Tony Laday - Vice President of Investor Relations and Treasurer Wyman T. Roberts - Chief Executive Officer, President and Director Guy J.

Constant - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Christopher T. O'Cull - KeyBanc Capital Markets Inc., Research Division John S.

Glass - Morgan Stanley, Research Division David Palmer - UBS Investment Bank, Research Division Michael Kelter - Goldman Sachs Group Inc., Research Division Jeffrey Andrew Bernstein - Barclays Capital, Research Division John W. Ivankoe - JP Morgan Chase & Co, Research Division Jeffrey F.

Omohundro - Davenport & Company, LLC, Research Division Peter Saleh - Telsey Advisory Group LLC Alvin C. Concepcion - Citigroup Inc, Research Division Joseph T.

Buckley - BofA Merrill Lynch, Research Division Sara H. Senatore - Sanford C.

Bernstein & Co., LLC., Research Division Stephen Anderson - Miller Tabak + Co., LLC, Research Division

Thank you, Tom. Good morning, everyone, and welcome to Brinker International's Third Quarter Fiscal 2013 Earnings Call, which is also being broadcast live over the Internet.

Before turning the call over, let me quickly remind you of our Safe Harbor regarding forward-looking statements. During our management comments and in our responses to your questions, certain items may be discussed which are not based entirely on historical facts.

Any such items should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All such statements are subject to risk and uncertainties which could cause actual results to differ from those anticipated.

Such risk and uncertainties include factors more completely described in this morning's press release and the company's filings with the SEC. On the call, we may refer to certain non-GAAP financial measures that management uses in its review of the business and believes will provide insight into the company's ongoing operations.

Reconciliations are provided in the tables in the press release and on Brinker's website, under the Financials section of the Investor tab. Consistent with prior practice, we will be silent on interperiod sales or other key operating results yet to be reported as the data may not accurately reflect the final results of the quarter referenced.

On our call today, you will hear from Wyman Roberts, Chief Executive Officer and President, Brinker International; and Guy Constant, Chief Financial Officer. Following their remarks, we will take your questions.

Now let me turn the call over to Wyman.

Thanks, Tony. Good morning, everyone.

We appreciate you being on the call today and we thank those of you who attended our recent investor conference in Dallas. We're glad you got to spend time with us and experience firsthand our new restaurant prototype and our state-of-the-art culinary center.

Today I'll share details on our company results for the quarter, as well as highlights from each of Brinker's 3 lines of business: Chili's, Maggiano's and our franchise business. When we spoke to you last during our conference in February, Brinker, along with the rest of the industry, was experiencing significant softening of sales.

After rolling over the summer-like weather of last February, our comps strengthened, bringing us back to positive in March. So we went from down 4.2% in February back to positive 1.5% in March.

Brinker's comp sales for the quarter were down 0.9%. However, as you read in our press release, profitability for the quarter was solid.

Adjusted earnings were $0.72 a share, a 20% increase over prior year and this marked the 11th consecutive quarter of earnings per share growth for Brinker and has us poised to deliver 20% plus earnings per share growth for the third consecutive year. Even in these tough sales environments, we reap the benefit of the heavy lifting we've done to strengthen our business model.

We stayed focused on executing our Plan to Win initiatives, which drove our favorable margins for the quarter. And Guy will share additional details on the margin results shortly.

So now on to Brinker's 3 lines of business. While our Chili's brand was down significantly in February, sales rebounded nicely and sales in March were a plus 1.3, bringing the quarter to a negative 1.1.

In comparison to our peers as measured by Knapp-Track, Chili's continued to outperform the category. And while the gap wasn't as wide as it's been in recent past, however, on a 2-year basis, our comp sales spread versus the industry is in line with the gaps we've seen over the past 4 quarters.

The rollout of our new kitchens is complete across our domestic system with the franchise system now fully online. And with this new equipment in place, we're exploring menu innovation we wouldn't have had the capability to execute in the past, items like our new pizzas.

We've now been on there a couple of weeks with the pizza message and we're excited about the potential this category has for us to introduce more guests to the product, a product, by the way, which has the added benefit of better than average margins. As expected with any change as significant as our new kitchens, we had a small ramp up here where guest satisfaction scores took a dip.

However, our culinary operations and engineering experts came together to fine tune our processes to quickly address the issue. And I'm happy to report that our satisfaction scores rebounded nicely and are now again at all-time high levels.

We anticipate guest excitement for the category will continue to build with the rollout of flatbreads in the next few weeks. In the future, we see the potential of the pizza and flatbread category mixing up to 10% of our menu.

And Chili's remains committed to revitalizing the brand, supported in part by our reimage program. 47 restaurants underwent reimage construction during the quarter and we're continuing to deliver solid returns on our reimage investment.

In DMAs where the reimage is complete, our guest satisfaction scores are up significantly and the reimage program, when combined with food, service and menu improvements, continues to increase the relevance of our flagship brand. And as I shared with you recently, we're ramping up new restaurant growth for fiscal '14, opening an average of 1 restaurant a month, with several of those now under construction.

In the upscale [ph] casual arena, Maggiano's continues to offer incomparable everyday value and record low cost of sales. In Q3, the brand delivered their 13th consecutive quarter of comp sales growth.

In Maggiano's this quarter, we applied thinking from our famous scratch kitchens to our bar business. Our skilled bartenders are creating hand-crafted classic cocktails featuring fresh squeezed juices and hand-made garnishes.

The new cocktail menu, combined with the new 9-ounce wine pour many of our guests are trading up to, have made a measurable impact on our beverage checks. Additionally, the brand continues to rigorously control kitchen waste through more disciplined daily food preparation.

This process contributed 10 basis points to Brinker's overall restaurant operating margin, an improvement of 70 basis points. Maggiano's return to growth will include a new prototype built without banquet rooms.

Although the footprint will be half the size of our more traditional locations, the guest dining experience will remain grandiose, complete with mahogany paneling, tall ceilings and Frank Sinatra crooning in the background. Site selection is in progress and we expect to open the first of these prototypes this fall.

On the franchise side of the business, comp sales came in up 1.3%. Our domestic franchise partner sales were negative 0.3%, admirable performance given the weather, several of them experienced during the quarter.

Our global franchise business continues to be strong, providing valuable contributions to Brinker's results. Global comps were up 5.1%, marking the 13th quarter of sales growth.

We opened 6 new international restaurants, including a new market entrance in Colombia and so the Chili's brand continues to deepen market penetration around the globe, now in 32 countries outside the U.S. So in closing, in Q3, Brinker delivered another solid quarter.

Even in the midst of some economic turbulence, our brands didn't flinch. We stayed our course and remained focused on our strategy to double our 2010 EPS and the proof was in the numbers we reported.

With 20% EPS growth in the bank, we're well on our way to delivering that commitment by the end of next fiscal year. Now I'll turn the call over to Guy to share with you some specifics on how we got there.

Thanks, Wyman. Well, as you just heard, our third quarter earnings per share before special items was $0.72, demonstrating again the continued progress against our goals and reflecting the engagement and focus of our team members.

Brinker Q3 revenues were $742.8 million, a decrease of 0.6% from prior year, excluding the one-time $5.2 million gift card revenue reduction taken a year ago. Total company-owned comparable restaurant sales decreased 0.9%, including a 1.5% price increase, positive 0.5% mix and negative 2.9% traffic.

With only about 30 basis points of negative impact, winter weather did not have a significant effect on our comparable restaurant sales. Capacity was slightly positive, with less than 1% impact.

Franchise and other revenues were $18.1 million. International comparable restaurant sales increased 5.1%, and domestic comparable restaurant sales decreased 0.3%.

And we've had 13 net franchise openings over the past 12 months. Cost of sales decreased 70 basis points from prior year to 27.4%, driven by 50 basis points of favorable mix changes related to shrimp, ribs and fajita beef, coupled with 30 basis points of menu pricing and other items.

These improvements were slightly offset by unfavorable commodities of 10 basis points stemming from higher beef, pork and chicken wing costs. Currently, 52% of commodities are contracted through the end of calendar 2013.

And while we are still seeing some commodity inflation, it is less than originally anticipated. Restaurant labor decreased 10 basis points to 32%, driven primarily by productivity associated with our new kitchen equipment and lower manager performance-based compensation expense, largely offset by increased health insurance claims and sales de-leverage.

Restaurant expense was 10 basis points higher than prior year, driven by sales de-leverage. Depreciation expense increased $2.3 million to $33.2 million driven by the continued rollout of our key capital initiatives.

General and administrative expenses were $34 million, which was about $6 million less than the same quarter last year, primarily due to lower performance-based compensation expense. Interest expense was about $550,000 higher than prior year due largely to a higher average debt balance, partially offset by the impact of lower interest rates.

The tax rate before special charges was flat to prior year at 28.9%. Capital expenditures for the quarter were $28.9 million, with year-to-date cash flow from operations at $222.6 million.

We've now completed installation of the new kitchen equipment in both our company-owned and domestic franchise restaurants. We're thankful for the partnership and commitment of our franchisees and congratulate them on this milestone, which stands as a great example of the close alignment between our company-owned and franchised systems.

We've also completed 316 Chili's reimages to date and, by the end of fiscal 2013, we anticipate completing about 370 company-owned restaurant reimages. We now have fully completed the reimage in 13 markets, with an additional 5 markets in progress.

During the quarter, we bought 1.8 million shares for $60.4 million and we ended the quarter with approximately $86 million of available cash on our balance sheet. Our year-to-date share repurchase totals $191.8 million or 5.8 million shares, leaving an outstanding authorization of about $475 million.

As Wyman mentioned, many thanks to those of you who were able to attend our Investor Conference in February. Our results this quarter once again demonstrate our continued execution on a strategy that will enable us to meet not only our original long-term goals, established back in fiscal 2010, but also the new long-term growth roadmap we laid out for you at that February meeting.

With that, we can now ask Tom to open the line for questions.

Guy, I think your last guidance called for labor cost to be down 50 basis points for 2013. It only improved about 10 this quarter and 50 basis points for the year would suggest a pretty healthy improvement in the fourth quarter.

So my question is, has anything changed from the Investor Day and if so, what?

Well, as we mentioned on the call, Chris, I think what changed this quarter was higher rate and severity of health insurance claims that we saw in the third quarter. So as we think about going forward, it's not something we necessarily expect to continue at the same rate but it could put some pressure on labor cost.

The underlying benefits that we're seeing from the kitchens, in terms of labor productivity and the other changes we've made to the business model continue. We're very comfortable with that, moving forward.

But we did see that spike in health insurance costs this quarter.

Okay, fair enough. And then Wyman, you mentioned that pizza and flatbreads should mix up to 10%.

Do you expect that to be the mix while they're promoted with advertising in the value platforms? And Guy, does that gross margin guidance reflect that mix in the fourth quarter?

Well, the 10% mix, Chris, is probably where we'll get after we've introduced it and promoted it with some advertising and marketing efforts. So towards the end of the fourth quarter, beginning of the first quarter next year, I think we've got a good shot at getting to that level of mix.

And again, it will be available to our guests in various, different places on the menu.

As for the impact to cost of sales, Chris, as you know, we rolled out pizzas more in the middle of the quarter, in the third quarter. So we really don't have a full quarter's benefit yet of what pizzas and, soon, flatbreads will result in cost of sales overall.

But I think it's fair to say that we continue to believe that it will be a positive impact to cost of sales.

First Wyman, can you just go back to your comments about the gap, your gap to the industry sales. I just want to make sure I understand what your view is.

Your gap, at least versus the Knapp numbers, has contracted to essentially in line from about 200 basis points. Is that -- in your view, is that no longer the right benchmark considering there are a couple of companies that are in Knapp that are not in other databases?

Or how do you explain, I guess, the closing of that gap, and is Knapp really the right metric to use now given that?

I think Knapp is still a good metric to look at. We look at Knapp, we look at Black Box.

I think both of them are really good indicators of kind of how the industry's kind of moving along. And you're right, not everyone's in each of those so you probably want to look at both.

The biggest -- what I was trying to point out in the -- in my comments was that, yes, we did see a reduction in the gap versus Knapp but we're still -- we still beat it. But when you look at the 2-year number, the 2-year comparison is much more in line with the experiences we've had and it's significantly better than Knapp over the last 4 quarters.

So it was a better quarter for us last year, a little bit of a higher hurdle to jump over and so not a total surprise that we didn't maintain that level of gap on Knapp. Ideally, we've said we set our goals high.

We want to continue to outperform and -- but that was a little bit of a higher hurdle. Now that's kind of what was in those numbers.

That's helpful. And then, on pizza it was in company stores for a period of the quarter.

How did that -- can you explain the dynamic? Did it -- mix got better in March.

Was that a function of the pizza improving or how did that factor into traffic growth during the periods in which it was in?

Well, you're talking about mix like cost of sales got better?

No, I'm talking about your mix meaning your price mix got better in your comps in March. Does that correspond with the period where pizza was in company stores?

So, John, yes, pizza was in company stores in March, but I wouldn't necessarily associate that with mix. It probably was slightly additive to overall ticket, which is what we believed it would be, at minimum flat and probably slightly positive to overall ticket.

But I think some of the other initiatives that we've been working on, bar, emphasis on the bar, some of the new product introductions we've made into appetizers and desserts, some of the work that Kelly and her team have done on helping our servers in the restaurant become better sellers and also give them great products to sell have been more what was driving the mix late in the quarter than necessarily pizza.

Did pizza drive -- I guess, my point more directly is did pizza drive traffic and is it fair to look at it as a traffic diver right now without national advertising or not?

No. I mean, I -- not in the third quarter because we really weren't on the air much in the third quarter with it.

We just really started advertising it. And it's not -- I don't think we're going to see significant traffic momentum out of the category until we get the full category in place.

Pizzas and flatbreads combined are -- will be the -- that's when we'll have the messaging that I think has the potential to really drive some traffic. I think pizza can do some good things for us but it's really the combination of pizzas and flatbreads that gets us the scale that we need to have a message that we think is going to be compelling to drive some traffic.

Okay, that's great. And just finally, you said 20% earnings growth, what -- this year.

Are you basing that on the GAAP number or are you basing that on the operating number that you talk about? That would be over the -- it would be squarely in the middle to the higher end of your range, if it wasn't -- or if it was in fact 20% off the non-GAAP operating number, right?

No, John, I mean, it's at -- as we talked about on the analyst day, we think we can approach close to 20%. I mean, we did guide to be at the low end of the range and we're not updating that today but it is our goal to try and get as close as we can to 20% earnings growth this year.

Just a quick question on the reimaging. You mentioned that you had 1,300 done, working on another few hundred.

Could you speak to how those are impacting your comp trends? I would imagine from that Black Box data, you get a pretty good granularity of how you're comping versus the peer group, even by region and metro market where you had that in.

And perhaps you can update us on that lift?

All right, David, so just to remind the group, the goal for us on the reimage was to try and see at least 3% sales lift versus what we would -- versus a control group that doesn't have the reimage. So it's not an absolute lift goal, it's actually a lift versus a control group.

We're very happy with the performance of the reimages. We're seeing that lift and more in many, in a preponderance of the markets that we're driving.

We're now at the point where we're starting to lap some of the reimages that we've had year-over-year. And so we like the fact that it continues to hold at that level.

And as we talked about last quarter, California happens to be one of those markets where we're now starting to lap year-over-year so the benefit doesn't show up quite as much in terms of year-over-year performance. But our performance in California over the past year has significantly outperformed the category and we've essentially got almost the entire market reimaged.

So we absolutely expect to see that continue in the markets where we're actively doing the reimage right now, like Dallas, like Atlanta and as we enter into Florida markets in the future.

Are you at the margin -- is there noise that you can walk us through that can maybe make us feel better about how your quarter progressed? It does look like -- and, of course, there is a lot of seasonal promotion noise, particularly in the spring, that your gap to the industry inverted through the quarter.

Do you -- is that concerning at all to you internally?

Well, I think, David, as Wyman said, the 2-year gap actually improved, Q3 versus Q2. So we felt really good about that.

We knew we were facing a harder lap. We were optimistic that we could continue to drive better performance versus Knapp.

March perhaps didn't work out quite as well as we might have liked but we were still very happy with the 2-year performance and the acceleration we saw in Q3 versus Q2.

So I wanted to ask, your SG&A was lower by $6 million and you said it was generally from lower compensation. Why was it so much lower in light of your 20% earnings growth for the year?

What parts of your targets are you not hitting?

Michael, this is Guy. So it has to do with the way that line trends year-over-year, Michael.

So we update our profit-sharing or performance compensation accrual every quarter. And so last year in the third quarter, you might recall that coming out of the second quarter, we didn't perform quite as well.

But in the third and fourth quarter last year, our performance got significantly better and we were able to ramp up our -- as a result, we ramped up our profit-sharing accrual to the point where we ended up paying out at the max level on performance compensation because of the great performance. Well, as companies tend to do, we reset that bar and we had an expectation, as we said early in the year, to deliver something between 2 30 and 2 45.

We're at the lower end of that range so our performance-based accrual is tracking closer to target. So the combination of a lower profit-sharing accrual this year and a recovery on the profit-sharing accrual last year resulted in much lower G&A expense, which is basically what we have said during the year, is that we expect that G&A line to be lower in Q3 and Q4.

And then could you talk about the international expansion and your willingness to take equity stakes in franchisees or form JVs in the future. Is that something you're more seriously considering and what might that look like?

Yes, as we said on the analyst call, Michael, we do think that, that opportunity does present itself. And as you know, we have a joint venture in approximately 35 restaurants with our partner in Mexico and we do own our restaurant in Brazil as a company-operated market.

It's an area where we'll obviously be careful and we will manage the risk appropriately. But we do think there is opportunity for us to grow in international markets and where we think it makes sense to put company money to work, we'll do that.

A couple of follow-ups, I guess. First, just on the March comp, which was really the only piece of the quarter that we were still waiting on.

Other than the tougher Chili's compares, did you see any change in dynamics? Obviously, putting aside yourselves in terms of what you saw across the category, discounting or aggressive promotions by peers or I know you mentioned that March was a little bit light of, perhaps, your expectations.

I'm just wondering what you saw across the broader industry that might have contributed to that?

Jeff, this is Guy. Let me jump in on that.

So, look, we had a bad February, clearly, and I think the whole space did. We're happy it's over.

I think what we're seeing now in terms of macroeconomy is kind of where we've been for the last 2 or 3 years, sort of this, call it, 100,000 or so job growth each month, consumer confidence number muted, some months up, some months down, but really not getting a whole lot better, but in that pattern where we know we can generate great results like we have for the last 2 or 3 years in that sort of economy. Would we like it to get better?

Sure. Do we think there's a little more industry activity going on in terms of promotions?

Yes, we're seeing that. But as Wyman and I have discussed many times, there's nothing there right now that would tell us that things need to change versus how we're competing against the rest of the space.

We haven't seen anybody do anything that would cause us to feel differently about our strategy moving forward.

Got you. And then in terms of the combined pizza and flatbread ultimately reaching more like a 10% mix, I think you said by the end of, perhaps, this fiscal fourth quarter.

I'm just wondering, one, how you arrived at that? But 2, like, what's the reasonable assumption for the traffic?

If you think it's going to get to a 10% mix, what would that equate to? I know, Wyman, you mentioned you expect a solid lift in traffic once they're both in place.

How do you translate 10% mix into kind of how you think about traffic?

Well, I mean, first let me answer your first question, how do we know that we're going to get to that kind of level? We've done a lot of extensive testing with this product as we do with everything we roll out, both in our company restaurants and our franchise restaurants.

We don't just kind of wing it. So we go through a pretty elaborate process to understand how it's going to mix and how our guest satisfaction scores are on these products.

So we've gone through that process in multiple restaurants over the last few months as we've prepared to roll out the product. So that's how we establish what we think the mix potential is.

How you determine what the potential is for incrementality, I mean, in my history within the industry, it's just, listen, if the guest's reading it, then you've got something that they're voting for. The broader the appeal, the more potential you have for incrementality.

You can use whatever kind of a factor you want to put on it from a typical promotional standpoint based on a base level of preference, whether it's 10%, 20%, 30% incrementality off of that. Obviously, the higher the base, the more you could generate incrementally off of that.

So that's just kind of how we look at it. I won't let you know what assumption we're using in terms of what that incremental rate could be with a base product offering like this.

But that's how you go after trying to understand how you're going to drive incremental traffic. Very rarely do you see big moves in traffic, if not a significant percentage of your guests are partaking in that offering.

And so, that's why we, like with 2 for $20 and the 1 2 [ph] combos, those are now fairly significant categories on our menu, where we have a pretty good percentage of our guests eating them and that's why we feel good that their base value propositions are kind of locked in and they establish us as a great foundation. And now we know we've got to continue to innovate and build off of that and that's what pizzas and flatbreads are the kind of the first thing to do.

Got it. And then just lastly, Guy, now that we're pushing the end of fiscal, I guess, '13, I know the target was to hit 330 basis points or so by the end of '13, which would imply if you hit the full 400 by '14 you're sitting with roughly 70 left.

I don't know if that's a -- obviously that was a long-term target way back when but is that a reasonable assumption we should use for fiscal '14 and if so, is it more driven by COGS or should you get back to more labor leverage as well?

So yes, that's a reasonable assumption to use, Jeff, and I think based on what we're seeing with cost of sales and what we do think pizzas and flatbreads can bring along with the great job our operators are doing managing waste with the new systems in the restaurant and the great work that our supply chain team is doing in managing the commodity basket, we would expect to continue to see good cost of sales performance. And since we didn't really finish implementing the kitchens until late in the calendar year last year, certainly in the early part of next year you should see labor benefit.

I'd like to revisit 2 topics, if I can. Firstly, is on the increased health insurance cost or I guess, health expenses, if you will, on labor year-over-year in the third quarter.

I mean, could you quantify those for us? I mean, obviously, that labor line is something that's very important.

And secondly, are you doing anything, especially in anticipation around ACA, to maybe reduce the expenses that you have for health care?

All right, John. So this is Guy, let me answer that question.

So we do think the increased health care expenses -- and again, it's a little bit like our performance-based comp in that there is some accrual activity that goes on. But call it -- in the third quarter, it was probably a $3 million item in the third quarter.

So if that gives you an opportunity to think about how -- and not necessarily one we expect to continue because some of it was accrual catch-up. Some of it had to do with the increased activity but if that helps, gives you some perspective.

If I can give you a little bit of color, so as a self-insured company, as many of the larger companies tend to be, we have expectations going into our fiscal year about what will happen with health care. But of course, most people's health care plans are on an annual calendar, not a fiscal calendar.

And so what we've started to see since the new year turned is that perhaps we could have been managing our own premiums, perhaps we could have done a little bit more on premiums. We held premiums flat for our team members based on the experiences that we saw.

And as it turned out, we've seen a little bit more of an uptick in rates than we might have saw. So in the next calendar year, we'll have the opportunity to manage that back and do the best thing, not just for the team members, but for the company as well.

In terms of ACA, as we've talked about many times on these calls, we're pleased that the plans that we offer our team members today are compliant with the requirements of the legislation. We do offer those plans to all of our team members, full-time, part-time, salary to hourly, so we don't anticipate any need to make changes to our plans relative specifically to legislation.

Okay, and thank you, if I may, on the next topic. Again, on that March traffic, that I guess does stand out relative to the industry.

I think it was around 200 basis points relative to Knapp, for example. Was there anything unusual for you in advertising year-over-year, like maybe you held back advertising March '13 versus March '12 in anticipation of the major product rollout across the system in April?

John, Wyman. No, nothing significant I think the bigger difference is just our new news this year relative to some of the introductory news we had last year that helped drive that third quarter and really drive that significantly better-than-Knapp performance last year, we didn't have that kind of an introductory message.

We were rolling out steaks last year with 2 for $20 and we got a lot of lift off of that. And this year, our innovation is a little further down the pipe.

So we were -- we didn't make any significant changes to the media weights or plans during the quarter. But I think it was really more around a new message.

And as Guy mentioned, there are folks out there who have stated they're getting more aggressive. So maybe some of that is starting to play in.

We'll continue to monitor and see how that rolls through. But there have definitely been some folks that have decided that they were going to step up their level of promotion, if you will.

Looking at the pizza and flatbread again and that 10% mix potential. And without necessarily forecasting a particular quarter's cost of sales, I was just wondering if perhaps you would quantify the benefit to cost of sales at that mix level, just in terms of range.

Is it 100, 150 basis points? What you think that contribution might be?

On the specific items themselves, Jeff, or to the overall line?

Yes, so the contribution to that overall line. Right, exactly.

So, I mean, I think we've scratched the surface a little bit this quarter on what we've seen. Although as I said earlier, there's really 3 things going on.

Some of it is inflation has abated to some extent and is much lower. We expect that to continue in the fourth quarter.

The operators are doing a great job managing waste. Some of the goals that we've set initially at the rollout of the Aloha/MenuLink system to our restaurants, we're actually already achieving those even though we're still in the first few months of having that system completely rolled out.

So we're very pleased now that's gone. And the benefit to pizzas and flatbreads is still not at the point where we think they could be.

So we would expect to see performance at, or even perhaps better than what you saw in the third quarter in terms of our cost of sales outlook, as we go forward.

But can you kind of segment out pizza and flatbreads at that 10% mix? It would lower your overall cost of sales by how much?

Yes, I mean Jeff, I don't really want to get into those specifics but it's material. I mean, these items are significantly better than other -- than the average food cost on our menu right now.

That's not the reason we rolled them out. It's a nice ancillary benefit.

We rolled them out because they're compelling items for guests and, I think, add to the relevance of the Chili's brand and provide some great new news and menu extensions for us. But it has this other nice added benefit of being gross-margin accretive.

And then secondly, on the pace of international unit development. Just given the global macro right now, I just wonder if you could give some thoughts on when we might see a pick up in net unit growth?

So, Jeff, we do think net unit growth of at least 30 units a year going forward in the international system is achievable. I think it's a level that we've been able to produce in the past.

It's something that we think we'll be able to do this year, in fiscal '13, and we think we'll be able to replicate that in fiscal '14. I think now that we've had such a good experience in improving the business model domestically, with the roll out of the new kitchens and changes to the labor model in the restaurant, we do think that there are opportunities for us to do the same things in our international markets, which will only provide an even stronger business model to allow those franchisees to develop.

I know this, if we could put that business model together and we can continue to put out quarters like the quarter we just put out, with better than 5% comp sales, we'll have a lot of franchisees who will want to continue to develop Chili's internationally.

I just wanted to ask about CapEx. It seems like you guys are trending a little bit below your guidance for the year or so.

Is there anything specific in the fourth quarter that would get you up to that $130 million, $140 million range or is it possible that CapEx could come in a little bit under that guidance range?

I still see us in that $130 million to $140 million range, Peter, so...

All right. And then just on alcohol mix.

What was the alcohol mix for the quarter?

In that high 13s, where we've been. So we've been pretty consistently able to drive that from what was high 12s, low 13s when we started the Raising the Bar initiative, as we called it internally.

We've seen almost 100, or around 100 basis points of improvement in our bar mix and that's been able to continue. So that's a nice part of the story as to why our mix has improved this quarter and in past quarters as well.

And is there any new update on to-go and your initiatives there?

No new update yet, Peter. But we do view it, as Wyman outlined at the investor conference, as an opportunity for us to compete with fast casual.

But -- it presents that for us but it involves a number of different things. It would involve restaurant process changes, there's definitely a technology component to that.

But we still view it as something that can provide tremendous upside to the business. It's one of those areas where I'm not sure really anyone in the casual dining space does it really well, so it's potentially competitively favorable, too.

But as of now, no new updates on the work that's ongoing right now.

Just wanted to see if you think the same-store sales trends that you and the industry saw in March are sustainable into April or were there things in there that were more of a temporary boost like the delayed refund checks and things like that?

Well, obviously, the experience that we saw in February was driven by some of the things that you mentioned. And so we don't think February is what will be experienced or the industry is experiencing.

And as Guy said earlier, the experience that we're seeing in the industry is more typical of what we had been seeing prior to the kind of softness that happened in February. So we anticipate that will continue to be kind of the environment we're going to be competing in.

And it seems to be holding that way as we kind of move through.

Great. And then can you provide an updated view on pricing for the rest of calendar '13 in light of you seeing less commodity inflation than you originally anticipated?

Well, Alvin, as you know, it's been our approach to try and manage our pricing at the lower end of where we think the industry is. And for us, that's been in that 1% to 2% range for a couple of years now.

We like staying in that area. I think all the work we've done in the middle of the P&L has helped us to be able to do that, to put embedded value on our menu and not have to reach for short-term discounting approaches or aggressive promotions as perhaps some others in the space have had to do.

And we do think it's been a significant contributor to the share we've stolen for now going on 2-years-plus in the casual dining space.

Guy, first just a modeling question and forgive me if you said this, but what are you thinking on the full year tax rate or the fourth quarter tax rate now, for this year?

Yes, our steady state tax rate, Joe, is going to be in that 31% range. We did benefit from the WADC credits being reinstated as part of the debt ceiling discussions that occurred at the end of the year.

So for a good part of the year, us and many others in the space couldn't take advantage of those credits because it wasn't renewed until very late in the process and so there's a little bit of a catch up in the third quarter on that credit, which allowed the rate to come in a little lower.

Okay, and then just a question on sales through the quarter and traffic numbers through the quarter. You take the high road on weather.

I know you did say weather impacted the franchisees and that makes sense given some of their geographic areas. I suspect it probably had some impact on the company stores too, but you're sort of saying not.

So I guess I'm curious because I think most of your competitors are going to attribute a big chunk of that February weakness to weather. And if in fact it wasn't there for you, I guess I'm curious why you think sales were so soft in February.

And then maybe just a comment on the traffic numbers through the quarter. Second quarter in a row now, you're back to negative traffic numbers.

Well, Joe, Wyman. Again, what we saw through the quarter, there were obviously some external factors impacting the sales of the industry.

And the stuff that happened in February, whether there's weather in there or not -- obviously, there's some weather. We just didn't think it was significant and so we didn't want to call it out as a major beat.

We think some of the significant things that were impacting it, the tax delay, the implementation of the tax, the payroll tax, those things probably had more to do with that short-term negative impact or drag into the industry than some weather might have. So we see that has mitigated as it's kind of worked its way out of the system and so we anticipate that the steady state will now be similar to what we had been experiencing prior to that and it is kind of more in line with what the category and the industry has been experiencing really for the last couple of years, which is that relatively steady, single-digit kind of movement.

Just a quick question on -- you mentioned a comment -- with 2 follow ups. One is you mentioned that guest satisfaction scores took a dip with the ramp up of new kitchens.

I was wondering if you could just talk about if you thought maybe that had anything to do with the kind of the narrower GAAP to the quarter and, now that it's rebounded, if you would expect to see that translate into your traffic? And then the second part of this question is, you mentioned that last year at this time, and there was more news, that you're further along in the innovation pipeline.

I just wanted to dig into that to get a sense of does that mean that as you launch new initiatives, we should see maybe a modestly more diminished benefit to comps. I think last year you also had steak and that was a big initial boost and then kind of faded a little bit.

But just trying to think about how, going forward, new initiatives should compare in terms of the ability to drive comps versus what we may have seen previously?

Sara, Wyman. Just the mention of the guest satisfaction, I just wanted to share that with you for 2 reasons.

One, just to let you know the magnitude of the effort that has gone into kind of rethinking our business and especially on the kitchen side of it. It was not a simple process and not something that was done without a lot of heavy lifting.

And in that process, we didn't have it necessarily totally right at the very outset, and so we had to come in and adjust and, fortunately for us, we have an outstanding team of operators and culinarians and engineers that help us to kind of really tighten this thing up and deliver the experience back to and slighter better now than what it was prior. But that all happens real time.

Whether or not that slight dip in some guest satisfaction may have caused some traffic softness, I don't think so. It wasn't meant to be an excuse for any kind of traffic trends but more just to let you know how significant the change was to the kitchen and what a great team we've got and the kind of quality of the operations team we have that's allowed us to kind of incorporate that significant change and quickly get it back online and get us moving forward.

With regard to the innovation pipeline, again, the beauty of what we -- our strategy is that we're not really focused on limited time offers as much. And so when we bring out new news, there's always a little bit of a halo.

But the fact that most of our new news is around changes that are permanent to the menu and going to be part of the value proposition going forward, we don't see the kind of volatility that you would see at a typical casual dining restaurant that's promoting heavily limited time offer and then getting off of it and then having to wrap on that or build off of that. So you should see less volatility in our numbers, I would think, than somebody that's using that strategy.

Doesn't mean that when we come out with something new, even though it's going to be there more permanently, that there isn't maybe a little more excitement on the front end than there would be a little later on. And -- but I don't think it's going to be nearly as significant as you would see versus that alternative strategy.

Does that help?

Yes, thank you.

I know in the past you've used 2% to 3% food cost inflation as a higher [ph] guidance. Just, I want to ask if there's been any change to that guidance?

If you have gone, say, more towards 2%, even below that. So I just want to see what kind of metrics you're using for the remainder of the year and whether or not it's too early to ask about fiscal '14 given you've given some kind of guidance through calendar '13?

Steve, it's Guy. I would say all things being equal, it's definitely moving closer to the 2% than it is to the 3%.

And then this quarter, at 10 basis points, you could argue it was much lower than that in this quarter. I think the fourth quarter we'll see trends that are fairly similar to what we saw in the third quarter.

And I think all things look good at least through the rest of the calendar year where we feel like we have enough visibility that inflation will be closer to that 2% range than it would be to the 3% range.

All right thanks, Tom. So in closing, let me just state we built a strong foundation for Chili's and Maggiano's brands through kitchen technology, operational efficiencies, menu innovation and strong value platforms.

We've completed initiatives designed to improve profitability without sacrificing what's really sacred to us and that's the guest experience. Moving forward, we'll continue to capitalize on our brand strengths to provide unique, consistent experiences to our guests that they can't get anywhere else.

And for our shareholders, we're meeting or beating the promises we made to you 3 years ago. Through long-term earnings growth afforded by our aggressive execution of our Plan to win, we're confident we'll deliver on our promise to double earnings per share by the end of fiscal '14.

And while we can't predict what economic shifts may occur in the balance of this fiscal year, we've built our business model to continue to sustain our brands even as the industry experiences unpredictable and trying times. And we feel confident our brands will continue to deliver solid results.

Now thank you for your time on the call today and thank you again for those of you who spent some time with us in late February.