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Del Frisco's Restaurant Group Inc (NASDAQ:DFRG)Q4 2018 Earnings Conference CallMarch 12, 2019, 8:30 a.m. ET
Contents: Prepared Remarks Questions and Answers Call Participants Prepared Remarks:
Operator
Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the Del Frisco's Restaurant Group's Fourth Quarter Earnings Call. Today's conference is being recorded. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided for you at that time to queue up for a question.
I would now like to turn the conference over to Neil Thomson, Chief Financial Officer. Please go ahead, sir.
Neil Thomson -- Chief Financial Officer
Thank you, Abbie. Good morning, everyone, and thank you for joining us today. Here with me is Norman Abdallah, our Chief Executive Officer. After Norman and I deliver our prepared remarks, we'll be happy to take your questions. As you've probably already seen, we issued our fourth quarter and fiscal year 2018 earnings release this morning and our 10-K last evening. Both documents can be found at our corporate website www.dfrg.com, in the Investor Relations section, as well as on numerous financial websites.
Now allow me to read our Safe Harbor statements. Parts of our discussion today will include forward-looking statements. Please be advised that these statements are not guarantees of future performance and therefore undue reliance should not be placed upon them. We refer you to today's earnings press release and our SEC filings, including our 10-K for a more detailed discussion of the risks that could impact our future operating results and financial condition.
Additionally, we will be referring to restaurant level EBITDA, adjusted EBITDA and adjusted net income/loss, which are all non-GAAP measures as part of our review. We have therefore provided the reconciliation of these measures in the earnings press release tables to the most directly comparable financial measure presented in accordance with GAAP.
Finally, as you're all aware, we announced in late December that we have commenced a comprehensive review of strategic alternatives and would consider a variety of options. We have no update to provide at this time on that process and therefore will not be taking questions on this topic at the conclusion of our formal remarks.
And now I will turn the call over to Norman.
Norman J. Abdallah -- Chief Executive Officer
Thank you, Neil, and good morning, everyone. I would like to briefly review our fourth quarter and first quarter to date sales results before providing an update on our integration process, development plans for 2019 and our long-term outlook. Neil will then go into more details on our financials and issue our guidance for this year.
As we first announced in mid-January, our comparable restaurant sales were slightly positive during the fourth quarter with final comp restaurant sales at 0.1%. This reflected weaker trends in November than October as we rolled over new menu launches and marketing support from 2017 and then an upswing in December. Flat comparable restaurant sales of Double Eagle primarily reflected a sales transfer from the Boston Double Eagle to the new Boston Back Bay Double Eagle, which we estimate would have increased 1.5% excluding this planned sales transfer. While the addition of Boston Back Bay has a near-term negative impact to the Double Eagle's comp calculation, more importantly, we are substantially growing our fine dining market share in the city, with 2019 Double Eagle revenues from Boston up close to 50%. Our new restaurant offer six private dining rooms compared to only two private dining rooms at our Boston Seaport location, providing us with the opportunity to capture a much greater share of the private dining market, which typically builds over the first few years of a Double Eagle opening.
We experienced this dynamic at Double Eagle before in the DSW market, where we closed our original Dallas location, opened uptown and then Plano, which similarly had a temporary comp impact on that town, despite growing our share of fine dining locations in the surrounding area. We are now growing annual revenues by close to 300% in the Dallas and Plano markets compared to the original restaurant with both of these new restaurants performing well and comp positive year to date in 2018. Del Frisco's comparable restaurant sales were down only 0.9% and flattish on a two-year basis, the brand's best result for all of 2018. We're seeing initial signs of the turnaround starting to take effect with comparable sales flattish since the implementation of our new strategy in Q4 of 2017, a more than a 250 basis points improvement compared to the period from Q1 2015 to Q3 2017. Encouragingly, Q4 private dining sales of the Double Eagle and the Grille rose 8.9% and 13.8% on a comparable basis respectively which in our estimation reflected the strength of the business consumer despite volatile capital markets during the fourth quarter, coupled with effective marketing of our improved banquet menu offerings and our focus on flawless execution.
We are delighted with the results at Barcelona and bartaco which posted our best comparable sales results at 1.9% and 1.6% respectively and are indicative of their smooth integration to DFRG. Notably, bartaco's Q4 comparable sales were up 7.8% in the roughly two months after lapping the 2017 incident at Port Chester, which was a significant drag on sales in the preceding 12 months. More importantly, the momentum from December has continued into the first quarter, and this reflected across all four brands. Comparable sales of the Double Eagle are only slightly negative and would be flattish, excluding the continued sales transfer from our Comp Boston Seaport location to our new Boston Back Bay restaurant. Traffic count has picked up compared to Q4 and is in line with comparable sales for the quarter. Comparable sales at Del Frisco's are flattish. Recall from our Q3 earnings call that we reported significant churn in our guest base as we strategically target "Experienced Spenders" and "Social Scenesters" and not on our value focused guests.
We expect the largely offsetting significant increases in check and decreases in traffic to moderate over time as these strategic changes take hold and we are starting to see evidence that is happening with the sequential improvement in traffic from Q3 to Q4 of 2018 and a further sequential improvement in the quarter to date. Private dining sales at both the Double Eagle and Grille remain strong, growing mid to high single digits, despite lapping formidable comparison at the Grille from prior year. And lastly, Barcelona and bartaco continued to perform very well and are off to a strong start in 2019, with sales tracking positive in the low to mid single digits.
The fourth quarter was a very busy period for new openings, as we opened a total of five restaurants. Specifically, we opened a Double Eagle in San Diego, California, two Del Frisco's Grille in Philadelphia, Pennsylvania and Fort Lauderdale respectively and two bartacos in Fort Point, Massachusetts, and Dallas, Texas respectively. We have also opened three new restaurants already in Q1 of 2019, a Double Eagle at Century City, a Barcelona in Charlotte, and a bartaco in Madison, Wisconsin.
You will recall in 2018, we opened a record nine restaurants consisting of three Double Eagles, three Del Frisco's, Grille and post acquisition, three bartacos. There were also an additional three restaurant openings prior to the acquisition, consisting of one Barcelona and two bartacos. Notably, eight of our 2018 opening took place in the second half of the year, including five in Q4 compared to one in the second half of 2017 with none in Q4. It typically takes at least 6 months for new restaurants to achieve EBITDA margins at similar levels to more mature restaurants in sales can take 18 months to 36 months to reach maturity which is why we set third year return on invested capital targets for new restaurants.
Overall, new restaurant EBITDA margins were 290-basis point drag on total margins in Q4 2018 compared to EBITDA margin at restaurants that were included in our comp store sales group. By bringing and using the same methodology, we estimate a 460-basis point impact to the Double Eagle, a 50-basis point impact to Barcelona, a 400-basis point impact to bartaco and a 120-basis point impact to the Grille restaurant level EBITDA margins from new restaurants in Q4. Also, we do not seek to generate significant upfront buzz around openings in an effort to generate record sales in their early weeks and months. In fact, we actually limit the number of reservations we take early on, open it with limited day parts and rather employ a soft opening strategy. This enables our teams to better acclimate to their new roles and deliver the high standards of service and attention to detail that differentiates our brands and fosters the building of long-term relationship with our guests.
Still, on a blended basis, our 2018 class of openings are hitting their initial sales and margins and we anticipate that they will similarly reach their three-year in long-term targets, contributing meaningful to our adjusted EBITDA growth over time. Recall that all restaurants are approved based on achieving a minimum of 35% to 40% return on invested capital after tenant allowances and excluding pre-opening costs in their third year of operation.
Turning now to the integration process. We are on or ahead of schedule and on track to complete it midway through this year as planned. You will recall that all four of our Brand Presidents are now working out of our Irving, Texas Restaurant Support Center, as well as all key members of their dedicated brand teams. They operate autonomously, but because they are part of a discipline, larger organization, they can learn from each other and share experience and knowhow. Across all four of our brands, we seek to create an environment where our guests can celebrate life through cuisine that is bold and innovative, award winning wine list, handcrafted specialty cocktails and superior hospitality with each dining occasion.
We are also making headway with our systems integration. At the end of this month, we expect the entire DFRG to go live on our new HR system workday, while Barcelona and bartaco are expected to go live on our accounting system shortly thereafter. Our Double Eagle and Grille brands already transitioned to the new accounting system at the start of 2019. Again, this is at the early end of the 12 months to 18 months time-frame we laid out when we first announced the transaction.
You may also remember that through our acquisition of Barcelona and bartaco, we projected cost-saving opportunities in G&A and purchasing across all four brand portfolios, because of the greater scale, combined knowhow and capabilities for best-in-class supply chain. These savings were first projected between $3 million and $5 million and then we expressed the belief that they are likely to be at the high end of this range with the next significant run rate savings beginning in the second half of 2019.
We are now pleased to be raising our expectations even higher with the full value of the integration benefits projected at $10 million to be fully realized by 2020 or 2021. We anticipate just over half of these savings to be G&A related. Some of these savings have started to be realized during like 2018 with a number of people rolling off their support contracts toward the end of the year, while other G&A savings will only start to be realized in the second half of 2019 as integration is completed.
The balance of the integration benefits are anticipated through purchasing savings, new labor management systems and other operating expense efficiencies. We intend to use the benefits of these cost reductions to offset anticipated cost inflation.
In the terms of new development in 2019, our three growth brands, Double Eagle, Barcelona and bartaco have generated a strong and consistent unit level performance across a variety of markets and geographies forming the foundation for a national growth story. There are a total of eight openings planned for this year, of which three have already been opened to date. Note this is a moderation from our original plans as we look to both reduce CapEx in the near term and ensure that we are set up for every opening for success with best-in-class management teams, training and support. Last month, we opened a Double Eagle in Century City, California. The Double Eagle in Santa Clara, California, that was originally planned to open this year, has been pushed to early 2020 due to delay in the mall development. It will then be followed by the Double Eagle in Pittsburgh, Pennsylvania, that we expect will similarly open next year.
In late January, Barcelona opened in Charlotte, North Carolina, which was a brand strongest opening in four years, and this opening will be followed by restaurant openings in Raleigh, North Carolina in Q2, and Dallas, Texas in Q4 of this year. We also have a lease signed for Barcelona opening in 2020 in Miami, Florida, and are building the pipeline from one to two further 2020 openings. Bartaco opened in Madison, Wisconsin, in February, and this will be followed by planned new restaurant openings at King of Prussia, Pennsylvania in late Q1, Deerfield, Illinois in Q2, and Aventura, Florida in Q4.
In 2020, we have leases signed for openings in Arlington, Virginia; Miami, Florida; and Denver, Colorado. We're also building the pipeline for one to two further 2020 openings. As a reminder, there are no Grille openings planned for either 2019 or 2020 as we seek to optimize our current portfolio, and absorb the learnings from a market research conducted in 2017.
We have been pleased with the start that two of our newest Grille's have made, which opened in Q4 and expect the restaurants to hit their third year sales target at the end of 2020. Notably, our restaurant in Fort Lauderdale has quickly become the second highest revenue generating Grille after our New York City location.
As part of our asset portfolio optimization strategy, we also closed a number of restaurants last year, three Grilles, two bartacos and more recently the Double Eagle in Chicago in January. We have one additional closure under consideration, but beyond that, no other restaurant closures are currently contemplated. These steps are necessary to optimize our portfolio, ensure high returns and solidify our platform for future growth. As you'll notice, our CapEx guidance for this year of $25 million to $35 million reflects a significant markdown from our most recent expectations of $50 million to $60 million, and following significant capital investment in the second half of 2018 and the first half of 2019, we expect to generate free cash flow in Q4 2019 as our new restaurants start to contribute meaningfully toward our EBITDA.
Looking ahead, we are now furnishing guidance through the end of 2023. Last year, we had issued guidance through the end of 2021, but believe this longer term view of the business is necessary, giving some of the changes that we have since made to the timing of development among other things. While this new outlook still sets a high bar, it also gives us greater near-term flexibility in positioning ourselves to reach those goals. Specifically, we are now targeting generation on an annual basis by the end of 2023 of at least $800 million in consolidated revenues and $130 million in adjusted EBITDA. Getting there is based upon the following assumptions. Consolidated revenue growth of at least 10%m comparable restaurant sales growth of 0% to 2%, new restaurant opening growth of 10% to 12% annually, maintaining strong restaurant level EBITDA margins, general administration cost leverage and adjusted EBITDA growth of at least 15%.
So as you can see, we have a lot on our agenda that we intend to accomplish and complete this year along with a roadmap for sustainable long-term growth. Our confidence in being able to reach these milestones is buoyed by our operation-focused culture, the strength of our field-based teams and the high quality of our restaurant support center team where we have made significant investments in the past 2 years. Our passionate teams are dedicated to doing right and exceeding the expectation of our guests and shareholders.
I will now turn the call back to Neil for a more comprehensive financial review.
Neil Thomson -- Chief Financial Officer
Thank you, Norman. Let's begin with a discussion of the 13-week fourth quarter ended December 25, 2018, for continuing operations. For comparison purposes, I will use the recast fourth quarter 2017, the 13-week period ending on December the 26th 2017, contained in the back of our earnings press release. The earnings press release also contains the longest 16-week quarter as we had reported at last year. Note that with the completion of our sale of Sullivan's on September the 21st 2018, operating results for Sullivan's and related impairments and loss on sale are included in discontinued operations for all periods presented and we will therefore not discuss the brand in any detail.
Q4 consolidated revenues for the continuing business consisting of Del Frisco's Double Eagle, Del Frisco's Grille, Barcelona and bartaco, as if they had all been part of our company in the year-ago period as well, increased by 7.9% to $123.8 million from $114.7 million. This overall growth was driven by 10.7% growth at Double Eagle, 9.1% growth at Barcelona, and 13.4% at bartaco while growth of the Grille was flat.
There was an increase of 61 net operating weeks with new openings more than offsetting restaurant closures. Total comparable restaurant sales increased 0.1% consisting of a 3.1% increase in average check, partially offset by a 3% decrease in customer accounts. By brands, comp sales were minus 0.1% at Double Eagle, comprised of a 2.6% decrease in traffic and 2.5% increase in average check.
There were 11 Double Eagle locations in the comp base out of a total of 16 restaurants at quarter end. Chicago, which we announced is closing in our Q3 earnings release, was excluded along with a three 2018 openings and a 2017 opening at Plano, Texas enters the comp group in Q1 of 2019. Note the sales transfer from our Boston Seaport restaurant to our Boston Back Bay restaurant has an estimated impact of 130 basis points on traffic.
Comp sales were minus 0.9% at Del Frisco's Grille, comprised of a 7.6% decrease in traffic and a 6.7% increase in average check. This continues to reflect the strategic changes we have made to the brand and our changing consumer base. However, note that our traffic counts are based on entree counts as is typical in the high end and polished casual sectors, but do not therefore take full account for the growth in our bar sales, which were up 3% year-over-year in Q4 and also impacted by our private dining sales mix which increased to 8.9% in Q4. There were 20 Del Frisco's Grille locations in the comp base at a total of 24 restaurants at quarter-end and three 2018 openings are excluded and that 2017 opening at Brookfield Place in New York enters the comp group in Q1 of 2019.
Comp sales were plus 1.9% at Barcelona, comprised of a 1.1% increase in traffic and 0.8% in average check. There were 13 Barcelona locations in the comp base, plus the (inaudible) out of a total of 15 restaurants at quarter-end. We exclude our 2018 opening in Denver, Colorado, and our 2017 opening at Passyunk in Philadelphia enter the comp group in Q2 2019.
Finally, comp sales of plus 1.6% at bartaco comprise of a 0.1% decrease in traffic and 1.7% increase in average check. For the nine weeks after rolling out the late October 2017 instance at Port Chester, comp sales were up 7.8%. There were 10 bartaco locations in the comp base, out of a total of 18 restaurants at quarter-end. The five 2018 openings are excluded along with our restaurant at West Midtown in Atlanta, where there is significant construction work in the immediate vicinity impacting the restaurants. Our 2017 openings at Chapel Hill, North Carolina and Denver, Colorado will both enter the comp group in Q2 of 2019.
We had an accounting adjustment to our reported revenue from our January the 3rd press release. During the course of our year-end procedures, we revised our estimates to gift card breakage, to recognize breakage over a five-year period compared to our previous three-year period. The effect was to reduce our GAAP reported revenue and net loss for continuing operations by $0.7 million, related to revenue that had been recognized too early, mainly in previous accounting periods. This is adjusted or in our adjusted EBITDA reconciliation, with our Q4 restaurant level EBITDA was also lowered by 50 basis points as a result. We expect that to be an immaterial impact to future quarterly revenue reporting as a result of this change.
Turning to our cost line items. Total cost of sales as a percentage of revenues increased by 20 basis points to 27.8% from 27.6% in the year-ago period. Most notable here was the 70 basis points uptick of the Grille, principally related to a continued mix shift to states, which now represents 17.7% of our sales mix compared to 14.2% before we launched our new menu in Q4 2017. (inaudible) 2% pricing in early Q1 2019 and we will continue to monitor opportunities to take pricing to offset cost inflation and adverse mix shifts.
Restaurant operating expenses as a percentage of revenues increased by 410 basis points to 49.5% from 45.4% in the year-ago period due to higher labor, operating expenses, and occupancy costs. Most notable here was the margin erosion at Double Eagle, bartaco and Del Frisco's Grille attributed to inefficiencies caused by their respective new restaurant openings.
As Norman noted earlier, eight of our 2018 openings took place in the second half of the year compared to just one in 2017, a new restaurant margin inefficiencies resulted in an estimated 460 basis points impact on the Double Eagle, 400 basis points at bartaco, and 120 basis points at the Grille. Overall new restaurants had a 290 basis points drag on total restaurant level EBITDA.
There are also two accounting impacts to restaurant operating expenses that are noteworthy. Firstly, with the acquisition of Barcelona and bartaco, the straight line rent accounting start point for existing leases changes to the date of acquisition from the lease start date. Although there is no change to the lease cost that we recognized over duration of the lease, the impact of this change is a higher non-cash straight line rent adjustments in the short term.
The impact in Q4 was to increase occupancy cost by 110 basis points at Barcelona, and 120 basis points at bartaco, which had an overall impact of 30 basis points on DFRG. On an ongoing basis, the impact of this change will be to increase 2019 occupancy costs by 60 basis points at bartaco and 50 basis points at Barcelona with an overall impact to DFRG of 20 basis points.
Secondly, in Q4 of 2017, Barteca management recognized $0.5 million of insurance proceeds as a reduction in operating expenses related to the October 2017 incident at Port Chester bartaco. This had the effect of increasing bartaco restaurant level EBITDA by 330 basis points and DFRG restaurant level EBITDA by 40 basis points in Q4 of 2017.
The insurance settlement process in this incident is ongoing, but no moneys were received in Q4 2018, so no income can be recognized. Now, for future accounting periods, that when the final insurance settlement is received, this will not be recognized as reduction to operating expenses, but as a separate insurance settlement line below other operating activity on our consolidated statements of operations in line with US GAAP and company accounting policy. This will also be excluded from restaurant level EBITDA. Marketing and advertising expenses held steady as a percentage of revenues at 2.5%, and for all the reasons just stated, restaurant level EBITDA decreased by $3.3 million to $24.9 million from $28.2 million in Q4, while the margin decreased 440 basis points to 20.1% versus 24.5% in the prior year.
Pre-opening expenses increased to $3.2 million from $0.3 million in the year-ago 13-week recasted period, reflecting the development of one Double Eagle, two Grilles and two bartaco restaurants opened in Q4 along with a Double Eagle, Barcelona and bartaco that already opened in 2019. Recall that pre-opening costs include non-cash straight line rent, which is incurred during construction and typically precedes a restaurant opening by four months to six months.
General and administrative expenses reduced to $11.8 million from $12 million in the 13-week recasted year-ago period and as a percentage of revenues decreased 90 basis points to 9.6% versus 10.5% in the year-ago period. The lower costs were due to lower bonus payouts in 2018 and G&A synergies, as we are already seeing benefits from the acquisition. Although, we look for greater G&A savings to be realized beginning in the second half of this year, when the transition of back office systems and support is complete.
We had a number of expenditures in Q4 that were significant that we consider non-recurring and that we have adjusted them out for comparison purposes. Consulting project cost totaled $4.8 million and this was principally related to the rollout of our new accounting HR systems and integration support. Lease termination and closing costs were $2.2 million. Reorganization severance was $1.4 million, primarily related to post-acquisition restructuring, discontinued operation cost was $0.8 million, a change in estimate for gift card breakage was $0.7 million, non-recurring legal expenses were $0.5 million and acquisition costs and donations were each $0.2 million.
Interest expense was $7 million, which reflected an effective interest rate of 9.3% excluding capitalized interest and it is based upon the term loan interest rates of LIBOR plus 600 basis points along with the amortization of debt syndication costs across the life of the loan. $200 million of this term loan is currently hedged with a cap of 3% LIBOR for four years. Also included here are interest costs related to our bill-to-suit lease accounting. GAAP net loss was $7.3 million or $0.22 per diluted share. This compared to the prior year GAAP net loss of $2.7 million or $0.13 per share. Excluding one-time items, adjusted net loss was $1.5 million or $0.04 per share compared to prior year adjusted net income of $4.8 million or $0.24 per share. Note that our diluted share count was 33.3 million in Q4 compared to 20.4 million in Q4 of 2017.
Now let's turn to our guidance for fiscal year 2019, which is a 53-week period that ends on December 31st 2019. We project total comparable restaurant sales 0% to plus 1.5%, seven to eight restaurant openings consisting of one Double Eagle, two to three Barcelona wine bars, and three to four bartaco restaurants.
To date, we have opened a Double Eagle in Century City, California; a Barcelona Wine Bar in Charlotte, North Carolina; and a bartaco in Madison, Wisconsin. You will recall that in November we had guided to 11 to 13 restaurants. However, we have since experienced some constructions delays, and we've also pushed some openings back into 2020, which of course will also result in lower net CapEx. With eight planned openings, this now brings us in line with our long-term disciplined growth goal of 10% to 12% annual new restaurant growth. Restaurant level EBITDA of 20% to 22% of consolidated revenues, we're anticipating the current relatively benign commodity market continue -- to continue with only modest inflation.
Note that with the acquisition of Barcelona and bartaco, we are less exposed to swings in beef commodity prices, with beef purchase now reduced to approximately 23% of our overall basket. General administrative costs at approximately $53 million to $55 million, which excludes items we consider non-recurring in nature. The majority of the increase from 2018 to 2019 reflects planned bonus payouts at 100% compared to lower payouts in 2018 and investments to support the continued restaurant growth. This is partially offset by G&A synergies, then note we will only see a full year benefit of G&A synergies in 2020.
Pre-opening expenses of $5 million to $7 million, net capital expenditures after tenant allowances of $25 million to $35 million, this is down from our original expectations of $50 million to $60 million, and adjusted EBITDA of $58 million to $66 million. We estimate that the extra week in the fiscal year will contribute approximately $1.8 million to our adjusted EBITDA. And finally, we are targeting net debt to adjusted EBITDA to just to around 3x by the end of fiscal year '21 and 2x by the end of fiscal year 2023, as we anticipate strong EBITDA growth from bartaco, the Double Eagle and Barcelona.
Now I would like to hand back over to Norman for some closing comments.
Norman J. Abdallah -- Chief Executive Officer
Thank you, Neil. 2019 is poised to be a great year at DFRG. We have positioned ourselves to drive sustained growth with a clear plan and vision in place for the business. We are very encouraged by our 2018 class, which is hitting it's stride as these restaurant gain efficiencies. Moreover, we believe these restaurants on a blended basis should deliver at or above their expected return on investment levels. We have also strengthened our portfolio through some necessary closures of underperforming assets last year with a Chicago Double Eagle in January.
We have a great development pipeline of eight planned openings this year. While we have taken our CapEx range down in 2019 relative to our original plans, growth CapEx still amounts over 85% of our total budget and we're in good shape to manage our liquidity and generate free cash flow starting in the fourth quarter of this year.
As I said earlier, our comp sales trends today are encouraging and we are particularly excited by the performance of our Barcelona and bartaco brands and by what a growing private dining business can do for the Double Eagle and Del Frisco's Grille and bring in more guests to our restaurants, including those that may have never dined with us in the past.
But more importantly than any single initiative, we are continuously seeking to elevate the guest experience through innovation and excellence, while increasing our guest engagement through the impact of marketing, enhance consumers insights. Every interaction creates an opportunity that feeds far exceeds expectations daily so that we can show how much we care. And through new marketing leadership, we intend to enhance our capabilities by leveraging loyalty, CRM and guest segmentation. We're already starting to see sales being generated from the use of improved customer data analytics and new marketing tactics. We're also looking forward to the launch of a new loyalty program in Q4 this year having recently kicked off the project with a leading third-party loyalty consultant with deep experience in the luxury and experiential dining space. Our integration is progressing well and should wrap up in the next few months. We're also very pleased to have identified greater savings than what we had first laid out, which can be realized. Above all, our brand teams are eager to deliver against our long-term targets, and by doing so, we believe we will be positioned to create significant value for our shareholders.
And as Neil said at the beginning, we won't be commenting on the strategic alternative process until complete. Rest assured, the management team and the Board are laser focused on maximizing shareholder value and working very hard on the strategic review process.
Thank you very much for your time and for listening to us this morning. Now I will turn the call back over to the operator who will open the lines for questions.
Questions and Answers:
Operator
Thank you. (Operator Instructions) And we will take our first question from Nicole Miller with Piper Jaffray. Please go ahead.
Nicole Miller -- Piper Jaffray -- Analyst
Good morning and thank you for the update. I have three questions, I thought I'd pose them now, if that's OK with you in essence of time.
Norman J. Abdallah -- Chief Executive Officer
Sure. Go ahead.
Nicole Miller -- Piper Jaffray -- Analyst
So -- the first question is you talk about being at the higher end of the $5 million savings and the delta had to do, I believe, you said with purchasing and labor et cetera. Maybe if you could just give us some more concrete examples so we could understand that.
The second question is when you talk about 2 times leverage at the end of fiscal '23 or any of the numbers you gave in between, is that at the current terms of debt meaning does that contemplate any renegotiation of those terms?
And then the final question, in your words where you spoke to me earlier today, you said, there is a lot that was going on. So it'd be great to hear about how your teams are doing, what are they collaborating on, where are they challenging and where are they excelling? Thank you so much.
Norman J. Abdallah -- Chief Executive Officer
You bet. I'll take the first question and Neil can add onto it. So, on the purchasing synergies again with the size of the overall Group, that helps in commodities. We are finalizing the process of the negotiations with our broad line distributor, which we will see significant savings in the case (inaudible). And then as you look at individual products and that also goes against all contracts that we have on a national level that are not food related. And again, when we started DFRG -- or I started DFRG about two-and-a-half years ago, we were very focused on high quality, but working with our vendors, we are able to get products that were adding greater quality with a cheaper cost. I'll give a few examples. So in the bartaco brand with tuna, we're saving $5 a pound using a better quality tuna that we use in the Double Eagle and the Grille, because the trimmings that come off of the tuna. We see the same impact coming from place and then putting both brands on a national level and produce with our produce provider where we can go directly to the fields and get the produce. That's where we're seeing synergies as well.
On the labor side, the implementation of HotSchedules, we will see the same benefits that we have seen in the Double Eagle and the Grille and previous management in Barcelona and bartaco, we're already looking at labor savings technology to help them. They just use the product that we had because they weren't able to get customization. But because of our size and a 25-year relationship, we are able to rewrite in code to fit and be able to fit the brand. So that's set a very high level, and as Neil said, (technical difficulty) savings that we're able to bring that was greater than what we thought at the beginning.
Neil Thomson -- Chief Financial Officer
Yes. And just to be clear, Nicole, we're now estimating total synergy savings of close to $10 million, and not the original $5 million. So about just over $5 million of that $10 million would actually be coming from G&A and you've seen announcements like the departure of Jeff Carcara, that's obviously a significant G&A saving. That's not a position that we are replacing. So it's those types of savings as we bring the business together and don't need all the headcount that as the two combined businesses, that adds up to that $5 million plus number and then the balance is through the purchasing savings, the labor savings, and some of the other operating efficiencies that we'll get as well.
Norman J. Abdallah -- Chief Executive Officer
Then maybe I'll take a second question, Nicole, that was on the leverage getting down to 2x by 2023. Yes, that is based on the guidance numbers that we've shared and our existing debt structure. So no plan changes to refinance that debt that go into that calculation.
And then the final question was on (multiple speakers). Yes. I'll take that Nicole. So we do have terrible things going on. But as I talked about earlier, the back of the office systems that we used across our brands, we're about six months early on that and we've already transitioned two brands onto that and the other two brands will transition shortly. We have also on April 1st, we will transfer all of our benefits -- Barcelona and bartaco will be on those benefits by April 1st. So a lot of the work has been done on the pre-empt. The last three to five months completely rolling out the ERP system, will be something that we'll do anytime rolling an ERP system, you look at risk or delay, but we feel very good with it and we've used a third-party consultant from day one that will continue to use as that rolled out, really on the operating end across the brands, there is no effect now that we have the full teams built, they are in the RSE (ph), and and we can see that from the comp store sales and the operating margins that those two brands continue to be consistent, pre-acquisition or better pre-acquisition as well. So that's where we feel good. The leadership team with Mia coming on as our CMO and her expertise in these type of brands, we're seeing a big improvement on comp store sales as well. So we feel very good about the work that's being done because of what's already been done on the back half of 2018, rolling in on to the first quarter of 2019. Neil, do you have anything else to add on that?
Neil Thomson -- Chief Financial Officer
No, I think, just maybe adding to this slightly, we really are operating as one company now. We had annual operations conference recently. We had representation from all four brands there. So, we had a phenomenal conference, we really are operating in full as an integrated company. It's just the HR and the accounting systems that we're waiting on that, that will get completed during Q2 to fully complete the integration process.
Norman J. Abdallah -- Chief Executive Officer
And processes -- just one more thing and think about development. We have implemented our development in real estate and construction process into the brands and we're already seeing that go very smoothly. So that's where we look at the disciplined growth and being able to execute against that plan and be able to truly measure return on invested capital for both of the emerging brands that we've brought in, bartaco and Barcelona.
Nicole Miller -- Piper Jaffray -- Analyst
Thanks again.
Norman J. Abdallah -- Chief Executive Officer
You bet. Thanks for the call.
Operator
We will take our next question from Will Slabaugh with Stephens.
Norman J. Abdallah -- Chief Executive Officer
Good morning, Will.
Will Slabaugh -- Stephens Inc. -- Analyst
Good morning. I had a question about the guidance for fiscal '19 and particularly around the margins. You mentioned 20% to 22% at the restaurant level. It's a fairly wide range, but just curious what the primary drivers are that could take you to the lower or higher end of that outside of same-store sales growth?
Norman J. Abdallah -- Chief Executive Officer
Yeah, hi, Will. It is a broad range. The main reason is we have a significant number of new restaurants, as we talked about on the call coming in. So the lower end risk would obviously be that those restaurants don't pick up their efficiencies where obviously that the higher end would be those restaurants performing to our expectations and getting to their efficiency levels. We mentioned on the call it takes typically about at least six months for a new restaurant to get to a mature level of restaurant margins. And if we achieve that, we would be sort of around the midpoint of that range, if we can get that quickly would be higher. And if it takes us longer, we'd be lower. And we had about 12 new restaurants come in last year on the basis of, I guess, 60 -- just over 60 restaurants. So there's about a 20% increase in our restaurant base, so that new tranche of restaurants coming in and is actually a pretty significant impact on our margin performance.
Will Slabaugh -- Stephens Inc. -- Analyst
Understood. And regarding pricing, you said, you took I believe 2% pricing at the Double Eagle in early 2019. Can you talk about pricing plan across all of your brands for the year?
Norman J. Abdallah -- Chief Executive Officer
Just to clarify, where we took 2% pricing in the Grille in early January, we also took about a 2% price rise in the Double Eagle in early Q4 of 2018. And those are the two most recent price rises we've taken, for Barcelona and bartaco, there are no plans price increases, both brands are performing extremely well, had a history of not really taking price rises, offering great value to guests and really driving traffic and sales through that approach. So we currently have no plans to take any pricing in Barcelona or bartaco, and I think we'll continue to monitor the situation in the Grille and the Double Eagle as we go through the course of the year, obviously, with no development coming in the Grille, one of our focuses is to try and get the margins up in the Grille. And we need to make sure that's some of the things that we've seen, like the mix shift hurting our margins is offset by either operational improvements or by pricing.
Neil Thomson -- Chief Financial Officer
And one other note, Will, with the Grille, we talked about a 500 basis points improvement of our steak category year one, and we now are seeing another 500 basis points improvement as we have the Heritage Del Frisco's side. So the majority of the first price increase went to the steak section and we have flexibility to even take more price on that because different from the Double Eagle, it's the same exact steak, but we have a side that automatically goes with a steak on the grill. So we do have flexibility in that concept around the steak program that we've put in.
Will Slabaugh -- Stephens Inc. -- Analyst
Got it, thanks for that. And more quick one about -- go just around cost of sale and how we think about that trending to the year, it seems like there are a number of offset here with you guys getting more efficient around purchasing at the same time, we've been hearing from some of your peers that somewhat the inflation starting to creep back in, and I realize, beef mentioned it's only 23% of your basket now. But curious on your outlook for beef and outlook versus your commodity basket in general for the year.
Neil Thomson -- Chief Financial Officer
Sure. So, I mean, our outlook is obviously there's some pushes and pulls in the basket. Overall we're anticipating sort the modest inflation, I would say, low single-digits, at worst, getting toward mid single-digits. I think on the beef side specifically that the market remains strong, supply levels are high, the percentage grading as prime has come down a little bit from where it was in Q4, but it's still at historically very high levels, and the forecast is for that to continue.
So -- and we see maybe a modest inflation on our beef costs. We did have a favorable lock-in that we did for the second half of 2014 on our tenderloins that worked well for us. So let's say we have some pushes and pulls which we see for example, Alaskan king crab is up significantly year-over-year, but we're seeing savings in areas like tuna and shrimp. So we're managing the basket overall, and our anticipation is there overall would be a modest inflation in the low single-digits.
Will Slabaugh -- Stephens Inc. -- Analyst
Got it. Thanks, guys.
Neil Thomson -- Chief Financial Officer
You bet. Thanks Will.
Operator
We will take our next question from Brian Vaccaro with Raymond James.
Norman J. Abdallah -- Chief Executive Officer
Good morning, Brian.
Brian Vaccaro -- Raymond James -- Analyst
Thank you, and good morning. Just a couple of topics, if I could. One clarification, Neil, can you remind us when did that tenderloin contract come up or mature?
Neil Thomson -- Chief Financial Officer
It matures round about the end of 2018. So we're now buying week to week on the wire.
Brian Vaccaro -- Raymond James -- Analyst
Okay, great. So my question, I guess on to start on the quarter to date comments and maybe it's the Double Eagle, slightly negative quarter to date understanding the Boston cannibalization. But you've lapped in a Q1 '18 that has some pretty significant weather and other events. And we're just curious if you saw weather as a headwind or other event shifts that are worth calling out in the quarter-to-date?
Norman J. Abdallah -- Chief Executive Officer
No. So there's two things. The weather -- we don't see the weather as a headwind and with even being in the single-digits, we have some events that are shifting around in Q1, some of them into Q2. And we have two big events that our every other year, every third year and we -- those events come on this year as well. So we feel good about that coming into the system.
The one shift in holiday is this year, we'll pick up to New Year's Eve and this year as well, which is a big piece of the Double Eagle brand.
Brian Vaccaro -- Raymond James -- Analyst
Yes. Yes. Understood, OK. And on bartaco and Barcelona, you mentioned uploading these singles, are they each at that range? Or is the outsized sort of comp recovery at bartaco continuing into the quarter-to-date as you lapped the event up in Port Chester?
Norman J. Abdallah -- Chief Executive Officer
Yes, that's continuing, Brian. That will continue, we expect all the way through to October, roughly a 300-basis point benefits of the brands, to the bartaco comp sales from just purchased. But we would still be up in the low to single -- to mid-single digits even without the bartaco's. The bartaco is a little bit ahead of the Barcelona courses today. Because of that 300 basis point benefit of the both brands, as we said, very healthy, we're very happy with how they're doing tracking that low-to-mid single digits.
Brian Vaccaro -- Raymond James -- Analyst
Okay, that's helpful. Shifting gears to the new units at the Double Eagle. Obviously, there's some construction issues in Atlanta, which we've seen. But could you also touch on San Diego and obviously still early, but what you're seeing in the recently opened Century City location?
Norman J. Abdallah -- Chief Executive Officer
Sure. So Century City and again, we limit reservations will really come out. Every night, Century City has hit their reservation target, which is good. And in that location and that's up reservations only, in that location, we've seen more walk-in traffic than we have in any other Double Eagle to get the location of it as well and the champagne lounge called the Edith (ph) which is a separate business for us, we -- again, we're very slow on marketing. We're just now turning on the PR (inaudible) for the Edith, and then private dining, we have six or five private dining rooms in Century City and again, we don't turn on private dining until the third month.
San Diego is right on target for third year return on invested capital and we're seeing that Plano start to pick up as well even when the construction is going on. So as we said on the call, our 2018 basket is right on target.
Brian Vaccaro -- Raymond James -- Analyst
Okay, and then two quick ones on the guidance, if I could. Just trying to reconcile sort of the '19 sales guidance and really what it implies in terms of the big sales performance, but it tried backing into it from your adjusted EBITDA and store margin guidance, it would seem to suggest somewhere in the $525 million, maybe $550 million range. Neil,is that a good ballpark? Or would be willing to provide a tighter range on that?
Neil Thomson -- Chief Financial Officer
Yes. That's a good ballpark. I think, given the range, we've got a 0 to plus 1.5, that probably covers the lowest sort of the higher pieces of that range.
Brian Vaccaro -- Raymond James -- Analyst
Okay. And then on the cash flow and balance sheet outlook, where do you expect your balance sheet debt or leverage ratio to settle out at the end of '19 And can you also remind us what the expected TI contributions are reflected in that net CapEx forecast? Thank you.
Neil Thomson -- Chief Financial Officer
Sure. So we're anticipating that the full year of 2019 to be roughly flat on free cash flow with the cash flow going out the door during the first quarter, obviously we had a peak of our CapEx spend happening in the first half of the year. We already mentioned we've got three restaurants open to date. And then as we mentioned, of course, starting to generate free cash flow in Q4 and obviously the change in our CapEx forecast is a probably the most significant difference to what we have -- what you may have modeled prior.
And then in terms of our leverage ratio, we're probably going to be in the range of 4.2 to 4.4 by the end of this year. Again, depending on whether we are at the higher or the lower end of the performance guidance ranges that we've shared. In terms of our total debt, as I said, it will be relatively flat year-over-year. So if it's sort of take the Q4 2018 numbers, that's kind of where we expect to be at the end of 2019 as well.
Brian Vaccaro -- Raymond James -- Analyst
Thank you.
Operator
And we will take our next question from John Ivankoe with JP Morgan.
Norman J. Abdallah -- Chief Executive Officer
Good morning, John. (multiple speakers) Good.
John Ivankoe -- JP Morgan -- Analyst
Thank you. Thank you very much. Hopefully, you like my question. So just thinking about and obviously covering this industry for a while, think bigger companies buy smaller companies, especially those that have a very specific culture that are entrepreneurially driven, assimilation to a bigger company you know can sometimes dilute what makes those concepts special. So I was hoping that we could take maybe a minute and just talk about what you're doing with these concepts to kind of get the best out of DFRG while still maintaining all the best that they brought to the table. In other words, why you bought the business, what it was. And if you talk about that in the context of what sounds like some top-down synergy numbers and obviously the increase in the synergy numbers, that maybe you're getting more profitability out of these concepts in the near-term than maybe we thought a month ago. You know, obviously synergies are a good thing, but when those synergies can go too far, we begin to see too much commonality among the brands that would otherwise be distinct and different.
Norman J. Abdallah -- Chief Executive Officer
Yes. So I'll start with a question and Neil can add in. So in bigger companies, yes, there have been some issues integrating smaller companies where I think we have the advantage -- again, we're seeing it in comp store sales and EBITDA margins stay in the same or improving is the way we do it. So we put silos over each brand, there are no sharing of recipes to each brand. And then we have that Brand President in place.
I'll give you an example is, the Barcelona Wine Bar, we have kept the process that they have in place on food and development and 60% of their menu being driven by the executive chefs every day. And that's something where we are not going to touch, we'll continue that. And there's a lot of other things in Barcelona that we'll do. The only thing different that we're doing on bartaco is not looking at a, four to six every year. We're looking at the long term vision and making sure that we have systems and processes. And it really goes around the disciplined growth and menu development as well. So -- and then your other point on synergies, again, just like we did in the Del Frisco's and the Grille when I came in, we will leave the restaurants alone, all those synergies will be back in synergies that won't affect the guest experience or the quality of the food or the menus at all. So that's where we feel good about protecting the brand. And really leaving them alone and operating. And that was part of our strategic process review, the brands and the company had to be stand-alone, because we wanted to make sure that we put the four walls around it.
Neil Thomson -- Chief Financial Officer
Yes. I'll give you another example as well on the Barcelona brand. So Norman mentioned earlier that there's some purchasing savings by using a broad liner. We're looking more that on the bartaco side, than we are on the Barcelona side. Because the Barcelona brand, brew a lot of local farm produce, we give a lot of license to the chef to buy locally. It doesn't lend itself as well to the broad liner construct. If we came and put the broad liner construct in place of Barcelona, we take away some of the ability of the chef to really sort of localize and vary the menu, so we're not doing that. Our purchasing savings for Barcelona then it come through other areas like chemicals or frying oil or small vessels, where it really doesn't matter whether we've product A versus product B. But we want to keep that sort of flexibility, that shift driven element to the Barcelona brand.
So where we -- where it makes sense for us to come in and leverage the size of DFRG, without impacting the brand we're doing that, but we're leading other pieces of the brand and such which are unique and we think critical to the success.
John Ivankoe -- JP Morgan -- Analyst
Thanks, (inaudible) looking for it, very helpful.
Operator
And there are no additional phone questions at this time. I would like to turn the call back to our speakers for any additional or closing remarks.
Norman J. Abdallah -- Chief Executive Officer
So thank you, everybody, for your time today. I think in our prepared remarks, Neil and I were a little bit flat because we are both sick. We are trying to get through our prepared remarks. So again, thank you for your time. And we continue to look at the strategic alternative process to maximize shareholder value from the Board and the management team. So thank you very much and have a good day. Bye bye.
Operator
Ladies and gentlemen, this concludes today's call. We thank you for your participation. You may now disconnect.
Duration: 65 minutes
Call participants:
Neil Thomson -- Chief Financial Officer
Norman J. Abdallah -- Chief Executive Officer
Nicole Miller -- Piper Jaffray -- Analyst
Will Slabaugh -- Stephens Inc. -- Analyst
Brian Vaccaro -- Raymond James -- Analyst
John Ivankoe -- JP Morgan -- Analyst
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