Mr. Schroeder: We are focusing our attention on companies with attractive unit-growth profiles with above-average return on investments and strong balance sheets, companies like Buffalo Wild Wings, Chipotle and BJ's Restaurants. We are avoiding companies with limited top-line growth opportunities that are more dependent on the margin environment because we believe the environment will become less favorable in the second half of this year and into 2011.
TWST: What will lead to a less favorable environment around margins?
Mr. Schroeder: In 2009 many restaurant companies rationalized their cost structures, and we are getting close to anniversary-ing most of the benefits of the cost-structure savings. At the same time, we had a very favorable commodity environment for proteins, dairy and other food commodities, which benefited gross margins over the last four quarters. Recently we've seen some increase in prices in seafood, as well as beef and pork. So I think the commodity environment will be less favorable going forward. So companies that are really exposed to the margin environment are the ones we are avoiding right now.
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