ph] price. We've been doing a lot of important consumer insight work to understand what particularly families value about us and the experience of coming to Red Robin, what that does for them and so I hesitate to describe it only as a more emotional connection, but that is clearly part of it, which is what is the total value proposition not just the dollars and cents proposition of what we offer. So that has always, it's - things that have differentiated Red Robin traditionally from our competitors over the years and specifically with that core target of middle income families that I think will make a difference. Not yet prepared to say how it's coming to life, but we're encouraged by the initial work and looking forward to seeing more shortly.

Okay, thank you for that and then one more from me. We've heard several companies weather as an impact core to-date especially those located on the West Coast. Have you all seen an impact from weather? I'm just curios how that has played out.

I think it's fair to say we've seen an impact similar with our competitors. Something about weather is it affects us all, right. Yes that's for sure. I'm hoping [indiscernible].

Okay, thank you guys. Good luck going forward.

And that early spring is in our future. Thanks Mitch.

And next we'll go to Gregory Francfort from Bank of America for a follow-up question.

If only groundhogs could predict restaurant sale, it will be helpful for my job.

Yes that would be a groundhog I would definitely employee with my high return.

Yes I just had a couple of quick follow ups. One is just on that G&A step up. I think then it implies about roughly $15 million of step up on the non-selling side. How much of that is due to the incentive comp reload versus planned investments? And then maybe the follow-up to that will be, how sensitive is that number to changes in comp. so if you come in 1% above or below, where do you expect to come in comp. how much does that move the G&A line?

Well starting with your first question incentive base compensation would represent about half of the increase that we're expecting in 2019. And on the range of sales that we indicated, I mean we could see it give or take $4 million in terms of fluctuation of those expenses for the low to the high end of the range.

I guess that's all sales driven that range that you're providing.

That's correct. Got it and then I think, maybe just a follow-up, I may have missed it in your prepared remarks. Did you talk about lease accounting changes and the impact that's going to have in 2019 as no impact on your P&L or is it sort too early to make that call?

Well she did, but we fell asleep during that time. The lease accounting [indiscernible].

Yes we didn't have a lot of for instance sale leaseback due to history. So as a result our lease expense pattern will be very consistent going into 2019 as we stated in the past.

So it will just be a balance sheet true up and not really a material P&L impact.

That's correct.

Understood. Thank you very much. Appreciated.

[Operator Instructions] we'll go next to Howard Penny [ph] from Hedge High [ph].

I was wondering if you can talk more about the bundling steps that you did, in terms of maybe not what you tested but the price points and how it worked.

Yes its' a pretty straightforward that I was referencing that actually goes on air next week, so I don't mind talking about. It's a pretty straightforward $10 bundle. It's available only on three of our burgers. Three gourmet burgers, so it's a limited selection and it also includes bottomless fries and a bottomless beverage. It is available all day, every day and it is something that we had tested or run as just a lunch deal in the fourth quarter last year. We expanded it to the all day, every day and we're very pleased with what we saw in test markets. That was what I was referring to in terms of what we're immediately implementing. I mentioned some other bundles that I'm not in a position to talk about yet, but we certain will and we've got some tested, Howard.

So if it's $10, if you take the fries were free with the burger anyway or so is it with the burger just drink bring you above the $10 price point. So there's the [indiscernible] value.

Yes it does, its' based on our gourmet. Yes because it does, so you're right. It actually in terms of that, it's not if we're based on Tavern. On Tavern it would just represent attachment strategy, but because it is based on three of our bestselling gourmet burgers or in this case two and our newest burger to drive trial, it does list that. Now we aren't doing any in-restaurant marketing of this. So the prospect of trade down is been limited and what we're seeing is, it is bringing guest in. and again the attachment of beverage also it is a dine-in only offer. So it also help support that dine-in traffic initiative that we're focused on.

How big of value is it? [Indiscernible].

So the El Ranchero is $11.49. Yes, so it's basically and our beverage is $3. So that's $14.49 down to $10, it's very good deal.

What was the mix? What is the mix?

Yes, where did it mix? We're not saying we're at mix at this point. We'll see it, if that repeats in broader markets and we'll share it. But we were pleased with what we saw certainly.

All right, thank you.

Sure no problem, Howard.

And we have no further questions at this time. I would like to turn it back to Denny Post for any closing remarks.

All right. Well thank you all very much again for joining us and we look forward to speaking to you in May and May [indiscernible] Tony [ph] be correct. Talk to you guys later.

And that concludes our call for today. Thank you for your participation. You may now disconnect.