Good evening, and welcome to the Texas Roadhouse second quarter earnings conference call. Today's call is being recorded. All participants are now in a listen-only mode. After the speakers remarks, there will be a question and answer session. At the time if you would like to ask a question please press star then the number one on your telephone keypad. Should anyone need assistance at anytime during the conference please press star and zero and an operator will come back to assist you. I would now like to introduce Tonya Robinson, the Chief Financial Officer of Texas Roadhouse. You may begin your conference. Thank you, Maria, and good evening everyone. By now you should have access to our earnings release for the second quarter ended June 29th, 2021. It may also be found on our website at texasroadhouse.com in the Investors section. Before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward-looking statements. These statements are not guarantees of future performance and therefore undue reliance should not be placed upon them. We refer all of you to our earnings release and our recent filings with the SEC. These documents provide a more detailed discussion of the relevant factors that could cause actual results to differ materially from those forward-looking statements, including factors related to the COVID-19 pandemic. In addition, we may refer to non-GAAP measures. If applicable, reconciliations of the non-GAAP measures to the GAAP information can be found in our earnings release. On the call with me today is Jerry Morgan, Chief Executive Officer of Texas Roadhouse. Following our remarks, we will open the call for questions. Now I'd like to turn the call over to Jerry. Thanks, Tonya. We are very pleased with our results for the second quarter of 2021, hitting historical highs on both sales and net income. For our June period, average guest counts in our dining room were comparable to 2019 levels with the majority of the state-mandated capacity restrictions lifted. At the same time, we were still serving approximately 2.5 times the number of to-go guests that we did in 2019. We have worked hard to support our operators since the start of the pandemic, and much of our success is due to their hard work and creativity. The dedication and passion that our restaurant management teams have shown during this time has strengthened our brand and expanded our base of loyal guests. Our top-line focus, along with strong consumer demand, have enabled us to grow our sales volume. With these higher volumes come challenges that may be magnified in the current business environment. Our top operational focus is supporting our Managing Partners and their management teams as they continue to hire and train new Roadies. Most of our restaurants have made great strides in their staffing levels while others have faced challenges reaching and holding their desired staffing levels on a consistent basis. Despite the challenges, we have not wavered on our expectations of delivering legendary food and legendary service to our guests. We also continue to exceed our initial 2021 expectations for commodity usage. This has required us to buy more product on the open market and outside the cost parameters of our original contracts. As a result, we are seeing our cost for most commodities, in particular beef, trending higher than anticipated, leading to an increased level of food inflation during the second quarter and in the back half of the year. Based on our updated outlook, we are raising our commodity inflation expectation to approximately 7% for the full year of 2021. Despite the cost pressures we are facing, we will continue to run our restaurants with a steady approach and a long-term focus. We will have our normal internal conversations with operators regarding menu pricing several weeks from now with the target of implementing any price increase in late October. We are also seeing some inflationary pressure on development costs for new store openings. Strong cash flow at the store level leave us confident that we will meet our return on investment expectations and continue to fund our growth internally. During the second quarter, we opened eight company restaurants, including two Bubba's 33 locations. Our current expectation is that by end of year, we will open 26-29 company restaurants, including five Bubba's and one Jaggers. As we set our sights and attention on the back half of 2021 and continue to prepare for 2022 and beyond, I want to thank all of our Managing Partners, our managers, and our Roadies for their efforts. As your partner, I want you to know how much we appreciate you, and that together we will continue to make Texas Roadhouse bigger, faster, stronger. Let's go, Roadhouse. Tonya will provide a financial update. Thanks, Jerry. For the second quarter of 2021, we reported diluted earnings of $1.08 per share, driven by $899 million of revenue and $158 million of restaurant level profit. Average weekly sales grew to over $126,000 as compared to approximately $70,000 in Q2 2020 and approximately $106,000 in Q2 2019. Throughout the quarter, our restaurants benefited from the continued easing of dining restrictions, as average weekly sales were over $124,000 in our April period and over $127,000 in both our May and June periods. Comparable restaurant sales for the second quarter grew 80.2% versus 2020, comprised of 58.6% traffic growth and a 21.6% increase in average check. As compared to Q2 2019, comparable restaurant sales grew 21.3%, including 12.4% traffic growth, and average check grew 8.9%, including positive mix of approximately 3.9% as guests moved to higher priced entrees. By month, comparable restaurant sales versus 2019 grew 20.9%, 18.9% and 23.5% for our April, May and June periods respectively. Sales in our July period were also strong, with comparable restaurant sales growth of 25.5% versus 2019. Average weekly sales were approximately $124,000, which were below June levels due to normal seasonality. As Jerry noted, we continue to benefit from elevated to-go sales volumes. In the second quarter, our restaurants averaged over 21,000 per week in to-go sales, which represented 16.9% of total sales. Over the course of the quarter, we saw a gradual decline in to-go sales as dine-in sales levels increased. In July, to-go sales were over 17,500 per store week or 14.2% of total sales. Restaurant margins for the second quarter as a percentage of total sales improved year-over-year to 17.7%, largely due to the traffic recovery. Restaurant margin also benefited from a higher overall guest check, driven by 2.8% menu pricing and 18.8% positive mix. Most of the positive mix comes from alcohol and soft beverage sales associated with the reopening of our dining rooms. Food and beverage cost as a percentage of total sales was 33.1% for the quarter, which was 156 basis points improvement versus prior year, despite commodity inflation of 6.5%. As Jerry mentioned, we updated our full year inflation expectation to approximately 7% due to higher than anticipated inflation in Q2 2021, and the expectation that inflation will remain elevated through the back half of the year. Based upon current sales volumes, we estimate that approximately 50% of our commodity basket is locked with a fixed price for the back half of 2021. Labor as a percentage of total sales decreased 885 basis points to 32.3% as compared to Q2 2020. However, we believe the second quarter of 2019 is a more relevant and beneficial comparison. As compared to Q2 2019, labor as a percentage of sales was 66 basis points better, even as labor dollars per store week increased 16.5%. This increase in labor dollars per store week was driven by wage and other inflation of 14.2%, and growth in hours of 0.5%. The remaining increase of 1.8% was due to one-time items consisting of $1.9 million of additional bonus and COVID-19 related payments to our restaurant employees, and $0.8 million of additional reserve expense related to our workers' comp and group health insurance program. We believe that labor pressures will remain a headwind going forward as we continue to attract and retain the best talent in the current competitive environment. Other operating costs were 369 basis points lower than the prior year period, primarily driven by sales leverage and overlapping approximately $3 million of expense for COVID-19 related supplies in the second quarter of 2020. Moving below restaurant margin, G&A costs for the quarter increased $7.2 million versus the prior year period, but decreased 211 basis points as a percentage of revenue to 4.1%. The increase in G&A dollars was primarily driven by an additional $8.2 million of cash and equity compensation and a $1.2 million increase in travel and meeting expense. These increases were partially offset by a $1.3 million reduction in legal settlements. I also want to point out that our second quarter benefited from an effective tax rate of 12.4%. This was primarily due to a higher benefit of FICA Tip Credit driven by the increase in our sales. Based on current sales trends, we expect our full year effective tax rate would be approximately 15%. With regards to cash flow, we ended the second quarter with $483 million of cash, which is down $13 million from the end of the first quarter. Cash flow from operations was strong at $119 million and was offset by $46 million of capital expenditures, $50 million of debt repayment, and $28 million of dividend payments. In May, we entered into a new $300 million credit facility, which replaced our previous $200 million deal. With access to this additional liquidity and the strength of our balance sheet, we are well positioned for any future needs. Like Jerry, I want to thank the entire Texas Roadhouse family for continuing to deliver a legendary experience to our guests each and every day. We know that it continues to be a challenging work environment, and to see the passion that you all bring to running restaurants is truly inspiring. Operator, please open the line for questions. Okay. At this time, if you would like to ask any questions, just press star then the number one on your telephone keypad. To withdraw your question, just press the pound key. We'll pause for just a moment to compile the Q&A roster. Your first question comes from Jeffrey Bernstein from Barclays. Your line is open. Great. Thank you very much. Two questions. First question just on the to-go business. Jerry, I know that Kent had not been a big fan of to-go until it was really necessary through COVID, thinking that it degraded the experience. I'm just wondering your thoughts there, whether there's a thought on reducing emphasis or whether you really think it's a permanent addition to the experience. I think you mentioned the to-go mix fell from 17% in the second quarter. It's now down to 14% in July. Just wondering your thoughts on that business and maybe where that percentage settled in markets that have been open the longest. Then I had one follow-up. Yeah, I would say, good afternoon. We are very excited about what we have learned on how we can execute on the to-go side. We feel very confident that we are delivering a much better experience to our guests, and we are absolutely committed to making it legendary. It is new to us at this volume, but we have made the big adjustment and feel very good, and we will continue to provide a great experience so that that margin will hold. We would like it to hold, and we are going to earn it. Yeah. Jeff, I would add, too, just as we're looking ahead. We focus a little bit more on the dollars versus the percent because, as those dining rooms are reopened, capacity restrictions become easier. Those percentage are going to come down. Our goal, we talked about it last quarter, and even earlier, was really targeting $20,000 a week in to-go sales, and that continues to be what we focus on and our operators focus on. It dipped down a little bit below that $20,000. Like I said, July came in at $17,500. Still in a very good range. We feel very good about it. It's tough to look at the stores because so many of them have been through different levels of capacity restrictions and such and get a good feel. There are some stores out there who do very well on the to-go side of the business. You've got a lot of operators who definitely see the benefit, have learned a lot through 2020. Like Jerry said, they're just focused on keeping it. Understood. Just my follow-up is on the restaurant margin. If the inflation pressures remain outsized, which it sounds like that's your expectation, I'm just wondering how you think about profitability, at least theoretically, whether you'd prefer to take a hit to the margin, in the short term, just to maintain, obviously, the very strong traffic. What do you think there may be incremental cost savings, or you're confident taking incremental pricing? Just wondering how high you'd potentially take the pricing, or whether you have any color on the restaurant margin for the back half of the year. Thank you. Yep. Sure. We've always said we feel very confident in the 17%-18% range as far as restaurant margin. We were happy with the margin where we are, and it didn't surprise us too much. We did see some higher costs on the commodity side than we expected, particularly later in the quarter. The mix of sales, the strong dining room sales, and knowing that we want that investment in the labor side of the business, we want to make sure we're staffed. We were feeling really good about that 17.7% that we were able to produce this quarter. I think when you look out to the rest of the year, we still feel very comfortable in that 17%-18% range on a full-year basis. The inflation on commodities does get tougher in the back half of the year. There's no doubt. With what we're driving from a traffic perspective, the positive mix that we're seeing, and the other pricing that's in that check growth, we still feel good about being able to hit those targets for the back half of the year. Understood. Thank you. Your next question comes from Jim Salera from Stephens. Your line is open. Hey. Thank you. I just wanted to follow up on the question around commodities. Am I right in my math here that the 7% for the full year implies around 10% commodity inflation for the third and fourth quarter? As an additional part to that, what are you expecting from mix as we progress through the year, given it was kind of a strange lap here this quarter? Yeah. You're right, Jim. That would imply around that 10% range on the inflation side of things. That would be the expectation. When you say expect on the mix, are you talking about the sales mix or where that inflation- Yeah. Just that mix was a pretty big driver to the one-year comp here this quarter. Yeah. I'm curious how that trends for the rest of the year. Sure. Our expectation is that we hold on to that positive sales mix for the rest of the year. We kind of really started seeing that ramp up a bit in late Q4 and really hit it, the stride more in Q1. We think, the rest of the year, we should see that benefit. A lot depends on consumer behavior and things like that. That's what's driving it. We're seeing our guests go more towards bigger steaks, more expensive entrees. They're adding apps at the beginning of that meal. They're looking for that great experience as they get in that dining room. Then also The alcohol and the soft bev side of things, as you're moving those to-go sales back into the dining room. Some of that's moving back into the dining room. You do get a lift on those dining room sales because they're $4 more on PPA. That certainly helps too from that perspective. Got it. That's helpful. As a follow-up on the commodity piece, you mentioned you have, I think, 50% of the basket locked for the remainder of the year, and it sounds like commodities really started to move toward the end of this quarter. What kind of visibility do you have into that 10% inflation for the back half of the year, and what are you baking in? Are you baking in sort of quarter-end prices, or how are you coming to that number, I guess? Sure. It's not easy given the uncertainty that's out there right now. Yeah, we do have some visibility as far as the contracts we have in place, the fixed pricing that we have. With the demands that we're seeing and the sales levels we're seeing, we are buying quite a bit on the spot market. That you are kind of susceptible then to just the market swings that are happening. We're a little more conservative building some of that in as far as what our expectation is on different cuts of beef and things like that. It's primarily on beef. You see it on pork also, a little on chicken. Oils and fats, we're seeing a little bit of it there, too. Some of it is just knowing you've got the demand side. You also have some of the issues the suppliers are facing right now. It's just difficult. They're facing similar labor issues, transportation, things like that, and they're starting to pass those costs on that they're feeling. Some of it is how long does that last as we all feel this bit of supply tightening and things like that just across everything. Very helpful. Thanks for the color, Tonya. Sure. Your next question comes from Peter Saleh from BTIG. Your line is open. Great. Thanks. Tonya, I just wanted to come back to the conversation around commodity inflation. I think the last time you guys had commodity inflation anywhere near this amount was in 2015. Then you had two consecutive years after that of commodity deflation. I'm just wondering if you have any sense on how transitory you think this inflation is, and if your suppliers are giving you any sense on when some of the prices might roll off a little bit from where we are today. Yeah, it's a great question. I think we'll be learning more about that as we get further into Q3. Typically, we start having conversations with our suppliers and things like that towards the end of the quarter heading into the year. I think we'll get more clarity on that. I'm sure they would say when they can get some clarity on where prices are going and cost of doing business and labor and things like that they're being impacted by right now. I think it's going to be tough to know that for a bit. Potentially, as you head into 2022, there's just all the normal commodity inflation inputs. As far as supplies of cattle, slaughter rates, things like that could cause some noise in 2022. We're kind of teeing up to expect some commodity inflation for a bit through this year and potentially into 2022 is the way we're looking at it. Okay. Given that situation, how are you thinking about menu pricing? I know Jerry commented on potentially some more pricing maybe sometime in October. Can you give us an update on what pricing level you're running in the third quarter and in the fourth quarter and what you may expect to take in the back end of the year? Yes, happy to do that. Pricing today, we had about 2.8 total pricing in the quarter. That's made up of that 1.75% that we took at the beginning of May. We didn't get the benefit of that the whole quarter. We will for the rest of the year. You had about 1.4% that was in there throughout the back half of 2020. For the most part, most of it happened in October. That's about when that roll-off will occur on that. Q3 looks like it would come in at about 2.9% or so pricing. Q4, assuming no additional pricing, just with what we have right now, would be about 2% in Q4. As Jerry mentioned, we're going to be having those conversations with our operators to see how they're feeling things, how the consumer feels to them. As usual, we've always been a little slower to take pricing when it comes to commodity inflation because of the temporariness of that, the cycle that goes through. A little more likely to take pricing to help on labor as it's more permanent. That philosophy has not changed. That's something we still very much believe in. That's the approach we'll be taking as we have those conversations with them. I can tell you it certainly seems like we'll take some pricing in October. The levels will remain to be seen, but it feels like there is some pricing there to be taken. Yeah, I would just say that as we gather with all of our Market Partners and MPs and look at their local areas and what they might need in different parts of the country. We will still be rather conservative, I would assume. We're also looking at some menu items that might help. We had a lot of success with a 5-ounce salmon, a smaller portion that kept our value side. We're very excited that our guest is going for the high dollar right now a little bit, but we also want to make sure that we keep that value side there and keep it very part of who we are. We obviously will listen to our operators and see what they need so that they can get the margins that would be balanced and responsible. Thank you very much. Your next question comes from David Tarantino from Baird. Your line is open. Good afternoon, Tonya. Just want to come back to the discussion about margins and the outlook for the second half of the year. I just want to clarify one comment. You mentioned 17%-18%. Was that a comment about the full year, or was that a comment about the back half specifically? Kind of both. Q1 came in a higher percentage. I think we were over 18% and 17%, still strong in Q2. I think both for the back half and the full year, we still feel confident being in that range. Of course, a lot will depend on sales trends, the mix of sales, what pricing we take, and things like that. We can see a scenario where we can still hit that target. Got it. Then on labor, I wanted to ask about, I think you mentioned that hours were up 0.5% versus 2019, and traffic, I think, was up 12%. I guess, how were you able to accomplish that labor model with such big traffic growth over the last two years? Is that, I guess, a function that maybe you're understaffed and need to catch up, or is it some efficiencies that you've gained over the past couple of years? It would definitely imply that there was some staffing issues throughout the quarter. I'll tell you, when you look at the growth in hours broken down by month, we saw that trend up throughout the quarter. Coming in after our conversation on Q1 in April and things like that, we were putting a lot of initiatives in place, things like that to help on the staffing side for folks. I think what we see in the numbers is that that's working. Staffing is becoming a bit easier with that growth in hours getting a little bit bigger in June. That was certainly good to see from that perspective. You're absolutely right, David. You would expect at that traffic level to have that growth in hours be a bit higher. You also have to keep in mind, you do have that to-go, higher to-go business, which typically is going to be a bit less on the labor side because you don't have the servers, the front-of-house labor on that piece. That does kind of mitigate that a little bit. Great. Thank you very much. Your next question comes from Dennis Geiger from UBS. Your line is open. Great. Thanks for the question. Tonya and Jerry, the first one, just wanted to ask a bit more on the margins as it relates to the other OpEx line. Tonya, you spoke to it to some extent, but just wondering what else in the quarter, any other commentary you can add there against those sales volumes. Is just the cost of everything up? Is insurance, if it runs through there, equipment or gloves, other supplies? Were you just seeing a lot of inflation through that line dollar-wise as well? Is that a fair characterization or anything else sort of one time in nature? Yeah, Dennis, you definitely are on point. If you look at other operating costs as a percentage of sales, 2019 versus 2021, it was flat at 15.2%. That would imply any check benefit was offset by higher cost, more usage because of the to-go piece of the business, so more to-go supplies. You're still looking at PPE costs. Glove costs have been elevated, different things like that. Insurance absolutely runs through those lines, and credit card charges, things like that as you see more credit card usage and all of those things. Definitely seeing a bit of inflation on that line, which offsets any of that check benefit on a two-year stack. Got it. That's helpful. Then one more, I think you just spoke to it to some extent, but just wanted to clarify, as far as hours from here, I guess it feels generally like you're in a pretty good spot hours relative to traffic, and I guess if I caught that loosely correctly, given where you are in June dine-in wise, not a significant amount of incremental labor hours from where you're at now. Is that a fair characterization or summary of how you just described it, Tonya? Yeah. I guess the point I was making was growth in hours became higher throughout the quarter. I think that's a piece of dining room sales growing. You began to see more hours used in the restaurant. To see that improvement, that's good because we like to see that staffing level increase and hours in the restaurant increase from the levels we were in. That's a piece of it for sure. I would just say that we added 5,000 employees in the second quarter, so we made up a lot of progress on getting fully staffed. That was a big win. We had a great national hiring day, which really brought us a lot of folks. As we were training them and bringing them back and our average weekly sales continued to climb, I think we're positioning ourselves for the back half of the year. As we fought staffing in the first quarter, I think we've had a lot of success in the second quarter and a lot of momentum going into the third quarter. Unknown is how school goes back and does it change our trend. It typically does. I don't know that it will this year, so we're anxious to see how this next couple of months goes as kids get back to school, and are we really going to get back to some normal? We made a lot of gains on the success of getting staffed across the country, to be able to continue to provide a great service to our guests. Great. Thanks, guys. Your next question comes from Lauren Silberman from Credit Suisse. Your line is open. Thank you. Appreciate all the commentary on staffing. A follow-up there. Are you still looking to increase staffing at these sales levels? With respect to training and overtime, are you at normalized levels or are you seeing any elevation there just as you bring on more people? Yeah, we're going to continue to get staffed. We have a great team. We call it ninja staffing. We know which stores need help specifically, and we're really focused on that as a team. Our regional Market Partners, our Managing Partners at the store level, and our support center here, we have a very dynamic team that is focused to support our restaurants, as we know as we continue to get more staffing, we will be able to provide even probably higher comp sales and a little better service to our guests. We are going to continue a full-court press on getting properly staffed across the country, especially where a lot of them are there. There's still a lot that needs some help, and we are absolutely all hands on deck to help support that. Lauren, on the overtime question you had, we did see a bit more on the overtime. Nothing too significant. It didn't really drive a lot of that wage inflation. As you would expect, you have folks working more hours. So there was a little bit of an uptick on that overtime versus last year. Great. Just on the sales, for on-premise sales, well above pre-COVID, can you talk about where your on-premise transactions are versus prior levels and how you're getting more capacity in the box? Then just how do you think about capacity to expand on-premise from here? Thank you. Yep, sure. I can tell you, Lauren, on Q2, that 12.4%, overall dining room was down 3.2%. Then we had to-go traffic that was up 15.6%. Those are the components of that 12.4% growth. As I mentioned, though, Jerry mentioned on the call, we saw that negative dining room traffic get better and better over the course of the quarter and ended up slightly positive in June, and July even better, even more positive. That's really a function of dining room capacity being lifted across the country. We still have stores in the quarter that had some pretty significant restrictions in place, and things like that. Right now, they're just focused on meeting the demand that they have. Our wait times are long, especially on the weekends. Every day part of the week looks really good, and across the geography looks really good. Across the country, the comp sales look great. Nothing that we would call out from a constraint perspective. We feel like we still have quite a bit of capacity within the restaurants to grow traffic and things like that. That's going to be the focus for us for sure the rest of the year. Great. Thanks so much. Your next question comes from John Glass from Morgan Stanley. Hi. Thanks very much. First, Jerry, Tonya, you mentioned development costs are also going up. How much are they going up? How close are you getting to return hurdles not being satisfactory? Is this still really good, just going to maybe a little bit less good, and it doesn't impact how you think about development over the next 12 or 18 months? Yeah, sure, John. Actually, we expect 2021 costs to be lower than 2020 because 2020, we're a bit more pressured with the delays, pre-openings in that number, things like that. That caused 2020 to be a bit higher. We expect 2021 to be lower. It's hard to quantify exactly what those dollars are. We're still seeing them come in as we continue to get restaurants open and built. You certainly hear from contractors saying it's difficult on the labor side for them. Sometimes they have some issues on materials. We are very lucky. So far, we have had no issues on anything that has caused us to have concern on meeting our pipeline, any openings or anything like that. Haven't had to think about slowing anything down. That's been really good to see. My personal opinion, we might see costs pop a little bit more in 2022. As we're getting those bids put together, you might see more of those costs being passed on. Still remains to be seen a little bit how that ends up. Nothing right now that gives us concern. I would say, too, that we're having a lot of success with our new store openings and our contractors that we're working with, we are meeting with and just identifying if there is going to be. It does seem like the supply chain is coming through pretty successfully right now on their side. On our side, as Tonya mentioned, our pipeline is very strong and very solid. We're as excited about 2022 as we were about 2021, all the concepts are continuing to have a lot of success in the new store openings, Bubba's, Texas Roadhouse. We are covering those costs, I believe, and we're getting them done on time, which is a really hats off to our contractors for hitting those commitments. Yep. Returns continue to look good, especially with those sales volumes. No issue on the return side of things. Okay. Thank you. Then just on pricing, does this experience change in any way your view on maybe how scientifically you look at pricing? I know in the past, and maybe even now, you sort of just bubble up from the operators and you get their opinions. Do you think about more frequency and sort of get on the faster to sort of think about this? Do you think about, or maybe you have tools that are more surgical location by location or item by item? How do you do it, I guess, and is that changing at all, or do you think the way you do it is sort of the right way to approach pricing going forward? Yeah. We've got a good historical data on everything that we've done for the last five years, I would say. If we had to move fast, we could, and I believe our operators would trust us enough if for some reason we were forced to do that. I would prefer just to continue to pay attention to what's going on in our stores, in our certain regions, and make adjustments accordingly with their opinions. We could move if we had to for some crazy reason. Yeah, we do get pretty surgical on the lines, the numbers, the menus by store. All stores live in a pricing grid with other stores similar to them as far as labor costs and things like that, or parts of the country. When we sit down with folks, we're going menu item, line by line, really understanding PMIX and gaps and things like that. It is a pretty detailed discussion that we currently have today, and that's the way it's been since the beginning. Okay. Thank you. Your next question comes from Brett Levy from MKM Partners. Your line is open. Great. Thank you for taking the call. I guess if we could start on labor, just what did you need to do on the incenting, on the benefit side as you were doing these hirings, and what do you think is a fair way to assess what your inflation's going to be in the back half of the year? Also, as we've seen the enhanced benefits roll off, have you seen any pockets of the country where you immediately saw influxes of applicants for ease in hiring start to pick up? I'll kind of start off a little bit and let Jerry talk about what the operators have done, and things like that. The labor inflation for the back half of the year, I feel like is going to be pretty consistent with what we've seen so far. We look at it, Brett, a little bit more on a two-year stack, so looking at comparing back to 2019. We feel like that inflation range that we're in is probably what's going to hold for the rest of the year. Now, that has a couple components in it. You have wage inflation in there, wage rates, overtime, all of those things that are impacting it, along with group insurance, payroll taxes, all of those components of things that go into that too. Feels like it'll be pretty similar. I know our operators have been very creative and really all over the hiring piece of it. I know Jerry will have some examples on that. Yeah. I think they've got a strategy of being aggressive in their own markets to identify what their needs are. If they need help in an area on a larger scale, we're there for them. We've got great plans for our local marketing, which drives a lot of communication and partnership out there. I think each store has its strategy, but we are being aggressive. We've always known that if we are properly staffed, we will grow the business, and we can execute legendary more consistently. Have they been more in the upfront camp, or has it been elevated wages and more of a higher back end guarantee of what people are going to make? Or is it just that you're able to go with the incentives? Then just before I jump off, on the development front, you talked about excitement about the pipeline for 2022 as well, but you also talked about elevated costs. What's your appetite for growing that pipeline as we're seeing these elevated costs? As you said, some of them may not be transitory. You're talking about commodities still going into 2022, labor still going in. How do you feel about accelerating the pipeline versus just maintaining it? Thanks. Well, I think they're all doing a little bit of different things, whether it be from that standpoint of incentivizing people, using referral programs. From the staffing side, I think depending on where you're at, it's easier in some parts of the country than others. We have a more aggressive approach, obviously, where they need it. We do exactly what we have to do to get properly staffed in the front of the house and in the back of the house. I think our operators know that they can make those decisions to hire great people, train them right, pay them right, and then let's keep them as a part of our family. As far as the pipeline, I feel really good right now. We like our number, where we've been for many, many years of we have to be able to open and operate a business successfully. Openings takes a lot of manpower. It takes a lot of work, not only on our construction side, but our training teams and our management teams. You've got to do it right. You only get one chance to do it right. It doesn't make a lot of sense for us to stretch ourselves. Every restaurant we open is a new opportunity for us to be successful. We have to put every effort into getting it done right without starting looking forward to the next opening and maybe not get that one done as well. We're kind of in our comfort spot of that 28-30 restaurants a year successfully. We'll probably hold that number until we feel different. Brett, on the development cost, it still remains to be seen on 2022 what those development costs do. Right now we're getting bids on those projects, depending on where they land in the year. Much remains to be seen. If the development cost does creep up, it all comes down to sales and what you feel like you can do from a sales perspective, and that justifies the deal. That's what we'll be looking at. We run returns on all of those models to see are we in the bandwidth of where we want to be and still with that mid-teen IRR focus, for sure. Your next question comes from Jeff Farmer from Gordon Haskett. Your line is open. Admittedly, it's early. I'm just curious if you guys have seen a change in consumer behavior in some of those markets with the quickly rising case counts, the Floridas, Missouris, Oklahomas of the world. Hey, Jeff, it's Tonya. I haven't seen anything that makes you raise your eyebrow or anything that's like, "Okay, yeah, that makes sense." Everything seems to be pretty normal. You might find some stores, maybe those stores have a little bit higher to-go mix than dining room. Even in the dining room, like I said earlier, we have wait times, and there's still people that are very comfortable coming into the dining rooms to eat. Even in those areas like that. Nothing that I've seen in the numbers. Right now, obviously we're paying very close attention to daily. Our operators know that we're here if they need us from that standpoint. They have to protect their employees and their guests and their business. Obviously we're paying very close attention to what's happening out there, and we are just ready to help, and we've got everything needed in case anything changes. All right, then just one more unrelated question, and I believe this might've been asked on the last couple of calls, but your cash balance is getting up there. I think it's almost three times your normal level. How are you thinking about that excess cash balance as you move forward? Well, we're still carrying about $190 million in debt. That's a piece of it, and liabilities are a bit higher, just as we were able to defer some tax payments and things like that through COVID. We definitely take that into consideration when we're looking at it. We did turn the dividend back on last quarter, so that's really great to see and a great use of cash. The development pipeline, as we're looking at spending more on restaurants, they need to do bump-outs, things like that, great use of cash. One other thing that we will be doing for the back half of the year is turning this share repurchase program back on. As you all know, our philosophy has been to pick up dilution and on a consistent basis, and that's still the same philosophy we have today heading into the back half of the year. We'll start taking a look at that now, versus we had put that on hold last March. We'll see how that continues. Having a little extra cash in an environment like this doesn't feel too bad, actually. Feels like a good place to be. All right. Appreciate it. Thank you. Your next question comes from Jared Garber from Goldman Sachs. Your line is open. Hi. Thanks for taking the question. I just wanted to know if you guys could talk about what you're doing, especially as we move into a somewhat more normalized environment to retain the higher level of off-premise sales that you've seen sort of accelerate throughout the pandemic, obviously. As dining rooms have opened, those numbers have come down slightly, and I think you noted a little bit below that sort of 20% goal that you had set out or had talked about. Can you talk about some of maybe the digital enhancements you've made, and/or maybe some of the operational enhancements that you've made and/or are going to make to help retain some of that sales level? Thanks. I think our app, we made such great progress, not only towards the end of last year, but even this year. All the windows that we put in. It does come about convenience and ease of getting the product. The windows that we put in in the front of our restaurants, even the drive-up windows that we've tested in a couple of stores have been very successful. The ability to communicate by text with the guests. Our ability to communicate with the guests has really strengthened our ability to get them the product, whether it's curbside or whether it's them walking up and picking it up the window. I think those are all very strategic moves that are going to help continue as we move forward, to hold our to-go business. Yeah. Oh, sorry. I was just going to also add, as we see dining rooms sales increase, the logistics within the building on how they manage those higher to-go sales, really being proactive on that is so important with just how we manage that. That's been great to see. Yeah, great. That's really helpful. Just one follow-up on that. Is there anything that you're seeing in the data in terms of the consumer behavior that would suggest maybe sort of different usage for to-go versus dining in the restaurants? Maybe is it a different customer, or is it a different day part, or weekend versus weekday that would suggest some level of incrementality from some of your guests? Thanks. Sure. Just to get through, nothing that I would really call out. You see high to-go usage just about every day of the week. You see it in what we call the power hour hours kind of that 6:00 to 8:00 timeframe, when we're the busiest in the dining rooms. It seems like people are coming in after work to pick food up. Maybe they come and call in a little later to pick it up. Nothing really, anything I would call out, that's pretty much what we've been seeing. Great. Thanks. Yep. Your next question comes from Nick Setyan from Wedbush. Your line is open. Thank you. Just wanted to circle back on the labor in the second half. I think you said pretty consistent inflation. Q2, 6.5% over Q2 of 2019, in terms of labor per operating week. 6.5%, is that kind of fair for the second half in terms of growth over second half of 2019 or could we see that pick up as the hours pick up? Yeah, I think it is possible, Nick, to see that pick up as the hours pick up. The question is what will that wage inflation do? I do think our expectation would be to see hours behave a bit more like what we saw in June and continue to see some growth in hours versus 2019, especially as dining room guest counts are higher than 2019. That would be our hope to see that. Great. Thank you. Your next question comes from Andrew Strelzik from BMO. Your line is open. Great. Thanks. I was hoping first you could provide excuse me, an update on Bubba's and Jaggers, just how those brands are doing from a comp and margin perspective in this environment and in the context of your commentary on development costs, just how things are evolving for those two brands right now? Yeah, I'll give you some of the comp info and let Jerry comment on some of the performance side. Comps look really good. They're very strong on both those brands versus 2019. Q2, Bubba's was up about 20%, Jaggers over 30%. We feel very good about that, and they continue to focus on margin, seem to gain brand awareness. From that perspective, really positive. Yeah, the two Bubba's that we opened in the second quarter really did unbelievably fantastic. We are very excited as they've continued to gain momentum operationally. We've got strength there. We're very excited. I think we've got 35 Bubba's at this time and have a couple of more to get this year. Jaggers is coming along great. We've got one coming out of the ground. We've got several in the pipeline for next year. We're very excited about the Jaggers here in Louisville and the success that it's having and holding its sales. The food is just unbelievably fantastic. I will tell you, I have a lot of excitement for Bubba's 33 and Jaggers. We are all on board of continuing to invest in Bubba's. We are building some strength around the team to grow Jaggers. That's great to hear the enthusiasm behind those. My other question was, and I apologize if you already mentioned this and I missed it. I know you were working on some efficiency opportunities in the to-go business. Where are the to-go margins now relative to dine-in? As you've evolved through this environment with that growing to-go business, have you been able to find additional opportunities that maybe were not in place yet? Thank you. Sure, Andrew. I don't know that there's been as much focus on measuring what that to-go margin looks like because it's really hard to do because you got to make some calls on how do you divide up rent, how do you divide up certain other costs to really see. You could build different cases for what those margins look like. I think, just anecdotally, we feel really good about what the stores have been doing and the efficiencies they've been finding. I'll tell you, I think they're going to continue to do it simply because of how we're structured on compensation. Higher to-go sales, they want that margin to be good on those transactions, and that's a piece of compensation. As they're making a percentage of the bottom line restaurant. We feel like that's naturally built into the model for them to manage it and do it well. We're helping them, as Jerry mentioned, from a technology side of really giving them every resource we can, helping them from the building perspective of how they structure their building, their corrals, all of those things around their to-go volumes, and feel really good about continuing to see good returns and performance on that to-go transaction. Great. That makes a lot of sense. Thank you very much. Yep. Your next question comes from Chris O'Cull from Stifel. Your line is open. Hey, thanks. Good afternoon, guys. I apologize if I miss this, Tonya, but you mentioned last quarter that you expected G&A to be closer to 2019 levels, but you ran quite a bit lower than that this quarter, especially if you exclude the stock-based comp. Has anything changed in terms of your G&A outlook for the year? No, I don't think so. Some of it is, we ran a bit lower as we continue to see meetings and things like that be a bit lower, travel be a bit lower. I think on a full year basis, with the margins that we're running, obviously you get quite a bit of leverage there on that G&A as a percentage of revenue. I think we continue to expect, we believe G&A for 2021 will be higher than 2019. Just given some of the cost around equity compensation, bonuses, things like that are going to add to those costs from 2019. Q3, we will have some additional costs that we haven't had so far this year. They're conference-related expenses, so it'll probably be around $4 million that we'll see in Q3. Otherwise, we feel really good about the G&A spend and the trend that we're on. Okay. That's helpful. I understand you aren't prepared to provide a beef inflation outlook for next year, but I was wondering if the team has a view as to whether the company might contract a higher or lower percentage of its expected needs next year than it normally would. I think it just depends. Talking with our purchasing team, I think they're very open to contracting more if suppliers are open to that and if the premium isn't too high. Sometimes those suppliers are going to be building in some of this uncertainty that they're feeling right now. If that's the case and we feel like we would be better waiting to see how the costs develop, then we might not lock up as much of it. I think that's their look at it and how they're feeling about it. Like I said, they're going to be having some more of those conversations coming up here soon with suppliers and kind of getting a feel for what they think about the environment. Okay. Thank you. Thanks, Chris. Your next question comes from Andy Barish from Jefferies. Your line is open. Hey, guys. Excuse me. Traditionally, I know nothing's traditional anymore, but the 3Q is usually a seasonally slower quarter, and thus margins are lower. You just mentioned that a couple of other factors, obviously ramping for the second half before the potential for price in October. Should we think of the 3Q as being lower and then the bounce back in the 4Q, assuming volumes do normal seasonal things? Yeah, I think that is a very reasonable expectation. We saw it in July. Those volumes normalize a bit, chime down a bit, which is normal seasonality for us. That continues through October. Then you kind of see that bounce back in November, December, and heading into the next year. A lot too will depend on that menu pricing where we end up on that. We'll have to play a bit of a part in that too. Thanks, Tonya. On the 14% wages, can you break that out as you have in the past, just in terms of the actual wage growth versus other items? Was there a significant amount of incremental training costs just given that 5,000 employee hiring number that Jerry mentioned that rolled into that? Yes, I think that would be very fair to say that there's some incremental cost there associated with as we're hiring. As Jerry mentioned, over 5,000 additional employees and the hiring data we had and things like that. The 14% breakdown, it's about just under 11% related to wage. The remainder is just other inflation on other line items. Can't really give you a breakdown as far as how much of that's training, but I would say there is some there. Okay. Thank you. Your next question comes from Jon Tower from Wells Fargo. Your line is open. Hi, this is Karen Holthouse on for John. Just one more on the labor front. Maybe another way to try and get at modeling the second half would be in an ideal world, if we were looking at that kind of relationship between traffic and hours versus 2019. Would you want hours to be growing at 50% of what traffic is, 70% of what traffic is? Alternatively, give us some color on where that kind of hours was running versus 2019 in June when you thought you were catching up to staffing levels. Sure. The month of June, we had total traffic growth of about 14% in the month of June. We had half a point of growth in hours. A good portion of that traffic growth, almost all of it was to go. That's a little bit different when you're thinking about hours growth, right? It doesn't behave necessarily the same as it would in the dining room. Historically, pre-COVID, we would tell you, "Hey, we'd like to see a growth in hours be in that 50%-75% range as far as percentage of total traffic growth." We ran 50% for quite some time. It ticked up a bit in recent years. That felt like a good place. That was with 7% to-go sales. It's quite a different business with double the to-go sales. Don't expect that maybe that 50% would necessarily, might be not as big as that now. I think we're still waiting to see because, again, we just had so much dining rooms reopening, shifting, things like that happening in Q2, that we'll be watching that really closely in Q3 to see in a more normal environment how that behaves. More to come definitely on how that's trending. Great. Thank you. Your next question comes from Brian Vaccaro from Raymond James. Your line is open. Thanks, and good evening. A couple on the margins front, if I could. Just back to your second half comments, I think you said 17%-18%, and I was hoping maybe we could compare that to the second quarter where you were 17.7%. Trying to just square, we've got higher inflation, so I would think that the COGS ratio is moving higher sequentially. Can you help me understand what costs you expect to come down sequentially or where you'd expect flow-through to improve, allowing you to hold that 17%-18% range? Is there a way to dimensionalize that? Sure. One piece of it is the dining room versus to-go traffic, because you're picking up that PPA on the dining room. If dining room is going to continue to grow with restrictions lifted, then you are getting some benefit there on that, along with the positive mix continuing as it did in Q2. Specifically on cost of sales, you're applying that 10% inflation to a lower percentage. Cost of sales as a percentage of sales last year, Q3 and Q4. If I remember, Q3 and Q4 last year, cost of sales were in the low 32% ranges, versus 34% in Q2 of 2020. You've got that dynamic going on too. That 10% inflation is on a smaller number. That makes it a little bit different as far as how it plays out on the margins for the back half of the year. Okay. In the release, I guess you referenced restaurant margins pressured by pandemic-related costs, kind of higher pandemic costs. I think it was close to $2 million in the labor line of COVID pay. Can you help frame what other COVID costs or pandemic-related costs are in Q2? I am sure there is a lot of different things and a lot of different dimensions on that, whether it be retraining or gloves, et cetera. Is there a way to maybe catch all there on what those costs look like in addition to the 1.8 or nine? On the other operating line, really we had a $3 million this time last year, Q2 last year, that we incurred that we're lapping. Not seeing the same levels on the PPE in Q2 this year versus what we were doing last year. We still definitely are seeing the cost of PPE in the numbers in Q2. Gloves specifically is what I called out, just as materials have gotten very expensive when it comes to making gloves. Costs were definitely, we were seeing those increase significantly over the quarter. I think those have started maybe to come down a little bit now, they did peak there quite a bit. Really that would be more of what I would tell you is living in other operating. Obviously, you have the higher to-go supplies, that summer love payment, which is, I think you mentioned that $1.8 in labor and along with just other benefits on that labor line. That's really, Brian, I think that's all I could really call out specifically. Okay. Thank you. Yep. Our next question comes from John Ivankoe from JPMorgan. Your line is open. Hi. Obviously over the past 12- 18 months, we've talked a lot about the contraction in industry supply and certainly understand a lot of that is urban, a lot of that is inline or end caps in shopping centers. What are you seeing in terms of freestanding pads that may exist in trade areas that you would want to be? Have you seen a significant number of properties that have come on board? If so, I guess what would be preventing you from taking them? Is it the size of the lot? Is it cost? The time to get permits, what have you? Do you have a preference here for Greenfield? Just to give us a sense of your ability to absorb some of the supply that's recently come out of the marketplace. Thank you. Well, I think we're looking at it. There's no doubt as we look at our development team and where we're going, where our pipeline, we'll say we're probably mostly looking at late 2022 now, where everything else is booked and ready. As we start looking at 2023, what will be available. There's some buyers out there's some others that are giving up their property. I think we're being very aggressive at looking at what our options are and what are our best deals in front of us that we can continue to add to. Our pipeline for 2022, 2023, 2024, all three concepts, and we're probably looking a lot at Jaggers right now too. There's a lot to look at, but we feel very good where we're positioned and we'll be very aggressive if a great deal comes along. If not, we'll hold our course and be very strategic in where we want to be so that we can continue to grow all three successfully. I should interpret that comment as those types of development opportunities would be upside to what you currently guided, not necessarily that you need them to basically fill your guidance, especially in 2022, correct? Correct. Thank you so much. You're welcome. Our last question comes from Jake Bartlett from Truist Securities. Your line is open. Great. Thanks for squeezing me in here. My question was about the staffing, in the thin staffing that you've had. How did that manifest itself? In other words, if you're fully staffed closer to how you seem to be staffed here in July, would sales have been higher? Was that a constraint to rebuilding your in-store dining in the quarter? I would say it had some impact, obviously, as we came through the to-go and the capacity side. Pretty quickly, a lot of the states started turning that on very fast, and for us to try to catch up, and then the labor, the supply of employees out there was very tight. Obviously, everybody was fighting the same fight to try to grab the best people out there and get them on board and trained and ready to rock and roll. It definitely had a factor. Like I said, I think we've really made a lot of gains and progress in getting properly staffed all across the country. Lots of places are. We still have some that we need to support and help, and of course, yes, it would have. If you look at our sales, obviously, was unbelievable, which is fantastic. Our operators were really hustling in that second quarter, and you can see it in our average weekly sales. Had we been able to get them more help, we probably would have had more. Bless what they did, that's for sure. Great. Just last question. As we look at your target of having $20,000 a week in off-premise sales, below that in July at about $17.6 is what I'm getting. Is July, and I know you guys have more limited experience with this, but is July a meaningfully seasonally low month for off-premise sales? I mean, how should we look at the July performance and how that fits into your target of $20,000 a week? I mean, July, historically, there is seasonality there, just overall total sales. You're going to see them down, we saw that in July just being just over $124,000. Harder to say on the to-go because, again, we're doing twice the business that we're used to doing pre-pandemic. I think we're going to learn a little bit about that. I think the dining rooms ramping up more and getting more open creates just that demand of folks wanting to be in the dining room again. Maybe that had a little bit of an impact on to-go sales, things like that. We'll just continue to watch it and see how it goes. We still feel good about being able to get closer to that $20,000 a week average. Great. I appreciate it. Thank you. Yep. Thank you. That is our final question. I would like to turn the call over to Tonya Robinson for closing remarks. Hi, I just want to say thanks you guys for joining us. We appreciate it. I hope everybody has a good night. Reach out if you have any additional questions. Thanks so much. Thank you. That concludes today's conference call. Thank you for participating. You may now disconnect your lines.