BJ's Restaurants Inc (BJRI) 2004 Q1 法說會逐字稿

Good afternoon and welcome to the Chicago Pizza & Brewery first quarter 2004 earnings conference call. At this time, all participants have been placed on a listen-only mode and the floor will be open for questions following the presentation. It is now my pleasure to introduce your host for today's call Mr. Rob Curran, Vice President of Investor Relations. Sir, you may begin.

Thank you. I would like to welcome you to our first quarter 2004 conference call, which we are broadcasting live over the Internet. On the call today we also have Paul Motenko, our Chairman and Co-CEO and Lou Mucci our Chief Financial Officer. Chicago Pizza & Brewery released the results after the close of the market today and interested parties can view a copy of our results on the main page of our Web site, which is located at www.bjsbrewhouse.com. If any one would like a copy or would like to be added to our distribution list, please call my office at 714-848-3747, extension, 260 and we will make sure to forward a copy to you. Our agenda for the call will be as follows. First, Paul will provide a summary of financial and operational review covering our first quarter results ended March 28, 2004 after that Lou is going to provide some additional financial details on the quarter and Paul is going to follow that up with comments on current issues and business trends and we will discuss 2004 guidance. Lastly, we will be available for a Q&A session. Before we begin, I'd like to point out that certain information contained on the conference call may be considered forward-looking in nature and is subject to various risks and uncertainties. Should one or more of these risks or uncertainties materialize or underlying assumptions prove to be incorrect, actual results may vary from those anticipated. All forward-looking statements made today on this conference call speak only as of today's date. We do not undertake any obligation to update any forward-looking statements and we refer investors and listeners to the full discussion of risks and uncertainties associated with forward-looking statements contained in our periodic filings with the SEC. I'd now like to turn the call over to Paul.

Thank you Rob. Our revenues for the first quarter increased 21.8% year-over-year to approximately $29m. This increase was primarily driven by five new locations, which have opened since January 2003, as well as a 7.7% improvement in same store sales. Comp-store sales increased, these were primarily driven by an increase in customer counts and in approximately 3.5% of menu pricing added during 2004. Some of our best performing comparable restaurants in the quarter were Valencia, Woodland Hills, West Covina, Burbank, and Chandler, Arizona. At the end of the first quarter, seven stores were in operation, which had not yet entered the camp base including the four stores in Texas, which had aggregate sales, which met our expectations during the period and three locations in California, which had collected sales above our expectations during the period. The average weekly sales of all stores during the first quarter were approximately $69,200 versus $61,500 for the first quarter of 2003. To provide additional details for financial modeling purpose, we note that our 11 small format restaurants, which we define as our seven Pizza and Brewery units in California, three Oregon units and our 5,500 square feet Colorado restaurant contributed $4.6m to first quarter of 2004 revenues. The three

units, which were sold contributed approximately $650,000 of revenues to the quarter. The remaining $23.7m was generated from 19 full size brewery and full house restaurants including one new restaurant we opened in the first quarter, in Willowbrook, Texas. During the first quarter of 2004 average weekly sales of large farm brewery

restaurants were approximately $97,800 versus $95,900 in the first quarter of 2003. Net income was $2.4m

diluted earnings per share as compared to net income of $828,000 or $0.04 diluted earnings per share for the same period of 2003. First quarter of 2004 earnings, and earnings per share results include an after tax gain of approximately $1m related to the sale of three Pietro's restaurants or a net $0.05 gain per diluted share. At this point I would like to introduce Louis Mucci to discuss our quarterly financial results in more detail. Louis recently joined us as CFO, and has been a Board member since May 2002. Lou is also our engagement partner at PricewaterhouseCoopers from 1994 to 2000. So he has a long history with the company.

Thanks Paul. As previously mentioned total revenues for Chicago Pizza & Brewery for the first quarter increased nearly 22% to approximately $29m from $23.8m in the prior year's comparable quarter. This increase is primarily a result of the opening of five new locations including Clear Lake, Texas in January 2003; Addison, Texas in May 2003; Cerritos, California in July 2003; San Jose, California in October 2003; and Willowbrook, Texas in January 2004. In addition the company posted a same restaurant sales increase of 7.7% in the first quarter. The comp store increase is primarily due to increase customer counts, and menu price increases of 1.5%, which we rolled out to the stores during May 2003, and a 2% increase taken at the end of November 2003. Quarter-over-quarter revenue gains were partially offset by the closure of the Bj's Portland Oregon restaurant during June 2003, and the sale of the three Pietro restaurant, which was completed on March 15, 2004. Cost of sales, which include food, beverage and paper increased to $7.4m from $6.3m during the comparable quarter of 2003. As a percentage of revenue, cost of sales decreased to 25.6% for the current quarter from 26.4% for the comparable prior quarter, a decrease of 80 basis points. Sequentially from the fourth quarter of '03 the cost of sales decreased 80 basis points. The decrease in cost of sales year-over-year is primarily a result of menu prices increase taken during 2003, and continued moderating of cost especially in our Texas market where we have reduced our purchase cost to improve vendor pricing. We would like to remind you that we do continue to experience higher per unit purchase cost in new markets. In markets such as Texas, and Northern California we haven't yet achieved math necessary to get food cost at a rate similar to those we experience in Southern California where we have a solid base of stores, and better purchasing power. Labor and benefit costs were $10.6m in the quarter versus $8.6m in the first quarter of 2003. A 20 basis point increase as a percentage of sales at 36.5% versus 36.3% year-over-year. The slight increase in labor is primarily the result of the revision of our incentive compensation package as well as the hiring of new managers we anticipate will be necessary as we start to ramp up for stock growth starting in June 2004. Occupancy cost increased to approximately $2.2m during the first quarter from $1.8m during the comparable quarter of 2003. As a percentage of cost occupancy cost increased 30 basis point to 7.7% from 7.4% quarter-over-quarter. The increase in absolute dollar reflects five additional restaurants open year-over-year offset by the closure of one low volume BJ's Restaurant and the three Pietro's restaurants, which we sold. Operating expenses increased $3.1m during the quarter versus $2.7m in the year ago quarter. As a percentage of sales operating expenses decreased 50 basis points to 10.7% for the current quarter from 11.2% for the comparable prior year quarter, primarily due to stronger revenue and continued expense containment initiative. Operating expenses also decreased 60 basis points sequentially from the fourth quarter of 2003. General, and administrative expenses increased to $2.5m during the quarter from $2.1m during the comparable quarter of 2003. As a percentage of revenue G&A expenses decreased approximately 10 basis points to 8.7% for the current quarter from 8.8% for comparable prior year. The decrease is primarily due to sales leverage while the total dollar increase primarily reflects to hiring of five new executives over the past year. Depreciation and amortization increased to approximately $1.2m during the quarter, from $0.9m during the comparable quarter of $2.2

, due to our investment in five new restaurants opened during January 2003, opened since January 2003, including two, which are ground leases resulting in a high leased sold improvement cost. Restaurant opening expenses decreased to 239,000 during the quarter from 412,000 during the comparable quarter of 2003. The company opened one restaurant in both the first quarter of 2004, and 2003. However, a greater percentage of the pre-opening expenses for our most recent restaurant in Willowbrook, Texas fell in the fourth quarter of the previous year. We note that our opening cost will fluctuate from quarter-to-quarter, depending on the number of restaurants opened, the size and the concept of the restaurants being opened and the complexity of the staff hiring and training process. We budget pre opening expenses between 300,000 to 400,000 per unit, with units opened in Southern California typically experiencing lower pre opening cost due to less travel and lodging cost as well as the potential for a portion of managers and staff to transfer from existing company restaurants in the same market. In February 2004, we executed

sell three Pietro's Restaurants and we laid trademark for $2.2m to two former employees of the company. The transaction which resulted in a approximates $1.7m gain closed on March 15th, 2004. Net interest income was consistent $103,000 during the first quarter from $97,000 during the comparable quarter of 2003. Net other income decreased to $85,000 from a $163,000 in the year ago period, which is primarily result as decrease license fee from the Hawaii Unit and a decline in the gaming income as a result of Pietro Restaurant. The effective tax rate was 34% for the quarter versus 34.9% rate in the first quarter of 2003. We currently estimate our effective tax rate for the full-year of 2004 and future income period at approximately 33.5%. Turning to the balance sheet. We ended the first quarter with approximately with $27m in cash and short-term investments or approximately $1.31 per diluted share and no funded debt. Shareholder equity was $73.6m at March 28th, 2004 or $3.59 per diluted share. Total capital expenditures for the quarter of March 28th, 2004 were approximately $3.9m and were primarily related to the development of Willowbrook, Texas,

Summerlin, Nevada restaurant. I would now like to turn the call back over to Paul.

Thank you Lou. I'd like to discuss our current business trends as well as our expectations for 2004. The company opened in

a suburb of Houston on January 28th, and we have been pleased with it to date as initial revenues have been in line with our expectation. In terms of current business trends during the first four weeks of the second quarter, year-over-year comparable store sale results continued to improve ahead of our full-year expectations of 3% to 4%, although we note that we do anniversary approximately 1.5% of pricing on May 30th. We recently examined our competitive pricing structure on beverages and have made some small adjustments to our alcohol and soda pricing. We did not change our prices for our handcrafted beers. While food cost remained challenging particularly in each dairy, poultry, pork, and oil based products, we do not foresee raise in many prices in the near term. We will continue to monitor the cost and competitive environment and evaluate our menu pricing during our new menu roll out during October. On the new restaurant development front, we anticipate opening one restaurant in Laguna Hills, California late in the second quarter and project four or five units will open in the second half of 2004. While we anticipate our Summerlin, Nevada restaurant will open in late June, the projected opening date is a few days after the end of the second quarter. We also will attempt to update you further on the timing of our restaurant openings in Fresno, San Bernardino, Rancho Cucamonga, Roseville, and Folsom, California during our next conference call. We recently announced the signing of a lease in the North Dallas market, which we anticipate for our first quarter 2005 opening. Since that time, we have also assigned retreats for restaurants in San Bruno in Northern California and Moreno Valley in Southern California, which we expect will open during 2005. At this time, we have 10 VCs assigned for restaurants that we anticipate to open in either 2004 or 2005, and remain comfortable that we will continue to achieve our goals of 20% of annual growth. As we noted in the press release, we are maintaining our 2004 projections for revenue between a $124m and $128m with 2004 diluted earnings per share between $0.30 and $0.33 which include approximately $0.05 after-tax one-time gain from the sale of Pietro. These expectations are based on opening six to seven new Bj's restaurants and same-store revenue sales of 3% to 4%. The company will have one additional week in fiscal 2004, a 53-weeks year versus a standard 52-week year , which will reflect in the guidance issued above.

Lastly, we would like to point out that we will be mailing our

statement and the annual report on May 7. We are proposing a corporate name change from Chicago Pizza & Brewery, Inc to Bjs restaurants Inc. The company and its directors believe that having a corporate business name that is similar to that of its restaurant's name is in the best interest of our customers, vendors, employees, shareholders, and WallStreet. Our ticker symbol will change to BJRI. This concludes the formal remarks. So, at this time, we'll open up the call for questions.

Thank you. The floor is now open for questions. If you do have a question, please press star one on your touchtone telephone at this time. If at any point your question is answered you may remove yourself from the queue by pressing the pound key. Questions will be taken in the order that they are received, and we do ask that while posing your question you please pick up your handset to ensure proper sound quality. Once again, to ask a question at this time please press star one on your touchtone telephone. And our first question today is coming from Eric Wold of Merriman Curhan Ford. Please pose your question sir.

Hi, good afternoon. Two quick housekeeping questions and then one normal question. Can you give the number of restaurant operating weeks during the quarter?

Sure. Hold on just a second. Why don't you get to your next question, I will look that up.

Sure. Next question, on alcohol pricing, where you mentioned you made a couple of minor adjustments with alcohol pricing, can you say if that was up or down and the pricing kind of emotionally what was done

In terms of both the alcohol and soda pricing both were increased.

Eric it's Bob Curran. 419 weeks in the current quarter versus 387 a year-ago.

Okay. Last question looking at the Willowbrook opening that happened in January, maybe kind of talk about how that went operationally versus the individual Texas unit. Now those are, you know, problem back in kind of late 2002, kind of what you learn from those, kind of how you put in place this one, and kind of how the pre-opening cost for Willowbrook and Panda versus what you spend for the pre-openings for the units back then?

That's a bit of a mix there. We changed our preopening structure after 2002 and we ended up within some significant efficiencies which overall got our preopening costs down during 2003 and also in Willowbrook. That combined with the fact that you know have a base of operations in Houston, Texas made the preopening situation more efficient. On the other hand, the Willowbrook opening was delayed a bit and consequently we had the management and staff for a longer period of time when we would have liked to offset some of the savings and the efficiencies. So overall the Willowbrook opening in terms of total preopening costs was not that similar to the prior Texas openings. However if you look at the components of the preopening, there is considerable efficiencies in terms of the actual training and hiring process for the staff in Willowbrook, and in terms of effectiveness we feel very good about the opening staff -- we feel they are doing a good job, well trained and the whole process seemed to work very well.

And do you think you are going to see -

you move more and more restaurants opening up in northern California to one you just announced in San

? Did you say to get kind of similar kind of better efficiencies in the year more and more presence in northern California as you did in Texas?

Absolutely. And yes we are doing some restaurants and there were in areas as well as a San Francisco area and that's certainly part of it, but probably the bigger part of the efficiencies relate to the change in the structure of our training programs and the hiring programs which much more efficient than they were a couple of years ago but that combined with the additional presence in those markets should result in reduced preopening costs in those areas.

Alright. I appreciate. I'll hop back in the queue.

Thanks a lot.

Your next question is coming from Jonathan Waite of Key

. Please pose your question.

Yes. I was wondering with the penny upside here in the quarter versus consensus, looks like your cost of sales are under control, you are running ahead of your annual same store sales target in this year so far. Why not move up that range for 2004?

Well, there are lots of things left to happen in 2004. The most significant thing of which is probably food cost and as you know there is pressure in virtually in every area-- I'd like to say there is offsetting issues but every area seems to be going in the wrong direction. We have reflected there in terms of some price increases, however on a percentage basis that's not enough to make up for these increases, we are protecting like certain things like chicken through the year but beef and cheese and other commodities are very volatile right now and we are concerned about their impact and when you look at comp sales, we are very pleased with the results so far. However we have quite a few restaurants coming into the account sales based over the next few months and we have some pricing increases that we will take in from 2003. We are going to be starting over in May. So we wouldn't necessarily expect the comp store sales increases in the seven plus range to -- already the whole the entire year.

Okay. Sequentially as they move through the year, I mean in the second quarter to date, can you kind of provide the magnitude of how much of food cost have accelerated maybe basis points from where they landed in the first quarter. We saw our food cost move up throughout the first quarter about 20 basis points in the second period and another 20 basis points in the third period. I haven't seen our fourth period results yet.

Okay.

One other things with our food cost is, well

cost are going up. We are doing everything we possibly can to extend that tide and we have a degree of success in terms of reducing increase in some items through better purchasing. We got some purchasing power in Texas, which we didn't have previously that seems to be helping a bit as well, but certainly those moves are certainly not enough to stand that tide and it obviously had to fall exactly where it

goes throughout the year. But if commodity cost do go down to levels closer to 2003, we should definitely reap some benefits of the kind of the moves that we have been making in the purchasing area over the past few months.

Jonathan, just one additional point too. Yes, it is still pretty early in the year and while we are very pleased with our first quarter results, I think as we move through the second quarter and we get some further clarity on our exact store opening dates and where things are going, we may be more inclined to either know the range or give you further guidance on where we would except to be at the end of year.

Okay great. And then last of all it sounds like Paul from your comments that these - and I think you kind of hinted at it in your last conference call that the ones that will be rolling into the comp base through the year, how do you put it just under, I guess that 7% or under 3% to 4% range is that correct?

Well, not necessarily it's under the 3 or 4%. Typically, what happens is when we open our shop, we have a pretty decent handling period of sales come back to our normal levels and while we are on the 18th month we tend to start comping up again, but the most significant comp increase don't typically happen until the third or fourth year. The second year is typically we wouldn't except to see comp increases in the seven plus range.

So, they are not acting any differently than any other bases of stores that you have?

Correct.

Okay. Thank you.

Your next question is coming from Mike Smith of Oppenheimer & Co. Please pose your question sir?

Well, for the price increases that you have particularly in November, was there any different reaction too and your price increase was in Texas as opposed to southern California?

No that we still go back. The concept is very oriented to begin with and here we feel we've probably more pricing room and a lot of other concepts that are similar to us. We certainly do not notice any shift in revenue or in product mix based upon that price increase.

Well, there is a seven small units in Southern California and then we received three BJ's restaurants up in -- or again and then consider Colorado, which is 55,000 square foot. So that would be anywhere from 10 to 11 as a smaller units.

You got 10 weeks aside, are you buying the land now and now or how are these done?

Most of them are ground leases but in terms of strategy, we are still looking at conversions,

we are not looking and even if we did by land we would most likely do a sale-leaseback.

Okay. And if we do at this stage this year what would be logical range next year type of number?

I think reasonable. Next year end as I have mentioned many times our goal for this year was to achieve our unit growth objective. Our goal for next year is to do that and do it evenly spread out or possibly even front end loaded?

Total CAPEX for the year 2004.

Depending on how many units we do.

Alright.

Did you get that number, Mike, $18m.

Thanks.

Next question please.

The next question comes from Jeff Randall of JMP Securities. Please post your question. Sir.

Hi guys.

Hi.

Just wanted to get some clarification on the labor line. You had said that it was up year over year due to, you said, an incentive comp package. Can you give me kind of the details behind that maybe?

Yes. Hourly labor actually went down and management labor including bonus was up a bit because we-- there are a couple of things happened, first of all we had a very good quarter, which exceeded budget and we also enhanced our bonus program to give greater upside potential to the managers than we previously had done. So, the accrual for--

Excuse me, the

incentive than a little bit.

Correct. And you know, we had a very good first quarter so that impacted bonuses, you know, positively from the management's perspective and we were more than happy to pay out those bonuses as we continue to achieve these kinds of results.

I think that you mentioned it was due to the -- I think you said the anticipated hiring of new managers later in the year. Did I hear that right?

There have been always been some managers who are already hired, but obviously we are gearing up for the store opening and that will really start about July of 2004 and for the rest of the period.

So, that is starting to hit the labor line as well?

Yes, it is,

Okay. And can we talk it all about you know labor being up, was it more in California, was it down in Texas as a result of moving more units into the tip credit

or can you talk about how labor behaved within California and Texas?

Overall, having units in Texas -- more units in Texas reduces hourly labor cost, which was reduced from 2003 to 2004. Hourly labor in 2003 in the first quarter was 20.76% and it was 19.98% in this quarter. So, a pretty significant decrease and that is especially due to our operations in Texas as well as continued efficiency in California and the fact that account sales were up. But in terms of specifically where the increases came in it was -- the managers in the Texas units have the benefit of the bonus structure as well as California units. Most of the new management, most of the stores that are going to be opened the second half of this year are in California. So, I would say most of the management cost of people at giving up for the growth of

are our California managers.

Okay. And on occupancy, you guys didn't get any leverage, I was kind of surprised to see that. Is that due to the shift in Northern California, and the higher rents that you are paying there, or what is causing that?

While San Jose certainly is one of our higher rent areas and that did not help that particular line. In general, when I think over a long period of time, as we do more, our ground leases we are going to see occupancy decreased over time, but I think this first quarter was just a situation that you know it didn't -- first quarter is typically not our better revenue quarter and that

time we are looking to see slow, but slow but steady decreases in occupancy cost. We do more ground leases.

Okay. And then just one last question relating to G&A, where you all have talked about getting leverage on G&A and not a surprise that did only improved by 10 basis points given the strong comp. Can you bit talk to that and then also talk or maybe you see that line going for the rest of the year out?

Yes. There were a couple of factors, which impacted G&A in the first quarter that are not going to impact the G&A for the remainder of the year. We certainly expect G&A to be under $10m, which be the annualization of the first quarter. The first of those factor is severance paid to Douglas Mitchell, who is our former CFO, who retired in first quarter, and probably more significant is

who was the company's President few years back and he took advantage of a provision in his employment. We

very long severance package, you know, fairly rich one and his compensation ended in March of 2004 -- was included in the first quarter of 2004. It's still there. That was a pretty significant issue there. And then, yeah, we hired two more executives as of the beginning of the first quarter of 2004,

Martin, Head of Food Development and

is our new VP of Operations. So, they both head the first quarter of 2004, and were not around in 2003. And as we generated additional revenue from the significant number of openings that we are going to have in the second half of this year, they are intact. And G&A as a percentage of revenue, will certainly reduce than we expect to get that leverage that we had anticipated earlier in the year.

Full year under sub $10m but as you are not going to talk about how far under $10m you expect it to be or.. ?

Something in the mid $9m range we're comfortable with.

Okay.

Part of it going to depend on how well our comps do and bonus accruals etcetera.

Okay. Sounds good. Thank you.

All right.

Once again, to ask a question please press star one on your touch-tone telephone at this time. The next question is a follow-up question coming from Eric Wold of Merriman Curhan Ford. Please pose your question sir.

Hi, good afternoon. Just a quick follow-up question to the last data on the call, can you quantify the two non-recurring G&A impacts in the quarter, the severance from the President and the severance from Doug Mitchell. You cannot settle but they left together.

Let us try and do that one off the call. We just don't have that information and I don't want to guess.

That is fine. Then on the opening schedule, can you maybe talk about what the main factors that are driving when restaurants open, according to your plan, or later than planned obviously, your order book was little bit delayed. Summerlin,

in early July, may or may not be a slip and then also in Roseville, may or may not happen in December, may happen in January next year. Can you talk about what the main factor of that drive? When your restaurant opens - is that more so on construction schedules or more so finding the way people accomplish everything?

Everything is a combination. Take Willowbrook for instance, we - our strategy was, if we should open it the 1st week of December or before, we'd open it in 2003. If we couldn't, we didn't want to open a restaurant

. We have a holiday season maybe that puts a little extra pressure. One period in Houston was particularly wet and that caused several weeks delay, which took apart the early December time period. And we also don't want to open a restaurant in the very first of January. We had the same issues, in terms of hiring during a holiday period and in hiring people that are not necessarily the best that you can possibly get. So the decision was made to open Willowbrook in late January. In terms of Summerlin, one of the main issues is we've identified, it was in the hillsides, which we wanted to open as soon as possible. We certainly do not open two restaurants in the same week; so, we feel at this point that we can get Laguna Hills opened in the middle of June and then do some of them at the very end of June, which just happen to flow to the third quarter, because of the

week situation but that is the reason for the timing there. And then, in terms of what happens at the end of 2004, it will be a similar thought process to what happened in 2003. If we can get that last unit either in late November or very early December, that is what we would do or if not we would probably hold it to 2005, when we can do a better job in opening restaurants.

Perfect. Thanks again.

Thanks.

Once again to ask a question, please press star one on your touch-tone telephone at this time. Gentlemen there appear to be no further questions. I would like to turn the floor back over to you for any closing comments.

Thanks for participating in the call. You will have the replay available shortly, which will last for 30 days on the Internet and for three days on the telephone. Details can be found on our website at www.bjsbrewhouse.com. If you have any further questions please call us on our office at 704-848-3747. This concludes our conference call. Thank you very much.

Thank you for your participation. That does conclude this afternoon's teleconference. You may disconnect your line at this time and have a great time. Thank you.