BJ's Restaurants Inc (BJRI) 2004 Q4 法說會逐字稿

Good afternoon and welcome to the BJ's Restaurants 2004 conference call. All parties have been placed on a listen-only mode. Following today's presentation, the call will be open to your questions. It is now my pleasure to introduce your host, Mr. Rob Curran, Vice President of Investor Relations. Sir, the floor is yours.

Thank you. Good afternoon, everyone, we would like to welcome you to our fourth quarter and fiscal 2004 conference call, which we are broadcasting live over the Internet today. I'm very pleased to announce Jerry Deitchle our Company's new President and CEO. In addition we have Lou Mucci, our Chief Financial Officer, and Jerry Hennessy, our Co-Chairman. Paul Motenko is unfortunately under the weather, and is not in the room with us today. BJ's Restaurants released results after the close of the market and interested parties, can view a copy of our results on the main page of website located at www.BJsRestaurants.com. If you would like a copy or to be added to our distribution list, please call my office at 714-848-3747 extension 260, and we'll make sure to forward a copy to you.

Our agenda will be as follows. Jerry Deitchle is going to provide some introductory remarks. Jerry Hennessy will then provide the summary financial and operational review covering BJ's Restaurants results for the fourth quarter and fiscal year ended January 2nd, 2005. Lou and I will follow up with some additional financial details on the quarter, Jerry Hennessy will then provided commentary on current issues and trends, and lastly we'll be available for a Q&A session. We would like to complete this call in about 45 minutes.

Before we begin, I would 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 and 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. With that, I would now like to turn the call over to Jerry Deitchle.

Thanks Rob. I'm Jerry Deitchle, and I joined BJ's Restaurants as President and CEO about three weeks ago on February 1st. Just to give you a little background on myself, I spent most of my 32-year business career with retail and restaurant growth companies, include 3 years at the Church's fried chicken chain back in the 1970s. 11 years with the long John Silvers chain, which is now owned by Young Brands, and 9 years at the Cheesecake Factory, one of the most successful restaurant growth companies during the past 10 years. I joined the Cheesecake Factory as their CFO back in 1995, when that company had about 10 restaurants open. During the next nine years, our management team at that company grew that business from that base of about 10 restaurants which were primarily located in Southern California, to approximately 80 restaurants in over 20 states. During that time period, that company's market capitalization also grew from approximately $250 million back in 1995, to about 2.5 billion. In 2002, I also assumed the corporate President's responsibilities of the Cheesecake Factory, in addition to my CFO responsibilities there.

Last year, I decided to take a break from public company life and step down from my position at the Cheesecake Factory, to my home state of Texas to work with a privately held restaurant company. But as the months went by, I kind of found that I really missed the challenge of managing a public restaurant growth company, based in the sunny state of California, and it was time to get back into the game. It was about three or four years ago, when I first met Paul Motenko and Jerry Hennessy at BJ's, and I became very interested in the BJ's concept. I started to closely watch it. I really admired the concept and really admired the culture, and integrity that Paul and Jerry had created and built with their company around. Paul, Jerry, and I had discussions from time to time during the past couple of years about my becoming more involved with BJ's, and I am happy to say that the planets have finally lined up for that to happen. The BJ's business model is a pure company operations model, which I understand very well.

BJ's average sales per restaurant and overall operational complexity are higher than most chain operations which I also understand very well. BJ's is more of a site driven non-chain image development model, that doesn't rely on media advertising, which I also understand very well. And the success of BJ's operating model is highly dependant on our ability to recruit, train, motivate, and retain the very best talent, to correctly operate our restaurants as we grow, and those are processes that I also up understand very well, so I think it's safe to say that BJ's is clearly a perfect match for my skill set, and I'm very honored and humbled to accept that opportunity that Paul and Jerry have offered me, to lead their team as their CEO, and become their partner. My first three weeks on the job here at BJ's have solidly confirmed my belief that we've got a strong opportunity to expand the BJ's concept in both existing and new markets, and to further leverage our business model as we grow.

During the next couple of months, I'm going to work very hard to improve my understanding of as many details of the BJ's model as I can, and work hard to complete an initial assessment of all of our key systems, our processes, and our people, that make up both our operational structure and our support infrastructure. As I get up to speed at our Company, we're going to move ahead to more clearly define, articulate, and implement a business plan that facilitates over time, our transition from what I call a restaurant company that is growing, to a restaurant growth company. And for those investors and listeners that are familiar with the two, there is a huge difference between a restaurant company that is just growing, and a restaurant growth company.

And I believe very strongly that there's a greater long-term value using the growth company model. So as we make that transition, we're going to implement a plan that will include the following six components. First and foremost, we're going to protect, enhance and continue to evolve the BJ's concept. We want to make darn sure that customers continue to love our food, love our service, our ambience and our overall value as we continue to execute our expansion plan.

Our operational goal is to become a gold standard for operational execution in the restaurant industry. Second, we want to build talent at all levels of our organization. We can only grow as fast as we can recruit, train, retain, motivate the very best people to operate our restaurants correctly, and to support our restaurants with effective tools systems and processes, Our restaurant business model is a talent driven model, and building our own base of talent will be a high priority. Third, we want to protect and enhance our operating profit margins, we're going to focus on building or acquiring tool sets that are going to enable us to improve our productivity, our efficiency, our economies of scale and leverage in every aspect of our operations, so that we can keep our menu prices as low as we can for our guests, and at the same time protect and enhance and leverage our operating profit margins.

Fourth we've got execute our restaurant growth plan on time, on budget, and achieve our ROI targets, and our growth is going to be to be carefully controled, as it has in the past at BJ's, so that we don't outrun our logistical headlights, and we want to make sure that we can correctly execute the concept as we grow. Fifth, we're going to work hard to further minimize the risk of doing business. Every competitor in the restaurant industry faces a common risks related to guest liability claims, employment practice claims, other risks, and we're going to focus on minimizing those risks within our operational control, so we can better protect the integrity of both the BJ's brand and our financial results, and finally, number six, we want to optimize our Brewery operations.

The BJ's brand is built around hand quality food, and our unique handcrafted beers, and we want to create even more brand synergy between the restaurants and handcrafted beers, as time goes on. I'm very honored and humbled to be on the BJ's team, and I'm going to do my best to make a positive different at our Company, as we continue to execute our growth plan.

I look forward to reporting our progress to you during the upcoming year, and now I'm going to turn the call over to Jerry Hennessy, our Co-Chairman who will have a few comments, then he will overview the fourth quarter for you. Jerry.

Thanks and welcome the Company. As I've said, the folks who have asked me about Jerry coming on board, what my the thoughts were, and why the offer was made to have Jerry lead the Company, my simple response is this, I believe BJ's is the best casual concept in the country with the greatest potential, and it deserves to have one of the finest restaurant executives in the country leading it. Again, thank you Jerry, and we feel fortunate that you have joined us.

Our revenues for the fourth quarter were approximately 37.9 million, a 40 percent increase over the fourth quarter of '03, this increase was primarily driven by 7 new locations which opened during fiscal '04, as well as 1.1 percent improvement in same restaurant sales. Comparable restaurant sales increases in the fourth quarter were primarily driven by menu price increases. Importantly, the fourth quarter of '04 contained 14 weeks, compared to 13 weeks in the fourth quarter of '03, the extra week added 3.3 million to the fourth quarter '04 revenues. Some of our best performing comparable restaurants in the quarter, were Valencia, Brea, La Mesa, Huntington Beach, and Irvine, CA. The BJ's restaurant which produced the highest revenues during the fourth quarter was San Bernardino, California, which opened on September 28th of '04. We believe this speaks to the continued ability of our restaurants to be successful in areas with solid population density, yet a lower per capita income demographic than markets in which we have historically developed restaurants. Average weekly sales for all restaurants during the fourth quarter were approximately 77,500 versus 64,900 in the fourth quarter of '03.

To provide additional details for financial modeling purposes, we note that our 11 small format restaurants opened during the period, which we define as our seven pizza and grill restaurants in California, our three Oregon restaurants, and our 5,500 square foot Colorado restaurant contributed slightly less than 4.6 million to fourth quarter '04 revenues. The remaining 33.3 million was generated from 25 full-size brewery and Brewhouse restaurants, including 3 new restaurants we opened in the fourth quarter in San Bernardino and Fulsome, California, and Plano, Texas.

During the fourth quarter of '04, average weekly sales for the large format Brewery and Brewhouse restaurants were approximately 99,300, versus 94,400 in the fourth quarter of '03.

At the end of the fourth quarter, 9 restaurants were in operation which had not yet entered the comp base. These restaurants collectively had average weekly sales above the Company average during the fourth quarter of '04. This provides evidence that our newer restaurants are performing at levels above our already strong base of restaurants. Net income was 1.6 million, or $0.08 diluted earnings per share, as compared to net income of 719,000, or $0.03 diluted earnings per share for the same period of '03.

At this point, I would like to turn the call over to our CFO Lou Mucci, and also to Rob to discuss our quarterly financial results in more detail.

Thanks Jerry. I'm going to cover our revenues and our prime cost, and Rob is going to cover some of the other significant items in our operations. As Jerry just mentioned, total revenues for BJ's Restaurants for the fourth quarter increased to 40.3 percent to approximately 37.9 million, from 27 million in the prior year's comparable quarter. This increase is primarily the result of opening of 7 new restaurant locations, and they are Willbrook, Texas, which was opened in the first quarter of 2004, Laguna Hills California, which was opened during the second quarter of 2004, Summerlin, Nevada, and Fresno California, which were both opened in the third quarter of 2004, and San Bernardino and Fresno, California, and Plano, Texas, which was opened during the fourth quarter of 2004.

In addition, the Company posted a same restaurant sales increase of 1.1 percent during the fourth quarter. The comparable restaurant increase is primarily due to a 2 percent menu price increase taken in November of 2003, and approximately a half a percent to beverage pricing, which we rolled out to our restaurants during the second quarter of 2004. Early in the fourth quarter, we raised the price of most of our hand-crafted beers, based on our historical percentage of handcrafted beer sales, the increase in pricing equated to approximately 5/10 of 1 percent in overall menu pricing.

In terms of traffic, we estimated that both Christmas and New Year's Day falling on Saturday, our same restaurant sales in the fourth quarter were negatively impacted by approximately 0.7 percent versus fourth quarter of 2003. Quarter over quarter, revenue gains were partially offset by the sale of the Three Pietros restaurants, which we completed on March 15th, 2004. Those 3 restaurants contributed approximately $740,000 to fourth quarter 2003 revenues.

Looking at cost of sales. Cost of sales, which includes, food, beverages, and paper, increased to $10.1 million, from $7.1 million during the comparable quarter of 2003. As a percentage of revenue, cost of sales increased to 26.7 percent for the current quarter from 26.4 percent for the comparable prior year quarter, an increase of 30 basis points. The increase in cost of sales year-over-year is primarily a result of increased meat and cheese prices quarter-over-quarter, as well as increased produce costs, due in part to the Florida hurricane.

Menu price increases taken during the fourth quarter of 2003, and beverage price increases during 2004, helped mitigate higher cost of food. Excuse me. Additionally, we reduced our purchase costs through improved vending pricing in our Texas and Northern California markets, an increase in the number of restaurants in Texas, where we now operate 5 restaurants, also helped our purchasing power. As a reminder, we anticipate experiencing higher per unit purchase costs when we enter new markets.

Although we continue to mitigate expenses to the best of our abilities, in newer markets we haven't yet achieved the critical mass necessary to get food costs at rates similar to those we experienced in Southern California, where we have a solid base of restaurants and improving purchasing power. Labor and benefit costs were 13.8 million in the quarter, versus 9.8 million in the fourth quarter of 2003. A 10 basis points decrease as a percentage of sales at 36.3 percent versus 36.4 percent quarter-over-quarter. The decrease in labor as a percentage of sales, is primarily the result of sales leverage on management labor.

Hourly labor increased quarter-over-quarter due in part to increased restaurant development versus the comparable quarter. Labor on our new restaurant typically runs higher during the first 90 days after a restaurant is opened. We had 4 restaurants in the first 90-day stage at some point during the fourth quarter of 2004, versus only 1 restaurant in the fourth quarter of 2003. I would like Rob to also go through some of the other items in our P&L at this point.

Sure, thanks Lou. Occupancy costs increase to approximately $2.5 million during the fourth quarter, from 2.2 million during the comparable quarter of 2003. As a percentage of sales, occupancy costs decreased 170 basis points, to 6.6 percent of revenues, from 8.3 percent quarter-over-quarter, the increase in absolute dollars reflects 7 additional restaurants opened year-over-year, offset by the sale of the Three Pietros restaurants.

The decrease as a percentage of sales is the partial result of an increase in ground lease transactions, which result in monthly lease payments which are below our historic rent levels. Additionally, our occupancy costs are were overaccrued during the first 39 weeks of our 2004 fiscal year, resulting in a reduced occupancy expense during the fourth quarter. Operating expenses increased to 4.2 million during the fourth quarter versus 3.1 million in the year ago quarter. As a percentage of revenues, operating expenses decreased 20 basis points to 11.1 percent for the current quarter from 11.3 percent for the comparable prior year quarter. This is primarily due to leverage from increased menu prices and related comparable restaurant sales increases, combined with our continued expense containment initiatives.

General and administrative expenses in the fourth quarter 2004 increased to 3.6 million from 2.0 million during the comparable quarter of 2003. As a percentage of revenues, G&A expenses increased to 9.5 percent for the current quarter from 7.3 for the comparable prior year quarter. This increase is primarily due to increases in Sarbanes-Oxley fees, severance payments, and increased bonus payments. We have previously mentioned that the majority of out costs for Sarbanes-Oxley would fall in the fiscal fourth quarter of 2004. And we expensed $354,000 of our total 381,000 expense during the fourth quarter. Additionally, we had approximately $442,000 in costs related to severance payments during the fourth quarter.

Depreciation and amortization increased to approximately 1.6 million in the fourth quarter from 1.1 million in the comparable quarter of 2003. This is due our investment in 7 new restaurants in 2004. While an increase in restaurants with ground leases does reduce occupancy costs, it also results in higher lease hold improvement costs. Restaurant opening expenses increased to $606,000 during the fourth quarter, from 238,000 during the comparable quarter of 2003. BJ's Restaurants opened 3 restaurants in the fourth quarter of 2004, versus 1 restaurant in fourth quarter of 2003.

As a reminder, our opening costs will fluctuate from quarter to quarter depending upon the number of restaurant openings,, the size and concept of the restaurant being opened, and the complexity of the staff hiring and training process. We budget pre-opening expenses between 300,000 and 400,000 per restaurant with restaurants opening in Southern California typically experiencing slightly lower pre-opening costs, due to less travel and lodging, as well as the potential for a portion of managers and staff to transfer from existing company restaurants in the same market.

Our net interest income was basically flat quarter over quarter at 87,000 this year, versus 99,000 during the comparable quarter of 2003. Net other income was $9,000 in the fourth quarter of 2004 versus a net expense of 605,000 in the year-ago period. The expense in the fourth quarter of 2003 was primarily the result of the settlement of a meal and rest period class action case in California. Our effective tax rate was under 2 percent for the fourth quarter of 2004 versus the 29.5 percent rate in the fourth quarter of 2003. Our tax rate for fiscal 2004 was 27.4 percent, compared to 33.9 percent for fiscal 2003. Our effective rate decreased due to additional utilization of FICA tip credits and the review and subsequent reduction of our tax reserve and valuation allowance. We currently estimate our effective tax rate for fiscal 2005 will approximate 32.5 percent.

I would like to briefly discuss the impact of the extra week in 2004. As we previously noted, the companies results for both the quarter and the fiscal year ended January 2nd 2005, included one additional week of operations when compared to the same periods in the prior year. The final week of operations added $3.3 million in revenue, and approximately $0.01 of diluted earnings per share. I would like to turn it over to Lou to discuss the balance sheet.

Thanks, Rob. Turning to our balance sheet. We ended fiscal 2004 with approximately $19.5 million in cash and short-term investments, or approximately $0.95 per diluted share, and no funded debt. Shareholders' equity was 79.1 million at January 2nd, 2005, or $3.84 per diluted share. Total capital expenditures for the quarter ended January 2nd, 2005, were approximately $8.5 million, and were primarily related to the development of our San Bernardino, Fresno, and Plano restaurants. As well as continuing development costs for a number of restaurants expected to open during 2005.

For fiscal 2004, total capital expenditures were 25.8 million, comprised of approximately 24.2 million for new restaurants that opened in 2004, or are anticipated to open during 2005. Including two restaurants expected to be financed under a sell-lease back transaction. And a $1.6 million in capital expenditures related to existing restaurants. We currently estimate capital expenditures of at least $25 million during 2005. The breakdown is as follows, approximately $18 million for 2005 new restaurant development, approximately $2 million for maintenance capital expenditures on existing restaurants, and $5 million to $6 million in construction progress, or to take into account the time of landlord contributions for restaurants anticipated to be opened during 2006. I would now like to turn the program back over to Jerry Hennessy.

Great, thanks. As mentioned during the fourth quarter, the Company opened our 5th, 6th, and 7th restaurants of the year in San Bernardino and Folsom, California, and Plano, Texas. We continue to be very pleased with our new smaller prototype restaurants. These are approximately 7,800 square feet and help us improve operational efficiencies, while having a format capable of producing revenue volumes in excess of company averages. We recently evaluated our menu pricing, and after reviewing the costs and competitive environment we have added approximately 0.7 percent in menu price increases during January of this year.

On the new restaurant development front, we currently have 11 leases signed for restaurants that we project will open in '05 in '06 in Moreno Valley, Roseville, Corona, Rancho Cucamonga, San Mateo, San Bruno, and Vacoville, CA, as well as Tucson, Mesa, and Desert Ridge, Arizona, and Sugarland, Texas. Overall we hand at least 8 new restaurant openings in 2005, as we continue to project 20 percent or more annual restaurant growth. Additionally we have recently developed another evolution of the prototype at approximately 7,000 square feet, and that will be featured this year when we open up the Moreno Valley and Corona, California sites.

During February of '04, the lease expired on our Seal Beach location, the small format pizza and grill restaurant. We were then operating that location on a monthly lease arrangement. The Seal Beach restaurant is located less then 3 miles south of our Belmont Shore restaurant, and is less than 9 miles down the Pacific Coast highway to our Huntington Beach Pizza & Grill restaurant. As a result during January, we elected to close the Seal Beach store. Book value of the assets which were written off in fiscal '04 were 38,000.

Lastly to provide a comment on current business trends, we note that our comparable restaurant sales for the first seven weeks of the first quarter of '05 are trending positively. We do caution investors that the first quarter presents our most difficult quarterly comparison of the year as our Company faces 7.7 percent comparable restaurant sales. We believe that our first quarter of '04 benefited from the grocery strike that was ongoing in Southern California last year.

We do remain pleased, however, with our business trends at our restaurants so far in this first quarter. We remind investors are that out primary revenue driver for the next several years will be the addition of planned restaurants, and not same restaurant sales increases. Back to Jerry.

Thanks, Jerry. Again, I'm very excited to be on the BJ's team. One of the things that attracted me to the BJ's concept, is that BJ's is already a very good company with excellent economics within the four walls of the restaurant. I think that Paul Motenko, Jerry Hennessy and their team have done an incredible job of building this Company from its very humble origins not that many years ago, and I do truly and deeply respect and admire all of the hard work that has been accomplished prior to my arrival.

I think we all strongly believe that there's room for at least 300 BJ's Restaurants across the country, and we've only got 36 restaurants open today, so we have got the vast majority of our growth ahead of us, and I think that's an exciting position to be in. So we've got a lot of hard work to do, but it should be both fun and rewarding for everyone. I think that the next several years should be exciting growth years for BJ's, and I'm very happy and delighted to be be a part of that growth. That concludes our comments on the call, and now operator we're ready for questions.

Thank you. The floor is now open for questions, if you have a question, please press star 1 on your touch-tone phone. [OPERATOR INSTRUCTIONS] Please hold as we poll for questions. Thank you. Our next question is coming from David Geraty of RBC Capital Markets.

Yeah, couple of things. I would like to just add to what has been maybe comments that have already been pointed out that we're delighted to see a young emerging growth company like BJ's with the wisdom and foresight to go out and hire something somebody like Jerry Deitchle, so we applaud them for doing something that we find in 20 years is very difficult from many, many founders and owners, so I think that's going to be a very long term positive for our investors.

Secondly if somebody could comment and give us more color on some of the items that seem to be a little bit out of sync, maybe quantify for us. On occupancy costs for example, a lot lower than we expected, and I think Rob or somebody mentioned why that was the case. If somebody could give us a more normalized number for the quarter on that item.

In addition, similar issue on G&A, it looked like it was up significantly over the prior quarter or two, maybe what a more normalized rate would have been for that quarter, and going forward a little bit of guidance on G&A, and lastly, the other big issue was the tax rate? If we could just have a sense of what the normalized effective tax rate would be with the new FICA credit for the entire year, maybe that would would be a more appropriate normalized tax rate we should be using.

Okay. David, I'll take occupancy. I'll take the historical, occupancy and G&A, maybe Jerry can talk about G&A going forward, and Lou can discuss the tax rate.

Thank you.

When we figured out our occupancy for 2004 for the fiscal year ended January 2nd, 2005, we basically were accruing, based on a 53-week year, so the weekly accruals were slightly over through the first three quarters of the year, which means we had a little bit of catch up in the fourth quarter. If you look at the annual number, we've got 53 weeks accrued in occupancy, so that $9.4 million number, and 7.3 percent of revenue is probably something closer to what you're going to see going forward. We do have more ground lease situations, so our occupancy is coming down.

In terms of G&A, you know, I can repeat the numbers that we put out there, but at the end of the third quarter, we sort of guided analysts that we were going to have the majority of our Sarbanes-Oxley costs in the fourth quarter, and that's really where it came through. Additionally, you know, we did have severance costs for one employee that we also put in the fourth quarter, as well.

But if I take those out, that would be a more normalized longer term rate, or does Jerry want to give us some G&A outlook for '05.

Just being three weeks in the job, David, it's really hard to make an assessment on the infrastructure, but based on the business plan that has been put together, and that I believe is based on reasonable facts and circumstances that impact the business, without giving a specific G&A number, I think we all believe strongly that we expect to see significant G&A leverage as a percentage of revenues coming in to 2005. Now, how that number -- how that leverage is going to manifest itself, I mean, clearly it will break below the 8 percent of revenues barrier, where it's going to end up between 7 and 8 percent, I think is tough to determine at this time, but we definitely expect to see that leverage.

And then as far as the effective tax rate I think in the comments, did we cover that?, we expect it to be about 32.5 percent going forward for fiscal 2005 is that right?

Yes, we did say that.

Thank you very much.

Okay, David.

Thank you, our next question is coming from Eric Wold of Merriman Curhan Ford & Co.

Good afternoon. A couple of questions. One, just comment on the -- I might have missed it. The opening schedule what it looks like for those 8 restaurants for this year, kind of a sense on what you're seeing now from developers and terms of TI levels for kind of the fiscal '05, you know, group of restaurants versus what you might have experienced in the past couple of years, and then last question, looks like you'll probably be getting, unless something else changes about a 1.5 to 1.7 percent menu price boost or impact in Q1 on same-store sales. Can you comment on if the quarter to date trend in comps is above that level? i.e., traffic positive, or if it's below that level?

Hi, Eric, I'll let Rob take that one. But let me talk about the unit development cost. You know, over the last couple of years, we have done a series of ground leases, you know, hence the comment that we expect occupancy to drive low, but development costs are a little bit higher.

We are seeing more of a mix now, where we have a series of different deals that are going to, I believe, drive our average investment cost down, and I think we're seeing that on a lot of the deals that we have in '05. Either via the landlord contributions, or we have a couple of deals this year that are sale lease back. We would drool over a few more of those deals, but we did get a couple of those in this year, so I think you will see a trend down.

As you look at that having a investment over the last couple of years, it has been to the higher side, simply because of all of the ground deals that we've done, but there's fewer ground deals, and more contributions from landlords, so we like the trend of that, and I think Greg Lynds, our Chief Development Officer, is out there beating the streets, and beating up on all of the landlords he can, so we can get more money from them.

Eric, in terms of the, you know, guidance on how we're doing in the first quarter, I think we're just going to stick to our statement that through the first seven weeks we are trending positively, and we'll let you know further in the first week of April when we release comp numbers.

Okay. And then one last thing, if I may. Is -- are -- obviously, I didn't see it in the press release, are we not going to be getting guidance going forward into the annual guidance or quarter out guidance in terms of revenues or earnings?

This is Jerry. You know, being new here at the Company, and trying to get my sea legs so so to speak, I think we've given some fairly concise guidance as to our growth expectations for the coming year to open at least 8 restaurants, to drive our operating week capacity up on a 52-week adjusted basis, 52 weeks to 52 weeks, you know, up at least 21 percent.

I think that we expect our restaurant operating margins again there will be pushes and pulls, as there are with every business, but we do believe that our pricing power, as well as economies of scale and other productivity and efficiency enhancements, that we plan to introduce here, which will take a little bit of time to get those programs out there, and get them effective, but nevertheless we'll get them moving here as quickly as we can, we believe that we'll be able to protect if not perhaps at least slightly improve the restaurant operating profit margin.

We commented that we would hopefully see some significant G&A leverage as a percentage of revenue this year. Obviously we we won't have a gain on sale of restaurants that we had in the numbers in fiscal 2004, so that's really the best guidance that we can give at this time, and I don't think we're going to give a diluted earnings per share guidance, not because we're not confident of doing so, but because it has been my prior practice as you know at my old company to really not give out detailed guidance like that, but we really try to give as much detail as we can on all of the components of the business as we possibly can, so I think that's the approach that we're going to take, and given the fact that I'm kind of new in the saddle here, that's probably the appropriate thing to do, but I think if you carefully consider what I've just said, I think you should be fairly confident that we're going to have -- or the potential of us having a very nice year in 2005 is well in hand.

I completely understand. Thanks, Jerry.

Okay. Eric.

Thank you. Our next question is coming from Mike Smith of Oppenheimer.

Good afternoon.

Hey, Mike, what's going on?

Jerry, it's good to have you back.

Well, Mike, I missed you, Buddy.

The 8 units that you're going to open this year, did you break those down by the quarter, what you hoped to do in the quarter, quarters?

We did don't that, Mike, but this year -- I mean, you know what the date is already. We opened up a unit this year, but a couple of them are right around the corner. We see a bit more fluid opening schedule this year. Obviously, there were there was no January or February opening, but we got a series of them coming on here, so it will be more fluid than it has been in the past.

Okay, so one the first quarter, and then 3-2-2 type of thing?

That sounds pretty fair to me 1-3-2-2 sounds fair, and and if you have more than 8 units in more model, I would put the last one in the fourth quarter.

Are any of those Breweries?

Yeah, the one up in Roseville, in the Sacramento area is a Brewery.

Jerry, I know that with Cheesecake Factory, was not a comp store sales story, are we kind of getting to the same position with BJ's, considering their openings are so big in California?

I haven't had a chance to really study every restaurant sales performance in history Mike, but my sense is given some of the strong openings that we've had, and some of the capacity issues that we are blessed to have at some of our newer restaurants, it may very well, that we're evolving to stronger openings. Obviously, we'll go through some honeymoon period, like we did at my old company, but I think we'll settle in to more productive restaurants, which I think is a very good thing, and I think that's why in our previous comments, we said that you should view our topline growth potential being more of a restaurant growth story than a comp sales story. So I I believe we're beginning to see that, Jerry Hennessy, would you agree with that?

I feel the same way.

I guess my last question is you're developing -- it sounds like most of your stores are going into existing markets of California, Houston, and Arizona. Would we expect, because of your history, Jerry, to maybe see a little shift in the attitude towards geography?

Well, this is Jerry. I think for the next couple of years, it makes all of the sense the world to fill in our existing markets, and really leverage our competitive positioning, brand identity, our overall awareness, and build that talent base that is contiguous so that when we do begin to expand out into new markets, we're nailed in our home core markets, and have got the solid talent base that we can export if necessary to new markets, so that's kind of how I think about it. Jerry Hennessy, you want to comment on that?

Of the 11 sites that I mentioned that we had signed, Mike, every one of those is in to existing markets, you know, we've got Sugarland, you know, that will give us a third into Houston, Roseville, that will give a second one into Sacramento. San Bruno and San Mateo in the Bay area, and the inland empire here of Southern California. We opened San Bernardino last year, and we have got 3 more coming into that great, you know, part of the Southern California. So it's nice to have a whole series of them, you know, that effects everything from pre-opening costs, what have we set up from the purchasing and supply chain side, so for right now, we're on a roll, and, I mean, I think Jerry's comment of how many ultimately we see across this land, ideally we try to build them all in those markets, we know we'll have to spread some, but over the next couple of years, I have -- what Jerry said is absolutely true, we want to stay as concentrated as we can, but we know eventually it will get a little further away from the home office.

And I guess my last question. Can you share with us how the Texas markets are doing now that they're in their second to third year?

Yeah, Mike, the -- we just opened the Plano store up in Dallas. That gives us 3 up in the Dallas area. I mean, I could sense it in the opening, when you open the first one in a market, it's like, what, we've never been to BJ's before. We experienced that a little bit in Lewisville and Addison. Now having that third unit up in the Dallas area, where their distances are -- they're different markets, but people would cross between them, I really sense it in the opening, and I'm feeling, you know, momentum in Addison, I like the way Plano is off to a good start. Lewisville, we have this huge construction going on it, the overpass of the 120 to the 35, which we look forward to getting wrapped up, but I definitely feel things taking a grip in Dallas. In Houston, we're very spread out. As you know Houston, it's a huge city. We're up in the northwest, up in Willlowbrook, and then we're down in the Southeast, down in Clear Lake, and Sugarland will be in the Southwest, so we're kind of -- we're not feeling any synergy between any of these units. Near basically like 2 one-offs because they're on opposite ends of the city, but I think as we get Sugarland going we will see greater awareness's of BJ's in that market. So we'll continue to report to you as it evolves down there.

Our next question is coming from Richard Marshall of Longbow Research.

Hi, good afternoon. As I look at labor costs, they have fluctuated a little bit over the last few quarters, and I was wondering if you could kind of provide some guidance on that, and also whether those labor costs vary from your California units to your units outside of California?

Yeah, on the labor side, Richard, we opened a custom of, you know, monstrous units this year, and the -- you know, that's the great news. What impacted a little bit later, and we talked about it last quarter, was the veteran folks that we keep on in the post-opening period, we kept a heck of a lot more of them on, through a lot of those openings last year, so that kind of heated up labor a bit, but, you know, when you go in expecting X in a store, and you're doing, you know, almost 2X, we're going to do whatever it takes, and I'll tell you, we had everybody in the Company during a few of those post-opening periods. So those heavy openings, you know, affected us a bit.

On the other side of it, I think a few of the things that Jerry mentioned in his remarks, I think there's a few things, frankly that we can do better around here to steady labor, and I think you'll see some improvement, Jerry mentioned some margin improvement. One of those, the big ones right there, is labor, and I think the metrics and the philosophy that Jerry is going to bring to the table, will -- you'll see kind of a steadier output from us in terms of labor. So we're going to do the right thing in these store openings. You know, when they open up big, we're going to hall out all of the folks to get it done, but that's what caused a fair amount of that last year, but I -- I hope we continue to have problems with massive openings and store post open labor.

There and this is Rob Curran talking. We were a little bit loaded in 2004, so you will see in the second quarter we probably ran a less less in labor than we did the latter part of the year. And then as we continued to ramp up went you saw us add managers, put them in the system, so we were a little heavy in some of our existing restaurants. In terms of your labor outside California, California is a non-tip credit state. we pay our front of the house and back of the house employees are our hourly $6.75 an hour, versus $2.13 in a state like Texas. And we've seen as much as 300 to 400 basis points difference in labor. So we would expect that as we start to diversify outside of California that labor costs could come down.

And just one other question as you look at your first quarter sales, has there been any impact of bad weather there in southern CA on those results so far?

You know, we've said our same store sales results are positive through the first seven weeks, and think that's about all we want to say. We can tell you more after we report the first quarter.

Thank you, our next -- our next question is coming from Brett Soco of Performance Partners.

I was wondering, your EBIT margins, even if you add back the severance are pretty poor, you're not getting the leverage. Are there any thoughts strategically? I know you're a store opening story, as Mike suggested, but to ramping back the growth of the new store openings, and focusing on profitability a little more.

This is Jerry Deitchle speaking, I think the answer to that is no. I think we can do both. If you take look at the four wall economics that we've reported this year for the full year, and if I'm looking and have done my math correctly, I think operational cash flow margins within the four walls of our established restaurants are close to 20 percent. I think 19.6 percent is where the number pencils out. So those are excellent margins in the restaurant business to have close to a 20 percent operating cash flow margin between the four walls of any concept, that a top quartile operating cash flow margin performance in established restaurants.

But having said that, I see opportunities with labor productivity. We don't really have a solid labor productivity and analysis system in place. That really gets down to the details of hours that you schedule, average rates that you pay, overtime hours, staffing, et cetera. We don't have a theoretical food cost system that really tracks waste and yield at the restaurant, so we can bettering manage that component of food cost. So we have those in front of us.

We don't have an activity-based analysis system that's based on a per guest metrics, and labor hour metrics to properly compare the performance and productivity of our restaurants that are similarly situated, so we have all of that ahead of us, and then when you look that I rest of the operating side of the business, you know, again, we have heavy infrastructure here, our G&A costs as a percentage of revenues ran about 8.4 percent during 2004, I think about 0.3 of that was related to severance cost, which we don't expect to see going forward. But in these business models, at this stage in the maturation curve, some times you have to pay the price for profitable growth in advance, and that's what is reflected in the G&A and infrastructure costs. We have put together a leverageable infrastructure, and now we have got to get about the business of profitably leveraging it, with new restaurant growth in a controlled profitable manner. So I believe that we can do both.

And most restaurant growth companies are able to do both, and those are the ones that break through and become successful, and the ones that can't do both don't break through and are not that successful, so we're going to do our best to work on both ends of it, and I believe we can.

And I'm sorry, I missed the part on the tax rate for the quarter. What's in the issue there, because it certainly wasn't normal.

What happened there was in the past the auditors had put up a reserve against our tip credit and so forth, and they had done their analysis way back and assumed that the income the year they did it, which was 2000 would be the same forever more, and we evaluated that with our tax consultants and our auditors, and felt we had to take that down. That was about $298,000 related to that, and then they had some other reserves that were on the financial statements. You be, I'm also a new guy here since September. We went through that analysis, too, with those two groups and felt we were overreserved just based on the recent filings of our 2003 tax return, so we took down another $200,000 of that amount, so the total impact was about $500,000. If you add that back, you're right at 33 percent tax rate. I think we have time for one more question.

I'm showing no further questions. I will turn the call back over to Jerry Deitchle for any further closing remarks.

Thank you very much, everyone, and if you have questions, Rob Curran will be available after the call. Thank you.

Thanks everybody.

Thank you. This does conclude today's teleconference. You may disconnect your lines and enjoy your day.