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Red Robin Gourmet Burgers (NASDAQ:RRGB)
Q2 2018 Earnings Conference Call
Aug. 21, 2018 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, everyone, and welcome to the Red Robin Gourmet Burgers Inc. 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 may be 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 Red Robin's president and CEO, Denny Post.

Denny Post -- President and Chief Executive Officer

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 miss. We have moves under way to recover, which I will 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 about 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 one way that is full-service and dine-in, today's guests are asking us to also serve them through carryout, 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 pace of change accordingly. To be a guest's 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 and certainty, 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 other 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 guests love most about us, from choosing the degree of doneness on beef patties to the wide variety of buns and toppings and protein choices. The second thing we are most known for is our highly attentive service at appropriate speed. At our best, our servers make connections with guests ages 2 to 92, and they do so in a way that ensures loyalty and delivers on our gift of time promise.

We wait on the guest, not the other way around. In today's hyper-convenience-oriented environment, that promise is 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 servings and generous seconds, bottomless refills of those fabulous steak fries, other sides, and beverages. They also expect us to be affordable. Now certainly, affordability is a relative perception. It's highly dependent on size of your family, your household income, and the occasion.

We believe that building out on affordability will make it possible for our core middle-income guest 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, those 50% of American households that earn between $42,000 and $125,000 a year, it is critical that we find other ways to control costs that do not reduce food quality or quantity and allow us to maintain or even improve our margins. We see many competitors that are winning, and I put quotes around that world, solely by taking price as traffic continues to decline.

Over time, we believe affordable abundance is Red Robin's greatest opportunity to further differentiate and drive sustainable, profitable traffic. By making it easier for our forecast to say yes to Red Robin any day of the week without hesitating over budget, we can unlock greater usage frequency going forward. Now we also realized that affordable abundance is not just about a $6.99 price point. To be truly known as affordable, we need 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 this work to be done in mid-October, and we are eager to see it come to life in new value tactics 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 life 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 costs are rising the fastest will obviously also have great benefit for locations in rest of the country where labor costs remain 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 teams to leverage our large party reputation through delivered burger bars. All of these new ways of serving the guest will expand our reach and grow sales over time. And they all leverage our known four strengths. So while we believe Red Robin has the brand equity, team capability and guest loyalty to transition from primarily a dine-in destination to both a destination and a source, we've recognized that we only earn the right to invest and then realize those opportunities by delivering on 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 caught us off-guard. While it is impossible to parse exactly how much is due to changing guest behavior and what is self-inflicted, we know we can do better, and we have dug in to figure out where we can bend the trend on dine-in sales. Here's 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 healthy insights built on and reinforce each other gives us the confidence that we are working on the right things, if not pressing clarity on exactly how long it will take us to fully recover. The first and primary issue facing us today is, as I've said, the decline of dine-in traffic. Analysis of hourly sales data points to declining performance during peak-time periods, disproportionate declines, particularly on the weekends.

The growing complexity of our business has put pressure on our hosts to handle dine-in and carryout guests. 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 to-go 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 seek new guests. We went to a team service style model earlier this year requiring servers to bus as they go. Unfortunately, we did not execute this well at all, and it impacted us most during peak periods.

The learning from this led us to restructure our learning development training and operations excellence functions into one team reporting up to 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 rooms. We estimate that 75% of our loss in dine-in traffic came from those peak hours, far more than they represent of total volume, which is a blinking red light for all of us. We were lulled into complacency by Net Promoter Scores, which remained high and then awakened by a surge in guest complaints.

The issues we saw there were corroborated by our extended guest voice research and in-restaurant measures that were frankly not receiving the attention they should have gotten. We have seen both our wait times and the number of people walking away without being seated increase year over year. Our operations teams are now fully woke to the issues, and they have narrowed their focus to improving those ticket 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 hour sales. Dine-in declines are even more pronounced in mall locations, those having at least one entrance onto a 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 -- foreseeable future anyway. To generate a greater and more reliably predictable return on these locations, we are going to ware 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 have traded more guests 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 lineup from now on. We'll 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 plan for the end of the year. We are moving urgently to improve table turns, 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 as catering engines. We are also refreshing our Red Robin Royalty offers improving PPA by reducing the number of 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 her 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.

Guy Constant -- Chief Financial Officer

Thank you, 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 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 nonalcoholic 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 effect resulting in our eighth consecutive quarter of traffic outperformance as measured by Black Box, up 160 basis points versus the segment. Our two-year traffic gap versus the industry reaccelerated in Q2 to 520 basis points, returning to levels 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 price, higher Tavern mix, and lower nonalcoholic 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 training costs. Other operating costs increased 90 basis points to 13.7%, primarily due to increases in to-go and catering supplies, 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 pivot away from being a unique growth-driven organization to one focused on value, affordability and improved four-wall economics. 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 openings. We have 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 point 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 million in capex in 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 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 toward 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 projected full-year 2018 comparable restaurant revenue to decrease between 1% and 2%, likely toward 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 absorb some fundamental changes in how we manage the day-to-day operations within our restaurants. We know this work hasn't been easy, but it's been done with our customary 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.

Denny Post -- President and Chief Executive Officer

Thanks, Guy. [Inaudible] reminded in preparing for this call of an earnings call that I participated in here at Red Robin five years ago, we had had disappointing results then and I was asked to join the call to explain what we had missed in marketing. That's the privileges of leadership, I guess. We had picked a stinker of a movie to tie in with, rolling over a blockbuster success the year prior.

I committed then to get us back on track and we did. We drove top-line sales and improved profitability over the following quarters. I offer that walk down memory lane up to -- up, as a point to point out that we have a track record of learning and recovering. The challenges that we face today are frankly far more complex than 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 move to serve guests 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's former CEO of Potbelly and a great mentor of mine over the years. Aylwin also serves on the Disney and Marriott boards of directors and brings tons of relative operating experience to our much smaller, but I assure 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.

Questions and Answers:

Operator

Thank you. [Operator instructions] And our first question of today will come from Gregory Francfort with Bank of America.

Gregory Francfort -- Bank of America Merrill Lynch -- Analyst

Hey, guys. 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 menu platform is a drag, but was that an increase in drag versus the first quarter? Was there something else that may have been involved there? And then the other question I have kind of ties in, but it feels like the strategy the 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 kind of the evolution of that strategy going forward?

Guy Constant -- Chief Financial Officer

All right, Greg, I'll take the first question. I'll let Denny answer the second question. So, I think 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 the five for $6.99 from the three for $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 points that we've been talking about for a few quarters now, which is the lower nonalcoholic beverage mix and the rapid increase in off-premise, which has been very good for traffic but does come at a somewhat lower PPA.

Denny, you want to talk about affordability?

Denny Post -- President and Chief Executive Officer

Sure. Yes. I'd be glad to be. And, Greg, I'd consider it a further refinement of strategy.

We're still very much committed to being the affordable and abundant choice for our guests over time, and we think, in fact, we have seen that we've continued to drive a differentiated price point compared to the competition over the last year. But we also realize, 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, "why" of 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 Royalty members as well as others to occasionally offer an incentive to come in.

So it's a balance of temporary discounting, everyday low price, and really unlocking the trust and the ability to say yes to Red Robin over time. And I've 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.

Gregory Francfort -- Bank of America Merrill Lynch -- Analyst

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 stand, kind maybe needing 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 of years on the labor line? Is there any change to sort of your philosophy in terms of that line being maybe a source of margin opportunity that you can reinvest elsewhere?

Denny Post -- President and Chief Executive Officer

[Inaudible] but we have a good start, just the same. Focus in particular on the peak hours, which is what we're talking about, which is a relatively limited number of hours in our building that are disproportionately valuable to us. So don't think of it as across the board, but really focus on those peaks. Guy, do you want to talk about it?

Guy Constant -- Chief Financial Officer

Yes. I was just going to say about 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 a line that we expect to continue to provide pressure to us moving forward. So we're not dissuaded from our approach to try and gain labor productivity where we can.

I just think, as to repeat comments I've made previously as well, that you always have to be careful when you make changes at the restaurant level to look at those changes through the lens of how it impacts the guest experience and be prepared to tweak where necessary. But as Denny said in her prepared remarks, the targeted adds we're making here are small in comparison to the productivity gains that we've made year to date.

Gregory Francfort -- Bank of America Merrill Lynch -- Analyst

Understood. Thank you.

Denny Post -- President and Chief Executive Officer

Thanks, Greg.

Operator

Next we'll hear from Will Slabaugh with Stephens Inc.

Will Slabaugh -- Stephens -- Analyst

Yeah. Thanks. I wanted to ask on labor as well. Should we take these results as indicative that maybe you went a little bit too far with labor and then -- 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 seems like the feedback was actually a little bit more positive and yet now we're seeing that maybe the impact was a little bit more negative.

Denny Post -- President and Chief Executive Officer

So I'll start off, and then welcome Guy's perspective as well. I would say it's not so much that we went too far. We were assumptive about how easy it was 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 refer to what we're doing with the team and resetting ourselves to be much more effective at roll-out 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 change that we' made in February going to the team-service-style effort, I think we were just assumptive about it. So we had to come back and spend some time tweaking it. As to your point about feedback, yes, I mean, it's a real -- I have spent a number of hours face to face or at least good time face to face with our providers of insight, SNG, who works all of our Net Promoter Score and our extended guest voice. And I would say in that case, 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 extended 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 it in the dining room and also the time it was taking to serve our guests. And then we also really started looking at the measures we have from our dine time tool around wait time and walkaways. And those would have never shown up in a Net Promoter Score. So I think I referenced it.

We shouldn't not -- 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 to really point out where we have opportunities. Guy?

Guy Constant -- Chief Financial Officer

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 often even make tweaks to their prototype as they build new units as well, and so I don't see the labor line really being any different than that. And so I would view this as a change we've made. We read the results now, and so, we believe that there's 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.

Will Slabaugh -- Stephens -- Analyst

Got it. Thanks for that. And if I could follow up on the value point really quickly. I know we talked a lot about Tavern.

It's been really effective for you in terms of mixing up, now in the mid-teens and driving traffic. Should we think about value more broadly now and maybe that means more everyday value on the broader menu versus just the Tavern platform? Or how are you going to approach value now versus, I guess, what we've seen in the past?

Denny Post -- President and Chief Executive Officer

Like I said, we're going to look at it with more contributing points, abundance, our bottomless promise, making sure we're really fulfilling there is something we're focusing on and expect to be able to get better at here shortly. In addition to that, we also are going to be looking for how we mix up the rewards to our most loyal guests, 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're doing the 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 up to something that really makes an everyday promise about Red Robin. Like I said, if we can make it just stone-cold easy for our middle-income guests to say yes to going to Red Robin and not have to think twice, we're going to be in a really good place. And so we've got a good base to work off of. We had a tactic running of late, $1.99 kids meal on one night a week and are encouraged by that.

So that's a good example of the kind of thing we can mix in.

Will Slabaugh -- Stephens -- Analyst

Got it. Thank you.

Denny Post -- President and Chief Executive Officer

OK? All right.

Guy Constant -- Chief Financial Officer

Thank you, Will.

Operator

Next we'll hear from Chris O'Cull with Stifel.

Analyst -- Stifel Financial Corp.

Yeah. Hi, good afternoon, guys. This is 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?

Guy Constant -- Chief Financial Officer

Yeah. Most of the changes that we put in place were in place prior to the start of the second quarter. So we didn't really make any incremental changes around labor during the quarter in terms of major changes for the service model. We did identify, we add to some peak hours so we had already started to make some of those changes as the quarter went on similar to what Denny just made the reference to.

But overall, the productivity is still in the high single-digits on a year-over-year basis, the improvements in productivity, but the wage rate is still running up above 4% to 5%, which is consistent with what we've seen year to date.

Analyst -- Stifel Financial Corp.

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

Guy Constant -- Chief Financial Officer

Yes. That's a good question, Mitch. So the dine-in traffic change was very similar to what we saw last quarter. So...

Denny Post -- President and Chief Executive Officer

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

Guy Constant -- Chief Financial Officer

Yes. It didn't accelerate any further than it did last quarter, but still that similar decline. I think the question around 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 suppliers 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 insights to get a sense of that.

And our belief is that it's still more incremental than it is cannibalistic. 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're going to take advantage of off-premise or 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're 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.

Analyst -- Stifel Financial Corp.

OK. Thank you, guys.

Denny Post -- President and Chief Executive Officer

Thank you, Mitch.

Operator

Alex Slagle with Jefferies has our next question.

Alex Slagle -- Jefferies -- Analyst

Hey, thanks. Question on the service issues in the quarter and kind of off-premise demand dynamics. Have they changed at all over the last year in terms of the time of day you see the demand? Or is this -- has this moved around, just trying to figure out how the execution issues at the host stands [Inaudible]?

Guy Constant -- Chief Financial Officer

No, I mean, so Alex, it's fast growing. So clearly year over year, we're taking a lot more than off-premise business than we were before but in terms for when it appears we're still seeing the same trend weekday part or day of week very similar off-premise versus dine. Time of day, it skews a little more toward dinner, but not dramatically. I think it's really just the sheer volume of it that's coming in the front door has grown so quickly that it's started to cause some of those issues.

And so when it shows up in the restaurant kind of the exact same time that the dine-in is happening, then we've got that crush. It just causes us to peak out a little bit more.

Well, I'd also just say one thing, Alex, which is it's not just -- our service issue is not limited to how it stands.

Right.

While that's certainly a pinch point and if our hosts are not prepared to deal with what is a more complex process there, I'm certain we can get them there very quickly. But a lot of what's happening was the fact that we're turning tables in and dining room as quickly as we need to. So we're seeing dine-in demand that we're not capturing. People are showing up at our doors and the walkaway rates are higher, the length of time they're being asked to wait is marginally longer.

And in today's world, somewhere if we're taking just a little longer to seat them, and their perspective on how long that should take is also declining then we're not in the best place. So I would say, it was the combination table turns and host abilities to deal with the complexity. And both of them, we think we can address here with some of the efforts we're making very quickly.

Alex Slagle -- Jefferies -- Analyst

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

Denny Post -- President and Chief Executive Officer

Sure. Well, Red Robin Express is kind of a quiet thing. At this point, we've actually didn't -- we exit the -- we exited one this quarter. This is of course, we stepped out.

And so we are left with two that are operating. The experiment -- the opportunistic experiment that we had going on with the one on Michigan Avenue in 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 it.

So we're leaving that standing. With regards to malls, 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 Guy and the development team are looking at our commitments over the next few years when we can look at relocations or exits. And we'll be more aggressive about that.

Guy, do want to speak to that?

Guy Constant -- Chief Financial Officer

Yes. So, Alex, we have about 20% of our mall locations as 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 there than not.

Not all malls are created equal, we do have some good mall locations, but on balance, they've performed more poorly. And as Denny said, what was -- half the time they were better than the non-mall and half the time they were worse over the last couple of year. That has not been the case for the last couple of quarters. So whether that is an acceleration that's going to continue or not or we're going to wait and see, but it certainly looks like at least 2018 the mall locations have performed more poorly than those not in malls.

Alex Slagle -- Jefferies -- Analyst

Got it. Thank you.

Denny Post -- President and Chief Executive Officer

Helpful. Thank you, Alex.

Operator

We'll now hear from Peter Saleh with BTIG.

Peter Saleh -- BTIG -- Analyst

Just a question on the Tavern Double. If I can take a step back now and you consider this Tavern Double platform, do you think -- is this something you would have continued to do -- is this something that you go back to probably maybe you 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 landed around 16% this quarter. Should it be more like 10%, 12%? Or how do you guys feel about this platform?

Denny Post -- President and Chief Executive Officer

Yes. Again, Peter, as I said in my remarks, we were leaning in because it was working for us. And the five the choice to go ahead and promote five was based on the tactics screen that we looked at. It was kind of a hold hands and leap forward.

And if I could dial back, I would 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 would love to have the five for $6.99 choice back, but we don't, and we'll make different ones going forward. In terms of Tavern, it has a place on our menu.

I think $6.99 is a great starting price -- starting point. $6.99, again with bottomless fries, which makes us have a very compelling value compared to fast-casual operators. There is a lot to be said there, and I've actually had a number of people and guests talk to me about that. They're starting to catch on to what a compelling value is.

But I think, we can vary the pricing a little bit more. And I also believe that, to your point about mix, I don't know if its exactly a magic number, but I do think it's in that lower double-digit kind of realm than where we are today. And again, it might be a higher mix, but a more variable pricing that could be successful for us as well. So I don't know exactly how it'll play out, but I do know that we will be a little more cautious with it going forward.

Peter Saleh -- BTIG -- Analyst

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

Guy Constant -- Chief Financial Officer

Yes. We would expect we will be able to tap into the 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 about when people come in and when people leave. And specifically what tasks we have from the focus on, while during the peak.

And so as I mentioned before, in terms of the level of investment, I view it as quite small compared to what we've done already and that would include some of the hours that we already added back in the second quarter. So I would expect that we will continue to see productivity levels. And as we mentioned before, we do believe we have other ideas that we can introduce that can also allow us to impact productivity in the future as well. But I would view this as we said in the prepared remarks smaller as compared to the productivity gains we've seen today.

Denny Post -- President and Chief Executive Officer

Yes, I think the other thing, Peter, is anytime you call up some of our it sounds that we're painting everybody with the same brush. And there are some restaurants who continue to do very well, who pick the peak as they should and we can learn from them as well and that isn't 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, 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 LTL 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.

Peter Saleh -- BTIG -- Analyst

All right. Thank you very much.

Denny Post -- President and Chief Executive Officer

Thanks, Peter.

Operator

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

Brian Vaccaro -- Raymond James -- Analyst

Thanks, and good evening. Denny, on the last call, the primary issue 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 the last few months and also just how you're approaching the overall ad strategy and tactics in the back half of '18?

Denny Post -- President and Chief Executive Officer

Yes. It pains me to say that what a lot of our issues were self-inflicted. I mean, the competitive environment -- the degree of discounting, promotion, advertising, going up and down. We've seen it, we've seen it go up, 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 us 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 a dance around it, but I would say that hasn't changed, Brian, but we have more in our control than I would've said three months ago. And as far as our advertising and our promotion activity going forward, leaning a little more into, we have finest in 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 I'm excited about the Oktoberfest coming back, I mean, that was a very, very popular burger. We won't be discounting that one.

It'll be a fair price for it and a great burger. And so I think we have just a few more levers to pull, 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 wells or any big increase in spending of any type.

At this point, we're kind of holding our own.

Brian Vaccaro -- Raymond James -- Analyst

OK. That's helpful. And 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 turns being down. Could you put some numbers around each of those what you saw in the second quarter? And maybe just for perspective compare that to the first quarter or sort of second half of last year?

Denny Post -- President and Chief Executive Officer

Yeah. Year over year, our ticket times -- total ticket times out of the kitchen are up about a minute, and they're running above where we would want 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, or up about 85% year over year. So again, we are encountering what seemingly doesn't seem like that significant a slowdown in wait times and ticket times, but they add up at peak to a much more significant walkaway rate. And in this day and age we just can't afford to have any guests walk back out of the building. So trying to adding all those results from downtime, KDS, and again, our guest complaints and some of our other things.

We see a real opportunity here to make sure we capture the traffic but does come through the door.

Brian Vaccaro -- Raymond James -- Analyst

OK, that's helpful. Just shifting gears, can you -- on the updated EPS guidance $1.80 to $2.20, 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? I think, it was $85 million to $90 million.

Guy Constant -- Chief Financial Officer

Yes, Brian, we're not providing any further commentary and the guidance for 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've not provided anymore details of what comprises the guidance other than what we provided.

Brian Vaccaro -- Raymond James -- Analyst

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

Guy Constant -- Chief Financial Officer

We did. We took some in July.

Brian Vaccaro -- Raymond James -- Analyst

Could you say, how much?

Guy Constant -- Chief Financial Officer

About 1%.

Brian Vaccaro -- Raymond James -- Analyst

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

Guy Constant -- Chief Financial Officer

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

Denny Post -- President and Chief Executive Officer

At this point through Q3, but not known yet, right?

Brian Vaccaro -- Raymond James -- Analyst

OK. All right. Thank you.

Denny Post -- President and Chief Executive Officer

Thank you.

Operator

[Operator instructions] We'll now hear from Howard Penney with Hedgeye.

Howard Penney -- Hedgeye -- Analyst

Thank you so much for the question. 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.

Denny Post -- President and Chief Executive Officer

Yup.

Howard Penney -- Hedgeye -- Analyst

I was wondering what you were referring to. And at the end you talked about a more sustainable business model, what -- and the future business model was more sustainable. What were you referring to in that as well? Thank you.

Denny Post -- President and Chief Executive Officer

OK, great. Thank you for chance to clarify. Accelerate pace of change is the rapid pick up on delivery. I don't have the exact statistic at my hands, but everything I'm saying 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 way of being. I think it's becoming a true new way of guests 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're seeking to maintain our affordability and our -- 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.

Howard Penney -- Hedgeye -- Analyst

Thank you.

Denny Post -- President and Chief Executive Officer

You're welcome.

Operator

Next we'll hear from Stephen Anderson with Maxim Group.

Stephen Anderson -- Maxim Group -- Analyst

Good afternoon. I just wanted to look maybe a little bit more down the road. I know you've frozen unit development. I mean you have a couple of units company-owned first half, second half of the year couple of franchise units you guys have opened later this year after that.

Freezing unit 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 a three-box model that we saw a few years back. And as you think about maybe restarting unit development somewhere '20 or '21 what kind of models you want to use maybe having a larger area for the takeout or maybe eliminating the buying area between the bar area and the regular seating?

Denny Post -- President and Chief Executive Officer

Yes. So what you referred to as 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've 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 a 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 prototypes, 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 guests we've been talking about, which is dine-in, carryout, 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.

Stephen Anderson -- Maxim Group -- Analyst

All right. Thank you.

Denny Post -- President and Chief Executive Officer

Sure. No problem.

Operator

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.

Denny Post -- President and Chief Executive Officer

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.

Operator

[Operator signoff]

Duration: 54 minutes

Call Participants:

Denny Post -- President and Chief Executive Officer

Guy Constant -- Chief Financial Officer

Gregory Francfort -- Bank of America Merrill Lynch -- Analyst

Will Slabaugh -- Stephens -- Analyst

Analyst -- Stifel Financial Corp.

Alex Slagle -- Jefferies -- Analyst

Peter Saleh -- BTIG -- Analyst

Brian Vaccaro -- Raymond James -- Analyst

Denny Post -- President and Chief Executive Officer

Howard Penney -- Hedgeye -- Analyst

Stephen Anderson -- Maxim Group -- Analyst

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