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Red Robin Gourmet Burgers Inc. (NASDAQ:RRGB)
Q3 2019 Earnings Call
Nov 5, 2019, 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 2019 Earnings Call. [Operator Instructions]

During the course of this conference call, management may make forward-looking statements about the Company's business outlook and expectations. These forward-looking statements and all other statements that are not historical facts reflect management's beliefs and predictions as of today and therefore are subject to risks and uncertainties as described in the Safe Harbor discussion found in the Company's SEC filings.

During the call, the Company will also discuss non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles, but are intended to illustrate an alternative measure of the Company's operating performance that may be useful.

A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures can be found in the earnings release. The Company has posted its fiscal third quarter 2019 earnings release and supplemental financial information related to the results on its website at www.RedRobin.com in the Investors Relations section.

Now, I would like to turn the call over to Red Robin CEO, Paul Murphy.

Paul Murphy -- President and Chief Executive Officer

Good afternoon and thank you for joining us today. I am honored to have joined Red Robin at this important inflection point in the Company's transformation and to be here, on my first earnings call alongside Lynn Schweinfurth, our Chief Financial Officer and Guy Constant, our Chief Operations Officer. Jonathan Muhtar, our Chief Concept Officer is also with us today to participate during the question and answer period.

Let me begin by recognizing Pattye Moore, for her hard work and dedication to Red Robin over the past 12 years, as she will be retiring from the Company at year end. Pattye has served Red Robin in various capacities, first as a Board member, then as Board Chair and more recently as interim CEO. During her tenure as interim CEO, which began in April, Pattye and the executive team have effectively focused the organization on key priorities that are building business momentum, underscored by improving operating and guest satisfaction metrics that we can and will build upon further.

I've been in Red Robin for almost five weeks now. Since joining, I have been busy immersing myself in every aspect of the business so I can better understand our current challenges and opportunities to evaluate our progress today, to prioritize what to accomplish in 2020 and beyond to drive results.

In the course of my due-diligence, I have visited several Red Robin restaurants, spoken with general managers, team members and our franchise partners and listen to their viewpoints and suggestions with an open mind. Not surprisingly, I came away from these interactions impressed by their passion, their level of caring and their desire to be part of a winning organization. These positive experiences have only reinforced my conviction in Red Robin and the future of this great brand.

Strategically, there has been a lot of work done thus far, particularly as it relates to our most important priority further strengthening and transforming the dine-in business and as Guy and Lynn will address in greater detail shortly, we are continuing to gain traction in our turnaround efforts.

After an in-depth review, the Company has concluded it will suspend the refranchising program. Based on our analysis, we believe the value creation opportunity to shareholders from refranchising will be much greater once the operating fundamentals in the business have been further strengthened and the support capabilities for franchising enhance. As we move toward these objectives, the Company will monitor and reassess its opportunities and options in this regard.

My role in the near term is to leverage my turnaround experience and take Red Robin's current business to the next level, drive additional improvement and thereby enhance value for all stakeholders.

Therefore, as I become more acclimated to Red Robin, develop a deeper and more nuanced understanding of the brand, I will work closely with the Board, executive team and team members to fine-tune our strategy along with the specific initiatives that support our mission.

I intend to develop and share a strategic vision and robust transformation plan that will serve as our roadmap, leveraging the building blocks already in place. Red Robin is an iconic American brand with tremendous potential. I am confident we can recapture our brand reputation through operational excellence and by extension the loyalty and frequency of our guests. These attributes are fundamental to growing sales, improving our profitability and enhancing value in the long run.

With that, I'll turn the call over to Guy to review our operations, Guy?

Guy Constant -- Executive Vice President and Chief Operating Officer

Thank you, Paul and good afternoon everyone. As Paul outlined our most important priority is to continue to stabilize and further strengthen the dine-in business.

Since the start of 2019, operations is leaned into four key areas of focus that we have emphasized with consistency and measured with enthusiasm. First is hire, train and retain. As we have previously discussed, improving the dine-in guest experience starts with hiring the right people, training them properly and being fully staffed, particularly at the general manager level.

Our operations leadership and human resource teams continue to make real progress against these initiatives. At the outset of 2019, we were short over 100 managers across the system but by the end of the third quarter, we were essentially fully staffed at the manager level and our manager turnover numbers are now at best in class levels for casual dining. Now, with more fully staffed management teams, we are also able to reduce the churn of managers between locations and provide a better and more stable experience for our team members. The resulting benefit is apparent in the progress we have made in hourly turnover numbers, which improved again in the third quarter as they have throughout 2019 in sharp contrast to the continued deterioration in turnover and staffing metrics seen throughout the industry.

Our hourly turnover numbers ended the third quarter better than casual dining industry averages once again and moved closer to best in class numbers. These important leading indicators have been critical to building the engagement of our team members, a key component of the sustained improvement in our operational execution and business performance.

Next is manager front of house engagement. We know we can improve the overall guest experience, deliver better wait times, reduce walkaways, improve our cleanliness and effectively identify and resolve potential problems by establishing a better presence of our managers in the dining room floor and by having mangers at the host end during peak hours. This focus is working. Overall guest satisfaction which had declined throughout last year to a low point at the end of Q4 2018 has continued to improve throughout 2019, rising again to its highest level in three years at the end of the third quarter. This leading indicator is critical to leveraging the full service that differentiates casual dining from other segments of our industry that nurtures the engagement and loyalty of our guests.

Next is Managing the Shoulders to Peak the Peaks. We continue to focus on shifting the labor investment from overstaffed shoulder hours to understaffed peak hours, allowing us to improve throughput on our busiest shifts, thereby capturing the greater sales opportunity that is available during those times. Our continued focus on staffing has yielded an improvement again in Q3 our guest ratings for speed of service, food temperature, the execution of our bottomless promise and restaurant cleanliness. This area of focus is a key part of delivering a great guest experience while maintaining strong labor productivity. And in Q4, to support our fast growing off-premise channel, we will be adding labor hours during our busiest shifts, a decision that will provide residual benefit to our dining experience as well.

Finally, Delivering on the Promise of Maestro. This effort focuses our kitchen managers on the active coordination of the fast and accurate delivery of high-quality food at the optimal temperature. As the results, we've seen a sharp improvement in ticket times which in the third quarter were over 90 seconds faster than they were when we first rolled out the Maestro program early in 2018. In addition to the improved speed, we are concentrating our culinary focus on improving the consistency and quality of our core menu products such as our gourmet burgers, chicken, buns and of course our signature Bottomless Steak Fries. And we are emphasizing the reduction of complexity in our Heart of House, all of which have contributed improved guest ratings for taste of food and taste of experience throughout 2019.

This area of focus is crucial to recapturing the Gift of Time promise that has historically differentiated Red Robin from our competitive set. The best long-term sustainable means to drive sales and rebuild our guiding businesses is to hire and retain great managers, keep them in the same restaurant to provide consistent leadership and create a great environment for our team members. And then these team members will in turn deliver that great experience for our guests that will build future loyalty and treatments. We are thankful for the efforts of our operators and recognize their progress. While we know there's a great deal of work to do, the initial pieces have been put in place and the leading indicators of manager staffing, hourly turnover and guest satisfaction are all continuing to trend positively. And not surprisingly our business results are improving things well.

We look forward to continued progress as we move forward. With that, I'll turn the call over to Lynn.

Lynn Schweinfurth -- Executive Vice President and Chief Financial Officer

Thank you, Guy and good afternoon everyone. As we turnaround our performance and invest in the business, we are encouraged by our improving sales trajectory. In the third quarter of 2019, comparable restaurant revenues increased 1.6%, marking the third consecutive quarter of improved trends. The Q3 improvement was driven by a 4.7% increase in average check, partially offset by a 3.1% decline in guest traffic. Overall pricing, net of discounts, was 1.5% while the 3.2% mix increase was driven by our menu and promotional strategy put in place this year resulting in lower Tavern mix and higher entree and Finest mix.

This July, we launched our new omni-channel creative campaign All the Fulls highlighting the emotional connection shared over a meal at Red Robin and featuring our signature Bottomless Steak Fries. The new campaign received consumer scores that are among the highest recorded for our brand and well above industry benchmarks and importantly had a significant positive impact on our traffic trends.

We also rolled out our new all-in-one menu which combines our everyday offerings with seasonal promotions highlighting our new and differentiated Gourmet Burgers. Last year, we promoted five Tavern burgers at $6.99 on national television for for shift in menu and promotional strategy which now feature innovative burgers and highlight core brand entities without discounting on national media has positively impacted our mix in gross margin.

Q3 total company revenue decreased 0.2% to $294.2 million, down $0.7 million from a year ago, dinning sales were down 2%, partially offset by off-premise sales growth. Off-premise sales growth continues to be meaningful and rose 37.3% in Q3, representing 13.2% of total food and beverage sales. Traffic at enclosed mall locations now representing 59 company restaurants continue to perform worse than [Indecipherable] by approximately 370 basis points, consistent with previous quarters. Q3 restaurant level operating margin was 16.1%, down 70 basis points versus a year ago driven by the following factors.

Cost of sales of 23.8% was flat versus a year ago as higher commodity costs were primarily offset by lower Tavern mix and benefits associated with menu simplification. We believe our cost of sales will improve in the fourth quarter compared to the third quarter due in part to the benefit of favorable new contracts now in place.

Restaurant labor costs of 36.2% were unfavorable 90 basis points versus a year ago due primarily to higher average wage rates and higher manager staffing levels within the restaurant. Other operating costs increased 30 basis points to 15.3% due primarily to third party delivery commission, partially offset by decreases in utilities and other restaurant expenses.

Occupancy costs decreased 60 basis points to 8.6% due primarily to 13 net locations by close of the third quarter of 2018, partially offset by sales deleverage. General and administrative costs increased 80 basis points to 6.5% of total revenues due primarily to Interim CEO expenses and lower incentive base cost in 2018, partially offset by decreases in professional services and travel. Selling expenses increased 190 basis points to 6% of total revenues due primarily to an increase in national and local media spend to support our new creative campaign that launched in July.

Preopening costs decreased $0.4 million due to the suspension of restaurant openings. Net interest expense and other was $0.5 million lower versus the prior year due primarily to a larger gain in our deferred compensation planned assets compared to the same period a year ago, as well as the reduction in interest expense. Our weighted average interest rate was 5.1%. Our effective tax rate was 74.1% benefit.

The change in the effective tax benefit was due primarily to lower income in the current year. During the quarter, we recognized net other gains of $1.8 million which included the benefit of $3.9 million related to favorable lease terminations associated with our closed restaurants net of associated closure cost.

These benefits were partially offset by $1.3 million in board and stockholder matter costs, $0.6 million in executive transition and severance costs and $0.3 million in executive retention costs. Q3 adjusted EBITDA was $14.7 million as compared to $24.2 million in Q3 2018 and Q3 adjusted loss per diluted share was $0.24 as compared to adjusted earnings per diluted share of $0.16 in Q3 2018.

Now turning to the balance sheet. We invested $11.9 million in capex in Q3 which was primarily related to facilities improvements, corporate and system costs and new investments in information technology.

In October, we completed the rollout of handheld POS terminals that along with headset and printers that generates labels that contain menu item details for off-premise orders or sticky media will enable our team members to deliver an even better guest experience. We ended the quarter with $20 million in cash and cash equivalents.

Our lease adjusted leverage ratio was 4.55 times and we were in compliance with all debt covenants. During the quarter, we drew $7.5 million on our revolving credit facility resulting in a quarter end outstanding debt balance of $188 million in addition to letters of credit outstanding of $7.5 million.

We also bought back approximately 289,000 shares for a total of approximately $1 million. This is consistent with our previously stated goal of offsetting the dilutive effect of our equity compensation program over the course of four quarters as we utilize cash flow primarily to reinvest in our business and to reduce debt while we return the business to sustainable growth.

We have updated our guidance for 2019 as published in our earnings release this afternoon, taking into account year-to-date results and updated estimates. SG&A and capex expectations remain the same and we tightened our range of sales and related adjusted EBITDA. We currently anticipate a full year tax benefit of approximately $11 million to $13 million and full year cash tax payments of between $3.5 million and $4 million.

Consistent with what we indicated throughout the year, we continue to expect positive comparable restaurant revenues in the fourth quarter. It is important to note that we will be lapping significant prior year discounting in the fourth quarter of 2018 as we move into the fourth quarter of 2019 which we expect will negatively impact comparable guest traffic that positively impact gross margin.

We took 80 basis points in price at the beginning of the fourth quarter and anticipate we will deliver 180 basis points of gross price in the quarter. Lower year-over-year discounts will further positively impact PPA.

Catering continues to be an important growing sales category with material long-term potential, delivering 74% year-over-year growth in the third quarter. Our sales team is focused on among other things, driving business to business national accounts, supporting, recurring, catering occasion and refining our core catering menu including expanding our carbonated beverage brands.

We continue to expect higher third party delivery sales as we recently added a new service partner to the majority of our system. We are continuing to highlight outsource delivery for orders placed by our guests directly with Red Robin, allowing us to control the ordering experience, retain order and guest history, leverage our royalty platform and lower costs associated with third party delivery marketplaces.

Turning to our real estate portfolio. We recently made the strategic decision to expect company operations in Canada due to a lack of integrated system, near-term capital investment needs, sub-standard financial performance and an operating footprint with inherent inefficiencies in marketing, supply chain, supervisory and corporate support. One restaurant has already been closed and five other restaurants in the Edmonton area will close in the coming week. We are currently in discussions with an experienced restaurant operator to acquire and franchise the remaining 12 restaurants in British Columbia with an anticipated closing by early 2020. Third quarter year-to-date the Canada restaurants generated $31.6 million in restaurant revenues and $0.9 million in restaurant level operating profit.

We continue to assess our real estate portfolio, work on a refined prototype for future development and focus on implementing profitable sales catalysts to generate consistent and growing financial results. So let me wrap up by thanking our Red Robin team in the restaurants and at the home office for their significant contributions towards the improvements we are seeing in our business as we invest in and build a sustainable long-term foundation to create value for our shareholders. With that, I will turn the call back over to Paul.

Paul Murphy -- President and Chief Executive Officer

Thank you, Lynn. Red Robin clearly is on the right path, strengthening operations, transforming the dine-in experience and significantly growing off-premise sales. I am encouraged by the brand's ongoing traction, made possible by an exceptionally dedicated Red Robin team. And I believe we are in the early stages of the turnaround process. I look forward to sharing with you more detailed thoughts on our strategic vision and action plan at the ICR conference in January. And now with that, we'd be happy to take any questions.

Questions and Answers:

Operator

Thank you. At this time we will be conducting a question-and-answer session. [Operatort Instructions] Our first question comes from the line of Chris O'Cull from Stifel. Please proceed with your questions.

Chris O'Cull -- Stifel -- Analyst

Thanks, good afternoon guys. Paul, a couple of high level questions about how you're thinking the turnaround may play out over the next few years. I mean do you envision or do you think there is going to be a need to make a lot of investments in the restaurant? And then secondly, are you thinking about additional unit closures or -- or any other – well mainly just closures as you execute the turnaround strategy?

Paul Murphy -- President and Chief Executive Officer

Well, I’ll kind of answer that in two ways. First, as we look at the next two to three years, there will be some investments but there will be investments in initiatives that we believe we will be able to drive not only in the top line but the bottom line results. And then more in a fulsome way the regard for the brand. Now some of the other investments will just be frankly around execution. I think that's one thing that the brand has been focused on the last six months, certainly start to see some traction from that but we have a lot of runway there, we have made some investments in terms of putting the the handhelds and the servers hands, and that will lead I think to further work against a service model which should help us through the – really help us on the execution level. In terms of store closures, I think that smart brands always are looking at their portfolio, always ascertaining what's the best use of the resources that they have. And so we'll take a look at. I'm not -- certainly don't anticipate any wholesale closures going forward but will be strategic in it and take a look over the next two or three years at any stores that we think are hurting the system or dragging it down.

Chris O'Cull -- Stifel -- Analyst

Thank you. And then just there’s been a -- Red Robin has benefited quite a bit from third party delivery and off-premise sales. What’s your view on how third party delivery, what kind of role it should play at Red Robin? Is there going to be more emphasis on it, less emphasis on it, more on the in-store experience or the dine-in channel, help us understand your view of how third party delivery is going to play out for Red Robin?

Paul Murphy -- President and Chief Executive Officer

Well, I think as [Indecipherable] saying that the focus on din-in that Guy and his team have had over the past few months, we're going to maintain that. Dine-in is still 85%, 86% of -- of the business and we need to ensure that we keep advancing the execution against that and keep improving that performance. And I certainly believe over time that we can stop the erosion there and -- and at least just be flat on the transaction side there. On the off-premise side, that's where the guest seems to be going. Red Robin, if you look on the catering side, we're doing a very nice job there on the to–go. People coming in ordering that's always been a strong part of the business. As we've entered into the third party, certainly has been a bit of a, a driver. I think we still have a little bit of work to do in terms of how we're executing against that. But I think third party delivery is as much defensive as it is offensive because you want to make sure that people are always considering your brand, when they are looking at a place to do business with. So we will continue along that lines but work as other brands are doing to make sure that it's more profitable of an occasion as it is now.

Chris O'Cull -- Stifel -- Analyst

Thanks guys.

Operator

Our next question comes from the line of Alex Slagle from Jefferies. Please proceed with your question.

Alex Slagle -- Jefferies -- Analyst

Thanks for the question. I know the company has been working on some deeper consumer insights work in recent months. And just wondering if you're sort of happy with the results? Or is there more that you want to explore in understanding the guest needs and if there is any initial results you could share with us.

Jonathan Muhtar -- Executive Vice President and Chief Concept Officer

Hi, this is Jonathan. Yeah, I'll take that one. We are pleased with the progress there. It is an ongoing project that we don't yet have results to share out with you on. But with Paul joining the organization, we've engaged with him and he is going to be involved in this work as well. And I’d just say for now that we're pleased with the start we've gotten there and we're diving in deeper. We're also, as we mentioned on previous calls, enhancing our capabilities to mine guest data and to access guest data through updating -- upgrading our loyalty program. So with these enhanced capabilities and the deeper insights that we're currently gathering, we'll be able to give you an update on the next call.

Paul Murphy -- President and Chief Executive Officer

Yes. Alex, this is Paul. What I really like that they have – that’s been done here at Red Robin is the addition of Consumer Insights team into the brand coupled with business insights. So I'm happy with the work that's being done against the consumer side of the business and what are the insights that the brand can use to really focus the things that we're doing, focus the things that we know will drive the business and drive the regard for Red Robin among the consumer base, and frankly remove the obstacles that they are saying, may be an obstacle of them using the brand.

So I think we are on the right track with that. I was pleasantly surprised that it was already under way and I look forward to really produce some great results that are going to help us to be able to move forward as we enter into 2020.

Alex Slagle -- Jefferies -- Analyst

Thanks, that's helpful. And then on the new creative campaign and additional media spend, it seems like that was successful in driving the top line momentum. If you could talk to the degree you expect to explore continuing elevated marketing spend in the near term and if you think that's worth it.

Jonathan Muhtar -- Executive Vice President and Chief Concept Officer

This is Jonathan again. Yes, we were very pleased with the launch of the new campaign, the response from our guest was quite positive in multiple forms of research that we pulled our guests on. We really, as we talked about on the last call, we developed that campaign through consumer insights, seeking to establish that emotional connection with our guests that our brand has traditionally won on and represented with our guests and what our guests, really know and love about Red Robin. And everything that we've seen thus far indicates that the campaign is delivering on that.

Paul Murphy -- President and Chief Executive Officer

This is Paul again. We're not tag-teaming, but in my first couple of weeks, when I made phone calls to the members of the franchise community that are on the Franchise Advisory Board, one thing that I thought was amazing is that to a person they all said that they were behind a new advertising campaign they thought it was recapturing the sole of Red Robin. And as you know, franchisees can be highly critical of any advertising that we're doing and to add them to a person saying hey, this is who Red Robin is, not only are we moving forward but we're re-establishing the connective tissue for the core Red Robin users. I thought that was a huge testimonial for some people who are generally, in their own kind of glass half full about advertising.

Alex Slagle -- Jefferies -- Analyst

Great, thank you for that.

Operator

Our next question comes from the line of Gregory Francfort of Bank of America. Please proceed with your question.

Gregory Francfort -- Bank of America -- Analyst

Hey, thanks for the question. My first question is maybe just on advertising on a go-forward basis. And if we should think that that steps back down in kind of the mid-4 range or given kind of what you're seeing on the spend that you put in the third quarter and the response on the traffic side if that's going to stay at an elevated level. Then I had a couple of other questions. Thanks.

Lynn Schweinfurth -- Executive Vice President and Chief Financial Officer

I'll start and the team can jump in. Right now what we did during the current year is we did allocate some of our marketing expenses more so to the third quarter while we launched the new creative campaign. And we will continue that campaign certainly into this quarter and beyond.

I believe our expenses for this quarter will be a little bit less compared to last year and we are in the process of finalizing our 2020 plan but there could be a continuation of some increases in selling expenses so that we can fully support all the channels of profitable sales growth that we're trying to garner in the coming year.

Gregory Francfort -- Bank of America -- Analyst

That's really helpful. Thank you. And then just two other questions I had, one was where you stand in terms of rent renegotiations? I think -- I know that's been an effort for the brand for at least the recent past. And then the other question was just what are you seeing on the turnover side. If you can give any more clarity and it seems like a few of the casual dining chains have talked about maybe a little bit better labor environment than in the past. And I guess I'm wondering what you guys are seeing out there in terms of hiring and how specific that is to Red Robin. Thanks.

Guy Constant -- Executive Vice President and Chief Operating Officer

Hi Greg, this is Guy. On the rent renegotiation side, obviously we view every lease renewal as a rent renegotiation opportunity. And so we continue to lean into that and address that as it comes along. And we were, as you know, able to address some of the sites through closure early in the year that high rent as a percent of sales that allowed us to make some of the progress that you've seen in this quarter on the occupancy cost.

In terms of turnover, we continue to see pretty strong progress on our turnover metrics. That's really continued since the start of 2019. We look better versus industry metrics on the manager side because that's where we paid most of our attention first and now we're starting to see the benefit on the hourly turnover side that we thought would follow on as we had more stability at the general manager level and became more fully staffed. We believe we've got a better environment and a more engaged hourly team member group which is resulting in continued declines in turnover, which we like and we expect to continue.

Gregory Francfort -- Bank of America -- Analyst

Thanks for the perspective. Appreciate it.

Operator

Our next question comes from the line of John Glass of Morgan Stanley. Please proceed with your question.

John Glass -- Morgan Stanley -- Analyst

Thanks. First, can you talk a little bit about the Tavern Double, it's percentage menu mix this quarter? And maybe just more philosophically, I think it ran a bit hot in the past in that sort of hurt mix and now you're benefiting from it maybe not being as important. So I don't know what the balances is. So maybe talking about this quarter specifically, I don't know if Paul or Guy or someone has thoughts on how you think about that going forward?

Lynn Schweinfurth -- Executive Vice President and Chief Financial Officer

I'll start John, just in terms of what the mix was for the quarter. We did see Tavern burger mix at 9%, which is certainly below some of the levels we saw through last year. I think that peaked at 17% at some point last year. And let me just ask my colleagues here if they want to address.

Jonathan Muhtar -- Executive Vice President and Chief Concept Officer

Yes, this is Jonathan, I will chime in. Yes we, to your question on how we see it progressing and what we're managing towards. We believe that Tavern is still an important item on our menu as guests seek value in different ways across our menu. But we're really pleased with the balance that we have across our Burger category is currently. Our Finest is at its highest ever here in the third quarter continuing on. And so we're pleased with the new menu introduction we had in the third quarter, the increase of sales of our finest mix and the sustaining of our year-over-year reduction in Tavern. So, we see it likely going forward with Tavern maybe reducing a little bit more, but staying pretty close to the mix that we currently have across our Burger portfolio.

John Glass -- Morgan Stanley -- Analyst

Thank you. And then just on labor, you said you’re moving back and fully staffed on the -- I think you said it was in the manager level. When I just look at labor dollars per store, it was down a lot last year, particularly in the third and fourth quarters. It's now running like 5% up year-on-year, again, simple calculation. Is that the way we should think about it now? You don't want to -- you've got some inflation, you certainly don't want to reduce any head count now, right. So is it the best way to think about labor is kind of going to run at I don’t know, low to mid single digits from here on in, at least for the near term?

Jonathan Muhtar -- Executive Vice President and Chief Concept Officer

Yes John, what you're seeing on the labor side now is our productivity was flat year-over-year. So what we're seeing on the labor cost right now has more to do with the wage rate growth and the fact that we are more fully staffed at the manager level than we were a year ago, we would expect next year do it to be fully staffed at the manager level again so you wouldn't see the same sort of growth in that piece. So now you’re really just talking about the wage rate growth impact.

Lynn Schweinfurth -- Executive Vice President and Chief Financial Officer

Yes, which we think directionally will continue.

John Glass -- Morgan Stanley -- Analyst

I'm sorry, you dropped out, but what is wage growth or hourly wage growth right now?

Lynn Schweinfurth -- Executive Vice President and Chief Financial Officer

Right now, our average wage rates had inflation of about 5% for the quarter and so we think that will continue for the time being.

John Glass -- Morgan Stanley -- Analyst

Okay, thank you.

Operator

[Operator Instructions] The next question comes from the line of Will Slabaugh of Stephens, Inc. Please proceed with your question.

Will Slabaugh -- Stephens Inc -- Analyst

Yes. Thank you. I had a question on sales momentum. You mentioned on the last call, I believe in the quarter-to-date period that you are running around flattish. And so the numbers imply a nice ramp into the end of the quarter. What do you most attribute that to, whether it be the implementation of the new marketing campaign or comparisons or something else that maybe we haven't discussed as in-depth?

Lynn Schweinfurth -- Executive Vice President and Chief Financial Officer

I think it's a combination and I've got our Chief Concept Officer and Chief Operating Officer here with me today. And obviously I think efforts around the new creative campaign really did see sequentially when we did our analysis of the effectiveness of the campaign, at least in the initial window as well as the consumer testing we did in advance of the implementation that we touched on. And then Guy certainly offered up some of the ongoing improvements we've seen on the execution side. So we certainly hope as we’re inviting guests back into our restaurants they’re coming in they're having a great experience, and they will increase their frequency and affinity accordingly.

Paul Murphy -- President and Chief Executive Officer

This is Paul. I really think it is a combination of things. Of course, if you ask the marketing guys always going to be marketing. But if you ask the ops guys it’s ops, but it really is, it’s taking a holistic approach and making sure that as we invite people into experienced Red Robin that they get a really strong experience and that we give them the Red Robin brand promise and continuing to make really, I think nice strides in our operational execution. And from my standpoint, I think that the messaging and the creative campaign was -- was right on point. It was not just about price it was about really the...

I think that we recaptured the soul of the Red Robin brand in the messaging through the Fulls campaign and I think that resonated with people and they came in and the experience is beginning to match what they expect. And pretty soon it's certainly our intent that the experience goes above and beyond and we're exceeding their expectations. And at that point, people will become very loyal Red Robin-ites again. I don't know if that's even a word but...

Will Slabaugh -- Stephens Inc -- Analyst

Thanks for that. And just a quick follow-up, if I could, Lynn on a comment that you made around cost of sales. Can you talk a little more about the contract benefits that you expect to receive or at least what type of impact we should expect to see from those?

Lynn Schweinfurth -- Executive Vice President and Chief Financial Officer

I guess I'd like to shy away from quarterly guidance on cost of sales but I did want to indicate that we do believe our trends in the fourth quarter will improve against the third quarter because of the new contracts we have been able to put in place.

Will Slabaugh -- Stephens Inc -- Analyst

Okay, thank you.

Operator

Our next question comes from the line of Jeff Farmer Gordon Haskett. Please proceed with your question.

Jeff Farmer -- Gordon Haskett -- Analyst

Thank you. On the loyalty program, how have you leveraged that membership data in recent quarters and how do you plan to sort of do things differently in 2020 with all that data you have.

Jonathan Muhtar -- Executive Vice President and Chief Concept Officer

Yes, this is Jonathan. So first of all, a lot of the insights that we share with you that guide our actions across the business to improve our results and to set our strategy are driven through what we gather through our loyalty program. So that is definitely how it has and currently played a role in the campaign development, it plays a role in all of our initiatives. As we upgrade the program, we are already starting to get some of the benefits of the upgrades of the technology through enhanced segmentation that has just begun. And what that really does, it allows us to personalize offers eventually getting more down to a one-to-one communication with our guests, understanding their behaviors and really fulfilling their needs rather than blanketing them with offers that go out to a million guests at a time. So we really see a lot of potential there to get closer to our guest, understand their specific needs and tailor our services and products to them accordingly.

Jeff Farmer -- Gordon Haskett -- Analyst

That's helpful. And then are there any stats that you can share on visit frequency from these loyalty numbers versus some of the non-loyalty numbers?

Paul Murphy -- President and Chief Executive Officer

I'll share at a high level that our loyalty program drives significant number of incremental visit per year versus guests that are not members of our royalty program. And that although over the last year as our traffic has been challenged, both groups have visited less frequently. The loyalty program has enabled us to sustain a much closer frequency year-over-year than for our non-loyalty guests. And so it really has played a role in helping us through what has been a bit of a tougher period for comps. And now as we are starting the early innings of our turnaround, we see it just leading the way forward as both groups, as we aim to increase frequency across both groups.

Jeff Farmer -- Gordon Haskett -- Analyst

And then just last question and I apologize if I missed this. But on the last earnings release, you did provide same-store sales through the first four weeks of the 3Q. Did you share why it looks like you can chose not to share the first four weeks of the 4Q with this release?

Lynn Schweinfurth -- Executive Vice President and Chief Financial Officer

Yes, I think a couple of things, one is certainly, we wanted to show an improvement in our trends and I think with the results in the third quarter, we have shown that continued trajectory. The second point is in the fourth quarter compared to last year there are many nuances associated with the individual periods.

So what I did in lieu of sharing the current period, as I wanted to give you a better impression as to the quarter and what we did affirm today is that we are expecting positive sales growth for the current quarter.

Paul Murphy -- President and Chief Executive Officer

Okay, thank you.

Operator

Our next question comes from the line of Brian Vaccaro of Raymond James. Please proceed with your question.

Brian Vaccaro -- Raymond James -- Analyst

Thanks. Good evening. I just wanted to circle back to the advertising spend. And I believe there are differences in what you book each quarter with what's deployed into the market. And could you clarify sort of year-on-year comparisons on weight or spend in the third quarter versus prior year and just what your expectation is in the fourth quarter in terms of actual dollars working in the market?

Lynn Schweinfurth -- Executive Vice President and Chief Financial Officer

We are able to indicate and we certainly confirmed that in our filing today, we did spend more in national and local media in the third quarter compared to the prior year. We also had some additional project costs that did impact our results in the third quarter. I believe in terms of the spend for the fourth quarter, we are spending a little bit less in terms of overall selling expenses and that also pertains to national and local media investment.

Brian Vaccaro -- Raymond James -- Analyst

Okay, that's helpful. And so moving to the off-premise sales, I think you said it was a little over 13% in the quarter, what was the contribution of third party delivery within that mix? And could you also speak to the growth in delivery in the -- I think it was 330 units or so that have had that in place versus over the last 12 to 18 months, are you seeing organic growth into year 2 in those units?

Lynn Schweinfurth -- Executive Vice President and Chief Financial Officer

Yes. So right now delivery represents 5.4% of our food and beverage sales and we have seen incremental sales in the second year when we rolled out our third party delivery initiative.

Jeff Farmer -- Gordon Haskett -- Analyst

Okay. And then last one, could you just give an update also on what you saw in mall versus non-mall, same store sales performance in the quarter?

Lynn Schweinfurth -- Executive Vice President and Chief Financial Officer

Yes. They continue to be worse by 300 or actually, let me start with sales, 260 basis points worse in sales. Now that's been fairly consistent throughout the current year.

Jeff Farmer -- Gordon Haskett -- Analyst

Okay, thank you.

Operator

Our next question comes from the line of Gregory Francfort of Bank of America. Please proceed with your question.

Gregory Francfort -- Bank of America -- Analyst

Hey, yeah, thanks. I just had two quick follow-ups. One, I may have missed it but can you give what commodity inflation was in the quarter, in the third quarter? And then a separate question, maybe just in terms of how you're thinking about the debt leverage going forward and Lynn -- I know you guys did the renegotiation to give yourself some flexibility on the leverage portion or leverage piece in the next maybe three months but as you think about the maturity and maybe extending the maturity going forward, I think it rolls off in 2021. Can you talk about how those negotiations have gone and how are you thinking about leverage overall for the business? Thanks.

Lynn Schweinfurth -- Executive Vice President and Chief Financial Officer

Yes, absolutely. So starting with the commodity inflation for the current quarter, we are seeing a low single-digit inflation. However, we are seeing some positive impact associated with the Tavern mix being favorable, as well as our menu simplification initiative which is improving our cost of sales and also management of waste at the restaurant level. In terms of our credit facility, yes, you've got the maturity date correct. In the middle part of 2020, our current facility does mature. We have begun to speak to our lenders about a new facility that we will likely put in place early to mid next year. And in terms of debt right now, I think the company continues to utilize excess cash flow, not only for investments back into the business but to really lower the leverage to a greater extent. We think we should -- we should lower our leverage.

Gregory Francfort -- Bank of America -- Analyst

Helpful. Thank you very much.

Operator

We have reached the end of the question and answer session. I will now turn the call back over to management for any closing remarks.

Paul Murphy -- President and Chief Executive Officer

Thanks everybody for joining us today and we look forward to speaking to you in the next call. Have a good day.

Lynn Schweinfurth -- Executive Vice President and Chief Financial Officer

Goodbye.

Operator

[Operator Closing Remarks]

Duration: 50 minutes

Call participants:

Paul Murphy -- President and Chief Executive Officer

Guy Constant -- Executive Vice President and Chief Operating Officer

Lynn Schweinfurth -- Executive Vice President and Chief Financial Officer

Jonathan Muhtar -- Executive Vice President and Chief Concept Officer

Chris O'Cull -- Stifel -- Analyst

Alex Slagle -- Jefferies -- Analyst

Gregory Francfort -- Bank of America -- Analyst

John Glass -- Morgan Stanley -- Analyst

Will Slabaugh -- Stephens Inc -- Analyst

Jeff Farmer -- Gordon Haskett -- Analyst

Brian Vaccaro -- Raymond James -- Analyst

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