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Texas Roadhouse Inc
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Good evening and welcome to the Texas Roadhouse Fourth Quarter Earnings Conference Call. Today’s call is being recorded. All participants are now in a listen-only mode. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions]
I’d now like to turn the conference over to Tonya Robinson, the Chief Financial Officer of Texas Roadhouse. You may begin your conference.
Thank you, Carmen, and good evening, everyone. By now, you should have access to our earnings release for the fourth quarter ended December 31, 2019. It may also be found on our website at texasroadhouse.com, in the Investors section.
Before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward-looking statements. These statements are not guarantees of future performance and therefore undue reliance should not be placed upon them. We refer all of you to our earnings release and our recent filings with the SEC. These documents provide a more detailed discussion of the relevant factors that could cause actual results to differ materially from those forward-looking statements. In addition, we may refer to non-GAAP measures. If applicable, reconciliations of the non-GAAP measures to the GAAP information can be found in our earnings release. On the call with me today is Kent Taylor, Founder and Chief Executive Officer of Texas Roadhouse. Following our remarks, we’ll open the call for questions.
Now I’d like to turn the call over to Kent.
Thanks, Tonya. 2019 was another strong year for Texas Roadhouse with double-digit revenue growth, including a 4.7% increase in comparable restaurant sales and a 1.8% increase in guest counts. We ended the year with significant momentum in the fourth quarter, driven by operating week growth, increasing guest counts and expanding margins.
Comparable restaurant sales also remained strong during the fourth quarter, growing 4.4% giving us our 40th consecutive quarter of growth. Our restaurant saw a return to overall margin expansion in the back half of the year. This allowed us to keep restaurant margin as a percentage of total sales, essentially flat year-over-year and to grow restaurant margin dollars per store week 4.3% for the full year.
Heading into 2020, we expect both wage rate pressure from a highly competitive labor market and moderately – and moderate commodity inflation to continue. We are in the process of assessing a second quarter price increase as approximately 1.5% rolls off at the end of March. It is likely that we will take somewhere between 0.5% and 1% pricing with higher amounts in restaurants impacted by state-mandated minimum and tip wage increases. An increase in that range in the second quarter would give us effective pricing of 2.5% to 3% for the full year.
Moving on to development, our new Roadhouse company restaurants continue to open with strong sales volumes and are on track to deliver healthy financial returns. For 2020, we are targeting at least 30 company restaurant openings, including as many as seven Bubba’s 33.
We continue to see strong sales growth at Bubba’s 33. Comparable sales were up 7.1% for a full year 2019 at eight restaurants in our same-store sales base. Our test of adding lunch at five Bubba’s locations which began in early 2019, contributed 2% of that growth. Our franchise partners are expected to open as many as eight restaurants, primarily in international markets. Our company openings are expected to be more evenly spread throughout the year with 14 restaurants already open or under construction and additional 16 either fully approved or in the permitting process.
We also plan to relocate six older company restaurants over the next 12 months, which is not included in our new restaurant development forecast. Over the last several years, we have successfully relocated a handful of high-performing restaurants to larger sites with more parking, which has allowed us to build bigger – a bigger building with more seating capacity and typically obtain better lease terms. We believe we are well positioned for 2020 to be another solid year for Texas Roadhouse. Our development pipeline is strong and our operators remain focus on both the operational and financial fundamentals.
Additionally, we remain committed to further driving shareholder value. Our strong balance sheet and healthy cash flow enabled us to repurchase over 2.6 million shares in 2019 and we just increased our dividend by double digits for the seventh straight year.
Looking back over the last decade, our team as accomplished a lot, and I want to thank all of our operators and partners have contributed to the cause. Their dedication has allowed us to open over 220 Texas Roadhouse domestic restaurants, build an international presence and start two new concepts, all while driving comparable sales growth, each and every one of those 10 years. As we start a new year, we look forward to following the same game plan by staying committed to legendary food and legendary service.
Now Tonya will walk you through the financial update.
Thanks, Kent. For the fourth quarter of 2019, we reported revenue growth of 19.7% comprised of 12.9% store week growth and 6.8% increase in average sales volume. We also reported diluted earnings per share growth of 45.4%. These measures were positively impacted by an extra week in our December period which resulted in 14-weeks in the fourth quarter of 2019 compared to 13-weeks during the fourth quarter of 2018. We estimate the extra week positively impacted diluted earnings per share for the quarter by $0.10 to $0.11.
As Kent mentioned, comparable restaurant sales for the quarter increased 4.4% comprised of 1.5% traffic growth and a 2.9% increase in average check. By month, comparable sales increased 5.3%, 4.9% and 3.5% for October, November and December periods respectively. For the first seven weeks of 2020, comparable sales increased approximately 6.4% including approximately 70 basis points of benefit from the impact of the calendar mismatch of New Years Day.
Please keep in mind because of the 53rd week in 2019 our comparable sales growth in 2020 is based on a different set of weeks than what is included in our 2019 reported restaurant sales. This mismatch of weeks will lead to a larger than normal variance between comparable sales growth and average weekly sales growth in 2020. The first quarter will see the biggest impact with comparable sales, at least 1% higher than average weekly sale.
For the quarter, restaurant margin dollars per store week grew 13.9% and restaurant margin as a percentage of total sales increased 117 basis points to 17.1% as compared to the prior year period. The margin improvement was driven by a decrease in overall operating costs along with an estimated 60 basis point benefit from the extra week. Cost of sales as a percentage of total sales decreased 28 basis points compared to the prior year period. The impact of approximately 2.9% commodity inflation was offset by the benefit of a higher average check. Inflation for the quarter was in line with expectations and resulted in full year 2019 commodity inflation of 1.9%.
Labor as a percentage of total sales decreased 23 basis points to 33.1%. Labor dollars per store week increased 5.4% compared to the prior year period, driven largely by wage and other inflation of approximately 4.2% and growth in hours of approximately 0.6%. I will note that the majority of the growth in labor hours relates to the impact of the staffing levels for that busier extra week at the end of the quarter, excluding that week labor hour growth for the quarter was essentially flat.
Labor dollar growth per store week was negatively impacted by 0.6% due to adjustments to the reserves associated with our group health insurance claims development history, and our workers’ compensation claims experience. In total, these adjustments resulted in $1 million of expense this quarter compared to $100,000 benefit in the prior year, quarter. For full year 2019, labor dollars per store week grew 6.5%. And labor as a percentage of total sales increased 57 basis points.
Lastly, the 22 basis point decrease in rent expense as a percentage of total sales and the 44 basis point decrease in other operating costs both resulted primarily from the extra week of sales in this year’s fourth quarter. Other operating costs also benefited 14 basis points from adjustments to our quarterly actuarial reserve analysis for general liability insurance. The adjustments resulted in a $300,000 credit this quarter compared to a $500,000 charge in the prior year, quarter. For full year 2019, restaurant margin as a percentage of total sales was 17.3% down six basis points compared to full year 2018.
Moving below restaurant margin, G&A costs for the quarter increased $2.3 million to 5.3% as a percentage of revenue, a decrease of 66 basis points compared to the prior year period. G&A for the quarter included approximately $2.2 million of additional expenses, primarily payroll related due to the extra week. G&A benefited this quarter from an $800,000 one time marketing credit related to full year 2019 as well as the overlap of 500,000 of dollars of onetime costs in the prior year quarter.
Depreciation expense increased $5.2 million to $31 million or 4.3% as a percentage of revenue, which was an increase of two basis points compared to the prior year period. As a reminder, $2.3 million of the year-over-year increase this quarter was due to the extra week of depreciation expense in 2019. We also recorded a $1.3 million net gain to the impairment and closure line in the fourth quarter. The gain resulted primarily from a settlement related to a forced restaurant relocation due to eminent domain.
Our tax rate for the quarter came in at 16.9% compared to the 5.8% rate in the prior year period. Our prior year tax rate benefited from a $19 million adjustment related to tax reform that –$1.9 million adjustment related to tax reform that we recorded in the fourth quarter of 2018 which lowered the rate by approximately 5.5%.
Moving to the balance sheet, we ended the year with $108 million in cash down $102 million compared to last year. During 2019, we generated $374 million in cash flow from operations and incurred capital expenditures at $214 million. We also paid dividends of $102 million repurchased $140 million of stock and spent $2 million to acquire one franchise restaurant.
Moving forward to 2020 as announced in our press release, our Board of Directors authorized a 20% increase in our quarterly dividend payment, increasing it to $0.36 per share from $0.30 in 2019. We also expect positive comparable sales growth for the year, and as Kent mentioned, we are planning for at least 30 new company restaurant opening and restaurant store week growth of 3.5% to 4.5%. Our expected restaurant week growth in 2020 includes the negative impact of lapping the 53rd week from 2019.
Our commodity inflation forecast continues to be 1% to 2% with fixed prices on a little over 50% of our commodity basket. Our guidance of mid-single digit labor dollar per store week growth includes continued wage and other inflation along with the expectation of lower growth in hours through the third quarter of 2020.
Lastly, depreciation expense will benefit from lapping the extra week in 2019, along with lower expense associated with accelerated depreciation on relocation. We expect a 2020 income tax rate of 14% to 15%, and I’ve updated our capital expenditure guidance to approximately $210 million to $220 million.
That concludes our prepared remarks. Carmen, please open the line for questions.
[Operator Instructions] Your first question comes from the line of Brian Bittner with Oppenheimer & Company. Please go ahead.
Thanks. Hey guys. Question on margins in 2020. You’ll be getting some positive leverage on your COGS margins, most likely with food costs up only 1% to 2% against pricing of 2.5% to 3%. You’re clearly controlling labor better as seen in the second half of this year. Can you grow restaurant margins in 2020 given all these moving pieces, how do you want us thinking about that line item as we go into 2020?
Hey Brian, it’s Tonya. I think it’s – much to the same outlook that we’ve had in the past, which is we just don’t count on that. We don’t know where we’ll land on pricing that 0.5% to 1% is a pretty big range. We’ll be having calls with our operators or market partners coming up here and in a few weeks to get their outlook on kind of where they are. So that’ll play a part. And then again, those ranges definitely, cost to sales at 1% to 2% you will – we expect to see some leverage on that cost of sales line. Labor I think is still a little bit of an unknown and that’s really why we’ve kept that mid-single digit labor inflation range. Deals like ours will continue to see benefit on that through third quarter. But we’re continuing to see pretty decent wage inflation and things like that. So it would certainly, be great to see some more margin leverage there. But we’ll see how things go.
Okay. Thank you.
Your next question is from the line of Dennis Geiger with UBS. Please go ahead.
Great. Thanks so much. Just following up on the labor question, wondering if you could talk a little bit more about the labor scheduling, the efficiencies that you’ve been able to realize over the last couple of quarters. And then just kind of looking ahead, going through the opportunities for greater efficiencies, sharing of best practices among store managers, just how you see that playing out beyond some of the commentary you mentioned already on the labor side? Thank you.
Sure. It really isn’t one thing across all the stores. Each store is handling it differently depending on their situation, so it really isn’t one size fits all. You could have stores that maybe they’ve determined by looking at their scheduling that they’ve got an extra person on a shift they don’t need or it could be a store looking and saying, hey, we could do a better job, clocking in and out and reducing the hours from that perspective. So it really just depends on the store and that’s the way we want it. We want those stores really doing it from there. We want them to know their number. We want them to understand the number of hours they need to run the restaurant every shift, I mean, that was really the big communication that we put out all year. Operations has really stepped up in doing just that.
So we feel pretty confident that we’ll continue to see benefit there for Q1 and Q2, probably in the Q3 because that’s really where we started seeing some of that picking up in 2019. We think we’ll continue to see that same kind of progression.
And you’re absolutely right, Dennis. I mean, they are sharing best practices. We just had great feedback from operators, and then we really feel like they’re doing it the right way. And as you know, based on their compensation program, the majority of their compensation that comes from the bottom line is results of their restaurant. So they are very motivated, committed to doing the right thing for the long-term. And to us, that’s really the most important thing.
Great. Tonya, and if I could get one quick follow-up, just specific to G&A growth, wondering if you could just quickly touch on the development opportunity from the smaller Roadhouse footprints, how you’re thinking about the potential for growth and for ultimate growth off the back of that opportunity? Thank you.
This is Kent. Yes, we’re – probably 25% of our stores this coming year will be in those smaller markets. So we’ll see how they perform. But I will tell you based on the ones that have opened this year, their store results not only have been equal to our other locations with more population, but in some cases more.
I think we’re going to continue to learn from those openings as we continue to do that. So I think it’s definitely going to help our development pipeline. I think it’s hard to say right now what that does for the long-term. I think it’s going to help contribute maybe to getting to the higher end of that 700 to 800 domestic range we’ve talked about. And if we continue to see great performance, maybe it gets you a little bit beyond that. So I think it just remains to be seen. We’ll learn a lot as we continue moving forward.
Thank you very much.
Your next question is from the line of David Tarantino with Baird. Please go ahead.
Hi. Good afternoon. Congrats on a good 2019.
It was better than good. Come on. Give us a little credit.
How about a very good 2019?
All right. All right. Good. Thank you very much.
So, my question is on the pricing philosophy. And I just wanted to understand your thought process as you look at how much pricing you’re going to take here in this next round. And what the purpose in your mind would be, is it more to protect against the inflation you’re seeing or is it more to where the mindset that you want to see the margins expand post the price increase?
This is Kent. Yes, well, I do calls with every market partner. And specifically as we’ve seen in the past, the states that have mandated at a higher wage that is effective in 2020 would be more of our targets. And then the other states that we’re – you’re not seeing the wages go up, it’ll be more market driven. So I don’t know exactly what they’re going to tell me. Our calls are actually happening in two weeks, so we’ll have more information after those calls.
Yes. David, we really want to give those operators a voice like we always have done in the past to hear from them, specific to their markets, how they feel. I mean, we’re always going to be conservative on taking price, that hasn’t changed. We’re going to have a very disciplined approach to it. And not so much with the concern of maybe, getting leverage or driving margin, it’s more of helping our operators, making sure that they have that ability to help offset some of that inflation that they’ve been feeling for a number of years in their stores. So some of it is just – we had a little catching up to do in some locations.
Got it. And then I was also wondering if you could give us an update on Bubba’s in terms of what you’re seeing with the unit economics now that you’re seeing such strong comp momentum in some of the stores. I’m just wondering kind of what’s the framework for unit economics? And then Kent, just any early read on how you’re thinking about growth in 2021 for that concept?
So I’ll take the first part of that question. The comp growth that we’ve been seeing at the 18 stores in the comp base has been really, really great to see. Those stores – it seems like they’re getting out there. They’re getting the legs underneath them in their communities, and they’re driving sales, and that’s certainly very encouraging. We continue to talk about how do we build that brand awareness a bit faster, maybe in the newer restaurants to help them get there quicker. And a lot of it is we talk about just having patience. We’ve also seen good improvement too in that comp store base on margins. So there, again, they’re figuring out efficiencies and things like that to get margins in a place that feels good and feels sustainable. So I think that’s been very encouraging to see from that standpoint.
And opening seven restaurants in 2020 will definitely give us a lot of information. We were – we had three in 2019. We were hoping to get more in 2019. Some of those are falling into 2020, and that’s what’s bumping up that seven number. But so far, so good.
And this is Kent. Yes, we’ve targeted more sites for 2021, doesn’t mean we’ll do them all, but we’ve targeted more sites than we have this year, and we’ll kind of let the early openings dictate exactly what that number would be in 2021.
Great. Thank you very much.
[Operator Instructions] Your next question is from the line of Andrew Strelzik with BMO Capital. Please go ahead.
Hey, good afternoon. Thanks for taking the questions. Two for me. My first one is just how you’re thinking about labor, kind of, longer term understanding that you get efficiencies for a couple more quarters. Once you get past that, though, should we be thinking about kind of the underlying wage growth is the right level of kind of property wage inflation beyond that? I mean, are there other investments that you’re contemplating? Or I guess, just more broadly, how you’re thinking about it beyond the efficiencies?
Sure, Andrew, I would tell you that as we get past 2020, I would expect it – I think, there’s still going to be pressure just given the tight labor market, and given unemployment where it’s at and different things like that. I think it’s going to be tough. So our operators are still going to be focused on making sure they’re staffing appropriately, that we’re doing the right thing from that standpoint as usual. And we’re going to be making sure we’ve got great talent in there because it’s definitely been a hurdle.
But I would imagine that wage inflation maybe doesn’t go away for a little bit? And then any hours growth, hopefully, would return to behaving based on – more based on traffic growth than anything else. So again, maybe you’re not back to we’ve always said, hey, 50 traffic running 2%, maybe hours growth is around one. I don’t know that we get back to that level, but maybe we see that kind of getting a little bit more back in line. It would be my expectation. But a lot depends on the market, the labor market and how that continues.
Okay. And then just a question on G&A. I know there – it sounded like there were a bunch of moving pieces in the fourth quarter. But taken kind of as a whole on a year-over-year basis, the dollars in the back half were somewhat flattish versus up a bit more in the front half. I’m just trying to get a sense for how to think about the growth in G&A dollars going forward in 2020, in particular.
Sure. Yes, we had guided originally for 2019 to about 12% G&A growth. We came in just shy of 10%. A lot of that was due to Q4 results. And the extra week came in a little bit lighter than we expected it to, we were estimating. We’re continuing to see savings. Everybody is really focused on that. We’re talking about different efficiencies meetings, just different things like that, which has been great. So that’s good to see. And I think it can be sustainable. And then we had that credit in Q4 of about $800,000, which also helped bring that growth percentage down a little bit.
I think going forward, our goal is still to come in below revenue growth to get a little bit of leverage on that G&A line. And that’s really going to be our focus. There aren’t any specific initiatives that we know about today that I would call out. That might change as we get later into the year. But right now, nothing that I would say is going to drive G&A differently.
Great. Thank you very much.
Your next question is from the line of Jeffrey Bernstein with Barclays. Please go ahead.
Great. Thank you very much. Two questions. First one, just on throughput camp, I’m wondering what percent of the system you see that maybe has capacity constraints? And what are the top initiatives to ease it, whether you’re being a little bit more open to technology? Or perhaps the acceleration of bump outs? I don’t know if that’s the reason for the increase in CapEx, but just trying to size up what you think is the capacity the opportunity from your existing store base?
Well, if you look at store number one, that’s been up for 27 straight years, that would tell you that we have a lot of room in the restaurants. We also are focusing on making our to-go better and faster and more streamlined, so that does not interfere with the guest inside the restaurants as we’ve seen to-go pick up. So I’m not worried about any restaurant, at this point, that is maxed out because every year, they prove to me that they’re not.
Tonya, wants to tag on to that. I’ll let her.
Yes, I think on the bump out opportunity, I think we continue to see stores being able to get into that pipeline to be able to do those bump outs. We’ve got stores asking for double bump outs. We’re a little slower to respond on those. We want to kind of take care on those, as we’ve mentioned in the past from a kitchen constraint perspective.
And we’ve got operators who are running, as Kent mentioned, really high volumes, continuing to drive sales every single year, and they find ways, and they’re really the best way we have to learn on how they’re doing those things. And we are doing some stuff on technology. We’re a little slower on that, but we’ve been testing a handheld device for the servers for ordering at the table. We’re doing that just in three stores, small pets, it’s going to be a slow process. But so far, it’s been interesting to learn from that.
And then to-go, as Kent mentioned, continues to grow. The guest is asking for that. And so we’re going to make sure we’re responding well there. And but not impacting the dine-in experience. So it’s really about speed, speed of service, making sure we’re giving the guest a great experience and that’s really where the focus is.
And a lot of our operators have done some really cool things with to-go that we’re learning from and sharing with other folks.
Got it. And then just on Bubba’s, I mean, it sounds like momentum is very strong and you’re keen to accelerate the growth. I was interested to hear your learnings or takeaways from the lunch rollout. It sounds like that’s been a solid contributor. I’m just wondering I know Texas Roadhouse brand, you had concerns around doing lunch, especially during the week. How is that playing out with Bubba’s in terms of the labor model and having to run multiple shifts? And does that change your view on the potential for lunch at Texas Roadhouse in the future during the week?
Well, to answer the Texas Roadhouse question, no way are we going to add lunch. On the Bubba’s side, there are – based on the menu that it’s a little more lunch friendly, we have some locations that make sense, but I’d say, we’ve got over half locations that don’t make sense based on how we chose the real estate. That’s all I got on that.
Great. Thank you.
Your next question is from the line of David Palmer with Evercore ISI. Please go ahead.
Thanks. A quick question on the AUV gap versus same-store sales growth, it looks like it improved through the year, even excluding, of course, that extra week at the end of the year. Could you speak about the new store productivity and the impact you expect from the relocations you mentioned, Bubba’s in the mix, do you expect that AUV to same-store sales gap continue to be positive, maybe even growing?
I don’t expect it to change too much, David. I think it’ll be pretty in line with what it is right now. We’ve had some really great classes of store openings that have done well and needed you well. And so I think the gap that we’re seeing now is one that can be a sustainable and feel – I don’t think it’s going to be much different in 2020. I think the shift of the weeks will probably be the bigger – the shift of the weeks as usual and that when you’re lapping that 53rd week, just causes a little bit of noise, mainly in the first quarter.
Yes. Yes. And then just a quick question on – follow-up really on labor. Just as far as the framework, if we were to think about the labor cost per unit. In the past, it was something similar to what you would see in terms of traffic plus a mid- single digit inflation, but it feels like you’re maybe getting at least for this three plus, or three or so quarters that are left, you’re getting about a few percentage point offset to that, something like that. Is that about right? I mean, how do you think about that? I know you’re getting this from the bottom-up as you share best practices, but what sort of percentage offset to your natural inflation would you expect?
Well, a lot depends on what traffic is. I think that it certainly seems like we know we’ve got state-mandated increases of about 1.5%. Seems like that 3% range we’ve been living in from a wage inflation perspective is going to stick along with about 1% on other inflation down those other lines. So that seems pretty sticky right now for 2020. And then it comes down to labor hours, and I could see possibilities where we – Q4 repeats itself in the early quarters of 2020, and maybe we see flat to just slight growth in hours. Again, traffic – higher traffic growth could change that a little bit all for the right reasons. So not a bad thing there, but that’s kind of how – I guess, I would think of it.
And I mean, just one on the new store productivity front, Kent commented about some of these rural markets even opening up stronger. Is there any sort of extra color you could offer about what is driving some of the better new store productivity? Because it is somewhat notable, given the fact that we see less trade areas for a lot of different retail – less trade areas for a lot of other types of retail, but you seem to be finding, in fact, better sites than ever?
A - Kent Taylor
Well, knowing that our competitors might be listening, we’ll just kind of keep that under wraps, if you don’t mind?
Thank you.
Your question next question is from the line of Chris O’Cull with Stifel. Please go ahead. There seems to be no response from that line. I’ll go to the next question. Your next questionnaire will be from the line of Andy Barish with Jeffries. Please go ahead.
Hey guys, nice results. Just two quick ones on off-premise or to-go growth, can you give us that number and where it wound up for the 4Q? And then understanding the average unit volume impact in the first quarter. How do we think about, I guess, the restaurant level margin impact given you’re losing that high-volume week of the holidays?
So on that to-go, we’re running about – we ran about 7% in Q4, which I think was pretty much in line on a full year basis, about 7% of sales being to-go. And that’s been – that was about 10%. 10% growth versus last year. On the margin question, as far as what we think about how Q1 might react, I don’t think on a margin perspective, it’s going to be overly impactful because, I think, cost, just given the volumes in those weeks, costs will probably react similarly to what the sales volumes are. So that would be our expectation.
Thank you.
Your next question is from the line of Peter Saleh with BTIG. Please go ahead.
Great. Thanks and congrats on a fantastic quarter and year. Kent, I wanted to ask about the pricing conversation again. I know you guys mentioned 50 basis points to a entire point that you guys will take at some point in March. Is it possible that you go above the high end of that level after you do these calls with the market partners in the coming weeks?
A - Kent Taylor
Well, if you want to call all those guys before I talk to them, you can let me know because I have no clue what they’re going to tell me. I really don’t. I wish I could tell you, but I don’t know.
Yes. That’s really why the range, we have the range we do is just not really, for sure, where they’re going to land on that. You’ve got stores certainly that are filling a lot of labor pressure, especially state-mandated. You may come in and say, Hey, I want to – I feel like I can do it. And they’ve done all the research in their markets as far as pricing competitors, those types of things. So they’re going to be talking to us about that and where they think they can be.
So you can imagine, Tonya has talked to a few of them because she has already kind of like given you a clue.
Great. Okay, fair enough. I’m not sure if I missed this, but the CapEx guidance, I think it was up about $20 million for the year. What was the reason for the increase?
Well, there’s a couple of things going on there. Some of it is the fact that on – we’re buying some more land versus leasing land in some situations than what we originally expected. So typically, those are on deals that aren’t 2020, they’re a little bit further out. So a little of it is that then you’ve also just – we try to plan for what we think the next year’s pipeline looks like and how the timing of those might work. We’re making a little bit of an estimate on how we think those costs will be incurred in the back half of 2020, and that kind of applies too for 2019 as we head into 2020, and what we have left to incur. So all of those things kind of come into play, there really isn’t any other big-ticket item, or anything like that, that will be driving it.
Got it. Great. Thank you very much.
Yes. Peter, I’ll tell you two relocations are a piece of that also add into that.
Your next question is from the line of Brian Vaccaro with Raymond James. Please go ahead.
Thanks, good evening. I wanted to ask about the commodity inflation outlook, and it seems that spot prices for certain deepcuts have been quite favorable in recent months. And just curious how you expect that to flow through your COGS line? And can you expect lower inflation sort of first half or second half? Or could you just frame the cadence that you see?
Yes. Actually, on the cadence, we think we’ll probably be at the higher end of the range in the first half of the year and seeing more of the benefit in the back half of the year. We’re locked on a little over 50% of the basket. And that’s more of that being locked in the front half of the year than the back. So we have a little bit more visibility there, and that’s what our expectation is right now. We had a little bit of higher inflation in 2019 in the back half of the year, which we think we may get a little bit of benefit on, which will drive that – those numbers down a little bit to be within the range.
Okay. And then on the labor cost front, I just wanted to ask about the hours per week, you said were about flattish in the fourth quarter, excluding the high-volume holiday week. Has that flattish trend sustained so far through the first seven weeks of 2020?
Sure. Really, we haven’t released those numbers or talked about that. I’ll tell you, we’ve built into our guidance, on the full year 2020, the expectation that we do continue to see a trend – similar trend. So that’s kind of built into the lower end of that range. It’s that expectation.
Understood. Thank you.
Your next question is from the line of Patrice Chen with JPMorgan. Please go ahead.
Hi guys, thanks for the question. Just one. We’ve seen labor cost management and – but like beyond labor, are there any other areas in the P&L yet to be addressed where maybe there are material differences among stores, whether it be around food waste or portioning or, repair maintenance, where with increase in tension like with labor that could possibly drive store margins further?
Yes. There’s not really those opportunities. I mean, our operators because of the way they’re compensated, on the bottom line results there, are always managing those costs in a really great way. So from a restaurant margin perspective, there’s really not anything out there that we’re targeting to say, hey, we’ve got some money here in a bucket that we can save. I don’t think we’ll see that. So on below restaurant margin, I think G&A continues to be an opportunity from that perspective, and we’re going to continue to just take a look at that and see. But outside – and even on the G&A line, I’m not sure you’re talking any huge amounts of money that are really big levers to pull or anything like that. But it’s something we continue to keep an eye on.
There are no further questions at this time. I will now turn the call back over to management for any closing remarks.
Thanks, everybody, for joining us for the call. If you have any other questions, please feel free to reach out, and have a great week.
Thank you. Thank you again for joining us. This concludes today’s call. You may now disconnect.