BJ's Restaurants Inc (BJRI) 2005 Q2 法說會逐字稿

Good afternoon, and welcome to the BJ's Restaurants Second Quarter 2005 Results Conference Call. At this time all participants have been placed in a listen-only mode, and the floor will be open for questions following the presentation. At this time it is my pleasure to introduce Jerry Deitchle, President and CEO. Sir, the floor is yours.

Thanks Operator, and hello everybody. I'm Jerry Deitchle of BJ's Restaurants and welcome to our quarterly investor conference call, which once again we are broadcasting live over the Internet. Joining me on our call today is Rob Curran, our Vice President of Investor Relations. Lou Mucci, our CFO, is out of the office today, but he has dialed in for our call today and we appreciate that.

After the market closed today, we released our financial results for the quarter end of July 3. If you haven't had a chance to see our press release yet today you can see it on the main page of our website, we're at www.bjsrestaurants.com. And after the call today you can also call Rob Curran at 714-848-3747, extension 260, if you'd like to be added to our press release distribution list.

Our agenda for the call today will be as follows. First, I’ll give a brief business and operational overview for the second quarter of 2005, and then Rob will review our income statements, summary balance sheet and liquidity position at the end of the second quarter and then we'll be happy to take a few questions. We'd like to wrap up the call in about 45 minutes. So before we begin, I'd like to ask Rob to review our disclosure with respect to forward-looking statements. Rob?

Thank you. Certain information contained on today's conference call may be considered forward-looking in nature and is subjective 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 our investors and listeners to a full discussion of risks and uncertainties associated with forward-looking statements which are contained in our periodic filings with the SEC.

I'll like to turn the call back to Jerry.

Thanks, Rob. Before we get into the results for the second quarter, which were very solid, I'd like to say that I’m just wrapping up my first six months on the job here at BJ's and I’m more convinced than I ever have been about the strong opportunity that we have at hand here at BJ's to continue our expansion with the BJ's restaurant concept, and both existing in new markets and to further leverage our business model as we grow. We have definitely got a lot of work to do to successfully make the transition from a very good restaurant company that is growing to a great restaurant growth company. But it's the type of work that I think is very fun, very rewarding and I’m very, very excited to have the opportunity to lead BJ's at this important time in the development of it's business.

Let's get in the results for the second quarter. As we indicated in our press release today, BJ's had very solid results for the second quarter ended July 3. As compared to the same quarter last year, our revenues increased a very strong 50% or 44 million and our net income rose 47% to 2.1 million or 9 cents per diluted share. Our 50% increase in revenues for the quarter was driven by 11 new restaurants that were opened during the trailing twelve month period coupled with a very solid 4.8% increase in our comparable restaurant sales and that successfully hurtled a 4.4% increase for the same quarter last year.

We were very pleased with our comparable sales performance for the second quarter. It represents our 35th consecutive quarter of positive comparable sales comparisons since BJ's IPO back in 1996, and I think that this is a very strong testimonial to the sustained popularity of the BJ's concept, which has been actually around in form or another since 1978. BJ's took an approximate seven-tens of a percent effective menu price increase at the end of January this year to help offset certain cost pressures that were anticipated at that time and has as been the company's past practice, we will continue to assess our operating margins and carefully consider additional menu pricing opportunities for our next regularly scheduled menu update this coming November.

As a matter of general policy we don’t really comment on comparable sales trends until we report our quarterly results, but I think in light of today’s trading activity and several casual dining stocks, we will make an exception to that policy. For the first three weeks of our fiscal third quarter, our comparable sales trends are in line with what we experienced for the second quarter just ended and we haven't seen any deceleration in guest traffic at all. We continue to be very, very pleased with the general tone of our business.

By getting back to comp sales for the second quarter, few of our best performing restaurants in our core market of California, for the second quarter on that measure were our restaurant in La Mesa, California, which was up 11%, one of our best restaurants in Cerritos, California up 9%, West Covina, California, up 7%, Valencia, California up 5%. As we mentioned in our press release today our 8 comparable restaurants outside of our home base here in California achieved a very strong 6.7% increase in comparable sales, which I think is very, very encouraging to us.

Three of our stronger performing comparable restaurants outside of California were our restaurant in Madison, Texas, where our sales were up 12%, our Boulder, Colorado, restaurant where our sales were up 6%, and our Chandler, Arizona, restaurant where our comps were up over 11%. So those are some very strong comparable sales metrics.

Our average weekly sales for the second quarter were approximately 88,800, up a strong 18% compared to the same quarter last year. This increase in primarily attributable to the strong sales volumes up from our new restaurants that we’ve opened during the past 12 months that haven't yet handed our comp base. In particular, our newer restaurants in Marino Valley, Roseville in Corona, California, collectively averaged over 125 grant per week in sales during the second quarter, and achieved some of our strongest company-wide sales volumes.

Again, while we don’t expect every new restaurant we open to have sustained sales in excess of a 100 grant per week on a post-honeymoon run rate basis will certainly please when it does happen from time to time, and we've had several over the last 6-9 months that we've opened and we are sustaining in excess of a 100 grant per week. And as we noted in our press release today, we opened our 41st restaurant in Mesa, Arizona, which is the suburb of Phoenix, yesterday. We were very, very pleased with our opening day sales.

We continue to believe our solid sales trends are indicative of the strong popularity and flexibility of the BJ's concept. And as we continue to grow and open new restaurants, we're learning that BJ's can be successful, not only in trade areas and markets with higher then average household incomes, where we've historically opened most of our restaurants. But the concept can also be extremely successful in markets with average household incomes. And I don’t think that there are many varied menu casual dining concepts that have strong appeal to all household income levels where'd be they used. And I think that BJ's is emerging to be one of the few concepts with that broad appeal and flexibility.

And I strongly believe that as long as we continue to offer a high-quality premium, casual dining experience that is differentiated from the experience delivered by our mass market casual dining competitors, and as long as the perceived value of the BJ's dining experience is higher. But what we’re asking our guests to pay and I think will continue to have a strong opportunity to take some market share away from the mass market casual dining players as we continue to execute our growth plan. This is the very essence of BJ's competitive positioning that they bring in casual dining concept, and we have got to continue to play to the strengths for that positioning, as time goes on.

Counting on Mesa, Arizona opening yesterday, and we have successfully opened six restaurants so far this fiscal year. We currently expect to open three more restaurants during the rest of 2005, and we currently expect those three openings to all occur during the first half of the fourth quarter this year. So, as of today we are expecting to open a total of nine restaurants during 2005, compared to the companies stated goal at the beginning of this year to open at least eight. So that’s good news.

Having said that, we always want to take a minute and remind our investors that it is difficult to precisely predict the timing of our new restaurant openings as the restaurant construction and pre-opening processes are subject to many factors out side of our control. Our working forward pass 2005, but we already have four signed leases and 11 signed letters of intent in hand for potential 2006 and 2000 openings. Our primary growth goal is to achieve a 20% to 25% compounded annual increase in productive capacity, during the next several years or so. With productive capacity measured in terms of total restaurant operating lease. So that will translate into 10 to 11 new restaurants openings for 2006 in order for us to achieve that goal. And based on the current status of our development pipeline, built and lead by Greg Lynds, our outstanding Chief Development Officer, we remain very confident that we can achieve this goal.

Analysts and investors should be careful to contemplate enough pre-opening costs in their financial models for as many as three openings during the first half of the fourth quarter this year as I previously mentioned, and make sure that you have got enough pre-opening costs in your models for the fourth quarter this year to contemplate as many as four new openings during the first quarter of 2006. We're confident that our operational infrastructure has the capacity to execute our planned openings with good quality, and we intend to continue to execute our growth plan in a very careful and controlled manner.

It's very important that we maintain consistency within our four walls in terms of operational execution and financial performance as we grow, that’s absolutely critical for our future success, and I think restaurant investors clearly understand or we clearly understand that that’s probably the most significant challenge that all restaurant growth companies face as they expand, and we believe we're up to the challenge. We're committed to additional development in our existing core market of California where we believe there is room for at least 15-20 additional restaurants overtime, and we currently only have one restaurant open in each of Nevada and Colorado, and we've only got three open in Arizona.

So we've got plenty of room to develop additional restaurants in our western core of markets. We only have five restaurants currently open in Texas, so we're definitely committed to a further growing and leveraging our competitive position in that state. Additionally, we continue to evaluate potential locations in Florida in the Mid-West that depending on the timing of site availability and other factors could become a part of our development plan in late 2006 or 2007.

With respect to our five restaurants in Texas, we continue to be pleased with our overall results and progress. We're still right in the middle of introducing The BJ's Concept and brand in Texas and we're building a reputation for quality and value, and that takes time for any concept to do and in Texas we're playing not only on the home court of the couple of our mass market competitors but, we're also playing in two of the toughest restaurant markets in America, Dallas and Houston, and we're doing incredibly well in spite of those factors. While we don’t provide sales volumes for specific restaurants for competitive reasons, we can continue to say, their average weekly sales in our five Texas restaurants continue to meet our expectations and they continue to build collective momentum and we're very committed to move forward in developing Texas in a sensible profitable manner.

Our sixth restaurant in Texas should open during the fourth quarter this year in Sugar Land, which is a suburb of Houston. We've got an excellent site and we're very excited about the potential of that particular restaurant location. We've identified at least six more potential locations in Texas that we believe are of excellent quality and are moving forward to secure those sites.

Rob's going to cover our second quarter income statement in more detail in a couple of minutes, but I'd like to say that we were very pleased with our overall operating margin performance for the quarter, although it is clear we have got opportunities for additional leverage over time. Our consolidated operating margins for the second quarter do reflect the fact that we had five new restaurants impacting the quarter with their normal temporary inefficiencies during their first 90 to 120 days of operations in these five restaurants, some of our newest big boomers in terms of sales. It's interesting to point out that the same quarter last year really only had one new restaurant impacting our consolidating operating margins in that team. We are still a pretty small company. We have only got 28 restaurants in our comp base.

So the timing of new restaurant openings can clearly impact quarterly results until we build bigger base and establish restaurants over time. Additionally, at BJ's the cost for the company's restaurant management training program is currently allocated to restaurant level labor instead of being classified as an infrastructure or G&A expense, as it is -- at other companies that I have been associated with. Now we may reclassify this in the future, but for now the year-over-year increase in the number of manager trainees we have on board right now to support our future growth plan and the ramp up of our restaurant opening schedule has to be understood and contemplated as part of understanding what we report as labor here at BJ's. Rob will comment more on this in more detail in a few minutes.

We did continue to nicely leverage our occupancy, our G&A and our depreciation costs with higher sales volumes during the second quarter. During my first six months on the job here at BJ’s I had spent most of my time trying to understand the details of BJ’s business model and trying to understand our current status of all of our key systems, our processes and the people that make up our restaurant operations and our support infrastructure, and I have spent a lot of time also assessing the current status of the five critical pipelines for growth for our company; the capital pipeline, the real estate pipeline, the restaurant management pipeline, our growing capacity pipeline and our support infrastructure pipeline.

And what I have seen so far has generally met my expectations. I have had some upside surprises in terms of the strength and talent in several areas of our business. But having said that, we can never be satisfied with the status quo in any aspect of our operations, and we can always can do better than our previous best. And that’s really the principal difference between a good restaurant company that’s growing and a restaurant growth company, and BJ’s is committed to being a restaurant growth company.

So as we mentioned in our press release today in connection with making that transition to a restaurant growth company, our management team has recently commenced several key initiatives that are intended to improve the quality of the BJ’s dining experience, it's always a -- it's already a good experience, we want to make it better. We want to improve the quality and depth of our restaurant management talent base. We have a good talent base. We want to make it better. And we also want to develop and roll out more modern, robust tool sets for our restaurant management to use to help them run more productive and efficient operations. Again, our restaurant management team does a good job of executing our operations. But we can always be better. And these initiatives should be gradually phased in during the next 12 to 24 months as we work on designing and testing and implementing them on a gradual phased basis. And there are five areas that we’re really working on. I would like to comment on each one of the five quickly.

First off, we’re working on a theoretical food cost system to help our restaurant operators' better track and control food and beverage waste in meals. BJ's doesn’t have a basic tool like that today in their operations, and we definitely need one.

Secondly, we're working on a web-based labor scheduler, and a web-based labor productivity analyzer that can help our restaurant managers to better control and monitor the deployment of labor hours, overtime hours and better manage our overall pay rates. Again, BJ is, other than what we've got in our POS system with respect to labor, really doesn’t have a basic tool like this today to help it be more productive and efficient with respect to labor, and we desperately need a better labor tool.

Third, we're working on a Kitchen Display System, or KDS system, to replace our kitchen printers on our cook lines and to automate the timing of the firing of different food items on the cook line to improve overall food quality, improve our ticket times and improve productivity. Again, this is a tool that we desperately need to become more productive in our kitchens.

Forward, we’re working on an automated front desk seating system to improve our ability to accurate record our wait times during peak meal periods, improve our overall seating efficiency and table turns during peak meal periods, which is important as we’re experiencing many more restaurants now that are averaging north of 100 grand a week in sales. When you adjust for our average check, $10 to $11, our average guest counts of per average restaurant are among the very highest in casual dining, so we have to think and operate like the high volume casual dining operators and with respect to all of their operating systems. And finally to that end we have a very comprehensive initiative which is designed to evolve to certain of our operating methods and systems to run our restaurants a little faster at peak meal periods. We don’t want to rush our guests, but at the same time we want to improve our speed of service, food and service quality all together.

In many of our restaurants at peak meal periods, we are being offered more business that we can process with our existing operation methods and systems and tool sets and some times that we create artificial rates because our service goals and methods aren’t really designed to run at a faster pace. We really need to address this opportunity and that’s the last of our major initiative designed to improve guest satisfaction and productivity. And again, we are just beginning our initial work on these initiatives, so we expect a gradual phasing in of each initiative over the next 12 months to 24 months.

We are not able to precisely predict the amount and timing of any specific operational margin benefit from these initiative, but we are confident that the initiatives will give us the opportunity to gain additional leverage within the four walls of our restaurants in terms of their operating margins over time. Other leading restaurant company's have proven the viability of these tools and methods in their operations, so, you know, we are not braking ground here, but our challenge is to take these proven methods and tools and really adapt in to the BJ's concept and we will keep you posted on our progress as we make additional in roads on getting these initiatives accomplished.

One; other initiative there we are working on, that we did mention on our press release today is that effective with the third quarter of 2005, we are changing our fiscal weekend from Sunday to Tuesday and this training should facilitate some operational efficiencies by transferring certain administrative task that we have to do in our restaurants transfer them away from the weekends when our restaurants are busy, as that makes a heck of a lot of a sense. And this will also give our restaurant operators a lot more flexibility to better manage overtime hours if our fiscal week now ends on the two slowest sales days of the year instead of the two busies, so that will give our restaurant operators more flexibility to allow scheduling depending on busy we are on the weekends.

Other restaurant companies such as Brinker, Cheesecake factory they also have fiscal weeks that end on Tuesday or Wednesday for the same reason. So this isn’t a new idea, but we’ve made that transition and as we mentioned in our press release, our fiscal third quarter of 2005 will contain two additional days which will end on October 4 and fiscal 2005 the year will end on January 3, 2006. So now I’m going to turn the call over to Rob and he’s going to discuss our quarterly financial results in a little more detail, Rob go ahead.

Thanks Jerry. Okay as Jerry mentioned our total revenues for BJ's Restaurants for the second quarter of 2005 increased 50% to approximately 44 million from 29.3 million in the prior year’s comparable quarter. This increase is primarily the result of the opening of 11 new locations. They include Laguna Hills, California which opened late in the second quarter 2004, Summerlin, Nevada and Fresno, California during the third quarter of 2004, San Bernardino and Folsom, and Plano, Texas during the fourth quarter of 2004. Moreno Valley, California in the first quarter of 2005 and Corona, California, Roseville, California, Rancho Cucamonga, California and Tucson Arizona during the most recent quarter here at the second quarter of 2005.

Also during the second quarter in addition to sales growth from new location, we posted a comparable restaurant sales increase to 4.8%. This comparable restaurant sales increase is primarily due to increased customer traffic and increases in menu pricing of approximately 1.4%. Menu price increases include approximately 0.7% effective menu price, pricing taken at the end of January 2005 as well as approximately 0.7% from pricing taken during 2004. We increased leverage pricing approximately 5/10th of a percent in the middle of the second quarter of last year, and early in the fourth quarter of 2004 we raised the prices of most of our handcrafted beers which we estimated increase overall menu pricing by approximately 0.5%.

Revenue gains quarter-over-quarter was partially offset by the sale of the BJ's Pizza and Grill in Seal Beach, which was at the end of last fiscal year, fiscal 2004 and that contributed approximately $250,000 to second quarter 2004 revenues. Cost of sales; our cost of food, beverages and paper for our restaurants was 11.8 million during the second quarter of 2005, versus 7.6 during the comparable quarter of 2004. As a percentage of revenues, cost of sales increased to 26.9% for the current period from 26.0 for the prior year comparable period. The increase is primarily a result of higher cost quarter-over-quarter for meat produce, sea food and general grocery items partially offset by a reduction in poultry and cheese prices as compared to the comparable period of 2004.

Additionally, while our total alcohol sales as a percentage of our total sales remain relatively constant quarter-over-quarter, we did see an increase in our sales mix for the distilled spirit drinks which carried a slightly higher cost of sales when compared to our handcrafted beers. Also in our new restaurants, cost of sales are typically higher during the first 90 to 120 days of operations versus mature restaurants. Other management team has become accustomed to optimally predicting, managing, and servicing sales volumes that we typically experience in our new restaurants.

During the second quarter of 2005, we had five restaurants operating in their first 90 to 120 days of service versus effectively one restaurant in the prior year's comparable period. In addition, as a reminder, we anticipate experiencing higher per unit purchase cost when we entered new market. Although we continue to mitigate expenses to the best of our abilities, in our newer markets we haven't yet achieved critical mass necessary to get our food costs rates similar to those we experience in California where we currently have a solid base of restaurants and improved purchasing power.

We do know that we provide our customers a large variety of menu items, which are not depended on a single group of commodities. We continue to work with our suppliers to control food costs; however, there can be no assurance that future supplies and cost per commodities used in our restaurants will not fluctuate due to weather and other market conditions outside of our control. As far as labor is concerned, during the second quarter of 2005, our labor and benefit costs increased to 16.0 million from 10.2 million during the comparable quarter 2004. This increase is primarily the result of the opening of the 11 new restaurants I mentioned since the end of the second quarter of 2004.

As a percentage of revenues, labor and benefit costs increased to 36.4% from 34.7% for the prior year comparable quarter and this increase is primarily due to the fact that our new restaurants experienced higher labor costs in the first 90 to 120 days after opening; and similar cost of sales, the same thing I'd said there, we had five restaurants in this stage in 2005 compared to essentially one new restaurant in 2004. In addition, as Jerry noted, our manager and training program has historically been a part of our restaurant labor expense as opposed to a general and administration expense. With these cost of -- expense, there are a lot of other publicly traded restaurant companies. And as a result of this, our increase in -- excuse me, as a result of our increase in new restaurant growth, we had more than twice as many managers in training during the second quarter of 2005 than we did during the second quarter of 2004.

Our occupancy cost increased to approximately 2.9 million during the second quarter from 2.2 million during the comparable quarter of 2004. The increase reflects the 11 additional restaurants we opened since the second quarter of last year partially offset by the closure of our Seal Beach, BJ's, Pizza and Grill on January 3, 2005.

As a percentage of revenues, occupancy cost decreased 90 basis points to 6.7% for the current quarter from 7.6% for the prior year quarter. The decrease as a percentage of sales is the result of higher sales leverage, and an increase in the number of ground lease location, which generally results in monthly lease payments below our historic levels.

Operating expenses increased to 4.8 million versus 3.2 million quarter-over-quarter. As a percentage of revenues, operating expenses increased 20 basis points to 11.0%. This slight increase is primarily due to higher cost of supplies, lodging, and higher merchant credit card fees passed through to us by our credit card transaction processor.

Our general and administrative expenses in the second quarter of 2005 increased to 2.9 million from 2.2 million during the comparable 2004 quarter, an increase of $700,000. This increase is the result of additional expenditures associated with the continued growth of our business. As a percentage of revenues, G&A expenses decreased 90 basis points to 6.6% in 2Q '05 from 7.5% in 2Q '04. This decrease is primarily due to sales leverage.

Depreciation and amortization increased to 1.7 million during the second quarter of 2005 from 1.2 million during the comparable quarter of 2004. The increase in total dollars was primarily due to our investment in the 11 new restaurants we have opened over the past 12 months. Depreciation declined 20 basis points to 3.8% of revenues in the current quarter versus the year ago period primarily due to sales leverage.

Pre-opening expenses, our restaurant opening expenses increased to 1.1 million during the second quarter from 770,000 during the comparable quarter of 2004. This increase is primarily due to opening cost related to 3 restaurant openings and there were 2 restaurants in progress during the second quarter of 2005 compared to essentially 2 restaurants openings during the second quarter of 2004, one opened early in the third quarter last year. Our opening costs will continue to fluctuate from quarter to quarter depending upon the number of restaurant openings, the size and concept of the restaurants being opened, and the complexity of our staff hiring and training process. We budget pre-opening expenses between $355,000 and $400,000 per restaurant with restaurants opening in Southern California typically experiencing lower pre-opening costs due to less travel and lodging costs as well as the potential for a greater percentage of our managers and staff to transfer from existing company restaurants in the same market.

Our interest, during the second quarter 2005, our net interest income increased to 292,000 from a 121,000 quarter-over-quarter. This increase is primarily due to increased investments after the completion of our March 11, 2005 equity transaction coupled with higher interest rates. Our net other income increased to 70,000 in the second quarter of 2005 versus 29,000 in the year ago period primarily due to the sale of our Pizookie Cookie dessert in selective Southern California Cosco wholesale stores commenced -- which commenced back in March of 2004.

The effective tax rate for the quarter was 32.3% versus a 32.7% rate in the second quarter of 2004. Our effective rate decreased due to additional utilization of FICA tip credits. We currently estimate our effective tax rate for fiscal 2005 will approximate somewhere between 32% and 32.5%.

Turning to the balance sheet, we ended the second quarter of 2005 with approximately 50.8 million in cash in short-term investments or approximately $2.13 per diluted share. We have no funded debt. Shareholders equity was a 123.2 million at July 3, 2005, for approximately $5.17 per diluted share. We strengthened our balance sheet considerably back during March of this year with the completion of an equity transaction involving the sale of 2.75 million shares of common stock at a purchase price of $15.50 per share. That brought in $40.3 million to the company and we really believe that this equity placement provides us with the additional financial resources and flexibility to execute our growth plan during the next several years.

Total capital expenditures for the quarter ended July 3, 2005, were approximately $7.5 million, primarily related to the development of our Rancho Cucamonga and Roseville, California restaurants, our two Arizona restaurants and for construction on restaurants in progress, particularly Mesa, Arizona, which just opened yesterday, as well as Sugar Land, Texas, and other restaurants anticipated to open during 2005 or 2006.

For the full 52 weeks fiscal 2005 year our original estimate at the beginning of the year for CapEx was in the range of 25 million to 27 million. That estimate contemplated two sale lease back transactions related to new restaurants we were opening this year. Now that we raised an additional 40 million of proceeds from our equity offering, we’ve decided not to proceed with those two transactions at this time. As a result, our full year CapEx estimate is now in the range of 35 million to 38 million.

The breakdown is as follows; approximately 27 million to 28 million will be for 2005 new restaurant development, approximately 4 million to 5 million for maintenance, image enhancement and growth related capital expenditures for existing restaurants and $4 million to $5 million in construction and progress for next year or to take into account the timing of landlord contributions for restaurants we anticipate to open. We believe that through a combination of cash and investments currently on hand, and expected cash flow from operations we will be able to fund our capital expenditure requirements for the foreseeable future.

Thank you and I'd like to now turn the call back over to Jerry.

Well, thanks Rob. To wrap up our remarks today, we had a very solid second quarter on all measures. Our third quarter is off to a great start. We're very pleased with the continuing favorable tone of our business. We remain very excited about BJ's future growth opportunities as we continue with our expansion plan in a very careful controlled manner. So thanks for listening to our prepared remarks today and at this time we're going to open up the call for a few questions. And again, if we don’t have time to get your question on this call please feel free to call us at our offices we'll be around here in California and we'll try to help you as much as we can. So, Operator, we're ready for some questions.

Thank you. The floor is now open for questions. If you have a question please press "*" "1" on your touchtone phone at this time. If at any point your question is answered you may remove yourself from queue by pressing the "#" key. Questions will be taken in the order they are received. And we do ask that while you pose your question that you pick up your handset to provide optimum sound quality. With those instructions in mind, if you do have a question please press "*" "1" on our touchtone telephone at this time. Please hold while we poll for questions. Our first question is coming from Graham Tanaka of Tanaka Capital Management.

Hi, nice quarter guys.

Thanks Graham.

Yeah. Jerry, just wondering if you could quantify what the management initiatives might cost over the next, I guess, you mentioned a year and a half or so, what is roughly kind of order of magnitude.

It's difficult to come up with a specific number at this time because we are still in the evaluation stage of various options to move with respect to KDS in particular, and the theoretical food cost system and so forth. Most of that related to the ideal food cost system, the labor system, that’s really software. And a lot of that will be done with license fees rather than CapEx. So I don’t think there is going to be a material amount associated with those two initiatives. With respect to KDS, there will be required some type of the hardware investments in terms of the flat screen or touch screens to drive that system in our kitchen. I am not a technology expert, but it's my understanding that the cost for a lot of these touch screen is actually less than a lot of these antiquated kitchen printers that we are currently using. So anticipating anywhere from six to eight touch screen per restaurant, and again, we haven't even got this out into a restaurant yet, so it's tough to make a real good judgment as to what we’re going to need. I can't anticipate, that’s going to require a huge CapEx. As we look at running the restaurant's quality fast particular initiative, a lot of that's going to be driven by certain changes in operational methods and processes in the restaurants. KDS will play a role in that how we expo, how we run a front desk, how we seat our guest, how we run food to our guest. So I think those will be non-capital intensive nature for the most part. So again, it’s very difficult to say how much it's going to cost if I had to give you a pure speculative guess. I would be surprised if we end up spending more then 40,000 to 50,000 per restaurant in total. So it's not going to require that huge amount of incremental CapEx to drive these initiatives. And I do believe that the returned profiles that each initiatives offers, pretty down attractive in terms of the cash-on-cash return opportunity.

Well based on your experience, let's say at Cheesecakes or some of the other chains, would this rollout of these kinds of functions, typically, also possibly slow down sales growth or do these operations continue to make it normal?

You know, based on my experience, I would not expect any slowdown in sales growth. You know these particular initiatives that we’re working on, are really proven initiatives that other leading restaurant companies have already put into place. And frankly, a lot of the restaurant managers that we've recruited, and are recruiting are coming from concepts that already have these systems in place, in on form another and they are already familiar with how to work them. So what we've got to do is just adapt these proven initiatives, and techniques, and methods and tools at the BJ's, and I believe that our operators will probably have a pretty fast learning curve. And if anything; we’ll be evolving to the latest capabilities, technologically, and TDS, with touch screens as opposed to bus, cars and some other things. So, I would be surprised if they interfere in any way with the execution of that restaurant.

Great. Last question. Average ticket and that in the second quarter.

It says the average ticket continues to remain in the range of $10 to $11. We really didn’t see much movement in the average ticket.

Thank you.

Okay. Thank you.

Thank you. Our next question is coming from Nicole Miller of ThinkEquity.

Hi. Great quarter.

Thanks Nicole.

I just missed one number of the host. We've seen the average weekly sales number you mentioned at the beginning of the call Jerry.

Yeah it was 88,800.

And that’s for all the stores and operations, just for the second quarter?

I believe that’s the case, yeah.

Okay. Thank you so much.

Okay Nichole.

Thank you. Once again the floor is open for questions. If you have a question please “*” "1" on your touchtone telephone at this time. Our next question is coming from Mike Smith of Oppenheimer.

Mike.

Sorry Jerry. Can you hear me now?

We can hear you now, Mike.

I had my mute on, but my wife always said I needed a mute button.

She's probably not the only one.

Well that’s probably true. The mix the business, is it still 17-18% beer and pizza and the rest half of the other part of the menu?

You know, I don’t believe those percentages are, where they have been running, I think pizza and alcoholic beverage mix is right around 40%, isn't that right?

Yeah that’s true.

And I think beer has been roughly 11%, pizza's been roughly 18% to 20% over time, and the difference would be the distilled spirits and wine, and then the small amount of beer that comes from the mass market producers.

Exactly.

Great. In the restaurants that you are building in the next year going to be breweries?

Yes, they, you know. As of right now Reno is going to be a brewery, it's going to be a pretty significantly sized brewery for us. The Lounge in Nevada allow you to brew approximately three times as much beer at a location then they do in California. So Reno does take care of our brewery plants for the immediate future.

And we have an opportunities that we are currently evaluating if we open a restaurant in -- another restaurant in Colorado and a particular trader area. The laws in Colorado are much more generous with respect to brewing capacity than Nevada. But Nevada is great. As Rob mentioned that could provide us with 15,000 of barrel production capacity per year. The average restaurant currently used about 800 barrels per year. So Nevada brewery could get us a long way.

But you're still not able to ship beer into Texas are you?

That’s correct, we have to use a contract brewer in Texas, and it could be very possible that if we do something in Colorado we could -- if it means economic sense, we could shift some beer from Colorado in to Texas. But the contract brewer that we have in Texas is a very capable brewer as additional capacity and can take care of our needs for the foreseeable future. One of our strategic initiatives is to really get a little more strategic with respect to our contract brewing relationship aside to develop something along the lines of try to follow the path that the Boston Beer company, Samuel Adams did with some of their contract brewing relationships on a much larger national scale where you can really get the benefits of economies of scale and leverage in the brewing models and that’s one of our top ten initiatives that we’re working on.

And what will Florida’s Lounge be like?

We’re in a process of clarifying that right now. We know that we can clearly run brewing operations contiguous with each restaurant in that state. So we know that that’s available and we know, you know contract brewing possibly as a capability as well, so we’re in the process of finalizing all of those particular evaluations as we speak.

Well good job, thanks.

Okay, Mike. Thank you.

Thank you our next question is coming from Kevin Sonnett of RK Capital.

Thank you. I just wanted to make sure I understood the opening schedule. There were no restaurants opened in the first quarter and then three in the current quarter; one so far in the current -- I’m sorry, three in the June quarter, one so far in the current quarter and then three planned for the fourth?

Now let me go down in the list. So far this year we had one restaurant Moreno Valley opened on March 22. So that was 73 at the end of the first quarter. We had Corona opened on April 5th which is our second quarter; Roseville opened on April 26 which was our second question, Tucson opened on June 7th which was our second quarter and then Rancho Cucamonga opened up on June 28th. So all of those where in the second quarter. In the third -- am I correct? Okay. In the third quarter, we just opened up Mesa, Arizona yesterday and that will likely be the only restaurant opening in the third quarter, and then in the fourth quarter we're anticipating three openings to occur in the first half of the fourth quarter.

Okay, That’s very helpful. Thank you.

Fine.

Just one other question, how many restaurants were in the -- in the comp base for this current quarter?

Well, there was 28 restaurants in the comp base which includes 10 of our, what we consider, our small format restaurants.

Okay, great. Thank you.

We'll take one more question.

Thank you. Our next question is coming from Sinn Putelar (phonetic) of Bank of America.

Hi guys,

Hey, how is it going, Putti?

Good. Would you give -- are you still giving the information breaking up average weekly sales on the large format and small format stores?

Sure. Our combined average weekly sales was 88,800. For the small restaurants it was 39,200 and for the large format restaurants it was 106,400. We had 495 store weeks in the quarter.

495.

That’s right.

And just remind us what would are you doing, kind of, on the marketing front -- the local marketing front for new stores particularly the ones that are outside of Southern California?

You know at this time we don’t do very much at all. We do run our charity activities in connection with our opening week. We generally run our charity events with Cystic Fibrosis Foundation and where Cystic Fibrosis doesn’t have as larger presence as we feel we need to really drive the consumer awareness in our opening with select [all the security]. But other than that we don’t do anything. We -- you know, all of our marketing is in the quality of the location, the quality of the food, the quality of the execution.

Alright. Thank you, Jerry.

Okay. You are welcome. Operator, I think that’s it; and if there are any further calls, please call us at our office, we are standing by ready for your call. Thanks all.

Thank you. This does conclude today’s teleconference. You may disconnect your lines at this time and have a wonderful day.

Thanks everybody.