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Things don't look too promising. RRGB will now be the poster child for how difficult the operating environment is. In 1Q08, RRGB's traffic declined 0.4% despite incremental advertising (and up against easiest comp from 1Q07 of down 3.6%). The company attributed the sales weakness mostly to CA, AZ and NV, which they said did not decelerate until 1Q (represents 28% of co-owned stores). If you exclude these three states, traffic would have been up 1.7%.

The company said food/beverage costs, coupled with fuel surcharges are impacting them more than they initially guided so they are need to raise prices again (up 2.7% in late June.) Despite a Q1 miss, management raised their guidance but mainly to reflect acquisition of 15 restaurants from franchisees.

The biggest concern going forward is the trend in labor costs. Labor costs were down again (down 40 bps in Q1 vs. down 60 bps in 4Q) so they are cutting costs somewhere. The company is calling it labor productivity (of course, not at the expense of guest experience!)

As seen in the chart below, RRGB is accelerating capital in a very difficult operating environment and not bringing the cash home to shareholders.