Earnings Call Transcript - TXRH Q2 2020

Operator, Operator

Good evening, and welcome to the Texas Roadhouse Second Quarter Earnings Conference Call. Today's call is being recorded. After the speakers’ remarks, there will be a question-and–answer session. I would now like to introduce Tonya Robinson, the Chief Financial Officer of Texas Roadhouse. You may begin your call.

Tonya Robinson, CFO

Thank you, April, and good evening, everyone. By now, you should have access to our earnings release for the second quarter ended June 30, 2020. 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 outbreak. 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 Kent Taylor, Founder and 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 Kent.

Kent Taylor, CEO

Thanks, Tonya. Legendary food and legendary service, it's a simple mission statement that has guided Texas Roadhouse for over 27 years. And despite the events of the last four and a half months, these words have remained a cornerstone of our culture and philosophy. From pivoting to go only back in March to now execute a limited capacity and outdoor dining along with traditional and curbside pickup, our managing partners deserve a huge thank you. They continue to work tirelessly to make sure they take care of every guest while at the same time providing a safe environment for our Roadies. Their jobs have never been more difficult as they now have the added responsibility of ensuring compliance with local capacity guidelines for operating their dining rooms while managing through the unique set of circumstances that has seen their restaurants' To-Go volumes remain well above historical levels. Despite this, our operators continue to find creative ways to adapt to the daily challenges they face. And the upward momentum of our sales shows that their efforts are paying off. Taking care of our employees has remained a top priority. As we have previously talked about, early on, we provided PPE to our employees, and since then have added symptom surveys, temperature checks, and partitions in our dining rooms. I'm particularly proud to note that in the second quarter of 2020, we spent approximately $4.7 million on added compensation, sick pay, and benefits for our frontline folks. We will continue to focus on their safety both near and long-term. This quarter showed us that our guests remain loyal to our brand and are willing to adapt. As our dining rooms reopened through the quarter, we saw our sales volumes increase. And as our sales improved, we also saw improved financial results with a return to positive restaurant margin and cash flow in June. With our cash position stabilized and over 95% of our company restaurants operating their dining rooms in a limited capacity, we have moved forward with some of the new restaurant development that had been placed on hold in March. During the second quarter, we opened two Texas Roadhouse locations and one Bubba's 33. In addition, we have opened two additional Texas Roadhouse locations in July. We plan to open four restaurants during this quarter and are moving forward with construction on eight additional sites that could open before the end of the year, including one Jaggers. While it is too early to get specific on development for the next year, we expect to continue to open new restaurants in 2021. We have also been working on potential changes to our building prototype that could further enhance our ability to handle higher To-Go sales. We believe uncertainty and volatility will remain with us over the coming months and quarters. Regardless of what comes our way, I have full confidence in the ability of our operators and restaurant Roadies to respond and adapt. I also know that our dedicated support center Roadies will continue to make sure that our operators are taken care of and have the resources they need. At the end of the day, it's about us remaining focused on legendary food and legendary service. Now, Tonya will provide a financial update.

Tonya Robinson, CFO

Thanks, Kent. We were pleased to see the reopening of dining rooms throughout the second quarter and the resulting sales improvement, which continued into July. Average weekly sales for all company restaurants climbed from about $55,000 in April to nearly $89,000 in June, and the 499 restaurants operating under a limited capacity dine-in model generated average weekly sales of over $96,500 in June, with To-Go sales accounting for roughly 25% of those sales. Our expectation based on recent trends is that we will continue to see this higher level of To-Go sales for the foreseeable future. Weekly sales in July moderated slightly to just over $86,000 for all company restaurants, with limited dining capacity of our restaurants averaging almost $88,000. July sales started off lighter compared to June due to normal seasonality along with the negative impact of the shift of the July 4 holiday to a Saturday this year. Additionally, with several states increasing restrictions in recent weeks, we have seen a slight moderation in sales relative to June's performance. However, this moderation has not been significant enough to have a material impact on our overall comp sales performance. On average, weekly sales at restaurants in most of these impacted states remain above our overall weekly sales average, and we are pleased to see average sales return to over $90,000 for the last week of the July period. Comparable restaurant sales for the second quarter declined 32.8%, and by month, comparable sales decreased 46.7%, 41.9%, and 14.1% for our April, May, and June periods, respectively. Comparable sales for our July period were down 13%, including an approximately 1.2% negative impact from the calendar shifts mentioned earlier. Restaurant margin as a percentage of total sales decreased to 2.5% in the second quarter. While this is certainly well below pre-COVID levels, we were encouraged by the monthly trajectory of our margins and pleased with the returns to a positive restaurant margin in our June period. At current sales levels, we expect to generate low-to-mid teen restaurant margins over the coming months. Cost of sales as a percentage of total sales increased to 34.7% in the second quarter. This line was negatively impacted, especially earlier in the quarter, by the higher To-Go sales mix, as these transactions typically do not have the benefit of a higher margin beverage attachment. Additionally, commodity inflation of approximately 2.9% for the second quarter was primarily driven by higher beef costs in the back half of the quarter due to the shutdown of many beef processing plants. With these facilities back online, we are seeing supplies increase and prices normalize. Labor as a percentage of total sales increased to 41.1% in the second quarter. Labor dollars per store week were down 17.3% compared to the prior year period, including declining hours of 26.3%, partially offset by a 9% increase in wage and other inflation. Higher wage rates are due to the increase in the number of To-Go hours, which is a non-tipped wage position. Additionally, as Kent mentioned, we incurred approximately $4.7 million of labor costs in the second quarter related to Roadie relief payments in sick pay, as well as additional benefits to our frontline employees. Finally, other operating costs as a percentage of total sales were 18.9%. Other operating costs were negatively impacted by the lower sales volume, as well as the added expense of purchasing gloves, masks, and other personal protective equipment and supplies. Moving below restaurant margin, G&A costs for the quarter decreased $10.3 million as compared to the prior year period. The primary drivers of the decrease were savings of $4.9 million from the cancellation of this year's Managing Partner Conference, a $2.5 million reduction of cash bonus and equity compensation, and $2 million of reduced travel and meeting expenses. We expect G&A as a percentage of revenue to return to a more normalized level in the back half of 2020 based on current sales trends. We ended the second quarter with $282 million of cash, which is up $52 million from the end of the first quarter. The primary drivers of the increase were proceeds of $50 million under our revolver along with $40 million of cash flow from operations. These inflows were offset by $35 million of capital expenditures. The increase in cash flow from operations for the quarter included $48 million of working capital inflows. In June, we generated positive operating cash flow with higher sales and improved restaurant performance and expect to do the same in July and for the remainder of the year, assuming current capacity restrictions. We will continue to allocate capital to the development of new restaurants based on the development plan Kent outlined earlier. However, to the extent that state and local guidelines begin to further reduce capacity in the dining rooms, we would reduce capital expenditures accordingly. Finally, I'd like to reiterate Kent's comments about the strength of our operators and our employees. Despite the challenges we have faced, they continue to keep their heads up and stay focused on taking care of our guests and each other. Their resilience and compassion are what keeps this brand strong not only during this crisis, but also into the future. That concludes our prepared remarks. Operator, please open the line for questions.

Operator, Operator

Yes, ma'am. And your first question comes from John Glass from Morgan Stanley.

John Glass, Analyst

Thanks very much. My question is on the comp improvements you've seen recently? How much now are you experiencing just the underlying capacity restrictions or do you think there's still more room to go, i.e. like shorter periods? Can you talk about maybe the outdoor dining — I've seen a number of Roadhouse locations that have impromptu patios, if you will, constructed in the parking lot, what kind of capacity has that added? And how many restaurants is that in total?

Kent Taylor, CEO

Go ahead, Tonya, you take that and I’ll add afterwards.

Tonya Robinson, CFO

Our limited capacity restaurants in July experienced a decline of 11.2%. We have a diverse mix of restaurants operating at full capacity and those at 25% capacity. This has resulted in varying outcomes across the board. The capacity levels, especially without outdoor dining, do not always translate to strict percentages like 50% or 75%. We are noticing improved sales earlier in the week and a lesser decline in sales during that time, while weekends are showing a slightly higher decline, which aligns with our normal sales patterns throughout the week. Our operators are capitalizing on shoulder-to-shoulder opportunities, opening earlier and utilizing outdoor dining, among other strategies, to maximize sales.

Kent Taylor, CEO

This is Kent. And then a lot of it's weather-related, like we were able to do some outdoor dining in Texas, now it's 100 degrees, so it's a little different. California has been effectively shut down except for outdoor dining and we're doing better there. Then you have places up in Minnesota, Michigan where it's working well, so it just depends on weather in a lot of cases.

John Glass, Analyst

Okay. Thank you very much.

Operator, Operator

And your next question comes from Brian Bittner from Oppenheimer. Please go ahead.

Brian Bittner, Analyst

Thanks. Hi, guys. It looks like your To-Go sales are steadying out at around 25% of sales. It sounds like you expect this to continue moving forward. As it relates to the To-Go business, can you help us understand the profitability or the margins of the To-Go business compared to your core dine-in business?

Tonya Robinson, CFO

Sure, Brian. This is Tonya. Yes, typically that To-Go is going to be about $4 less from a PPA perspective because you do lose that alcohol and beverage attachment overall, not just alcohol but soft beverage attachment, which has a higher margin. So typically that's what you're going to see now from a To-Go perspective. You typically need fewer labor hours on a To-Go transaction, but you are paying out higher wages because that is a minimum wage position versus a tipped wage position inside the restaurant. So you are going to have a little bit from a higher wage perspective from that. But we've been really looking at those transactions pretty carefully, understanding where there's some opportunities to gain efficiencies. Kent might want to speak a little bit to the prototype that we're looking at, where we're taking advantage of those higher To-Go sales and making some changes there. We're looking at some things from a technology standpoint to help make those transactions just easier to try to reduce the labor impact a little bit more.

Kent Taylor, CEO

Yes, this is Kent. Our operators have been awesome. It's figuring out how to take either all or part of our waiting rooms and put a door on it, put a sliding window on it, curbside walk up to the window six feet away from the next window. So we really adapted our buildings to take on that additional volume, and as you said, we believe that this additional volume will continue even as stores get back to 50% or even 75%.

Brian Bittner, Analyst

Thank you.

Operator, Operator

And your next question comes from the line of Peter Saleh from BTIG.

Peter Saleh, Analyst

Great, thanks for taking the question. Congrats on the sales improvement. I just want to ask about Tonya about the free cash flow comment. It sounds like at this level, you're self-funding. Does that include maintenance CapEx and growth CapEx? Did I hear that correctly on your self-funding at these levels in terms of growth?

Tonya Robinson, CFO

Yes, that's true, Peter. That's what we're seeing, that's what we saw in June. With higher sales volumes, we were able to — our operators were able to create enough cash flow from operations to help us from that perspective. So we expect to kind of see that going forward, we did have some working capital inflows that benefited us too in June just from a timing perspective. But that does include offsetting CapEx from the development of new stores and also maintenance of existing assets.

Peter Saleh, Analyst

Great. And then just on the To-Go business, when you look at this in totality, are these new customers that you think you're capturing in this 25% of sales? Are these your existing guests just coming in and using you in a different way?

Kent Taylor, CEO

This is Kent. I would say, it's mostly existing guests, but I've gotten some letters, interestingly enough specifically more in the March, April timeframe, people that had not been regular guests of ours, that said they really appreciate everything we've done and how safe we've made it. They are not going back to whatever restaurant they might have mentioned before, but they're going to stay with us. So I think absolutely, we've made a lot of new friends.

Peter Saleh, Analyst

All right, thank you very much.

Operator, Operator

The next question comes from the line of David Tarantino from Baird.

David Tarantino, Analyst

Hi, good afternoon. Kent, my question is basically about the unit growth outlook. It seems like you're thinking about really restarting that effort after taking a bit of a pause. But I wonder if you could talk about what you're seeing from a real estate perspective and whether you think there are more opportunities coming to you that you can take advantage of in 2021 and 2022 and what that might mean for the pace of growth as you look out beyond this year?

Kent Taylor, CEO

Sure. So, no, that would be like 2021 this year, we would have been over 30. So we kind of — we push, say 10 plus over the next year, and next year was already looking at 30 plus. So we're seeing which of those stores we can now push to 2022. To be honest with you, we haven't really been chasing a lot of new stuff because we can't tell the people we're buying it from that we will build, or leasing it from that we will build within the next 12 months. But there's a lot of people calling us and saying this is open, this restaurant closed or this business closed. So yes, I would say that the availability is definitely on the increase.

David Tarantino, Analyst

And if that — is your comment meant to imply that next year could be a more normal year on development, you mentioned that 30 number, or do you think you can maybe surpass that number and think about the next few years given the range of opportunities you're seeing?

Kent Taylor, CEO

Well, if you could tell us what our occupancy is going to be for the next four months, that would be great. Then I give you an answer.

David Tarantino, Analyst

Fair enough. And then Tonya, can I ask a question about the margin? So you mentioned low-to-mid teens at the current sales level? What would that imply if you were to recapture 100% of the sales you used to have? Would that get you back into that 17% restaurant margin range that you were in 2018 and 2019 or would it be higher than that?

Tonya Robinson, CFO

I think a lot would depend on what the mix of sales were. How much work To-Go versus dine-in, because as I mentioned earlier that To-Go transaction has a little bit different margin profile than maybe a dine-in transaction. So I think a lot will depend on that. And then our ability maybe to have that To-Go transaction be a little more profitable would certainly help from that perspective. So that would probably — that would certainly be a goal of ours to get back to more in that 17% to 18% range where we've been and maybe even be able to move it further. But I think a lot is going to depend on how things play out with just the mix of sales and things like that.

David Tarantino, Analyst

Great, thank you very much.

Operator, Operator

The next question comes from the line of Jeffrey Bernstein from Barclays.

Jeffrey Bernstein, Analyst

Great, thank you very much. Kent, I'm just wondering, I think you mentioned in your prepared remarks that you see some changes in the new unit prototype as you mentioned earlier in terms of the unit growth in the back of this year in ‘21, ‘22, I'm just wondering if you can give any context behind that. I know it's all about keeping the energy in the building, but it seems like more of the sales is going to be To-Go, so you think it's more boxes and maybe just a whole different pickup delivery potential opportunity or outdoor dining, any kind of thoughts on the changes from the pandemic in terms of the core Texas brand?

Kent Taylor, CEO

Sure, basically, we're just taking our waiting rooms and in some cases where we've got an outdoor overhang, where we had some outdoor waiting before, we're pushing that wall out. That way we have more space to do To-Go curbside in that area. Then on the other half of that prior waiting room, we can now store To-Go supplies, but we're going to put a bar and door that goes toward our lobby, and then you can slide that door and it can become on-deck seating or waiting for elderly folks, as an example, that would be spaced six feet apart. So we'll have that ability for that room to pivot depending on what's going on at that time.

Jeffrey Bernstein, Analyst

Got it. And then you — there was no mention of Bubba's in the prepared remarks and I’m just wondering if you have any thoughts on the future growth there and representing during the pandemic that would leave you more or less excited about the brand. It seemed like it's a little tougher because there's less alcohol sales and less sports and whatnot, but any changes you might consider there?

Kent Taylor, CEO

Well, believe it or not, they're probably our best group of putting tents and outdoor seating in because of the garage doors we have in the bar, we can create kind of that outdoor component in our bar area as well. We have some outdoor patios of which some are covered in summer and then we'll look to maybe cover some more. Then you put fans out there and TVs. As you may recall or not, we have music videos as an option, plus chive TV in Bubba's and so when there's no sports on, we just have more TVs on the music videos. So when you come in and get some amazing food, you can like stand up by your table and dance just as long as you stay six feet away from the next table.

Jeffrey Bernstein, Analyst

Sounds like it would be hard to do. But, so that doesn't sound like there's been a change in terms of the enthusiasm for Bubba's on the heels of the pandemic.

Kent Taylor, CEO

Oh, not at all, more so.

Operator, Operator

The next question comes from the line of Jeff Farmer from Gordon Haskett.

Jeff Farmer, Analyst

Thank you. I'm just curious what the last six to seven weeks have looked like in states like Florida, Texas, and I guess more recently, Ohio in terms of the jump in COVID case counts. Have you seen consumer behavior change, customers attributed to off-premise anything you can provide would be helpful.

Tonya Robinson, CFO

Sure, Jeff. This is Tonya. In some situations and in certain states, we did see a slight moderation as I mentioned, though it wasn't anything significant from a comp perspective. It's interesting in Ohio, we've seen really strong performance from a lot of those restaurants and they came out of the gate open 100% with the partitions, and we've had some stores in Ohio with positive sales year-over-year. So I think that's pretty positive. So overall, a little bit of moderation again, but nothing at this point that's too significant.

Jeff Farmer, Analyst

And then Tonya, just as a follow-up, you did touch on Virginia dollars decreasing materially year-over-year for the first two quarters? How should we be thinking about that for the back half of 2020 and into 2021?

Tonya Robinson, CFO

Sure, I think at the current sales levels, we're seeing, assuming those continue into the back half of the year, I would expect G&A as a percentage of total revenue to get to a little more normalized level, which is kind of in that 5.5% range. G&A looks for ways to reduce costs and things like that all the time. But it feels like just from a normalized perspective, that's where we could be for the back half of the year. And looking ahead, I think we've learned some things so far and we'll continue to learn things this year that we'll be able to carry over into 2021 and maybe even keep G&A a little bit more moderated. So that would be our goal.

Operator, Operator

Your next question comes from the line of Dennis Geiger from UBS.

Dennis Geiger, Analyst

Great, thank you. I was just wondering if you could talk a bit more about further gains from here, Kent and Tonya. You gave good color on shorter periods, outdoor dining, et cetera. But beyond increased consumer mobility and willingness to dine out and restrictions easing, maybe if you could just kind of frame that the biggest opportunities from here to continue this recovery. Is it expanding outdoor dining? Anything else to drive shorter periods or greater capacity days of the week partition just kind of curious how you're looking at the biggest drivers within the context of current restrictions?

Kent Taylor, CEO

It's Kent. Well, we've definitely learned about outdoor dining, and I would tell you that I could see adding a little more outdoor dining to some specific locations as a lot of our guests seem to like that. If we mentioned that To-Go rooms converting to help us be more efficient and quicker at To-Go, which might make the guests want to come back more because they can have a quicker experience with us. And then as Bubba's is the same kind of thing, so those are the big things like partitions. We did all of our restaurants. It took us six weeks, and we put these partitions separating the booths and separating diners from the other booths on the other side of a wall, so we've done that in all of our existing restaurants and we are now adding those partitions to new restaurants. So Tonya, if I missed something, take it away.

Tonya Robinson, CFO

No, I think you hit on just about everything. We have seen party sizes reduced slightly, on average. It kind of makes some sense when you think about folks coming into the restaurant. So the table sizes and things like that potentially could, there may be some opportunity there. We did a pretty good job of that really pre-COVID, with seat utilization and things like that. That would be the only one I might mention as a possibility.

Operator, Operator

The next question comes from the line of Christopher O'Cull from Stifel. Please go ahead.

Christopher O'Cull, Analyst

Yes, thanks. Good afternoon, guys. I had a question just about new store performance, Kent. I was wondering, it seemed like the new stores are probably opening softer than honeymoons. What are the implications of opening stores with softer honeymoons?

Kent Taylor, CEO

Well, I would tell you that we've got some new stores that have opened that are like even outdoor dining and To-Go only that are doing quite well. So I don't think there's any trends it's just one location might be doing fair and the next one is doing amazing. Our newest location of Bubba's is still doing amazing. So it's just all over the board. I don't think you can say there's a specific trend unless, Tonya, you have a thought on that.

Tonya Robinson, CFO

Now, I don't think there's any implications necessarily from opening restaurants right now. I think there are a lot of good learnings that come into play, and sometimes with those lower volumes, it gives the store a chance to really, get its legs underneath it, it doesn't get slammed with those higher volumes right out of the gate. So you can maybe see that as a little bit of a positive, and they build good brand awareness in the community. I think you certainly have folks out there looking for places to go right now. And I think that maybe can even help them out a little bit too.

Christopher O'Cull, Analyst

Just one last one, Kent. How long do you think it'll take the real estate market to start to recognize the need for different pricing or lease terms for restaurants?

Kent Taylor, CEO

Well, we're seeing some folks approaching us now with that thought pattern. So we haven't cut any deals specifically yet, but I would say yes, they have already been a little more flexible.

Operator, Operator

And your next question comes from the line of Lauren Silberman from Credit Suisse.

Lauren Silberman, Analyst

Thank you. For restaurants opened at limited capacity, they seem to be sustaining volume that is three times pre-COVID levels. So as on-premise continues to return, do you think your average weekly sales will exceed prior or pre-COVID levels with some incremental off-premise volume?

Tonya Robinson, CFO

I think it's could be a possibility. I think we're going to learn a lot here in the back half of the year, as capacities hopefully, fingers crossed begin to increase and we learn more about what these To-Go volumes look like. But I'll tell you, whether it's 100% capacity store or 25% capacity, deals like that, 25% To-Go holds pretty well across the board. We don't see any fall-off from that with a higher capacity restaurant. So I think again, it will — I think we can continue with all the things we're doing from a To-Go perspective, that focus we have, I think we can continue to build those sales along with dining room.

Wayne Taylor, CEO

Yes, this is Kent. And yes, 100% usually means closer to 80%, 85%.

Lauren Silberman, Analyst

Great. Thank you so much.

Operator, Operator

And next question comes from a line of Andy Barish from Jefferies.

Andy Barish, Analyst

Hey guys, just a couple of quick ones. First on the people side, any staffing issues with reopening, and should we expect any sort of extra or love payments continuing into the 3Q?

Kent Taylor, CEO

This is Kent. Yes, it's been tough staffing specifically through July with the extra $600. We hope that more people will be motivated to come back to work. So we will see that in the next few weeks. It's hard to understand what that will look like until we've experienced another four weeks here.

Andy Barish, Analyst

And anything just financially, we should look at in terms of payments or COVID-related costs continuing into the 3Q?

Tonya Robinson, CFO

That's okay. Right now not at this time, I think we're going to continue. We'll just continue to watch. I think with the dining rooms reopening and getting back to a little bit of higher levels of capacity, doesn't feel like at this time, but we'll continue to evaluate as we move forward.

Kent Taylor, CEO

Yes, the folks that are serving people inside and in the parking lot are making tips. So it's quite a different ballgame at this point.

Andy Barish, Analyst

Excellent. And then one quick To-Go follow up just, I think you've kept the family meals and ready-to-grill in a lot of places and the full menu. Can you kind of give us a sense of what a typical To-Go order mix looks like in terms of regular menu items or family packs and things like that?

Kent Taylor, CEO

Sure, ready-to-grill is only in a few stores and then Tonya, if the mix, clean family pack in the To-Go, I don't know that recently.

Tonya Robinson, CFO

Yes, family packs are really less than 1% of the total mix. Right now what we're seeing currently, it's a pretty small number.

Andy Barish, Analyst

Thank you.

Operator, Operator

Your next question comes from the line of Andrew Strelzik from BMO.

Andrew Strelzik, Analyst

Good afternoon. First question from me, there's been a lot of conversation in the industry about independent restaurants. I was curious if you could comment on what you're seeing in some of your markets and if you're positioning to do anything kind of incremental to maybe capture some of that market share should it arise?

Tonya Robinson, CFO

Sure, Andrew. This is Tonya. Go ahead. Go ahead, Kent.

Kent Taylor, CEO

Yes, it's hard to tell. I really feel bad for those folks in the independents. A lot of them don't have the outdoor area that we have or the parking lot that we have. It really kind of varies city to city, so I don't really have any insight on that.

Andrew Strelzik, Analyst

Okay, and you mentioned beef prices kind of normalizing now. I'm just curious if you can comment on how the supply chain is holding up. Have you been able to extend any coverage on beef or just kind of how those dynamics are shifted as the prices have been so volatile? That will be great. Thank you.

Tonya Robinson, CFO

Sure. We are seeing better supply now because many of the processing plants are back online. We have been able to get more visibility on things like pricing, but I think there still could be some volatility as we move into the back half of the year based on what we've seen in the past.

Operator, Operator

And your next question comes from the line of John Ivankoe from JPMorgan.

John Ivankoe, Analyst

Hi, thanks. So actually a follow-up on the partitions if I may, there seems to be so many different kind of local rules and whether the partition can actually override the need for a six-foot or whatever the number may be distancing. Do you have a sense in your restaurant kind of what kind of capacity those barriers or those partitions actually could provide? Since you're seeing this on a day-to-day basis, I mean what is the overall trend in those regulations as the timing has been happening?

Kent Taylor, CEO

Yes, this is Kent. You're correct, every state views them differently. Even various cities within a state will also view them differently. But the biggest positive is just our guests, I think feel more comfortable knowing that somebody at the next booth, the air movement from them to the next booth is trapped by these partitions. To me, the biggest takeaway has been the positive comments from our guests.

John Ivankoe, Analyst

Definitely. It's definitely hard to tell. It's via. So I know it was a tough question. Thanks.

Operator, Operator

Your next question comes from the line of Jared Garber from Goldman Sachs.

Jared Garber, Analyst

Hi, thanks for the question. Most of them have been answered. But I did want to get a sense of if you're thinking about unit growth here any differently than you had been prior, just as it relates to maybe some of those smaller market rural locations you've been targeting prior to COVID. And if there's any change in the strategy there? Thanks.

Kent Taylor, CEO

This is Kent. No one — when you pick a site, it's almost a year and a half these days before you open. We're still going there in a lot of these smaller markets that we picked like a year, year and a half ago. And as I'm looking at the development report, yes, there's definitely still a bunch on the books for 2021, and we've been very pleased at the sales in those smaller cities.

Jared Garber, Analyst

Thanks. if I could just have one follow-up. Tonya, could you help us contextualize maybe the margin difference of a sort of a dine-in order versus To-Go order, maybe orders of magnitude or just kind of a relative delta between the two? That'd be very helpful. Thank you.

Tonya Robinson, CFO

Yes, probably the biggest piece of information is that there’s about a $4 difference on PPA. To-Go is about $4 lower than what you would see on a dine-in PPA. Again, typically, you're going to have less hours, it should be a lower labor cost, but you are paying a higher wage on those To-Go. So you're going to be spending a little bit more from a cost of sales perspective, typically on those To-Go transactions because you're losing that beverage attachment. That tends to be a higher margin. So you're going to be spending a little bit more from a cost of sales perspective, typically on those To-Go because what you see on To-Go is they tend to stay away from bigger stakes, and you tend not to see as much from a combo perspective. Appetizers usually don't have as many occurrences on appetizers. Some of that just being higher-margin items just kind of impacts that transaction a little bit more. So those would be the things Jared I would mention, it really just depends at the end of the day on the labor side.

Jared Garber, Analyst

That's really great color. Thanks, Tonya.

Operator, Operator

Our next question comes from the line of Brian Vaccaro from Raymond James.

Brian Vaccaro, Analyst

Great. Thanks and good evening. On the capacity front, could you share what percentage of units are currently operating at the different levels of indoor capacity restrictions? And then on the outdoor dining piece also what percentage of the units are currently offering expanded outdoor dining, and how much of an incremental sales layer has that contributed on average?

Tonya Robinson, CFO

Hey, Brian. I'll tell you on the outdoor dining, we don't have a firm count on the number of stores with outdoor dining, because a lot of times the number of seats really varies. You may have one location with just a couple of tables, because that's really all they can accommodate versus some that will have big tents with picnic tables and different things like that. We haven't really gone as far to quantify that outdoor dining, the number of seats or the volume there, those numbers add up as dining room sales right now. On the breakdown of capacity, really the bigger number is in the 50% capacity bucket, that's a little over 332 restaurants, based on today's numbers. Then you have about 115, would be the next biggest group that fall in 100% capacity. You got about 68 in the 25% and then 27 in the 75%. Then you get into single digits at that point in the other groups.

Wayne Taylor, CEO

Yes, this is Kent. That 100% is really more like 80%-85%. And then as Tonya also mentioned, where you might fill up a six-top to four with six people, that might be closer to four now.

Brian Vaccaro, Analyst

Yes, great.

Wayne Taylor, CEO

Yes, this is Kent. That 100% is really more like 80%-85%, and as Tonya also mentioned, where you might fill up, a 6-top to 4 with 6 people that might be closer to 4 now.

Tonya Robinson, CFO

We will see continues of guests, wait lists and reservation lists, things like that. So I think that will help drive capacity moving forward.

Brian Vaccaro, Analyst

Okay, helpful. And sorry if I missed it earlier, but do you have an updated 2020 CapEx target range?

Tonya Robinson, CFO

No, we have not. We have not done that yet. Go ahead, Kent.

Kent Taylor, CEO

No, we don't know, obviously, because we're moving and shaking and changing as things go. As we just saw based on the strength of June and July, we lost some more stores that we had not planned on. So really each month as we reevaluate our cash flow, we let one, two, three, or four go. So that's kind of how it's working these days.

Tonya Robinson, CFO

Thanks, Brian.

Operator, Operator

And we have no further questions at this time. I'd like to turn the call over to the management team.

Tonya Robinson, CFO

Thanks, April. Thanks, everybody for joining us tonight. I hope you all are doing well. If you have any other questions, please reach out and let us know. Have a great night.

Operator, Operator

This concludes today's conference call. Thank you for your participation. You may now disconnect.