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Red Robin Gourmet Burgers Inc.  (NASDAQ:RRGB)
Q3 2018 Earnings Conference Call
Nov. 06, 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 Incorporated Third 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 third quarter earnings release.

Company has also -- the Company has posted its fiscal third quarter 2018 earnings release and supplemental financial information related to the results on its website at www.redrobin.com in the Investors section.

Now, I'd like to turn the call over to Red Robin's President and CEO, Denny Post.

Denny Marie Post -- President & Chief Executive Officer

Thank you, James. Good afternoon and thank you all for joining us today so we can share with you our results, our progress and our in-quarter plans. Here with me at the Red Robin home office is Guy Constant, who is our Chief Financial Officer, until we hire his replacement and he is free to move fully into his new role as Executive Vice President and Chief Operating Officer. Guy and I have been working closely with the tenure field leadership team over the past few months to gear up for the high-volume seasonal sales period ahead.

When we spoke with you all last, we shared our learning about service and marketing opportunities we have identified as the key drivers of our dine-in traffic trends. As I will speak to later in order to focus operators on these service opportunities, we chose to shift some media weight out of the third quarter. As expected, dine-in sales and traffic slowed. At the same time, as shown on slide 4, our off-premise businesses of carryout delivery and catering continued to grow at a healthy clip.

However, as shown on slide 5, this new channel growth was not sufficient in Q3 to maintain the year-over-year overall traffic outperformance we have delivered for eight consecutive quarters. That said, cut to slide 6, and you'll see that on a two-year stack, we were still 250 basis points above competition who continue to ratchet up dealing and advertising spending in pursuit of positive traffic. We do not blame the competitive environment for our shortfalls. Instead, we are focused on those things that are within our control, understanding root causes and changing operations and marketing approaches to bend the trend.

The first place that we delve deep was on our service standards. In our race to build to-go, we lost some focus on what made Red Robin Red Robin. While we seek to serve the growing demand for carryout, we also must turn tables at peak times for those guests who choose to dine in with us, so that they can take full advantage of our bottomless fries and beverages. As mentioned previously, we increased in-store training using our new learning management system. Our servers were trained on the basics of greeting, one-stop ordering and three-level passing (ph). Our hosts are being trained via the new system on dine-in seating and to-go standards. To be both a preferred destination and a source of customizable Gourmet Burgers, we must be great at dine-in and off-premise service. We are making progress as we revisit standards and training with our frontline teams.

We have experienced more dine-in traffic challenges on weekends, which as we shared before, represent both a disproportionate share of our business and an even greater share of the traffic decline. These weekend shifts are where we have seen the greatest number of guests choosing to walk away before being seated due to longer ticket times and slow table turns. As I referenced earlier, adherence to standards is key and to that end, we pulled together a team of field leaders to identify root causes for our shortfalls. We were fully prepared to add back labor hours if needed. Instead, they identified that the key need was to hyper focus on aligning scheduled labor to capture peak traffic and then actively phasing team members off the shift as peak demand subsides. In short, it wasn't about more hours, it was about scheduling them with greater precision and adhering to the standards we set.

Peaking the peaks is in our DNA, which is to our benefit as we continue to improve productivity, which is so essential in today's higher labor cost environment. The cross-functional team led by some of our most respected operators quickly piloted some new approaches. We chose the most successful ones and brought all our multi-unit leaders to Denver for two meetings over 30 days to retrain them on how to coach our restaurant management teams on using the Watson scheduling system as a true sales tool. We are encouraged by what we've seen so far.

Since we refocused our leaders on peak time scheduling, ticket times, wait times and walkaways are down year-over-year and guest satisfaction is up as measured by decreased guest complaints. We will remain hyper-focused on improvement, shift-over-shift, day-over-day, week-over-week at each individual restaurant.

Back to Q3 results. As I mentioned before and as we expected, sales and traffic slowed when we shifted national and local media weight out of the quarter. As a result of taking the five for $6.99 message off of television, mix drag moderated slightly buoyed by the launch of our full priced Oktoberfest gourmet burger. And good news is, we continue to hold firm on the middle of the P&L, particularly on labor and cost of goods. This bodes well for our ability to deliver fully on the bottom line when we regain sales momentum.

On the marketing front, for Q4, we are bringing forward new value offers and delicious limited time only burger, shakes and appetizers for our Red Robin fans to enjoy. The new Haystack Tavern launched nationally at the start of Q4 and it did very well in limited market testing last spring. It is being offered at $6.99 for a limited time along with the original Red's Tavern Double, which has been a great value since we launched it in 2012. The Tavern Double lineup priced from $6.99 to $8.99 is a much better deal than virtually all fast casual competitors. We've taken to YouTube to tell our value story with a side-by-side pricing comparison. Starting at $6.99 with your choice of seven bottomless sides versus $11.68 for a comparable burger and fries from those guys, that is a compelling proposition. And our great table service add that in, and even with a tip, it's still a terrific deal.

Also at the beginning of the fourth quarter, we took three other popular Tavern Burgers; the Smoky Jack, Taco and Cowboy Ranch to $7.99 with a new menu layout, which gave us a chance to take a modest overall 1% price increase. The new layout also features our appetizer and beverage lineups more prominently.

Based on success in driving traffic this summer, we also chose to extend our $1.99 kids meal on Wednesday nights. This deal makes it possible for parents to enjoy a night out with the family without breaking the bank all while their kids enjoy unlimited games on Robin, which is our electronic dining companion that also allows guests to pay and go when they are ready. Over time, we expect to put even more of the dining experience in the guest control through innovative new digital offerings on the development roadmap.

We launched a new Monday to Thursday lunchtime bundle last week, featuring any gourmet burger bottomless fries or broccoli or salad and a bottomless beverage for just $10. This is a hot offer on our most popular burgers and the perfect choice for a quick lunch during the week. Red Robin has long been the envy of other full-service operators for our 50-50 lunch and dinner mix and we are committed to hold that daypart advantage. The original Oktoberfest gourmet burgers LTO bridge the end of Q3 and the beginning of Q4, mixing slightly above expectations and selling out early in some locations. We had a loyal fan the tweeted daily for over two years for us to bring this item back. That kind of passion and loyalty is always worth celebrating.

For the holiday season only, we've added a half-pound Angus Finest burger called the Master Cheese, a seasonally appropriate and absolutely delicious new peppermint white chocolate shake, new garlic Parmesan pretzel bites and a new nonalcoholic beverage, the Apple Harvest Iced Tea. In sum, we believe the combination of new product news, (inaudible) gourmet lunch bundle, a super kids night, better menu merchandising and careful PPA management will help us begin to regain our momentum. And our focus on peaking the peaks will ensure we are ready for the seasonally higher demand.

Looking ahead to 2019, we have completed the in-depth value research we spoke about on the Q2 call and are testing several new tactics as well as working to reposition the brand to align ourselves more closely with our guests needs as we knock down barriers to frequency, be they price, speed of service or digital accessibility for off-premise orders. We expect these new approaches to bring them to life in the first half of the year.

For now, let me say, while we are by no means pleased with our performance through Q3 we are heartened by the energy and commitment of our teams as we have reengaged all of our front-line leaders and team members to regain our operational edge. By refreshing our marketing plans and improving service execution, we firmly believe we can get back to where we all want and need to be although, how long that will take is not entirely clear. As it stands, we do not expect to see meaningful same-store sales trend improvement in Q4 over Q3. This is also our first-ever holiday season with full catering offerings, so projecting accurately on sales is challenging. Given this combination, we decided it was prudent to lower full-year guidance.

Red Robin is all about customizable gourmet burgers, great service and bottomless abundance at affordable prices. That combination draws a unique multigenerational family guest base we expect to be seated and served promptly. As I've outlined today, we are working hard to earn back that fundamental trust.

With that, I'll turn to Guy to share the details on Q3.

Guy Constant -- Executive Vice President and Chief Financial Officer

Thank you, Denny, and good afternoon everyone. As I walk you through the highlights of our financial results for the third quarter, please note that the numbers I present are on a recurring basis, excluding special charges. Q3 total Company revenues decreased 3.5% to $294.9 million, down $10.8 million from a year ago. Comparable restaurant sales declined 3.4%, driven by a 1.5% decline in average guest check and a 1.9% decline in guest traffic. Mix decreased 3%, primarily driven by heavier guest usage of our tavern value menu and lower beverage mix, both alcoholic and nonalcoholic. Overall price after considering the impact of discounting increased 1.5% in the quarter.

Tavern mix increased to 17% in Q3, up from 13.2% a year ago. Third quarter restaurant level operating margin was 16.8%, down 180 basis points versus a year ago, driven by the following factors. Cost of sales was flat versus a year ago at 23.8%, increases in steak fry cost and the impact of higher tavern mix were offset by favorability in ground beef and reductions in food waste as measured by actual versus theoretical performance. Restaurant labor costs were also flat versus a year ago at 35.3% as improvements in hourly labor productivity were offset by sales deleverage. Other operating costs increased 120 basis points to 15% due to increases in restaurant technology costs, repairs and maintenance expense, third party delivery fees, higher utility costs and supplies. Occupancy costs increased 60 basis points to 9.2%, primarily due to sales deleverage.

General and administrative expense improved by 40 basis points to 5.7%, due largely to the home office reset that was completed in late January and lower incentive and equity compensation costs.

Selling expenses were lower by 90 basis points as a percent of revenue to 4.1%, consistent with Denny's comments earlier regarding a shift in advertising spend as we refocused on our peak hour operating standards in advance of the higher volume fourth quarter. Preopening costs decreased $1.1 million primarily due to fewer restaurant openings in 2018. The third quarter featured our last new unit opening for the foreseeable future as we continue to work on improving our four-wall economics and begin the work on the development of our new unit prototype in 2019.

Q3 adjusted EBITDA was $24.2 million, down 5% versus a year ago. Depreciation and amortization was 40 basis points higher to 7.4%. Net interest expense and other was $2.3 million, a slight increase versus last year. And we experienced a $2.2 million tax benefit in the third quarter. Adjusted earnings per diluted share were $0.16 as compared to $0.21 in the third quarter of 2017. And during the quarter, we recognized special charges of $520,000 primarily related to corporate reorganization costs.

Now, to the balance sheet. We invested $12.5 million in CapEx in the third quarter, primarily related to restaurant maintenance capital, new restaurant openings and investment in technology projects. Capital spending year-to-date is at $39.8 million and we project capital spending for the full year to now approximate $50 million to $60 million. We ended the quarter with $20.4 million in cash and cash equivalents, up $2.7 million versus where we ended 2017 and we finished the quarter with a lease adjusted leverage ratio of 4.03 times. The outstanding debt balance on our revolving credit facility sits at $220 million as of the end of the third quarter and we restarted our share repurchase program during the quarter buying back approximately 8,600 shares for a total of $337,000. This amount is consistent with our initial goal of offsetting the dilutive effect of our Company's equity compensation program over the course of four quarters.

We continue to work diligently on our refranchising effort. As a reminder, our current effort is centered on markets that include approximately 100 existing Red Robin locations and that represents significant development opportunity for a potential partner. This effort, when complete, will take our franchise mix up to 30%. While we have nothing to announce at this time, we have received strong interest and continue to have good discussions with high quality potential partners toward this end. In terms of guidance, we now project full year 2018 adjusted earnings per diluted share to be in the range of $1.60 to $1.80.

Before I close, let me take a moment to acknowledge the efforts of our operators and the resilience that they've demonstrated as they put the pieces in place that we believe will serve as the foundation for our sales recovery in the coming weeks and months. We know this work hasn't been easy, but it's been done with your customary focus on taking great care for our team members and our guests and with great enthusiasm. For that, we thank you and we look forward to seeing the successes that we expect it will bring.

With that, I'll turn the call back to Denny for a few final comments before we take your questions.

Denny Marie Post -- President & Chief Executive Officer

Thanks, Guy. As a team, we are all in to turn the tide on our business. I have been here long enough to see highs and lows and to see how this team responds when we hit rough waters. We have a track record of identifying issues and putting solutions in place to resolve them. Resilience is one of our core competencies along with accountability. By exercising both to the fullest, I'm confident we will turn this around without losing sight of our long-term vision for Red Robin to evolve to meet the needs of generations to come.

With that let's take questions.

Questions and Answers:

Operator

Thank you. (Operator Instructions) And we'll take our first question today from John Glass with Morgan Stanley.

John Glass -- Morgan Stanley -- Analyst

Thanks very much. First, Denny, can you just review the decision to reduce your -- hi, can you hear me OK?

Guy Constant -- Executive Vice President and Chief Financial Officer

Yes, we can.

Denny Marie Post -- President & Chief Executive Officer

We can.

John Glass -- Morgan Stanley -- Analyst

Okay, good. I'm sorry. I am on -- I am working remote. Can you just review the decision to reduce advertising? Is that a decision made intra-quarter, was that the plan maybe we didn't know about it? Is it come back in the fourth quarter or do you reduce it or continue to reduce level the fourth quarter versus a year ago or maybe what is the reasons behind that decision?

Denny Marie Post -- President & Chief Executive Officer

So, it was made intra-quarter, it was not known at the time that we last spoke with you and it was decided specifically to clear the decks a bit for us to focus on the service operation issues and retrain the team, John. As you know, Q3 is one of our traditionally lowest volume quarters of the year. So as it goes, the risk there was relatively better. We have taken -- it was about 15% of our total median quarter, which as you know, we don't spend a lot. So 15% out is a bit of a loss couple weeks total I think between our local and national media. And we did take most of that into Q4 to try to support coming back around this peak to peaks, and our opportunity to really drive when the season is hot. So we will have more media weight in Q4 than we had before than we had last year, year-over-year. (multiple speakers)

John Glass -- Morgan Stanley -- Analyst

And then can you talk a little bit about -- it did. Yes. Can you talk a little bit about the Tavern Double menu? You talked about mix being not as negative, but I mean, your total mix was worse than last quarter, so maybe you met like on that menu it was less of a drag. So maybe just amplify what you meant by that? And what modifications if you made to that menu? It seems like there's been some changes, discussion in the last quarter of changing the composition of that so that you didn't have as much trade down as you experienced last quarter.

Denny Marie Post -- President & Chief Executive Officer

Yeah. It's a great question and thanks for the opportunity to clarify it, John. Our Tavern mix declined through the quarter. So as we came off air as we shared we made that decision to pull some of that media weight out of the end of peak (ph). We saw our mix go from a high of 17.3% to 16.4%, still higher than we traditionally have been, but it was a good opportunity for us to cut some of the mix drag we've been seeing. That also informed our PPA management for Q4. So in Q4, there are only two taverns, currently the new Haystack and the original Red Tavern Double at $6.99. The other three that we've launched over the last couple of years, the Taco, Cowboy Ranch and Smoky Jack are now $7.99, one of which has been there before. So we know kind of what to expect there. And we're managing overall, the menu everywhere from $6.99 to a top of $8.99 for the takeout, which has been on our menu for quite some time. So we've really pulled out the pricing on tavern from a low of $6.99 up to $8.99.

John Glass -- Morgan Stanley -- Analyst

Okay, good. Thank you.

Guy Constant -- Executive Vice President and Chief Financial Officer

Thank you, John.

Operator

Next we'll hear from Gregory Francfort with Bank of America.

Gregory Francfort -- Bank of America -- Analyst

Hey, guys. I have a couple of questions. Denny, you talked about -- hey, Guy. You talked about some of the metrics that were soft last quarter starting to improve this quarter. When did those metrics start improving, was that sort of partially through the quarter and have you continued to see improvement since?

Denny Marie Post -- President & Chief Executive Officer

I'll turn that to our soon to be Chief Operating Officer, to answer.

Guy Constant -- Executive Vice President and Chief Financial Officer

Hey, Greg. Yeah, we saw the improvement in the metrics start right around the time that we brought people into start the training that we did early in September and then had the follow-up event in October that Denny referred to in her comments. So the attention on the metrics themselves, of course, started some of the movement as it would typically do and then rather than have that just be a factor of increased attention we actually wanted to embed the skills associated with keeping those and sustaining those as they've gone on and we've been pleased by the movement that we've seen in that area in really all of those four metrics from wait times to walkaways to guest complaints to the ticket times. Some of those, you might expect, would improve simply because of the lower volumes you see in the third quarter, but we've also seen year-over-year improvements in some of those metrics, which is encouraging. Obviously, the proof is going to be in the pudding here as we get into the higher volume fourth quarter if the pre-work that we've done and the reps that we've had will result in ongoing improvement that we hope to see.

Gregory Francfort -- Bank of America -- Analyst

And then just maybe a broader picture question. You've had some reorganization savings on the G&A side, you're cutting back labor in certain areas. What sort of comp do you think you need to kind of keep EBITDA flatten next year? Is it sort of flat to 1%? Is it higher than that given some of the overall inflationary pressures? What sort of level would you expect you would need?

Guy Constant -- Executive Vice President and Chief Financial Officer

Well, we've experienced improvements in absolute dollars as we've gone through the year. So this year, if we'd have had flat comps this year, we'd have seen margin improvement without a doubt, simply because some of the heavy lifting that we've done during the year on labor productivity and G&A, as you mentioned.

As we move into next year, while there are some additional opportunities for labor productivity, we won't quite see the same sort of benefit in absolute hours that we saw this year. So I would think we would need to do a little bit better than flat comps in order to leverage margins, but we're not without opportunities to still address some areas. So I don't think we need low to mid single-digit comps. I would just say we need slightly better than flat.

Gregory Francfort -- Bank of America -- Analyst

Understood. And maybe the last question is just, at the current stock price, I mean, I think you own 36 properties, have you thought about monetizing those? And I guess if not why not and are there any restrictions to doing that? And then, that's it from me. Thanks.

Guy Constant -- Executive Vice President and Chief Financial Officer

No, we certainly looked at all the options to improve the business. One of the challenges when you do that kind of sale leaseback Greg is, if you're going to get any of the kind of proceeds that you'd like to get you generally have to sign up for very long lease terms in order to secure that. And often, a lot of the real estate that we own as casual diners is older real estate or real estate under older locations, because you don't buy as many properties or at least the industry hasn't in recent years. And so what you're doing is you might be taking a 10 or 15-year-old property in signing up for a 20-year lease, and we're about managing the business for the long-term and that would severely limit our flexibility to exit some of those locations as they -- as the tree (ph) area might move away in future years. So we balanced that against the proceeds we can generate and at least right now, we haven't been willing to make that trade-off, but we're always going to keep our options open.

Denny Marie Post -- President & Chief Executive Officer

I was going to say our real estate team now that we're not focused on new restaurant openings is very focused on optimizing our portfolio and we're always looking at those kind of opportunities as well as how to drive occupancy costs down.

Gregory Francfort -- Bank of America -- Analyst

Understood. Thank you.

Guy Constant -- Executive Vice President and Chief Financial Officer

Thanks, Greg.

Denny Marie Post -- President & Chief Executive Officer

Thank you.

Operator

Next we'll hear from Jeff Farmer with Gordon Haskett.

Jeff Farmer -- Gordon Haskett -- Analyst

Great, thanks. Your labor productivity --

Guy Constant -- Executive Vice President and Chief Financial Officer

Hey, Jeff. Welcome back.

Jeff Farmer -- Gordon Haskett -- Analyst

Thank you very much. Your labor productivity looks like it improved. It was 12% in the 2Q, I think it was roughly 8% in the 3Q, you're lapping Maestro. So I'm just curious, what level of labor productivity you think you're going to see as you move through the fourth quarter into early 2019?

Guy Constant -- Executive Vice President and Chief Financial Officer

Yeah, the improvements in productivity, Jeff, were fairly evenly split between the Maestro change and the team service change we made in the first quarter. So I would expect about half of that productivity impact to be affected by the lap.

Jeff Farmer -- Gordon Haskett -- Analyst

Okay. And then -- and the same sort of ballpark question or ballpark questions. You touched on this earlier, but in terms of the labor productivity that might be needed to offset some pretty material wage rate inflation that you and a lot of other West Coast companies are looking at in 2019 and 2020, what level of productivity would essentially get that covered for you?

Guy Constant -- Executive Vice President and Chief Financial Officer

We've seen in this last quarter, while we saw the productivity you talked about we seeing wage rates go up about 3%. So wage rates while still up and that's not an immaterial number, they actually have not gone up as much as we were expecting at the start of the year. So that's been a bit of the benefit. So a lot of the work that we've done, Jeff, we feel like as Denny mentioned in her remarks, puts us in a really good position to drive good flow-through, and we can get the sales turn to where we want to do, where we want to be. And so while negative sales has perhaps masked some of that benefits as we've gone through the year, I do think we're well-positioned versus the space because of that hard work that we've done over the past year.

Jeff Farmer -- Gordon Haskett -- Analyst

Okay, that's helpful. And just final question on the tax rate. I appreciate this is very challenging to answer this question. But could you potentially see again a tax benefit roll into 2019 even with a modestly positive comp the way this is set up?

Guy Constant -- Executive Vice President and Chief Financial Officer

I think it's possible. I mean, as you know, Jeff, having followed the space for a long time as you have that tax rate moves with earnings in our business. So we always hope to be paying a higher tax rate, that would mean that we are having a better year earnings-wise. But given the magnitude of the credit that we've had, it's possible that our tax rate would be perhaps in the single digits next year, even if we were able to drive earnings and if we're not as successful, it could be a benefit.

Jeff Farmer -- Gordon Haskett -- Analyst

Okay, thank you.

Operator

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

Mitch -- Stifel Nicolaus -- Analyst

Yeah, hi, good afternoon guys. This is actually Mitch on for Chris.

Guy Constant -- Executive Vice President and Chief Financial Officer

Hey, Mitch.

Mitch -- Stifel Nicolaus -- Analyst

Just looking at the dine-in traffic figure in the quarter, was growth in the off-premise channel also driver of that decline in addition to the marketing shifts you alluded to? Just curious if you think that channel is cannibalizing bit? Thank you.

Denny Marie Post -- President & Chief Executive Officer

We still haven't seen any evidence of that, Mitch, but it's a trade out from that standpoint. I think overall, we feel like most of the dine-in traffic decline has been more about our difficulty in seating and turning tables appropriately, which is why we're so focused on that for Q4.

Mitch -- Stifel Nicolaus -- Analyst

Great, thanks guys.

Denny Marie Post -- President & Chief Executive Officer

Thank you.

Operator

(Operator Instructions) We'll now hear from Brian Vaccaro with Raymond James.

Brian Vaccaro -- Raymond James -- Analyst

Thank you.

Guy Constant -- Executive Vice President and Chief Financial Officer

Hi Brian.

Brian Vaccaro -- Raymond James -- Analyst

Hey, Guy. Just to circle back on Jeff's question, what tax rate is assumed in your updated adjusted EPS guidance of $1.60 to $1.80?

Guy Constant -- Executive Vice President and Chief Financial Officer

For this year -- for the balance of this year, we would expect to see a benefit again. Yeah.

Brian Vaccaro -- Raymond James -- Analyst

For the fourth quarter.

Guy Constant -- Executive Vice President and Chief Financial Officer

Yeah, we would expect to see a benefit again in the fourth quarter. Yeah.

Brian Vaccaro -- Raymond James -- Analyst

Okay. And circling back on some of the metrics as well. Could you quantify how walkaways looked in the third quarter versus the prior year, just to give us a sense versus what you told us in the second quarter? And how are those trending or maybe some color as you, Denny, you talked about some improvement in recent weeks, any color on that quarter-to-date or last part of September as well in the walkaway specifically?

Guy Constant -- Executive Vice President and Chief Financial Officer

Yeah. So in absolute terms, Brian, you would always expect the walkaways to be lower in the third quarter anyway. So we talked, you may recall in the second quarter of a year ago it was roughly 2.5% or slightly above 2.5% and in the current year, it was 5%. With lower volumes in the third quarter, you don't see the same kind of walkaways or wait times. But in the quarter as we move down through the quarter, we were down about 2% in walkaways year-over-year from where we were last year and we're hoping that boards well because that's early in the process of us working with our operators to focus on that and obviously, it's a big goal to take what will be a higher walkaway number just in absolute terms in the fourth quarter because the volumes are higher and have some year-over-year reductions that would even be larger than that.

Denny Marie Post -- President & Chief Executive Officer

We've got the teams very much focused on capturing that peak hour potential and that requires that we turn those tables and seat appropriately. And I think the teams are in a far better position to do that, than we were coming into this quarter.

Brian Vaccaro -- Raymond James -- Analyst

Okay, that's helpful. And then I guess, circling back on the consumer research project, Denny, that you mentioned you completed during this quarter and obviously staying away from competitively sensitive info, but curious what were the primary learnings were from that research?

Denny Marie Post -- President & Chief Executive Officer

I'm really not prepared to talk about that yet, Brian. We're still absorbing a lot of it, trying to make decisions about it and I don't want to get out ahead of my skis on that, but I will tell you that it yielded a lot of good insight around various segments and opportunities that we have. So, we'll look forward to sharing more on that as we get to the Q4 call.

Brian Vaccaro -- Raymond James -- Analyst

Okay, fair enough. And then just last one, I think there's been some discussion around some new productivity initiatives, maybe some server handhelds and some other potential initiatives. Can you just provide an update on where you are in timeline et cetera, and anything incrementally you can share on the productivity front?

Guy Constant -- Executive Vice President and Chief Financial Officer

It's still a little early for that Brian, but we do expect that to be a front half 2019 initiative to put some technology in our servers hands that while yes could provide some productivity benefit. We are even more excited about the upside opportunity to speed the service and attentiveness of service that those -- that type of technology could provide for our guests.

Brian Vaccaro -- Raymond James -- Analyst

All right. Thank you.

Operator

Will Slabaugh with Stephens, Inc. has our next question.

Guy Constant -- Executive Vice President and Chief Financial Officer

Hey, Will.

Will Slabaugh -- Stephens Inc. -- Analyst

Thanks, guys. I have to ask about the decision to push some of the marketing into the fourth quarter and I guess more specifically, what were you seeing midway through the quarter that led you to think that, that was the best course of action? And then, what should we expect in the fourth quarter in terms of percentage increase in marketing spend, if you want to get that specific, or maybe what the impact may be in your mind?

Denny Marie Post -- President & Chief Executive Officer

I don't want to get that specific about Q4 by any means. But we will have more weight year-over-year and again, we'll share that as we get there. I think what we were seeing was, we were seeing these issues surrounding walkaways and times -- ticket times and driving the traffic into an environment that wasn't ready to capture it. So it just didn't make sense for us to continue to push on that lever and not be able to meet greet and seat those guests and serve them in a way that was positive. So it really gave us a chance again in a relatively low volume quarter to take a break and focus our teams and then take some of those dollars, which are precious to us, because we don't have a whole lot of them and devote them to the initiatives in Q4.

Will Slabaugh -- Stephens Inc. -- Analyst

Got it. And a quick follow-up if I could on that the tavern platform. Can you talk about what the mix was in the quarter and then you mentioned taking a couple of items up (inaudible) the $7.99 price point. Did you see any push back from that, and just in general, kind of customer response to the tavern platform throughout the quarter would be helpful? Thank you.

Denny Marie Post -- President & Chief Executive Officer

So the change we made was at the beginning of Q4, so I'm not prepared yet to talk about what the impact is in quarter. I can tell you in Q3, we started out period eight with about a 17.2% mix and then by the end we are down to 16.4%. Again, we came off that media, which had the five for $6.99 offer, so less people coming in for that also meant there was less mix associated with it. So we wanted to learn from that and continue to manage that mix appropriately.

Will Slabaugh -- Stephens Inc. -- Analyst

Thank you.

Operator

(Operator Instructions) We have a follow-up question from Gregory Frankford with Bank of America.

Gregory Francfort -- Bank of America -- Analyst

Hey, guys. I just had two quick housekeeping questions. Just in terms of the office reset that you conducted, can you tell me what the annual G&A savings were from that in total?

Guy Constant -- Executive Vice President and Chief Financial Officer

Sorry, Greg, could you repeat that? I couldn't hear it.

Denny Marie Post -- President & Chief Executive Officer

Annual G&A savings.

Gregory Francfort -- Bank of America -- Analyst

Just the annual G&A savings from the office reset.

Guy Constant -- Executive Vice President and Chief Financial Officer

Yeah, we were targeting in the neighborhood of $8 million to $10 million roughly is what we were intending to save based off a what at that time was assuming a target bonus payout versus a target bonus payout the year before. So roughly $8 million to $10 million of savings. So we've experienced some of those savings and we've also given the performance lowered our incentive comp expectations as well for the balance of the year. So yeah, $8 million to $10 million roughly.

Gregory Francfort -- Bank of America -- Analyst

And just one last one. Is $50 million -- if you're going to end the year kind of $50 million to $60 million of CapEx, but clearly, you're not going to have any or likely not going to have stores opening going forward, what should we sort of think about is the right run rate number for the business? I think you said $50 million in the past, you've obviously been coming in a little bit better. So I'm wondering if that's still the right number, or if you think you could be better than that on kind of an ongoing run rate maintenance basis?

Guy Constant -- Executive Vice President and Chief Financial Officer

Yeah, I think a real opportunity for us, Greg and we leaned a lot into it this year with a lot of what I call, maybe foundational work that we've done on the technology side and in our restaurants, new point of sale hardware, new food cost waste management system, new point-of-sale system, back office, server capacity expansion, as well as the technology that we're talking about putting in our servers' hands. We really feel like there is an opportunity for us to invest on the technology side, a lot of that will be a lot more guest facing. Now that we've done that foundational work that we've done in 2018 I would expect in 2019, we'll have a significant focus on technology that the guest will be able to see. And so while that certainly won't come close to what we've spent on new unit growth, I do think it likely keeps the CapEx in that $50 million range.

Gregory Francfort -- Bank of America -- Analyst

Understood. Thank you.

Operator

Brian Vaccaro with Raymond James has a follow-up question.

Brian Vaccaro -- Raymond James -- Analyst

Yeah, just one quick one if I could. On the refranchising front, I know there's a lot of factors that go into how you think about the optimal company versus franchise mix, but could you just maybe provide an update given the current situation versus when you initially launched the refranchising initiative, just where you're thinking about it from a strategic long-term perspective? And also, any other color you can provide on what's transpired on the refranchising front in terms of demand in those stores, et cetera over the last few quarters that would be great? Thank you.

Guy Constant -- Executive Vice President and Chief Financial Officer

So there's a lot of initial work anytime you ramp up your refranchising activity, and so we talked about that in the middle of last year, did a lot of that work over the next, call it three to six months to put the pieces in place and then began to much more actively market the territory. Initially, we had a few people kind of kicking the tires thinking maybe that things were available for a song and I think they quickly realized that that wasn't the case that we didn't have the franchise, it was a choice of ours, both in terms of what sort of deal, we would expect and what kind of partner that we wanted more importantly.

Denny Marie Post -- President & Chief Executive Officer

Yeah, most critically.

Guy Constant -- Executive Vice President and Chief Financial Officer

And so as a result, our more recent discussions have come with a lot more of those higher quality type partners that we think create some possibilities for us moving forward. So I feel like we're right in the throes of the types of partners that we would like to have discussions with and we're hopeful will reside in some benefit, but nothing that we can announce today. In terms of going forward, it's always an option for us to do more of that as we read where we think the business is going in the future and weigh the risk of executing on what we'll need to do versus perhaps looking at franchising then we can make that call as we go along. But right now we're focused on the 100 locations that we talked about.

Brian Vaccaro -- Raymond James -- Analyst

That's helpful. Thank you.

Guy Constant -- Executive Vice President and Chief Financial Officer

Thanks, Brian.

Operator

Jon Tower with Wells Fargo has our next question.

Jon Tower -- Wells Fargo -- Analyst

Hi, thanks.

Guy Constant -- Executive Vice President and Chief Financial Officer

Hi, Jon.

Jon Tower -- Wells Fargo -- Analyst

How are you doing?

Guy Constant -- Executive Vice President and Chief Financial Officer

Good.

Jon Tower -- Wells Fargo -- Analyst

Thanks for taking the question. I was just curious on the Tavern Double changes it appears that you are pulling back on some of the relative discounting, while many of your peers are actually ramping that up, particularly in the third quarter, and it seems even more so into the fourth quarter. So can you walk us through the decision to do that and why? And especially given the risk of it potentially accelerating the traffic losses going forward, how you're thinking about traffic versus in-store profits?

Denny Marie Post -- President & Chief Executive Officer

Yeah, I think number one, Tavern Double is always viewed as an everyday value. So we manage that range of pricing very closely so the guest can count on us, right. They know that they can always come in, find that $6.99 starting price point and then a very reasonable as we said relative price point anywhere from $6.99, $7.99 to $8.99. With regards to how we view discounting, we still try to focus primarily on our Red Robin Royalty members, who were the ones who give us the greatest share of their purchases and look to surprise and delight and reward them more so than others. We'll use the occasional direct marketing technique or other things to drive some traffic in beyond the frequency we associate with our Red Robin Royalty program. So it is a fine art and fine balance. But I would just say that we're really looking to make sure that we're getting that balance of traffic driving without too much trade down. And we saw two greater trade down the last time with regards to actually having incented our guests, many of them to move on down from Gourmet Burgers to the Tavern platform, some of whom were already in the restaurant as opposed to driving purely traffic. So we're always looking to that balance and where we best reward our guests with discounts. But everyday value is where we believe we'll win long-term in this business. The guest wants to know they can count on you not just a temporary discount this week.

Jon Tower -- Wells Fargo -- Analyst

Thanks. And then just quickly to follow up on the Red Robin Royalty members. Where do you guys sit on that today in terms of numbers?

Denny Marie Post -- President & Chief Executive Officer

Where are we guys? We have 8.5 million total registrants and we look to always continue to build that focus on it. Good time going into fourth quarter for our team members to be signing those new guests up.

Jon Tower -- Wells Fargo -- Analyst

Thank you.

Denny Marie Post -- President & Chief Executive Officer

Thank you.

Guy Constant -- Executive Vice President and Chief Financial Officer

Thank you, Jon.

Denny Marie Post -- President & Chief Executive Officer

All right.

Operator

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

Denny Marie Post -- President & Chief Executive Officer

Thanks, James. I stepped on you a little there, I apologize. We'll let everyone get back to watching the midterm election results and we're going to get back to running our business. Enjoy the remaining weeks of 2018 and the holiday season, everyone. We look forward to sharing our full-year results with you and our progress in February. Talk you to you then. (ph)

Operator

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

Duration: 42 minutes

Call participants:

Denny Marie Post -- President & Chief Executive Officer

Guy Constant -- Executive Vice President and Chief Financial Officer

John Glass -- Morgan Stanley -- Analyst

Gregory Francfort -- Bank of America -- Analyst

Jeff Farmer -- Gordon Haskett -- Analyst

Mitch -- Stifel Nicolaus -- Analyst

Brian Vaccaro -- Raymond James -- Analyst

Will Slabaugh -- Stephens Inc. -- Analyst

Jon Tower -- Wells Fargo -- Analyst

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