Red Robin Gourmet Burgers - Earnings Call - Q3 2019
November 5, 2019
Transcript
Speaker 0
Good afternoon, everyone, and welcome to the Red Robin Gourmet Burgers Incorporated Third Quarter twenty nineteen Earnings Call. Please note that today's call is being recorded. During the course of this conference call, management may make forward looking statements about the company's business outlook and expectations. These forward looking statements and all other statements that are not historical facts reflect management's beliefs and predictions as of today and therefore are subject to risks and uncertainties as described in the Safe Harbor discussion found in the company's SEC filings. During the call, the company will also discuss non GAAP financial measures.
These non GAAP measures are not prepared in accordance with generally accepted accounting principles but are intended to illustrate an alternative measure of the company's operating performance that may be useful. A reconciliation of the non GAAP financial measures to the most directly comparable GAAP measures can be found in the earnings release. The company has posted its fiscal third quarter twenty nineteen earnings release and supplemental financial information related to the results on its website at ww.redrobin.com in the Investors Relations section. Now I would like to turn the call over to Red Robin's CEO, Paul Murphy.
Speaker 1
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 Schweinfert, our Chief Financial Officer and Guy Constant, our Chief Operations Officer. Jonathan Luthar, our Chief Concept Officer is also with us today to participate during the question and answer period. Let me begin by recognizing Patty Moore for her hard work and dedication to Red Robin over the past twelve years as she will be retiring from the company at year end. Patti 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, Patty 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 at Red Robin for almost five weeks now. Since joining, I've been busy immersing myself in every aspect of the business so I can better understand our current challenges and opportunities, evaluate our progress to date, and 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 listened 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 towards 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 and 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. We 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 for 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 operations. Guy?
Speaker 2
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 has leaned into four key areas of focus that we have emphasized with consistency and measured with enthusiasm. First is hire, train and retain.
Speaker 3
As we
Speaker 2
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. 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 on the dining room floor and by having managers at the host stand 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 twenty eighteen, 18 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 to peak. 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 improvement again in Q3 on guest ratings for speed of service, 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 fast and accurate delivery of high quality food at the optimal temperature.
As to results, we've seen a sharp improvement in ticket times, which in the third quarter were over ninety 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. We are emphasizing the reduction of complexity in our heart of house, all of which have contributed to 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
Speaker 4
set.
Speaker 2
The best long term sustainable means to drive sales and rebuild our dining business 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 frequency. We are thankful for the efforts of our operators and recognize their progress. While we know there is 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 as well.
We look forward to continued progress as we move forward. With that, I'll turn the call over to Lynn.
Speaker 5
Thank you, Guy, and good afternoon, everyone. As we turn around our performance and invest in the business, we are encouraged by our improving sales trajectory. In the third quarter of twenty nineteen, 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 strategies put in place this year, resulting in lower Tavern mix and higher entree and finance 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 trend. 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. Our shift in menu and promotional strategy, which now feature innovative burgers and highlight core brand equities without discounting on national has positively impacted our mix and gross margin.
Q3 total company revenues decreased 0.2% to $294,200,000 down $700,000 from a year ago. Dine in 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, continued to perform worse than the balance of the system by approximately three seventy 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 commissions, partially offset by decreases in utilities restaurant expenses. Occupancy costs decreased 60 basis points to 8.6% due primarily to 13 net locations that closed since the third quarter of twenty eighteen, 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 based costs 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 national and local media spend to support our new creative campaign that launched in July. Preopening costs decreased $400,000 due to the suspension of restaurant openings. Net interest expense in other was $500,000 lower versus the prior year due primarily to a larger gain in our deferred compensation plan 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 $1,800,000 which included a benefit of $3,900,000 related to favorable lease termination associated with our closed restaurants, net of associated closure costs. These benefits were partially offset by $1,300,000 in board and stockholder matter costs, dollars 600,000.0 in executive transition and severance costs and $300,000 in executive retention costs. Q3 adjusted EBITDA was $14,700,000 as compared to $24,200,000 in Q3 twenty eighteen and Q3 adjusted loss per diluted share was $0.24 as compared to adjusted earnings per diluted share of $0.15 in Q3 twenty eighteen.
Now turning to the balance sheet. We invested $11,900,000 in CapEx in Q3, which was primarily related to facilities improvements, corporate and system costs and new investments in information technology. October, we completed the rollout of handheld POS terminals that, along with headsets and printers that generate 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 $20,000,000 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 $7,500,000 on our revolving credit facility, resulting in a quarter end outstanding debt balance of $188,000,000 in addition to letters of credit outstanding of 7,500,000 We also bought back approximately 28,900 shares for a total of approximately $1,000,000 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 and 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 $11,000,000 to $13,000,000 and full year cash tax payments of between $3,500,000 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 2018 as we move into the fourth quarter of twenty nineteen, which we expect will negatively impact comparable guest traffic, but 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 occasions and refining our core catering menu, including expanding our carbonated beverage brand. 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 pilot outsourced 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 exit company operations in Canada due to a lack of integrated systems, near term capital investment needs, substandard 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 weeks. We are currently in discussions with an experienced restaurant operator to acquire and franchise restaurants in British Columbia with an anticipated closing by early twenty twenty.
Third quarter year to date, the Canada restaurants generated $31,600,000 in restaurant revenues and $900,000 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 contribution 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.
Speaker 1
Thank you, Lynn. Red Robin clearly is on the right path, strengthening operations, transforming the dining 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 my strategic vision and action plan at the ICR Conference in January.
And now with that, we'd be happy to take any questions.
Speaker 0
Thank you. At this time, we will be conducting a question and answer session. Our first question comes from the line of Chris O'Cull from Stifel. Please proceed with your question.
Speaker 6
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 you think there's 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 any other well, mainly just closures as you execute the turnaround strategy?
Speaker 1
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 initiatives that we believe will be able to drive not only the top line, but the bottom line results. And then more in a fulsome way, the regard for the brand. 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 starting to see some traction from that, but we have a lot of runway there. Have made some investments in terms of putting the handhelds and the servers hands and that will lead I think to further work against the service model, which should help us do the really help us on the execution level. In terms of
Speaker 2
store
Speaker 1
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 it. I'm not certainly don't anticipate any wholesale closures going forward, but we'll 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.
Speaker 6
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 gonna 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.
Speaker 1
Well, I think I'd preface that with saying that the focus on dine in that Guy and his team have had over this past few months, we're going to maintain that. Dine in is still 85%, 86% of the business and we need to ensure that we keep advancing execution against that and keep improving that performance. I certainly believe over time that we can stop the erosion there 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 of people coming in ordering.
It's always been a strong part of the business. As we've entered into the third party, certainly has been a bit of 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're 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.
Speaker 6
Thanks guys.
Speaker 0
Our next question comes from the line of Alex Slagle from Jefferies. Please proceed with your question.
Speaker 7
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 guests' needs and if there's any initial results you could share with us?
Speaker 4
Hi, this is Jonathan. Yes, 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's going to be intimately 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 upgrading our loyalty program. So between the enhanced capabilities and the deeper insights that we're currently gathering, we'll be able to give you an update on the next call.
Speaker 1
Alex, this is Paul. What I really like 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 to them using the brand. So I think we're on the right track with that. I was pleasantly surprised that it was already underway 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.
Speaker 7
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. And 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?
Speaker 4
Yes, this is Jonathan again. Yes, we were very pleased with the launch of the new campaign. The response from our guests was quite positive in multiple forms of research that we polled our guests on. We really, as we talked about on the last call, 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.
Alex, this is
Speaker 1
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 the new advertising campaign. They thought it was recapturing the soul of Red Robin. And as you know, franchisees can be highly critical of any advertising that we're doing and add them to a person saying, hey, this is who Red Robin is.
Not only are we moving forward but we're reestablishing that connective tissue to the core Red Robin user. I thought that was a huge testimonial for some people who are generally you know they're a little kind of glass half full about advertising.
Speaker 8
Thank you for that.
Speaker 0
Our next question comes from the line of Gregory Francfort of Bank of America. Please proceed with your question.
Speaker 9
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-four range or if given kind of what you're seeing on the spend that you put in the third quarter and the response on the traffic side, that's going to stay at an elevated level? Then I have a couple of other questions. Thanks.
Speaker 5
Yes, 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. 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.
Speaker 9
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 kind of 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.
Speaker 2
Hey, 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
Speaker 1
address that as it comes along.
Speaker 2
And we were, as you know, able to address some of the sites through closure earlier in the year that had 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've made 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 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
Speaker 10
staffed.
Speaker 2
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.
Speaker 9
Thanks for the perspective. Appreciate it.
Speaker 0
Our next question comes from the line of John Glass of Morgan Stanley. Please proceed with your question.
Speaker 11
Thanks. First, can you talk a little bit about the Tavern Double, its percentage menu mix this quarter? And maybe just more philosophically, I think it ran a bit hot in the past and that sort of hurt mix and now you're benefiting from it maybe not being as important. So I don't know what the balance is. So maybe talk about this quarter specifically.
I don't know if Paul or Guy or someone has thoughts on how you think about that going forward.
Speaker 5
Yes. Well, 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.
Speaker 4
Yes. This is Jonathan. I'll chime in. Yes, we to your question on how we see it progressing and what we're managing toward, We believe the 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 categories 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.
Speaker 11
Thank you. And then just on labor, you said you're 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 against 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 headcount now, right? So is it the best way to think about labor is kind of is going to run it, I don't know, low to mid single digits from here on in at least for the near term?
Speaker 2
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're more fully staffed at the manager level than we were a year ago. We would expect next year 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.
Speaker 11
I'm sorry, you dropped out, but what is hourly wage growth right now?
Speaker 5
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.
Speaker 11
Okay. Thank you.
Speaker 0
Our next question comes from the line of Will Slabaugh of Stephens Inc. Please proceed with your question.
Speaker 8
Yeah, 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 were running around flattish. And so the numbers imply a nice ramp into the quarter. What do you most attribute that to, whether it be the implementation of the new marketing campaign comparisons or something else that maybe we haven't discussed as in-depth?
Speaker 5
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 sequential improvement 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 us 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.
Speaker 1
Will, this is Paul. I really think it's a combination of things. Of course, if you ask the marketing guys, it's 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 experience 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 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 Falls campaign. And I think that resonated with people and they came in and the experience is beginning to match what they expect. Pretty soon, it's certainly our intent that the experience goes above and beyond and we're exceeding their expectations.
At that point, people become very loyal Red Robin Knights again. I don't know if that's even a word, but
Speaker 8
Thanks for that. And just a quick follow-up, I could, Lynn, on a comment that you made around cost of sales. Can you talk a little more about the contract benefit that you expect to receive or at least what type of impact we should expect to see from those?
Speaker 5
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 some new contracts we've been able to put in place.
Speaker 3
Okay. Thank you.
Speaker 0
Our next question comes from the line of Jeff Farmer of Gordon Haskett. Please proceed with your question.
Speaker 10
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?
Speaker 4
Great. 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 is allows us to personalize offers, eventually getting more down to a one on one 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 1,000,000 guests at a time. So we really see a lot of potential there to get closer to our guests, understand their specific needs and tailor our services and products to them accordingly.
Speaker 10
That's helpful.
Speaker 4
And then
Speaker 10
are there any stats that you can share on visit frequency from these loyalty numbers versus some of the non loyalty numbers?
Speaker 4
Yes. I mean, I'll share at
Speaker 1
a high
Speaker 4
level that our loyalty program drives a significant number of incremental visits per year versus guests that are not members of our loyalty program. And that although over this last year as our traffic has been challenged, both groups have visited less frequency. 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.
Speaker 10
And then just last question, and I apologize if I missed this. But 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 chose not to share the first four weeks of the 4Q with this release?
Speaker 5
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 is 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.
Speaker 10
Okay. Thank you.
Speaker 0
Our next question comes from the line of Brian Vaccaro of Raymond James. Please proceed with your question.
Speaker 3
Thanks. Good evening. 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?
Speaker 5
What I will indicate, and we certainly confirm this 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 investments.
Speaker 3
Okay. That's helpful. And 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 three thirty units or so that have had that in place versus the last twelve to eighteen months?
Are you seeing organic growth into year two in those units?
Speaker 5
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've rolled out our third party delivery initiative.
Speaker 3
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?
Speaker 5
Yes. They continued to be worse by 300 actually, let me start with sales, two sixty basis points worse than sales. Now that's been fairly consistent throughout the current year.
Speaker 3
Okay. Thank you.
Speaker 0
Our next question comes from the line of Gregory Francfort of Bank of America. Please proceed with your question.
Speaker 9
Hey, yes, 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 and I know you guys did the renegotiation to give yourself some flexibility on 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 you're thinking about leverage overall for the business? Thanks.
Speaker 5
Yes, absolutely. So starting with commodity inflation for the current quarter, we are seeing low single digit inflation. However, we are seeing some positive impacts 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 twenty twenty, 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 lower our leverage.
Speaker 9
Helpful. Thank you very much.
Speaker 0
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.
Speaker 1
Obviously, thanks, everybody, for joining us today, and we look forward to speaking to you on the next call. Have a good day.
Speaker 5
Goodbye.
Speaker 0
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.