Terry Harryman - VP of Finance, Planning and IR Denny Post - President and CEO Guy Constant - CFO

Gregory Francfort - Bank of America Will Slabaugh - Stephens Inc. Alex Regal - Jefferies Peter Saleh - BTIG Brian Vaccaro - Raymond James Howard Penney - Hedgeye Stephen Anderson - Maxim Group

Good afternoon, everyone. And welcome to the Red Robin Gourmet Burgers Incorporated Second Quarter 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 maybe useful. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures can be found in the second quarter earnings release. The Company has posted its fiscal second quarter 2018 earnings release and supplemental financial information related to the results on its website at www.redrobin.com in the Investors' section. I'd now like to turn the call over to our Red Robin's President and CEO, Denny Post.

Good afternoon and thank you for joining us today. Our results were clearly disappointing in the second quarter, and we are moving quickly to address service and marketing shortfalls that led to the mess. We have moved underway to recover which I’ll share later in this call. But before I do, it's important to put those plans in the context of our long-term strategy for success. Bear with me for a few minutes. We aren’t just about this quarter. We are our ability to get back on track while not compromising our long-term possibilities for sustainable growth. Our strategy is to make Red Robin Gourmet Burgers and Brews both a destination and a source of delicious gourmet burgers, fries, shakes and specialty beverages. Where we have traditionally served the guest in only way at its full service and dine-in, today guest are asking us to also serve them to carry out catering and delivery, from one way to four ways. In order to ensure we are here and thriving for the next 50 years, we must adapt to the way the guest chooses to be served in our restaurants and beyond our four walls. While we recognize the trend to off-premise and the opportunity that it created for us about two years ago. We see the pace of change now picking up speed exponentially, and we must pick-up our taste of change accordingly. To be a guest first choice for great burgers and family dining in our house or theirs, we must be great at all forms of service. In order for us to evolve with speed uncertainty, our strategy is to take the primary brand equities guest value today forward into new ways of being. These three equities were identified in consumer research as our primary differentiators and we believe we can even further differentiate on one in particular. The first equity is craveable customizable gourmet burgers, emphasis customizable while many others offer specialty burgers today. Red Robin has been known for serving Gourmet Burgers for 50 years. We have never sacrificed the quality of our food. Customizability is what guest love most about us from choosing the degree of donuts on beef patties to the wide variety of buns and toppings and protein choices. The second thing we are most known for is our highway tenant service at appropriate speed. At our best, our servers make connections with guest ages 2 to 92 and they do so in a way that ensures loyalty and delivers on our guest of time promise. We wait on the guest not the other way around. In today's hybrid convenience oriented environment that promises more valuable than ever, today's guest is even less willing to wait. The third thing we are most known for is affordable abundance. Guests have come to rely on us for generous serving and generous seconds. Bottomless refills of those fabulous Steak Fries other size and averages. They also expect us to be affordable. Now certainly, affordability is a relative perception. It's highly dependent on the size your family, your household income and the occasion. We believe that building out on affordability will make it possible for our core middle income guests to dine with us more frequently. Affordability is where we can win rather than pricing ourselves out of consideration for all that the higher and much smaller range of income earners. In order to remain affordable for the core middle income families, so as 50% of American households that earn between 42,000 and $125,000 a year, it is critical that we find other ways to control cost that do not reduce food quality or quantity, and allow us to maintain or even improve our margins. We've seen many competitors that are winning and I put quotes around that word, solely by taking price as traffic continues to decline. Overtime, we believe affordable abundance is Red Robin's greatest opportunity to further differentiate and drive sustainable and profitable traffic. By making it easier for our core guests to say yes to Red Robin any day of the week without hesitating over budget, we can unlock greater usage frequency going forward. And we also realize affordable abundance is not just about a $6.99 price point. To be truly known as affordable, we must to have unique ways of fulfilling on that promise. We have recently embarked on seminal consumer research around ways in addition to everyday low price to deliver differentiated value to our core target. We expect what to be done in mid-October and we are eager to see it comes to life in new value traffic and advertising. In order to remain affordable, we have to control labor costs. We derive a disproportionate amount of sales volume from five western states that have aggressive minimum wage laws planned through 2020. In order for us to not just maintain but actually improve the profitability of our business as we face this high labor inflation, it's critically important for us to find ways to increase productivity using technology and by further simplifying our menu and associated in-house food preparation. We are currently running multiple new service model and menu simplification pilots. Our urgency to address this for the states where the labor cost are rising the fastest will obviously also have great benefit for locations in the rest of the country, where labor cost remained for now lower. And to go where the guest is going in off-premise consumption, we are actively working on new guest facing technology to make customizing orders seamless. We are engaging with our call center to provide automated and voice-to-voice support, and we are building catering sales team to leverage our large value reputation through delivered burgers bars. All of these new ways of serving the guest will expand our reach and grow sales overtime, and they all leverage our known enforced strengths. But while we believe Red Robin has the brad equity, team capability and guest loyalty to transition from primarily dine and destination to both the destination and a source. We have recognized that we only earn the right to invest and realize those opportunities by delivering our short-term commitments. That is what made our Q2 results and our reduced outlook for 2018 so profoundly and personally disappointing. The continued weakness in our dine-in traffic cut us off guard, while it is impossible to parse exactly how much is due to change in guest behavior and what is self-inflicted. We know we can't do better and we have Doug into figure out where we can bend the trend on dine-in sales. Here is why we fell short and what we plan to do about it. The plans I’m going to share are based on analysis of internal data, consumer feedback and proprietary research. This combination of work and how the insight built on and reinforced each other gives us the confidence that we are working on the right things. It's not precious clarity on exactly how long it will take us to fully recover. The first and primary issue facing us today is, as I have said, the decline of dine-in traffic. Analysis of hourly sales data points to declining performance during peak time period, disproportionate decline particularly on the weekend. The growing complexity of our business has put pressure on our host to handle dine-in and carryout guests. In our hosting was traditionally an entry level position where your primary role was to greet and seat. Today, these hosts are asked to do much more as our check-out and third-party delivery businesses grow. We are moving rapidly forward with required new host training and improved selection criteria. We must also improve our ticket times as measured by the kitchen display systems we invested in two years ago, and we also have an opportunity to improve table turns by readying them immediately to seat new guests. We went to a theme service style model earlier this year requiring servers to buss as they go. Unfortunately, we did not execute this well at all. And it impacted us most during peak periods. So learning from this led us to restructure our learning development, training and operations excellent functions into one team, reporting us through HR and under the leadership of one of our most respected operators who has seen what it takes for us to be successful in the field. The first and most pressing charge for this new unified team is to reset expectations around standards and service performance as well as to provide tools for faster table turns and cleaner dining room. We estimate that 75% of our loss in dine-in traffic came from those peak hours far more than they represented total volume, which is a blinking red light for all of us. We were lulled into complacency by net promoter scores, which remain high and now vacant by a surge in guest complaints. The issues we saw there were corroborated by our extended guest for its research and in restaurant measures that were frankly not receiving the attention they should have gotten. We have seen both our wait time and the number of people walking away without being seated increase year-over-year. Our operations teams are now fully looked to the issues and they have narrowed their focus to improving those fix times and table turns day-by-day, week-by-week through year-end. We will be measuring progress weekly. We are also making targeted investments in peak hour labor to capture the unmet demand we see in our restaurant lobbies. And while this is a small investment, compared to the productivity improvements we have made over the past 12 months, this added labor support will help reduce wait times and improve those peak our sales. Dine-in declines are even more pronounced in mall locations, those having at least one entrance onto the mall. Those locations make up about 16% of our base and they are disproportionately represented in the bottom performers on dine-in traffic and Off-premise sales. Mall performance has no doubt been volatile, which we expect to continue for the future -- forcible future anyway. To generate a greater and more reliantly predictable return on these locations, we are going to where feasible emphasize catering sales and delivery from those locations. We are also moving immediately to capture our share of any on-site traffic with improved signage and site-specific offers and deals. We have been advertising one or more Tavern Double Burgers at $6.99 for almost two years. This has been the key driver in our outperformance versus competition on traffic. Our mix has expanded from 6% two years ago to over 15% today. While we continue to see the traffic growth, we continue to eagerly lean in. It is important for us to have a low price of entry burger line, but the current offer with five choices of Tavern Double Burgers at $6.99 went too far and appears to a trade at more guest down than it drove incremental traffic. This offer had a greater negative impact on PPA than we predicted. To address this issue, we will vary pricing on our tavern line up from now on. We will add new Tavern Double Burgers less often and likely remove another when we do so. This fall we will have LTO news on our Finest and Gourmet Burgers, including the return of our very popular Oktoberfest Gourmet LTO from several years ago. To sum-up our momentum recovery plans for the end of the year, we are moving urgently to improve table times, reduce wait times and capture peak time traffic particularly on weekends. Catering sales continue to grow and we are leaning into that success with more focus and resources, emphasizing our mall locations and our catering engines. We are also refreshing our Red Robin royalty offers improving PPA by reducing the number burgers sold at $6.99, taking modest price increases where possible and emphasizing Gourmet and Finest news. The bottom line is much better service execution with improved promotional balance. We are confident we have identified the key issues that led to our misses and are putting solutions in place to improve through year end. Now, it is up to our entire team, home office and field to deliver. With that, let me turn to Guy for details on the quarter before I join you again to close.

Thanks, Denny, and good afternoon everyone. As I walk you through the highlights of our financial results for the second quarter, please note that the numbers I present are on a recurring basis excluding special charges. Q2 total company revenues decreased 0.6% to $315.4 million, down $1.9 million from a year ago. Comparable restaurant sales declined 2.6%, driven by a 1.9% decline in average guest check and a 0.7% decline in guest traffic. Mix decreased 2.5%, primarily driven by heavier guest usage of our tavern value menu and lower non-alcoholic beverage mix, overall, price after considering the impact of discounting increased 0.5% in the quarter. Pricing ran a little bit lower than anticipated due to a 0.5% increase in discounts driven by the teachers' event that occurred in June. For the balance of the year, we would expect pricing to run above 1%, but still consistent with our goal of driving traffic by keeping the Red Robin experience affordable for our guests. Off-premise traffic growth was 26.8% this quarter, while dine-in traffic was down 3.2%. The net effects resulting in our 8th consecutive quarter of traffic outperformance as measured by Black Box, up 160 basis points versus the segment. Our two-year traffic GAAP versus the industry reaccelerated in Q2 to 520 basis points returning to level seen in the second half of 2017. Second quarter restaurant level operating margin was 19.3% down 150 basis points versus a year ago, driven by the following factors. Cost of sales increased 40 basis points to 24.1% driven primarily by the higher cost of steak fries, higher tavern mix and lower non-alcoholic beverage mix. Restaurant labor costs improved 40 basis points to 34.3% driven by improvements in hourly labor productivity offset partially by management expense and increased trading costs. Other operating costs increased 90 basis points to 13.7%, primarily due to increases in to go and catering supply restaurant technology expenses and third-party delivery costs. Occupancy costs increased 50 basis points to 8.5%, primarily due to sales deleverage. General and administrative expense improved by 40 basis points to 6.5% due largely to the home office reset that was completed in late January. This reset is consistent with our pivotal way from being a unit growth driven organization to one focused on value, affordability and improved the four wall comps. Selling expenses were up 30 basis points as a percent of revenue to 4.8%. This increase is similar to what we would expect for the balance of the year. As a reminder, selling expense now includes all marketing activities including both national and local marketing and media expenses. Preopening costs decreased $800,000 primarily due to fewer restaurant opening. We had two unit openings in the second half of 2018. Q2 adjusted EBITDA was $28.8 million, down 10% versus a year ago. Depreciation and amortization was 40 basis points higher to 7.1%. Net interest expense and other was 2.4 million a slight decrease versus prior year. And our second quarter effective tax benefit was 71.6%. Adjusted earnings per diluted share were $0.46 as compared to $0.61 in the second quarter of 2017. During the quarter, we recognized special charges of 10.6 million primarily related to restaurant impairments with some additional charges associated with severance and menu changes. Now to the balance sheet, we invested $27.3 in CapEx from the second quarter, primarily related to restaurant maintenance capital, new restaurant openings and investment in technology projects. We ended the quarter with $21.9 million in cash and cash equivalents, up $4.2 million versus where we ended 2017. And we finished the quarter with a lease adjusted leverage ratio of 3.94 times. We paid down a total of $10 million of debt in the second quarter, leaving an outstanding balance of $221 million on our revolving credit facility. This demonstrates continued progress towards our ultimate goal of maintaining a long-term lease adjusted leverage ratio of 3 times. While we continue to be primarily focused on achieving our leverage ratio targets, the Company's Board of Directors recently authorized an increase to the Company's share repurchase program to a total of 75 million of the Company's common stock. We would expect to commence a conservative restart of our regular share repurchase program in Q3, with the initial goal of primarily offsetting the dilutive effect of the Company's equity compensation program over the course of four quarters. In terms of guidance, we project full year 2018 comparable restaurant revenue to decrease between 1% and 2% likely towards the lower end in Q3 and full-year 2018 adjusted earnings per diluted share to range from $1.80 to $2.20. Before I close, let me take a moment to acknowledge the efforts of our operators and the resilience that they've demonstrated as they absorbed some fundamental changes and how we manage the day-to-day operations within our restaurants. We know this work hasn’t been, but it's been done with our customer focus on taking great care of our team members and our guests, and for that we thank you. With that, I'll turn the call back to Denny for a few final comments before we take your questions.

Thanks Guy. And as reminded in preparing for this call of an earnings call that I participated in here at Red Robin five years ago, we have disappointing results than and I'd ask to join the call to explain what we had missed in marketing that's the privileges of leadership I guess. We have picked a stinker of a movie to tie in with, rolling over a blockbusters success the year prior. I committed them to get us back on track and we did. We drove top line sales and improve profitability over the following quarters. I offered that walk down memory laying up to us as a point to point out that we have a track record of learning and recovering. The challenges that we faced today are frankly far more complex and whether we choose to tie in with the Wolverine or Dwayne, The Rock Johnson as Hercules, but I honestly don't long for the simplicity of that old playbook. The opportunities that we also have today to grow are much more meaningful and sustainable as we moved to serve guest in more ways, all consistent with what they value Red Robin for the things that set us apart from our competition. It may be more complicated, but I am no less confident in our ability to recapture momentum, build our business and evolve our service model to be financially sustainable for the future. To help us realize those opportunities, we are fortunate to have a very talented Board of Directors including our newest member Aylwin Lewis. He is a former CEO of Potbelly and great mentor of mine over the years. Aylwin also serves on the Disney and Marriot Board of Directors and bring tons and relative operating experience to our much smaller, but I assured him just as interesting business. I’m grateful to our entire board for their support and engagement in our long-term strategy for success. With that, let's take some questions.

[Operator Instructions] And our first question today will come from Gregory Francfort with Bank of America. Q -: I got two questions. The first is just on the negative mix in the quarter and the step up from the first quarter. What was that attributed to because -- I mean I know the value of menu platform is a drag, but will that an increasing drag versus the first quarter? Or was it something else that may have been involved there? And then the other question I have kind of ties in, but if you look at strategy last couple of years has been to lower the average check to go after sort of a consumer that might be more focused on pricing and price points. Is this a change in strategy away from that? How should we think about the evolution of that strategy going forward?

I’ll take the first question. I’ll let Denny answer the second question. So look you hit on it, the negative mix was driven by an increase in tavern as a mix of our menu. We ran about 16% tavern mix in the second quarter which was up from 13.5 in Q1, so a pretty significant step up as a result of going to 5 to 6.99 from the 3 to 6.99. And as Denny mentioned earlier, perhaps might have been had a little more impact than we anticipated it would. So that was the primary driver along with the other point that we've been talking both for a few quarters now, which is the lower non-alcoholic beverage mix. And then the rapid increase in off-premise which has been very good for traffic, but does come at somewhat lower PPA. Denny, do you want to talk about affordability?

Yes, I’d be glad too. And Greg I have considered that further refinement of strategy, we are still very much committed to being the affordable and abundant choice for our guest overtime and we think in fact we have seen that we have continued to drive a differentiated price point compared to the competition over the last year. But we also realized as I said in my notes that, it isn't just about a single price point like 6.99, we are working to unlock the Y a value if you will, the emotional benefits. The reasons to say yes that are beyond just price and also look for that balance between what we do with our Red Robin loyalty members as well as others to occasionally offer incentive to come in. So, it’s a balance of temporary discounting, every day low price and really unlocking the trust and the ability to say yes to Red Robin overtime. And I have seen this work quite well in some retail environments, I have not seen it as much in our category but I’m confident that we can find a way to unlock that emotional benefit.

And then I just have one separate topic. It seems like some of the messaging from your prepared remarks is around reinvestments in labor and then also even on the host and kind of maybe leading to sort of up the qualities necessary there. I guess going forward, are we going to see net savings or net investments over the next couple years on the labor line? Is there any change to sort of your philosophy in terms of that line being maybe the source of margin opportunity that you can reinvest all for?

Our focus is particularly on the peak hours this is what we are talking about, which is a relative very limited number of hours in our building that are disproportionately valuable to us. So, don’t think of it is across the board but really focused on those peaks. Guy you want to talk about it?

Yes, I was just going to say over the long-term, Greg, as you know as we've discussed many times previously, it's still the fastest growing expense line on the P&L and just given our geographic footprint is aligned and we expect to continue to provide pressure that's moving forward. So we're not dissuaded from our approach to try and gain a labor productivity where we can, I just think as to repeat comments I made previously as well as that you always have to be careful when you make changes at the restaurant level to look at those changes through the lens of valid impacts to guest experience and be prepared to tweak were necessary. But as Denny said in her prepared remarks, the targeted ads were making here are small in comparison to the productivity gains that we made year-to-date.

Next, we will hear from Will Slabaugh with Stephens Inc.

I want to ask on labor as well. Should we take these results as indicative that maybe we went a little bit too far with labor, and I guess maybe focusing a little bit more on the peak periods than the broader day. So did we take that too far? And then I guess secondarily maybe why this didn’t show up in some of the customer feedback before now because it seemed like the feedback was actually a little bit more positive and yet now we're seeing that maybe the impact was little bit more negative?

So I'll start-off and welcome Guy's perspective as well. I would say it's not much that we went too far, we were at something about how easy it's going to be to pull-off, and we didn’t provide the training and the tools that our restaurants really needed to do it well. And that's why I referred to what we're doing with the team and resetting ourselves to be much more effective at rollout going forward. So I think there was a lot of learning about that. Remember, we made one move last fall, which is what we call, maestro, that went in more easily I would say overall more effectively, and this latest remove the change that we made in February going to the team service style effort I think we are just to something about it. So we had to come back and spent some time on tweaking it. As to your point about feedback, yes, I mean it's a real event a number of hours face-to-face or at least in good time face-to-face with our providers of insight SMG who works all of our net promoter score and our extended guest always. And I would say in that case, the guests who are actually getting seated for the most part were having a pretty good experience. What we were not measuring and we didn't see until we got to extend the guest voice were some of the issues that kind of dug in a little bit deeper beyond just overall cleanliness to really understand where we were missing and in the dining room and also the time it was taking to serve our guest and then we also really started looking at the measures we have from our dine-in time tool around wait time and walk away. And those would have never shown up in a net promoter score. So I think I referenced it that we shouldn't have not, and we shouldn’t have been looking at those equally and we weren’t. We will be now and I think we have a more well rounded picture of the challenges we've got. But all those things came together that really pointed out where we have opportunities. Guy?

Yes, I think the only thing I'd add Will is that, it's not uncommon for companies in our industry to make tweaks to their pricing approach each and every quarter to make tweaks to their menu each and every quarter, heck off and even make tweaks to their product type, as they build new units as well. And so I don’t see as the labor line really being any different than that, and so I’d view this is a change we made and we read the results now. So, we believe that there is a tweak necessary to try and improve it, but it doesn't mean that we feel differently about our approach and how important we think productivity is going to be in the future.

And if I could follow up on the value point really quickly. I know we have talked a lot about tavern has been really effective for you in terms of mixing up now in the mid teens and driving traffic. Should we you think about value more broadly now? And maybe that means more every day value on the broader menu versus just the tavern platform? Or how are you going to approach value now versus I guess what we have seen in the past?

Like I said, I think we are going to look at it with more contributing point on abundance of our bottomless promise, making sure we are really fulfilling there and something we are focusing on and expect to be able to get better out here shortly. In addition to that we also are going to be looking for how we mix up the reward to our most loyal guest, our Red Robin royalty guests with offers occasionally to get new guests in the building. We have the ability also to mix up dine-in only offers with off-premise offers and think about it differently. So that’s a lot of what we are doing a research around is to try to figure out what's the right balance of all those tactics but more importantly how do we add it all left to something that really makes an everyday promise about Red Robin. Like I said, if we can make it just so called easy for our middle income guest to say yes to going to Red Robin and not have to think twice. We are going to be in a really good place, and so we got to a good days to work all those. We have had a tactic running of late at a $1.99 kids meal on one night of week and encouraged by that. So that’s a good example of the kind of thing we can mix in.

Next, we will hear from Chris O’Cull with Stifel.

It's actually Mitch on for Chris. Just first on the labor rate. What was the gross benefit to labor from your productivity initiatives during the quarter? And did the actions benefit the entire period?

Yes, most of the changes that we put in place, we are in place prior to start of the second quarter. So, we didn't really make any incremental changes around labor during the quarter in terms of major changes to the service model. We did identify, we add to some peak hours so had already started to make some of those changes as the quarter went on similar to what Denny just made the reference too. But overall the productivity is still in the high single-digit on a year-over-year basis the improvements and productivity but the wage rate is still running up about 4% to 5% which is consistent with what we have seen year-to-date.

And then shifting gears, look at the dine-in traffic figures in the quarter. Do you believe carryout growth is taking share from the dine-in business? Is that also a factor?

Yes, that’s a good question, Mitch. So the dine-in traffic change is very similar to what we saw last quarter.

The first time we've seen two quarters in a row like that.

Yes, it didn’t accelerate any further than it did last quarter, but still that similar decline. I think the question on our incrementality versus cannibalization of off-premise versus dine-in is a difficult one, but we've seen -- so first of all on third-party delivery, we have very little visibility to that because the third-party delivery proprietors don’t share their data. So, we have no way of knowing which guests are actually using third-party or not, although we can access some independent research as well as our own consumer insight to get a sense of that. And our belief is that it's still more incremental than it is downwards. In terms of the other dine-in experience, you do look at data and it does appear that people make the decision as to whether they are going to take advantage of off-premise for dine-in that's the decision they make first. And then once they've decided to do one of the other then they make their choice about where they want to go. And so, using that data that would lead you to believe that you are picking up an incremental visit that wouldn’t have come to dine-in. Now whether over the long-term that has an impact on the frequency of your dine-in visits is of course something to consider, but overall I still think we believe it's more incremental.

Alex Regal with Jefferies has our next question.

Question on the service issues in the quarter and kind of off-premise demand dynamics. Have they changed it all over the last year in terms of the timing day you see the demand? Or is it just moved around just trying to figure out how the execution issues at the host stands knock up so fast?

No, I mean -- so Alex it's fast growing, so clearly year-over-year we're taking a lot more of that off-premise business than we were before. But in terms of when it appears, we're still seeing the same trend, week day parts -- sorry day and week very similar off-premise versus dine. Time of day it gives a little more towards dinner, but not dramatically. I think it's really just the share volume of it that's coming in the front door has grown so quickly that it's started to cause some of those issues. So when it shows up in the restaurant kind of as the exact same time as the dining is happening then we've got that, that cost is just causes us to peak a little bit more.

What I would also just say one thing Alex which is it's not just our service issues is not just limited to the host stand, while it's -- that's certainly a pinch point, and if our hosts are not prepared to deal with what is the more complex process there and I'm certain we can get them there very quickly. But a lot of what's happening was, the fact they were turning tables in the dining room [indiscernible]. So we're seeing dine-in demand that we are not capturing. People are showing up at our doors and the walk away rates are higher the length of time there being asked to wait is marginally longer and in today's world somewhere, but we're taking just a little longer seat them and their perspective on how long that should take is also declining then we're not in a best place. So I would say it was a combination of table turns and post stability to deal with the complexity. And both of them we think we can address here with some of the efforts we are making very quickly.

And then if you could provide an update on the Red Robin Express opportunity to what direction you'd like to take that, and if you could expand on the comments about the mall locations?

Sure. Well, Red Robin Express is a kind of a quiet thing at this point where we've actually -- we exit the -- we exited one this quarter and this quarter we stepped out, and so we are a less with two they are operating, the experiment the opportunistic experiment that we had going on with the one on Michigan avenue and Chicago, we got what we needed out of that shut that one down. So it's not a primary focus for us going forward. But we have one that's in a really great position to take advantage of some catering and downtown opportunities with some retail development around this that's really met that standing. With regards to mall, again, this is something that we've seen up and down over the quarters, but have seen a steadier decrease. We are looking at and I know we and the development team are looking at our commitments over the next few years when we can look at relocations or exits and will be more aggressive about that. Guy, do you want speak to that?

Yes, so about 20% of our mall location where there is lease renewal comes up here in the next three years, so we will have some opportunities over the next little while to look at those locations. And if current trends continue then obviously it's more likely we'll have closings with their than not. Now all malls are created equal, we do have some good mall locations, but on balance they have performed more poorly. And as Denny said, what was the half the time they were better than non-mall and half the time they were worse over the last couple of years and it has not been the case for the last couple of quarters. And so whether that is an acceleration that's going to continue or not, we are going to wait and see. But it certainly looks like at least in 2018, the mall locations have performed more poorly than those non-malls.

We will now hear from Peter Saleh with BTIG.

Just a question on the Tavern Double and if I can step back now and you consider this Tavern Double platform, do you think -- is this something you would have continued to do? Is it something that you -- if you can go back, you probably maybe would have decided against it? Is the price point kind of the price point that you think is correct? And what do you think the appropriate mix is? I know you said it landed around 16% this quarter. Should it be more like 10% 12%? How do you guys feel about platform?

Yes, again, Peter as I said in my remarks, we were leaning in because it was working for us. And five the choice is to go ahead and promote five was based on a tactic screen that we looked at. It was kind of a full hands and leap forward. And if I could go back, I wouldn’t have done that because it did create an undertow on our PPA, and just didn’t drive the kind of traffic we needed to or again perhaps it did and we weren’t prepared to capture it. It’s a little bit of both. So I’d love to have the 5 to 6.99 choice back, but we don’t and we will make different ones going forward. In terms of tavern it has a place on our menu. I think 6.99 is a great price starting point. 6.99 again was bottomless fries, which makes us have a very compelling value, compared to fast casual operators. There is a lot we said there and I have actually had a number of people and guests talked to me about that which certainly catch on to what a compelling value is. But I think we can bury the pricing a little bit more and I also believe that to your point about mix I don’t know if there is exactly a magic number, but I do think it's in that lower double-digit kind of realm than where we are today. Again, it might be a higher mix but as a more variable pricing that could be successful for us as well. So I don’t know exactly how it will play out, but I do know that we will be a little more cautious with it going forward.

And then just coming back to the labor investment commentary. Is there any sort of sense on the order of magnitude how big this will be? I mean just trying to understand how you invest and just the peak hours on the labor side and still meet the employees' expectations on number of hours for them to work?

Yes, we would expect we would be able to tap into existing pool of team members that are in the restaurants right now, Peter. And as you know in our business, it can be a lot of when people come in and when people leave. And specifically what tasks we have from the focus on well while that they are doing the peak. And so as I mentioned before in terms of the level investment, I view it as quite small compared to what we've done already. And now, it includes some of the hours that we already added back in the second quarter. So I would expect that we would continue to see productivity levels, and as we've mentioned before, we do believe we have other ideas that we can introduce that can also allows us to impact productivity in the future as well. But I would view this as we said in the prepared remarks small as compared to the productivity gains we've seen today.

Yes, I think the other thing Peter is anytime you call out some of our misses, it sounds that we're obtaining everybody with same brush. And there are some restaurants who continue to do very well who pick the picks as they should, and we can learn from them as well and that is so much about necessarily incremental investment in labor as it is about scheduling the way they need to schedule and showing they've got the staffing and making sure they've got the folks and know what they're doing and keeping the managers present on the floor to coach. So we're leaning into a lot of those fundamentals as well and it may feel like blocking and tackling and not a sexy silver bullet like I got one LTO that's it's going to solve everything. But it's the fundamental things that will make our tactics work harder for us going forward. So, we have some good learning as well from those who have continued to be successful that we can apply with others who have a desire to be, but just don't have the same skill set.

We'll now hear from Brian Vaccaro with Raymond James.

Denny, on the last call, the primary issues seemed to be the competitive environment both in terms of the overall spend levels and the intensity of the discounts. I'm just curious to get your perspective on the landscape to the last few months and also just how you are approaching the overall add strategy and tactics in the back half of '18.

It pains me to say that what a lot of our issues were self-inflicted. I mean the competitive environment, the degree of discounting, promotions, advertising going up and down, we've seen it -- we've seen it go up and we've seen it go down over the last at least seven years that I've been here, but we didn't help ourselves. So I'm going to say we own more of this than what's been done to it by competition, and I will be confident that when we resolve our issues and get our own choices around PPA and some of the things around service and promotion in line well then we'll just be in all that better place when those competitors who are deeply discounting find themselves in an unsustainable place. So that's kind of a little bit of dance around, but I would say that hasn’t changed, Brian. But I think we have more in our controls than I would have said three months to come. And as far as our advertising and our promotion activity going forward, leaning a little more into we have financing Gourmet, LTOs. We have some good things queued up for Q4. I don’t want to tip our hand to our competition on what we're doing exactly. I have obviously already stated and excited about the Oktoberfest coming back and we know it's a very, very popular burger. We won't be discounting that one. It will be a fair price for it and great burger. And so I think we have just a few more levers to pull or as Mr. Constant would say levers to pull in the back half of the year and the team is working hard on that. And then from an advertising standpoint, we are not going to the well for any big increase in spending of any type at this point, we are holding on our own.

I guess shifting gears to some of the issues you mentioned in your prepared remarks, and you talked about those longer average ticket times and also table terms being down. Could you put some numbers around each of those? What you saw on the second quarter? And maybe just for perspective compared that to the first quarter or second half of last year?

Yes, year-over-year our ticket times -- total ticket times out of the kitchen are up about a minute and they are running above where we would them to do. Our wait time is also up about a minute again that’s on average. But what's really startling is our walkways increased what 250 basis points, we are up 85% year-over-year. So again, we are encountering what seemingly doesn’t seem like that significant of slowdown in wait times and ticket times, but they add up at peak to a much more significant walkway rate. And in this day and age, we just can't afford to have any guest walk back out of the building. So trying to adding all those results from downtime, KDS, and again our guest complaints and some of are the same. We see a real opportunity here to make sure we capture the traffic that does come through the door.

Just shifting gears, can you -- on the updated EPS guidance [indiscernible] too corny I believe. What tax rate does that assume in the second half of '18? And then also on G&A, are you expecting to be at the low end or perhaps even below the prior G&A guidance of I think it was 85 to 90?

Yes, Brian, we are not providing any further commentary and the guidance as to the EPS that we gave you. Tax rate is difficult to forecast because as you know it's tied so closely to what earnings are. Tax rate moves with earnings in our industry, but no we have not provided anymore detail to what comprises the guidance other than what we have provided.

And then just last one, I think you said the pricing you'd expect it to be up a little over 1% rest of the year. I just wanted to check. Have you taken any recent price increases in the next couple of months?

We did, we took some in July.

Could you say how much?

1%.

And if memory serves, you had I think close to 1% in the first quarter. Is that correct? So we will be pushing north of 1.5?

We took about 1% in the first quarter that’s correct.

At this point through Q3 but not known yet.

[Operator Instructions] We will now hear from Howard Penney with Hedgeye.

Denny, I have two questions, one about your opening remarks and one about your closing remarks. In the beginning, you mentioned an accelerated pace of change in the industry. I was wondering what you were referring to? And at the end, you talked about a more sustainable business model. What in the future business model was more sustainable? What were you referring to on that as well?

Accelerates pace of change is the rapid pickup on delivery. I don’t have the exact statistics at my hands, but everything I'm seeing quarter-over-quarter is the adoption of delivery services, the use of alternates to dine-in is only picking up speed and has moved very rapidly from a primarily urban phenomenon to heavily suburban phenomenon. So that's where I see the biggest change, I don't think this is a novelty, I don't think it's a temporary we have being. I think it's becoming a true new way of guest consuming restaurant food. And then the second is about the sustainable growth model, and the piece there is really for us to find that balance between putting the human where it matters most, finding the technology that can complement their efforts, and not being such a heavily labor dependent model that we can't be profitable for the future because obviously we’re going to see increases in labor across the board. So while we are seeking to maintain our affordability and drive our frequency of guest usage, we're also looking to find ways to make that sustainable by making a lower cost model to run.

Next, we hear from Stephen Anderson with Maxim Group.

Just I wanted to look maybe a little bit a more down on road. I know you've frozen new development I mean you have a couple of units company-owned first half -- second half for the year couple of franchise unit scheduled open later this year after that freezing new development, but I've noticed that in some of the newer restaurants you've opened more or less evolved into a two-box model rather than-three box model that we saw a few years back. And as you think about maybe restarting a development somewhere maybe '20 or '21, maybe -- what kind of model you want to use maybe having the larger area for the takeout or maybe eliminating the buying area between the bar area and the regular seating?

So, what you refer to is a three-box to a two-box model is what we call our midsize units, that's have essentially a bar in the dining area as opposed to what we're have been the remodel of our existing units to bar gathering and family dining area. Those midsize units have not been particularly successful for us because they haven't allowed us to capture peak demand because they don’t have enough seats. So that's a bit of the conundrum while we would probably want to maximize seats in some circumstances. We don't have any immediate plans, thoughts or anything to share around next prototype, but when we're ready to move forward on that, I can assure you that they will be set up to better prepare for and deal with the four kinds of modes of dealing with the guest we've been talking about, which is dine-in, carry out delivery and catering. So that definitely needs to be taken into consideration, but right now we are in fact pausing unit development. Our last new unit of the year opens I believe next week or week after in Tucson. Our franchisee opened one this week and we're close to ending for the year, so it will be quiet for a while. And then when we come back, we'll have something that addresses this new way of being.

That will conclude today’s question-and-answer session. I will now turn the conference over to Ms. Denny Post for any additional or closing remarks.

Thank you everybody. I appreciate it. I hope you enjoy the ends of your summer and we look forward to updating you on the progress to recovering our momentum when we speak again at the end of Q3. Talk to you then.

That does conclude today’s conference call. Thank you for your participation. You may now disconnect.