BJ's Restaurants Inc (BJRI) 2004 Q3 法說會逐字稿

Thank you and welcome to the BJ's Restaurants Inc third quarter 2004 results conference call.

[Operator Instructions].

It is now my pleasure to turn the floor over to your host, Rob Curran, Vice President of Investor Relations. Sir, you may begin.

Thank you. Good afternoon, everyone, we'd like to welcome you to our third quarter 2004 conference call, which we're broadcasting live over the Internet. On the call today we have Paul Motenko, our Chairman and Co-CEO, Jerry Hennessy, our President and Co-CEO and Lou Mucci our Chief Financial Officer. BJ's Restaurants released 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.bjsrestaurants.com. If anyone would like a copy or like to be added to our distribution, please give my office a call at 714-848-3747 extension 260 and we'll make sure to forward a copy to you.

Our agenda for the call will be as follows. First Paul is going to provide a summary of financial and operational review covering BJ's Restaurants results for the third quarter ended September 26, 2004, after that Lou is going to provide some additional financial details on the quarter and Paul will follow that up with comments on current issues and trends and also review 2004 guidance. Lastly, we will be available for a Q & A session.

Before I begin, we'd like to point out that certain information contained on this 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 risk and uncertainties associated with forward-looking statements contained in our periodic filings with the SEC. With that I'd like to now turn the call over to Paul.

Thank you, Rob. Our revenues for the third quarter were approximately $32.9 million, 22.9% increase over the third quarter of 2003. This increase was primarily driven by six new locations, which have opened since July 2003, as well as a 2.9% improvement in same restaurant sales. Comp store sales increases in the third quarter were primarily driven by menu pricing. Some of our best performing comparable restaurants in the quarter were Valencia, California, La Mesa, California, West Covina, California, Left Lake, California and Chandler, Arizona. Average weekly sales for all stores during the third quarter were approximately 77,600, versus 67,100 in the third quarter of 2003. To provide additional details for financial modeling purposes, we note that our 11 small format restaurants, which we define as our 7 pizza and grill units in California, our 3 Oregon units and our 5500 square foot Colorado restaurant contributed slightly less than $5.5 million to the third quarter 2004 revenues. The remaining $27.4 million was generated from 22 full-sized Brewery and Brewhouse restaurants, including two new restaurants we opened in the third quarter in Summerlin, Nevada and Fresno, California.

During the third quarter of 2004, average weekly sales for the large format brewery and brewhouse restaurants were approximately $97,800, versus $95,400 in the third quarter of 2003. At the end of the third quarter, seven stores were in operation, which had not yet entered the comp base. These stores collectively had average weekly sales above the company average during the third quarter of 2004. Net income was $1.2 million, or $0.06 diluted earnings per share, as compared to net income of $968,000, or $0.05 diluted earnings per share, for the same period of 2003. At this point I'd like to turn the call over to our CFO, Lou Mucci to discuss our quarterly financial results in more detail.

Thanks, Paul. As Paul mentioned, total revenues for BJ's Restaurants for the third quarter increased 22.9%, to approximately $32.9 million, from $26.7 million in the prior year's comparable quarters. This increase is primarily the result of the opening of six new locations, including Cerritos, California, which was opened during the third quarter of 2003, San Jose, California, which was open during the fourth quarter of 2003; and during the periods of 2004 we opened Willbrook, Texas, in the first quarter, Laguna Hills, California, in the second quarter, Summerlin,/Las Vegas, or Summerlin -- let me do this again, Summerlin, Nevada during the third quarter of 2004. and Fresno, California during the third quarter of 2004.

In addition, the company posted a same restaurant sales increase of 2.9% in the third quarter. The comp store increase is primarily due to an approximately 2% menu price increase taken at the end of November 2003, and an approximately 0.8% beverage price increase, which we rolled out to restaurants during the second quarter of 2004 combined with a slight increase in customer traffic. Quarter over quarter, revenue gains were partially offset by the sale of our three Pietro's restaurants which were completed -- the sale was completed in March 15, 2004. Those three units contributed approximately $800,000 to third quarter 2003 revenues.

Looking at cost of sales, which includes food, beverages, paper products, this increased to $8.7 million from $7.1 million during the comparable quarters of 2003. As a percentage of revenue, cost of sales decreased to 26.4% for the current quarter, from 26.6% for the comparable prior year's quarter, a decrease of 20 basis points. The decrease in cost of sales year-over-year is primarily a result of menu price increases taken during the fourth quarter of 2003, and beverage price increases during the second quarter of 2004. In addition to our continuing monitoring of costs, especially in Texas and northern California markets, where we have reduced our purchase cost through improved vendor pricing.

We continue to anticipate experiencing higher per unit purchase costs when we enter new markets. Although we continue to mitigate expenses to the best of our ability, in newer markets like Texas and Northern California, we haven't yet achieved a critical mass necessary to get food costs at rates similar to those we experienced in Southern California where we have a solid base of stores and better purchasing power.

Looking at labor and benefits costs, our labor and benefits costs were 11.8 million in the quarter, versus 9.4 million in the third quarter of 2003, an 80 point basis increase as a percentage of sales of 35.9% versus 35.1% year-over-year. The increase in labor is primarily the result of increased restaurant development year-over-year. Labor in our new store typically runs higher during the first 90 days after a store is open. We have had three stores opened in the first 90 days of the third quarter of 2004, versus only one store in the third quarter of 2003. We estimate that the new store labor cost impacted labor by approximately $300,000 during the third quarter 2004 as compared to our average mature store labor costs.

Occupancy costs increased to approximately $2.5 million during the third quarter, from $2 million during the comparable quarter of 2003. As a percentage of sales, occupancy costs decreased 10 basis points to 7.5% from 7.6% quarter over quarter. The increase in absolute dollars reflects six additional restaurants open year-over-year off set by the sale of our three Pietro's Restaurants.

Operating expenses increased to $3.7 million during the quarter versus $3.2 million in the year ago quarter. As a percentage of sales, operating expenses decreased 50 basis points to 11.3% for the quarter -- for the current quarter, from 8-point -- I'm sorry. From 11.8% for a comparable prior year's quarter. Primarily due to leverage from increased menu prices, related comp store, sales increases, combined with our expense containment initiative.

General and administrative expenses in the third quarter of 2004 increased to $2.5 million from $2.2 million during the comparable quarter of 2003. As a percentage of revenue, G&A expenses decreased approximately 70 basis points, to 7.5% from our current quarter -- for the current quarter, from 8.2% for the comparable prior years. This decrease is primarily due to sales leverage. During the quarter we had approximately $70,000 in cost related to Sarbanes-Oxley, and we anticipate approximately $250,000 to $300,000 in costs related to Sarbanes-Oxley in our fourth quarter of 2004.

Depreciation and amortization increased to approximately $1.3 million during the quarter from $1 million during the comparable quarter of 2003. Due to our investment in six restaurants opened in July of 2003 -- I'm sorry, since July 2003, including two which are ground leases, which result in higher leasehold costs. Restaurant opening expenses increased to $804,000 during the quarter, from $526,000 during the comparable quarter of 2003. The company opened two restaurants in the third quarter of 2004, in Summerlin, Nevada, and Fresno, California, versus one restaurant in the third quarter of 2003 in Cerritos, California.

In addition, a significant number of our pre-opening -- in addition a significant percentage of our pre-opening expenses for San Bernardino, California, were included in the third quarter of 2004, as that restaurant opened in September 28, two days into our fourth quarter. For comparison purposes, the third quarter of 2003 included a large portion of our pre-opening expenses for San Jose, California, which opened on October 1st, 2003.

Our opening costs will fluctuate from quarter to quarter, depending upon the number of restaurants opened, the size and concepts 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 experienced lower pre-opening costs due to less travel and lodging costs, as well as the potential for a portion of managers and staff to transfer from existing company restaurants into the same market. Net interest income was slightly improved at $110,000 during the quarter, from $84,000 during the comparable quarter of 2003. Net other income decreased to $42,000 from $95,000 in the year-ago period, which is primarily the result of the decreased license fee from our Hawaii licensee and declining gaming income as a result of our sale of our Pietro's Restaurants.

The effective tax rate was 31.8% for the quarter, versus 34.8% rate in the third quarter of 2003. Our tax rate for the nine months ended September 26, 2004 was 33%, which we continue to estimate our effective tax rate for the full year of 2004.

Looking at the balance sheet, we ended the third quarter with approximately $23 million in cash in short-term investments or approximately $1.12 per diluted share, and no funded debt on the balance sheet. Shareholders equity was $76.9 million at September 26, 2004, or $3.74 per diluted share. Total capital expenditures for the quarter ended September 26, 2004, were approximately $7.2 million, and were primarily related to development of our Summerlin, Fresno and San Bernardino restaurants. As well as continuing development costs for our East Plano, Texas restaurant; Folsom, Roseville and Rancho Cucamonga, California restaurants. For the 39 weeks ended September 26, 2004 total capital expenditures were 17.2 million, comprised of approximately $15.9 million for new stores, and 1.3 million in capital expenditures relating to existing stores. I would now like to return the call back to Paul.

Thank you, Lou. I'd like to mention a few current items and reiterate expectations for 2004. During the third quarter, the company opened our fourth and fifth restaurants here in Summerlin, Nevada and Fresno, California. We have been very pleased with the guest turnout during the third quarter. These new restaurants are our smaller store prototype at approximately 7800 square feet helping to us improve operational efficiencies while having a format capable of producing revenue volumes in excess of company averages.

San Bernardino, California, which opened early in the fourth quarter, is a similar prototype and achieved our highest opening week sales in company's history helping to confirm both the revenue potential in a smaller footprint restaurant and validating the brand's ability to operate successfully in diverse market demographics. This is one of the most significant developments in the past couple of years where we've had an experience in some of the restaurants in the lower end of our demographic criteria, for instance Oxnard, West Covina, and Cerritos, and based upon the very high volumes of those restaurants, we broadened our criteria and that led to opportunities particularly in California that we hadn't previously looked at. Among those opportunities were San Bernardino and Fresno. And the results from those two restaurants, which were two of the highest volume restaurants opening the few weeks that we've had in the history of the company, this attests to that strategy of going into these markets that may be lesser served by higher end type of concepts and where we think that we can do tremendous volumes.

The result of all that is next year we're looking to do some units in similar type of areas such as Moreno Valley and Corona and we will continue to continue to pursue those types of demographic markets. In terms of business trends we continue to project full year 2004 comparable restaurant sales results remain in line with our estimate of 3% to 4%. This would anticipate a low single digit same store sales comparison during the fourth quarter of 2004, as our same restaurants sales for the 39 weeks ended September 26, 2004 was an increase of 4.6%. This decline is anticipated largely as a result of the 2% of menu pricing from November 2003, rolling off in the fourth quarter.

During the second quarter, we examined our competitive pricing structure on Beverages and as noted we made some minor adjustments to our alcohol and soda pricing. Early in the fourth quarter we raised the prices of most of our handcrafted beers based on our historical percentages of hand crafted beer sales, the increase in pricing would equate to approximately 8/10 of 1% in overall menu pricing. While food costs continue to remain challenging, at this point we haven't yet determined the nature and extent, if any, of menu price increases on food items in the near term. We will continue to monitor the cost and competitive environment, and evaluate our menu pricing during our new menu rollout anticipated during the January period.

On the new restaurant development front, in addition to San Bernardino, California, which opened during the first week of the fourth quarter, we opened a Brewhouse Restaurant in Folsom, California, yesterday, which is our sixth new store in 2004. We currently project to open a Brewhouse Restaurant in East Plano, Texas, in December 2004, which would give us seven restaurants opened during the year.

In addition, we currently have nine leases signed for restaurants that we project will open in 2005 or 2006. And Roseville, Rancho Cucamonga, Moreno Valley and San Bruno and Corona, California as well as Tucson, Mesa, and Scottsdale, Arizona, and Sugarland, Texas. Overall, we anticipate at least eight new restaurant openings in 2005, as we continue to project 20% annual unit growth.

We continue to be pleased with the sale of our retail Pruzuki(ph) product through Costco stores in California. We have shipped approximately 23,000 units and Pruzukis can now be found in 26 Costco stores. While impact at BJ's bottom line is minimal, we believe this is a great opportunity to help build the brand through one of our core menu items. As we noted in the press release, we maintain our 2004 projections for revenues between 124 million and 128 million, with 2004 diluted earnings per share estimated between $0.30 and $0.33, which includes the approximate $0.05 after tax one-time gain from a sale with the sale of Pietro's which we booked back in the first quarter. These expectations are based on opening six to seven new BJ's Restaurants and same-store sales growth of 3 to 4%. The company will have one additional week in fiscal 2004, a 53-week year versus the standard 52-week year, which we have reflected in the guidance issued above. This concludes our formal remarks. So at this time we'll open the call for questions. Operator?

Thank you.

[Operator Instructions].

Our first question is coming from Eric Wold of Merriman Curhan. Please pose your question.

Hi, good afternoon. A couple questions on development schedule. Two quick ones first. One of the 8 or more restaurants you're looking to open in 2005, are all of those leases included in the nine you have signed now or still some '05 locations that are yet to be signed?

Most of them, there is -- there is one that has not been signed yet.

OK and then on the East Plano opening, they said open in December. What are the chances of that slipping into 2005, or does it look like it's pretty much a done deal to open this year?

I would say that it's pretty much a done deal, a very little chance of it sliding back to 2005 at this point.

OK, and then on construction costs in general, maybe kind of walk us through what you're seeing in general with the cost of building a unit with the price increases you've seen in steel and lumber and what not. And then on the smaller protest you opened up, where have you been successful cutting some costs out of those as you've learned to opened up a smaller unit and how might you apply that to maybe some of the larger units or in general continue to pull costs, where do you have the most room to get construction costs lower?

Well, several things are happening relative to construction costs. And the raw materials are definitely increasing in price, particularly steel and concrete and that is putting upward pressure on the cost. On the other hand, we are fine-tuning this prototype and have already on our fourth version of the prototype, it keeps getting more efficient, it gets smaller without significantly impacting the seating capacity of the restaurants. The fact that we can do these extraordinary volumes in Folsom and -- I mean not Folsom -- in Fresno and San Bernardino, attests to the ability to do above average volumes in these restaurants at these smaller footprints. So that is we've reduced the overall cost of the building several hundred thousand dollars and that's very promising for the future. Obviously, the cost of steel, et cetera, is working in the other direction for us, but we're very pleased with the direction that the construction and development is going, and with the reception we've gotten from our newer smaller prototypes.

OK, and last question and I'll hop in the queue. Make sure I have the numbers right. You say it was 250 to $300,000 in Sarbanes-Oxley costs in Q4, if that's the right number, where should we look for total G&A for Q4 to fall out?

I would say somewhere -- this is Rob. Somewhere in the 2.6 to $2.7 million range.

Was that 250 to 300 the right number?

Actually, make that 2.7. Yes, that is the right number.

OK, perfect. Thanks, guys.

Thank you, our next question is coming from Tony Brenner from Roth Capital Partners. Please pose your question.

Thank you. Paul, next week there's election day, and should proposition 72 in California pass, I wonder if you could quantify what the effect would be on your non-management labor costs in California, and how that might be offset, and also how it might affect, if at all, your decisions and where to expand in the future?

Well, I believe if proposition 72 does pass, and we're still hopeful that will not be the case, then we will have to assess at that point what the implications are in terms of our operations and in terms of financial impact. I think that's a little premature to put a dollar amount on it. In terms of our plans for California, we would continue to operate and open restaurants in California where our brand is so incredibly strong and the volumes we do are so high. I believe because it's a statewide issue which will affect virtually every one of our competitors, that we will all be able to adapt to it, whether it's through pricing increases or operational changes, and don't believe that will significantly impact our ability to do business and make money in California.

Thank you.

Thank you. Our next question is coming from Jonathan Waite from Key McDonald. Please pose your question.

Let me ask some follow-up questions to that last one. What percentage of your employees are - currently not covered?.

The only employees currently covered are management, so we're looking at a vast majority of employees that are currently not covered.

OK and how many of your employees do not -- or how many of your employees work more than 25 hours a week, or what percentage of your part time employees work less than 25 hours a week?

Jonathan, you're making us guess here.

I know.

The majority of the employees are over 25 hours a week at this point.

So they would be subject to that prop 72, then? Basically the majority of your hourly workers.

I think there are some issues with prop 72. First of all, will it pass? The second thing, if it does pass, will it pass the hard(ph) test? Third thing is if it does pass the hard test then in what form will it be and how will it be implemented. There's just so many questions that are currently unanswered. For instance, people that have double coverage and how is that going to be handled, and it's really difficult to predict right now the impact, but --

Let's assume that it does pass. Would you attempt to maybe push down the amount of hours worked per week so your employees don't qualify? Is that a perhaps one tactic?

At this point, we're not -- we don't have specific approach to take. We want to see if it passes and if it does pass, we're looking at implementation a year from then. And we'll have the time to react to it at that point, but right now we're not prepared to discuss specific strategies.

OK. And then, on your '05 development, so Paul what you're saying is with this new kind of -- I guess kind of the evolution of the strategy of expanding BJ's Restaurants, going into more sort of blue collar types of areas, so we're already going to see that showing up in your '05 development, perhaps even some additional units you might not have thought about before?

Well, I think we have several units that match that criteria. For instance, Moreno Valley, Corona to some extent Rancho Cucamonga. So yeah, it's a definitely a reflection of this approach. It seems that we have sort of a sweet spot which is 10% above and below the -- what previously had been our minimum income criteria, where BJ's is used as an everyday occurrence and as a special event type of experience. So that appears to be a great position for us to be in, and we're not only going to do units in 2005 based on that criteria, but we're looking for additional units which would be in 2006 and beyond.

OK. I guess what I was asking, like within the last quarter or two have additional sites fallen into your lap that you might not otherwise have taken, for '05?

Additional sites have been signed, I'm not sure I'd say at this point fallen into our lap.

No, we've had these on the plan for quite a while. I think it's more a situation where our plan is starting to prove itself to us by some of the opening volumes that we've seen in some of the restaurants that we've opened in '04 makes us more confident in our '05 plan.

The situation is that West Covina, Oxnard and Cerritos, particularly West Covina has been opened for a few years, and it was based upon the experience in those restaurants that led us to open up our criteria a bit and based upon to build that strategy, it seems to be working very well, considering the opening volumes of Fresno and San Bernardino. But this is a strategy that's been in place for a little while now. OK

Thank you.

Thank you. Our next question is coming from Mike Smith from Oppenheimer. Please pose your question.

Good afternoon, Paul.

Hi, Mike.

With our model for next year, I should model eight stores I guess so that spread those evenly throughout the year?

Yes, I believe that's one objective that we are going to accomplish next year, and that's do have the openings evenly spread throughout the year.

That is the eighth number you're shooting for or is eight cut is the minimum?

Eight is a minimum, but I think it's probably a reasonable number to estimate at this point.

At this point of time, that's the number I would go with, and if you want to spread them quarterly, two, two, two, two, you're fine.

And in terms of your comps in the third quarter, can you give me those by the month?

I don't really want to dig down that deep. I will tell you that August was a weak month for us, but all three months were positive.

OK. I'm sorry. I have lost my signal and I was unable to hear, one of the things that I think is very important that I have to ask about, you'll probably have to repeat part of it. But in terms of going into the more blue-collar lower income areas, did you say you were doing that exclusively over the next year?

No, no. It's just selectively. But it doesn't -- we're not shifting our strategy; we're expanding the strategy. So if our minimum criteria was previously 55,000 median income, we're expanding that criteria on the downside a bit, but we're still very enthusiastic about the areas, market areas, that have a higher demographic income and that's one of the great things about our concept, is we have, the broadness of the appeal, we appeal to people not only of various demographic criteria in terms of income, but we appeal to people when you look at the restaurants we've opened recently from Summerlin, Nevada, which is a young, growing market area, to Fresno, California, which is a little more mature, but also near the university, to on the other end of the spectrum, Laguna Hills, which is about as family as you can get, and basically is surrounded by a community called leisure world, which is a retirement community, and we found that the broadness of the appeal, which we were confident we had, extends even into those kind of areas, and that's really, I think, says a lot for the concept and for our ability to grow in the future.

And next year, of the eight that you're doing next year, would you say that those - the majority of those will be prototypes built from the ground up, or will there be some of the furniture store type of work?

The vast majority will be prototypes.

Anything else, Mike? Operator, I guess we can take the next question.

Thank you. Our next question is coming from Stephen Spence from Longbow Research. Please pose your question.

Thank you. Good afternoon. I wanted to go back to the third quarter that you just reported, and take a look at the couple of -- a couple of expense items. First of all, the cost of sales, I noticed that you reported that it is down from the year ago quarter as a percent, but it's up a little bit from the second quarter, and I wondered with one new, one additional store in the second quarter and two additional in the third quarter, are those new stores what makes all that difference?

It does have an impact, yes, because when we open these stores the food cost typically is higher for the first month or two, and that certainly is a big part of that.

Is there something else? I would have thought you would have gotten some relief with commodity prices in the quarter.

Well to some extent, but one of the issues was a major item for us, which is chicken wings, we had a contract through the end of May of this year and that contract expired and the cost there very significantly higher and that's probably our highest volume appetizer. So that had an impact as well but you're right that cheese and some other issues, some other items, were heading down in the third quarter but it was offset by the chicken wings and the new openings. Fortunately, we are contracted on chicken breasts through the end of the year, which would have been a much bigger issue had that contract come up.

Stephen, one additional thing, too, is we typically in mature stores average around a 20% pizza mix, and frequently when we open new stores, customers don't necessarily follow that same pattern. It takes them a while to kind of gravitate towards the pizza so frequently we'll have a higher cost of goods sold until we get our pizza mix in line with our historical average.

OK right, right. What about on the labor line? Did you see much increase in hourly wage rates?

Well, even more significant than the food cost, the impact of new stores on labor is much greater and that accounted for virtually the entire increase in labor costs. That we experienced. The second quarter I think was unusually low, but the third quarter was a combination of being back to a normal level plus the impact of the three openings.

OK so the openings really account for a lot of that increase, and that kind of thing wouldn't be expected to continue, then -- I mean, just vary with the number of openings?

Correct as the company grows, the only impact of one particular opening is going to be less and less. We're still at the point where three very high volume openings would have an impact on some of these items.

Right, right. OK, thanks very much.

Thank you. Our next question is coming from Dean Haskell from GMP securities. Please pose your question.

Hello, Dean.

Good afternoon, everyone. Lou, can you tell me why the tax rate came down such in the third quarter? I see it come down in the little bit in the second quarter, but it came down even more again in the third.

It's actually Rob. Our effective tax rate for the nine periods or for the 39 weeks is 33%, which is what our targeted rate is. Because we ran higher in the first quarter, we had to bring the tax rate down subsequently to kind of even out at the year to date number.

OK and the last question is, do you expect to have -- get Summerlin open -- I'm sorry, I want to review the unit count here for fourth quarter. You've got Folsom open yesterday, and which is the next restaurant expected to be open?

East Plano, which will be in December.

East Plano in December.

That will be number 7 for the year.

Great, thanks, guys.

Thanks, Dean.

[Operator Instructions]. .

OK, operator.

Thank you. We have a follow-up question from Eric Wold from Merriman Curhan.

Eric? ?

We're having a hard time hearing you.

Can you hear me know ?

There we go.

On the commodity cost side, you mentioned chicken wings coming off maybe just refresh if there's anything else that you are coming off contract, that you'll be re-negotiating near term and if there's anything you decide either on contract or off contract that you're kind of seeing some pressure on the commodity side.

Any additional contracts would expire at the end of the year, and we are looking at renegotiating contracts on a variety of items next year is looking in general to be another challenging year. And you know, but we were very fortunate this year not to be impacted as much as many other restaurant companies in terms of the massive increase in commodity costs. And next year it looks to be challenging, but hopefully not as bad as some other companies experienced during 2004. There's the issue with some produce issues currently tomatoes being the major issue with the hurricanes in Florida, and that is going to be a costly situation. We anticipate through the end of the year, but don't really anticipate any other significant issues at this point.

Two follow-ups on that, then. What are some of the major ones that are coming off contract where the current market prices are, whatever you want to deem significant, higher than the current contract price, and then secondly on that, you know, with the menu price increases you've taken over the past 12 to 18 months, maybe talk about experience you've had with those. It seems they've been received fairly well. What does that put in your mind to push through more prices with the next menu, and how much of a price increase would you want to take to avoid pushing your check up too high?

We were very fortunate in 2004 to hold the line on some of these commodity costs. Poultry, for example, we have contracted a majority of our poultry through the end of the year. We're renegotiating for next year and we would anticipate the costs will be slightly higher than last year, but still significantly lower than they would have been this year had we not contracted. So I think that's a common situation that for instance most beef is back to normal levels after it had gone up as much -- as it had but we might experience slightly higher costs next year, but I don't think it's going to be that significant. I forgot the second half of your question.

On the menu prices, you've -- looks like you've had good response there. Where would you want to take them if you raised prices. What do you think is the max you would want to push those up?

Normally we take a price increase once a year and it's in the range of one and a half to 2%. We haven't determined yet what we're going to do in 2005, but it's certainly likely that we'll take a strong look at being able to raise prices a bit at that point. And I believe that we certainly have the room. I think our concept is particularly well positioned to take a little pricing, because of the kind of experience we give to our guests relative to the value that they receive. So I think if we feel we need to take a price increase, I think it will be well received.

Thank you.

Thank you. We do have a follow-up question coming from Mike Smith from Oppenheimer. Please pose your question.

I'm sorry, I lost my signal again earlier. Paul, the question I was asking was about the stores that you're building in '05. How many of those will be prototypes from the ground up and how many of those will be retrofits of existing buildings?

At this point probably a couple of them would be conversions and the restaurant up.

Thanks.

Thank you. Our next question is coming from Dean Haskell from GMP securities. Please pose your question.

Hey, Dean.

Good afternoon, again. Lou, you ran by those numbers pretty quickly. Can you give me the shareholders equity and the book value and then the CapEx?

OK. Let me do it off the 10-K, I can finds that easier than the other things, Dean. Shareholders equity for the third quarter ended September 26, 2004 it's 76.9 million. What else did you want to know? The CapEx?

CapEx was 7.2, but that included what?

That included -- let me find that.

That was Summerlin, Fresno, San Bernardino, as well as some portion of the development costs for Folsom, East Plano and Rancho Cucamonga.

So you said a R and M number of 1.2 million, perhaps?

1.3.

1.3 for R and M and that leaves 5.9 for the other in the quarter. Did you file the Q yet, Lou?

No the Q has not been filed. They would probably at the end of this week.

This is Jerry. I think you're confusing in the quarter Lou talked about 7.2 million. For year to date, total capital expenditures are 17.2 million. 15.9 of that relates to new store development, and 1.3 towards CapEx on existing units.

1.3 R and M year to date. Thanks.

Thank you. Our next question is coming from Ben Morgantor, private investor. Please pose your question.

Hello, greetings. I wanted to get back to prop 72 for a minute. How many employees do you guys currently have?

In the range of about 4,000.

So you're up to about 4,000.

But they're not all California employees.

They're not all in California, I understand that. And prop 72, it's up for a vote this Tuesday, right?

Right.

In California and it just affects the California employees that work more than 25 hours?

That is correct.

OK. And what is your average health insurance expense per employee?

There's a pretty wide range depending on family versus single. That would be difficult for me to answer at this point.

But we're looking at something --

Above $100, I mean in the hundreds.

Per month?

Correct.

OK. And it sounds like from your answer to the previous question, you're fairly confident this is not going to have a significant impact on your margins?

Well, it's premature to say. I think the best we can say right now is it's hard to determine what the impact will be for a variety of reasons. One is if it will pass, if it will be actually implemented and if it is implemented, what will be the -- how will it be implemented. And you know, so all those things make it very difficult to predict at this point what the costs will be and then the issue is how will we respond. I can tell you it's not going to take a 10% price increase to offset this. Any price increase necessary to offset this would be in the low single digits, so it's not something that would tremendously impact our guests obviously it's not something we like to do, but it's something we will deal with if and when the time comes, and still feel very strongly about our opportunities in the state of California, where we have among the highest volume restaurants in the country.

And this would only affect your employees in California?

Correct.

So one option would be to just focus your expansion elsewhere if that seemed to be more profitable to you.

Well, frankly, you know, we have in the rest of the country to expand to anyway, so I don't know that it would change our strategy overall, which is by definition most of our expansion into the future will be outside of California, but because of the strength of our brand within California and the other operational efficiencies of being close to our home base, we still feel very -- we're very proactive about identifying great sites in California and developing those sites. So I don't think it would change our strategy. However, over the long-term just because of the nature of the size of our company and the regional concentration in California, still a vast majority of our restaurants will be outside the state.

Great, thanks, Paul.

Thank you, Ben.

Thank you.

[Operator Instructions].

Gentlemen, there appear to be no further questions at this time, I'd like to turn the floor back over to Paul Motenko for any closing comments.

Thank you very much, and thank you for participating in the call. We will have a replay available shortly, which will last 30 days on the Internet and for three days on the telephone. Details can be found on our web site at www.bjsrestaurants.com. If you have any further questions, please call us in our offices at 714-848-3747. This concludes our conference call. Thank you.

Thank you. This does conclude today's teleconference, please disconnect your lines at this time, and have a wonderful evening.