BJ's Restaurants Inc (BJRI) 2007 Q4 法說會逐字稿

Good afternoon, Ladies and Gentlemen. Welcome to the BJ's Restaurants Incorporated fourth quarter 2007 results conference call. At this time, all participants are in a listen-only mode. Following today's presentation instructions will be given for the question and answer session. (OPERATOR INSTRUCTIONS) As a reminder this conference is being recorded today.

I would now like to turn the conference over to Mr. Jerry Deitchle, President and CEO. Please go ahead, sir.

Thanks, Joshua and hello, everybody. I am Jerry Deitchle of BJ's Restaurants, and welcome to our quarterly investor conference call, which we are also broadcasting live over the Internet. Joining me on the call today are Greg Levin, our Executive VP and CFO, Greg Lynds, our Executive VP and Food Development Officer, and Diane Scott, our Director of Corporate Relations. I think everybody knows that after the market closed today, we released our financial results for the fourth quarter of fiscal 2007 that ended on January 2, 2008, and if you haven't had a chance to see our press release today, you can view it on our website at www.Bjsrestaurants.com.

Our agenda today for the call will be as follows, first I will provide a brief business and operational overview for the fourth quarter and full year of 2007. Then Greg Lynds will give us an update on the status of our new restaurant development pipeline, which is in excellent shape, and then Greg Levin will then comment on our consolidated Income Statement, Balance Sheet and liquidity position as of the end of the fourth quarter, which is also in great shape, and then after that we will be happy to answer your questions. We would like to wrap up the call in about 45 minutes or so, and we will get started right after Dianne reviews our standard cautionary disclosure, with respect to forward-looking statements.

Diane go ahead.

Our comments on the conference call today will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance, or achievements, expressed or implied by forward looking statements. Investors are cautioned that forward-looking statements are not guarantees of future performance, and that undue reliance should not be placed on such statements.

Our forward-looking statements speak only as of today's date, February 14, 2008. We undertake no obligation to publicly update or revise any forward-looking statements, or to make any other forward-looking statements, whether as a result of new information, future events, or otherwise, and is required to do so by the Securities laws. Investors are referred to the full discussion of risks and uncertainties associated with forward-looking statements contained in the Company's filings with the Securities and Exchange Commission.

Thanks, Diane. As we indicated in our Press Release today, our leadership team was very pleased with BJ's financial results for the fourth quarter and full year of 2007. Just briefly going over our consolidated financial results compared to the same quarter last year, our revenues for the fourth quarter increased a strong 29% to $85.2 million. Our net income increased an impressive 31% to $3.7 million, and our diluted net income per share increased 27% to $0.14.

Now for the full year of 2007, our revenues increased a strong 32% at $316.1 million, compared to the prior fiscal year, and our net income and diluted net income per share increased about 33% and 20% respectively, to $13.1 million and $0.49 respectively, when excluding the effect of a non-cash pre-tax charge of $2 million that we took in the First quarter in 2007, related to certain asset disposals. Now that is a non-GAAP Comparison so please refer to the reconciliation of GAAP to non-GAAP results that is included in our press release today.

We also mentioned in our Press Release today that despite the continuing difficult operating environment in general, for casual dining overall, BJ's achieved a very solid 4.9% increase and comparable restaurant sales for the fourth quarter, and a 6.2% increase in comparable restaurant sales for the year. Our 4.9% increase in comp sales during the fourth quarter represented our 45th consecutive quarter of positive comparisons on that measure, since BJ's IPO back in 1996.

Additionally, after adjusting for non-cash stock compensation and our restaurant labor, our four-wall restaurant operating cash flow margin increased to 20.2% for the fourth quarter, compared to 19.7% for the same quarter last year, thus indicated that our efforts to offset the impact of higher commodity costs, particularly cheese, and other planned and unplanned operating costs, were pretty successful during the fourth quarter. For the full year of 2007, our adjusted four-wall restaurant operating cash flow margin was 20.1%, compared to the same percentage for the prior year, and again, that is in-line with our general long term target in the 20% range.

Since this Conference Call is being Webcast and we have many listeners from the BJ's family on the line today, I just want to take a minute and express our sincere thanks and appreciation to all of our BJ's team members and supplier partners that are listening into our call today, for their wonderful contributions to BJ's growth in sales and earnings during 2007. You know, we could not have achieved our outstanding financial results for the year without you, and all your hard work and support, so thanks.

Just to recap some of our key accomplishments during 2007, we successfully opened 13 new restaurants during the year, including our first restaurants in the Eastern Time zone, and we achieved a strong 24% increase in our total restaurant operating lease for the year. We were also able to recruit about 200 high quality restaurant managers to join BJ's team last year, and that's probably the most important achievement I think in my perspective, because we can only grow BJ's as fast as we can recruit, train, and develop, high quality restaurant management talent.

We also made considerable progress last year in completing the full evolution of the BJ's concept to a more complete, casual plus positioning, which is critical in differentiating BJ's from the literally thousands of other varied menu or grill & bar restaurants in America. We also successfully completed the rollout of additional operational tool sets and systems, all of which contributed to our strong growth in sales and earnings for the year, and will benefit our results as we move forward into 2008.

Finally, our brewery operations made considerable progress in ramping up production in our new Reno brewery during the year, and in preparing our Company for expanded contract brewing operations, which I will talk about in just a minute. And we completed a lot of work to strengthen our field supervision and corporate support infrastructures, in order to support our planned future growth.

You know, it's very very remarkable that during the last three fiscal years, 2005, 2006, and 2007, BJ's comparable restaurant sales increased approximately 4.6%, 5.8% and 6.2% respectively. That represents a cumulative increase of 16.6% in comparable restaurant sales during the last three years, and we know a few publicly held casual dining concepts that have achieved that high level of performance on that metric during that period.

We think that is a pretty strong testament to the sustained popularity of the BJ's concept with consumers, and we also believe those sales results are also directly attributable to the strategy that we have been executing during the past three years to more clearly define BJ's as a higher quality, more differentiated, casual plus concept. Again, coupled with the favorable impacts of our operational tool set rollouts, on our four-wall execution, and modest menu price increases that have been accepted by our guests.

About three years ago, we concluded that the BJ's concept was essentially sitting on the fence, with respect to its fundamental competitive position. We kind of had had one foot in what we call mass market, or highly commoditized casual dining, and it kind of had its other foot in premium casual, or casual plus dining. During the past couple of years we worked hard as a Company to move BJ's off the fence, so to speak, and move it clearly upward, to a more de-commoditized casual plus positioning in every respect, with greater quality and greater differentiation.

We strongly believe that positioning represents BJ's best opportunity to capture additional market share, and the varied menu or grill & bar segment of casual dining, which happens to be the largest segment of casual dining, in terms of number of restaurants in total sales, but it also is the segment where the level of competition for the consumers dining-away dollar, dining away from home dollar is very, very intense.

There is no question that our work during the past couple of years to upgrade and strengthen BJ's fundamental competitive positioning has required us to make significant and higher costing investments in the concept, to add more quality and differentiation and to provide our restaurant operators with better tools, to enable them to more correctly and consistently execute our restaurants in a higher level. While these investments have certainly had their typical rollout costs, and their initial learning curve challenges to overcome, I think the good news is all of that is largely behind us now, as we move into 2008.

We really believe that all the work that we have accomplished to better position BJ's to continually profitably growing it's market share, will really benefit us during the challenging year that is ahead of us, It also continues to be our belief that the higher quality more differentiated and more approachable casual dining restaurant concepts, with better value characteristics, have a better opportunity to navigate through the tougher times in the economic cycle.

Going forward into 2008, BJ's leadership team has never felt better about the factors in our business that we can control. We are very well-positioned to execute our 2008 restaurant expansion plan, which calls for the opening of as many as 15 new restaurants at high quality locations, and with increased levels of landlord construction contributions. Our targeted 20 to 25% increase in total restaurant operating weeks for the upcoming year of 2008 represents the most significant component of our expected growth in total revenues for the year. Greg Lynds is with us today, he is our Chief Development Officer, he is going to comment in more detail on our 2008 development plan in just a few minutes. So while we feel very confident about the factors in our business that we can control, frankly it is the cumulative effect of all of the uncontrollable headwinds in the operating environment that continue to present the most challenges for smaller emerging casual dining concepts and companies like BJ's, and even impacting the larger more mature dining companies as well.

I have mentioned in our last couple of conference calls that in my 30 years of experience in the chain restaurant business, I personally cannot recall a more difficult operating environment in general, than the one we have all been experiencing, and continue to experience, there are always uncontrollable factors at work that impact any business, but I personally can't recall a time when nearly all of the uncontrollable factors that could impact the kind of casual restaurant dining business have come together to represent the collective headwind they do at the current time, and not only is overall causal dining traffic under increasing pressure due to the weakened economy, and weakening consumer sentiment in general, but so are the prime costs of doing business that are under significant pressure, particularly commodity costs and hourly wages.

As we noted in our press release today, we clearly recognize that the operating environment in general for casual dining, continues to be impacted by negative consumer sentiment, declining guest traffic, BJ's is certainly not immune from these uncontrollable pressures, as evidenced by a slight traffic decline in our comparable restaurants during the fourth quarter, and some softer sales trends that we have experienced during the month of January, particularly in our home court market of California, where 33 of our 50 comparable restaurants are located.

Now we would certainly rather leave the weather reports up to the weatherman, believe me, but the fact is that California was hit with a series of winter storms, and lots of rain, snow, and wind this January, when compared to last January, which happened to be one of the driest winters on record in California. So it is very very difficult for us to distinguish the weather impact from other impacts, on our sales and potential impact of weakening consumer sentiment, and the restaurant spending behaviors in general, but we do sense there is probably more going on in our January California sales than just the weather, so we think it is prudent to currently expect our consolidated comparable sales comparisons for the full year of 2008, to probably track closer to our longer term targeted run rate expectation of 1% to 3%.

Having set that, we continue to work on many of our previously announced sales building initiatives, that we believe are going to offer BJ's a solid opportunity to drive increased sales with some of these initiatives kicking off next month and potentially hitting their full stride during the second half of the year. First of all, beginning with the month of March, we are going to be a little more aggressive with external print media promotional activity to really drive top of mind awareness. And some new product introductions that we have got in the hopper during the remainder of this year.

We are also planning to externally promote our successful carside cashiering To-Go technological program in most of our markets, we are also in the final testing of web-based online ordering in certain restaurants, and once we are finished with our testing, we plan to roll that and promote that new guest service, along with carside cashiering, and with print media as well most likely in the second quarter. Combining online ordering with carside cashiering should give BJ's a real competitive edge over most of the mass market casual dining curbside programs out in the market today.

We are also rolling out a call ahead seating program, for the convenience of our guests, that is managed within our new computerized table management system that is in every large restaurant, we think that is going to provide a competitive advantage over similar programs offered by our competitors. Anything that we can do to make it easier and more convenient for consumers to choose BJ's, that is exactly what we are going to continue to focus on.

On the menu front, we have got initiatives being executed to introduce some new high quality signature entrees, upgraded bar offerings, including new wine and specialty drink offerings, and we are working on an upgraded lunch program that will feature many of our signature items. And finally, we are also evaluating the potential expansion of third party delivery services to more of our restaurants, only about half of our restaurants offer delivery service today.

Now no one can accurately predict how the consumer is going to react in a changing economy like we are all experiencing. We are going to continue to execute our planed initiatives to drive top of mind awareness in this tough environment, but at the same time, we are always going to keep our eye on the longer term competitiveness and relevance of the BJ's concept. You know, our average check is still only in the $12 range, and when you think about that, coupled with our strength in casual plus competitive positioning, those should really help to provide BJ's with a darn good opportunity to continue to outperform most of our varied menu or grill & bar casual dining peers in this environment.

Moving to sales volumes for our new restaurants, we continue to be very pleased with the sales from our 2007 year class of restaurant openings, which in the aggregate continue to trend higher than we initially expected. We think those sales volumes are principally due to a combination of improved site selection, our upgraded and differentiated brand identity and image, as reflected by our new facilities, better operational execution, and growing overall awareness of the BJ's concept with consumers, who we are and how best to use us, particularly in our non-California markets.

Our restaurant expansion plan for 2008 remains solidly in place, and we are well under way with its execution, our new BJ's at Tri-County Mall in Cincinnati, Ohio, opened this past Monday. Our new BJ's at Oxmoor Mall in Louisville, Kentucky is scheduled to open either late this month, or in early March, both of these new restaurants are in-line, custom footprint layouts at two very productive and proven malls, in mature, stable trade areas, and I think that is the most important hallmark of our 2008 new restaurant development plan.

We are avoiding the greener trade areas for the time being, and we are going to focus on the more mature, densely populated trade areas, where we are able to know exactly how the major retailers and restaurant competitors in those trade areas perform. By elevating the BJ's concept to the full casual plus level, that now puts BJ's in a very exclusive restaurant club, so to speak, with the national mall and retail center developers. As these major developers reinvest in their more productive projects, with major facelifts and other upgrades, they typically add lifestyle wings to their projects, with a few exciting high volume restaurants, to help drive overall traffic at these projects, and once you are get into that club, the major developers usually offer landlord construction contributions. During 2008, we expect to receive about $13 million in total landlord construction contributions, to help finance the development of our new restaurants.

I personally believe that our 2008 new restaurant year class has the opportunity to be our best yet, and now here is Greg Lynds, our Executive VP, Chief Development Officer, to give you his perspective on our development pipeline. Greg, go ahead.

Thanks, Jerry. and good afternoon, everyone. As we mentioned in our press release today our 2007 new restaurant growth targets were achieved.

For 2007 we opened 13 successful new restaurants, and increased our total operating weeks by approximately 24%. In the fourth quarter we opened four restaurants, Temple, Texas, Montebello, California, and Glendale, all opened in the month of October, and our Austin, Texas restaurant opened on November 5th. In 2007, we opened our first restaurants in the Eastern Time zone, as we successfully extend our brand into Orlando, Florida , Tampa, Florida, and Columbus, Ohio. Additionally we opened two new restaurants in Oklahoma, which is also a new State for BJ's.

Initial sales volumes for our new restaurant continue to exceed our expectations, and we are well positioned to build a brand in the Ohio Valley, Florida, and other strategic mid-West and East Coast Markets going forward into 2008 and beyond. I would also like to recognize our construction and development teams, as they did an excellent job in 2007 delivering all of our restaurants before our internal goal of December 1st. The results are a lot of rain in the Texas and Oklahoma markets in 2007.

Moving on to our targeted 2008 new restaurant development pipeline, we currently expect to open as many as 15 restaurants this year, and increase our total restaurant operating weeks by approximately 20 to 25%. As of today all of our potential 2008 openings have been secured with signed leases or letters of intent, and nine of our restaurants are already under construction. In the first half of 2008 our development plan called for continued growth in the Ohio Valley region and Central Florida, as Jerry mentioned, we had a successful opening in Cincinnati Ohio, on Monday, and later this month, or early March, we will open our second restaurant in 2008, and that is in Louisville, Kentucky.

In the second quarter of the year we plan to open Kissimmee, Florida, a suburb of the Orlando market, Indianapolis, Indiana, Torrance, California, our home court, and lastly, in Baton Rouge, Louisiana. During the second half of 2008 our development plan calls for several new restaurants in our home court or core market. This allows us to balance our growth in both established and new markets. This balanced strategy allows us to better leverage and optimize our field supervision, supply chain infrastructures, and to improve consumer awareness in our new markets.

As we said previously, it is difficult to precisely predict the actual timing of our 2008 new restaurant openings, due to manufacturers that are outside of our control. With that in mind, as of today we currently expect to open two openings in the first quarter, as many as four openings in the second quarter, as many as five openings in the third quarter, and as many as four openings in the fourth quarter. Again, our quarterly opening schedule can fluctuate due to many factors, and we will keep everyone at advised of all future changes on our calls.

Overall our 2008 and 2009 and 2010 pipeline remains in excellent shape. We continue to be very pleased with the quality of the new sites in our pipeline. Our team views this current economic issue surrounding retail and restaurant development, as a time to capitalize on securing prime sites in dense high-volume, retail trade areas.

Over the last three to four years we have opened high quality, differentiated restaurants, with some of the largest retail developers in America, including Simon Property Group, General Growth Properties, Westfield, Macerich, CBL, and a few others. These relationships are in place, should become even stronger over the next few years. The fact that we have delivered on all of our development commitments over the last 36 months, places us in a strong position with these great landlords, in terms of obtaining first shot, and getting first shot at securing AAA sites, under favorable lease economics.

In the design and construction area our team continues to focus on delivering restaurants with a non-chain image and ambiance, our new prototype and custom footprint restaurants, feature large impressive entry statements, high ceilings with detailed contemporary decors, wood floors in the dining room, natural stone and the materials in the bar, our raised high energy bar is visible from all dining rooms, and contains the latest in audio-visual technology. When we combine this high energy, casual plus atmosphere with our broad menu, signature pizza and beer, we have a unique differentiated positioning and brand to present to our guests in the communities we serve.

Our team knows that we compete in the largest and most competitive segment in casual dining, and the best way to profitably gain market share in this segment is to steadily increase the overall level of quality and points of differentiation, and at the same time keep the broad approachability of the BJ's brand. In 2008, that means opening our new restaurants in AAA locations, with dense, high sales volume trade areas, and then deliver a gold standard experience to our guests. Our team is ready and I am confident that BJ's should have many years of solid new restaurant growth to come.

Jerry, back to you.

Thanks for the update, Greg. BJ's only has 69 restaurants open today in only nine states, and we continue to believe that there's room for at least 300 BJ's Restaurants domestically, of various sizes and site types. As Greg mentioned we continue to plan to increase our productive capacity as we think about it, in terms of total restaurant operating weeks by 20 to 25% for the next few years or so, but having said that, we are going to maintain the discipline to execute our growth plan in a very careful and controlled manner, and with the right operational talent, infrastructure, and modern tool sets in place.

I am going to comment on two more areas of our business before I turn the call over to Greg Levin. First, with respect to our G&A expenses, our plan for 2008 calls for a mid-teen percentage increase in absolute G&A expense dollars, compared to fiscal 2007's approximate 31% increase in absolute G&A expense dollars versus 2006. In other words, we are planning a 50% reduction in the rate of growth in this expense category in 2008.

I think most of our longer term investors know that we have been intentionally strengthening our field supervision and home office support infrastructures for growth during the past couple of years. The good news is that substantially all of what I would call our catch-up investments in that respect have now been completed, and we should be on more of a more normalized incremental G&A investment pattern going forward in our business.

We are going to continue to make incremental investments in our restaurant manager recruiting, training, development and retention programs, because that is really the most critical resource or requirement for future growth and our business model, we are a pure company operations business model, we are in the casual plus segment of casual dining, there is a level of complexity and quality that is required to execute at the level that we are competing at. So we have got the to continue to make those investments in our talent base. We can can only grow our restaurant base as fast as we can recruit, train, develop and retain, the very best restaurant managers available.

Last but not least, and after several months of very careful operational due diligence, we currently expect to execute an agreement with a large contract brewing entity before the end of this month, and we expect to begin receiving two of our higher volume proprietary beer flavors brewed by that entity, in our restaurants starting in the second quarter. That is really exciting. Previously, our total beer requirements were really too small to attract the attention of the large scale contract brewers, but now that we have grown, now that we have 69 restaurants open, with an estimated annualized total beer requirement in the 50,000 barrel range right now, we have been able to get their attention.

During 2007, about 15% of our beer was contract brewed, and we expect this percentage to gradually grow to the 35% range during 2008, and greater percentages thereafter. Our longer term objective remains, and that is to have large contract brewers produce substantially all of our larger volume beer flavors, and we will continue to internally brew our smaller volume seasonal and specialty beers.

Now, before I turn the call over to Greg Levin, our CFO, I just want to take a minute and reiterate our confidence that 2008 offers a significant opportunity for BJ's to continue to gain market share in the estimated $90 billion plus casual dining industry. As I mentioned before, our leadership team has never felt better about the factors in our business that we can can control.

We are well-positioned to execute our expansion plan for the coming year, and we have got a targeted 20 to 25% increase in total restaurant operating weeks, that when you take a look at the internal forecast, that really represents the most significant component of our expected growth in total revenues for 2008, and again, I want to reiterate that we also feel confident that our average guest check in the $12 range, coupled with our strength in casual plus competitive positioning, and all of our sales building initiatives in progress, should provide BJ's with a solid opportunity, to continue to outperform most of our peers in this very difficult environment.

Now, I will turn it over to Greg Levin. Greg?

Thanks, Jerry. I will take a couple minutes to go through some of the highlights for the fourth quarter, and I will provide some forward-looking commentary for 2008. As Jerry previously noted, our total revenues for BJ's fourth quarter of 2007 increased 29% to approximately $85.2 million, from $65.9 million in the prior year. The increase is a result of approximately 24% more operating weeks, coupled with an approximate 4.2% increase in our weekly sale average.

The operating week increase is due to 13 new restaurants that we opened this full year, and a full quarter of operating weeks from the four restaurants we opened in the fourth quarter of last year. Our comparable restaurant sales for the quarter were a solid 4.9%. During the quarter all of the states that we operate in, had an aggregate positive comparable restaurant sales. Our Texas restaurants continue to show some of the best comparable restaurant sales for our Company, and collectively the Texas region again had comparable restaurant sales in the double-digit range.

We also continue to be very pleased with our new restaurants in our new markets. Just to name a few, the Polaris restaurant in Columbus, Ohio continues to generate sales of approximately 100,000 a week, and our Pinellas Park restaurant, which is a suburb of Tampa, is generating sales in excess of 100,000 a week. Our restaurants in the Bay Area of Northern California also had very strong comparable restaurant sales in the fourth quarter. In fact our Cupertino and our San Jose restaurants, all up in the Bay Area, had comparable restaurant sales of 10% and 12% respectively.

As we mentioned in our third quarter conference call, we began to see some weakness in two of our restaurants in the Inland Empire area, Southern California during the summer months, and as you may recall, the Inland Empire area is one of those high growth areas, both residential and commercial over the last several years, and is now one of the leading counties in California, and the nation, in both the number of subprime loans, foreclosures, and the number of homes currently offered for sale.

Both of these restaurants in the Inland Empire continue to show negative comps and restaurant sales growth during this quarter. If we exclude those two restaurants from our total comparable sales for the quarter, comparable restaurant sales would be approximately 1% higher during the fourth quarter of 2007. Both of these Inland Empire restaurants though, still average 5 million in average unit volumes. They provide a very healthy return on investments for our shareholders.

During the fourth quarter our menu pricing was in the mid-5% range, which was a little higher than our recent trend, as we took a 2% of menu pricing in mid-November to get ahead of the anticipated cost increase we expected in early 2008, related to both minimum wage increases in California, as well as federal and higher commodity costs. As we have mentioned before, additional menu pricing is really the last place that we look when we consider actions to protect our four-wall operating cash flow margins.

Our initiatives center on driving guest counsel by improving and differentiating the BJ's experience from other dining choices, facing the guests, and by improving our efficiencies within our restaurants. We do not the believe making guests pay more for our own inefficiencies, and thankfully we do believe that BJ's has this additional pricing power, thanks to the many quality improvements we have made to BJ's over the past couple of years, in terms of better food, service, facilities, and execution, and thanks to our relatively low average check at present.

Having said that, we will continue to be very, very careful about our menu pricing, in order to protect our principal competitive advantage against the mass market barring real competitors. That is offering a better overall dining experience at BJ's at about the same price as the mass market bar & grill guys.

In regards to the middle of our P&L, our cost of sales are 25.2% was 40 basis points better than last year's fourth quarter, and on a sequential basis was down about 30 basis points from the third quarter. This decrease compared to prior year and the third quarter, was principally driven by two components. Menu pricing and a reduction in waste, driven by our new theoretical food cost system, offset by higher commodity costs.

Based on our own internal analysis, the theoretical food system has helped reduce food costs by about 30 basis points in the fourth quarter. Labor and benefits during the fourth quarter decreased 30 basis points to 34.8% of sales, from 35.1% of sales last year. The decrease is a result of leverage over the fixed nature of many of our labor costs related to our menu pricing in the fourth quarter, partially offset by higher hourly wages, due to State minimum wage increases, and stock compensation expense related to our Gold Standards Stock Ownership Program, for our restaurant general managers and executive kitchen managers.

Our operating occupancy cost as a percentage offer revenues increased 40 basis points to 20%, from 19.6% last year, and as we previously mentioned beginning in June of this year, we began the implementation of our hospitality enhancements, which included upgraded china, glassware, and linen, and a new uniform program, just to name a few of the items. These enhancements as we noted in the third quarter conference call should result in about a 40 to 50 basis point increase in operating occupancy cost, as compared to prior years. However, as we have said before, these changes are integral to our overall strategy of moving BJ's away from the commoditized mass casual restaurant chain, while still maintaining BJ's broad consumer approachability for any dining occasion.

We believe that these enhancements are directly related to our comparable restaurant sales growth, and the strength of our sales, in our recently opened newer restaurants in new markets. We firmly believe in these tougher economic times these high quality guest touchpoints, continue to help differentiate the BJ's dining experience, and therefore give us a competitive advantage over many of the commoditized mass casual players that are looking to save their way to success, instead of prudently controlling what they can control, and growing their way to success by exceeding a guest's dining experience.

Our General & Administrative expenses in the fourth quarter of 2007 increased 20 basis points from prior year to 7.8%, including G&A for 2007 and 2006 years is approximately 572,000 and 355,000 of equity compensation respectively, or 70 basis points this past fourth quarter, and only 50 basis points of last year's fourth quarter. Excluding equity compensation, G&A for the fourth quarter of 2007 was 6.1 million, or 7.1% of sales, which is an increase of about 1.4 million in absolute dollars, and flat as a percent of sales compared to prior year. The $1.4 million increase in G&A is related to personnel, travel and lodging, as we continue to build new restaurants in new states, and recruiting and training costs to maintain our management pipeline.

Depreciation & Amortization was 4.8%, which sequentially was flat the with the third quarter, and 40 basis points higher from prior year. The increase is due to the higher cost of construction for our newer restaurants resulting from a combination of construction inflation over the last few years, and the quality upgrades that we have implemented in our restaurants. Our restaurant openings expenses were approximately 1.8 million during the fourth quarter of 2007, which was the result of four restaurants that opened in the quarter, plus pre-opening rent of approximately 300,000 for two restaurants expected to open in the first quarter, and two restaurants which we have pre-opening right now, which are expected to open in the second quarter of 2008.

As we previously mentioned for 2008, over three-fourths of our planned restaurants will be partially financed from landlord contributions. This is a result of our increasing stature with the major mall developers, as we continue our national expansion strategy. These landlord contributions reduce BJ's net capital investments for new restaurants, in return for a higher minimum rent.

In may cases, we are already paying a portion of this higher rent in the form of percentage rent, and therefore by taking landlord contributions to help reduce the net capital investment in new restaurants, we are in essence converting a portion of what would have been percentage paid to the landlord, to be part of the fixed minimum rent. Since this will result in a higher minimum fixed rent, we expect our non-cash rent for pre-opening to be around 100,000 to $100,000 per location in 2008, and we anticipate total pre-opening per restaurant to be in the $500,000 range.

Our effective tax rate for the fourth quarter was 31.2%, which brings our full year tax rate is around 32%. The lower effective tax rate is due to higher FICA tip credit, and greater tax free interest on our investments than originally planned. Our CapEx for 2007 was approximately $65 million net of tenant improvement allowances, and we entered the year with cash and investments of $52.7 million, and no funded debt.

Before I turn the call back over to Jerry, let me spend a couple of minutes providing forward-looking commentary on 2008, based on the information and expectations as of this date. As we discussed in today's earnings release, the macro environment for consumers is not getting any easier.

Additionally many of the restaurants we have opened in the last few years are already operating at such a high capacity, that this coupled with the difficult macro environment, will make it more difficult this year to achieve the type of comparable restaurant sales gains that we have achieved over the last few years. Therefore based on our current trend, we foresee comparable restaurant sales to be closer to our long term guidance in the 1 to 3% range.

As Jerry mentioned, we have a lot of different sales building initiatives under way. Most of these initiatives will be fully implemented by the second half of this year. Therefore from a modeling perspective, and again based on current trends, I would conservatively anticipate our comparable restaurant sales to likely be in the lower end of this expected range, at least during the first half of this year. Based on our opening schedule for 2008, in which the first seven out of eight restaurants are located outside of California, I want to anticipate our average weekly sales to be about 1% or so less than our comparable restaurant sales, which is pretty consistent with 2007.

Additionally as we mentioned in today's press release, we will be closing one of our original pizza and grill restaurants in the Portland, Oregon area, upon expiration of the lease this coming March. The restaurant was originally a Pietro's pizza restaurant that the Company purchased in 1996, and then converted to a small BJ's Pizza & Grill location. The restaurant averaged approximately 1.2 million in sales last year, when it is basically breakeven in regards to cash flow and operating income, and therefore the closure of this restaurant will not have an effect on our overall earnings for 2008.

In summary based on the items discussed, we currently anticipate total revenues increasing in the kind of low to mid-20% range. As we mentioned on our third quarter conference call, we anticipate in meeting about a 4% increase in comparable restaurant sales this year, to preserve our current unit economics, based on current full year sales expectations, and assuming that the current costs for certain non-contracted commodities, like cheese and oils, do not give us much relief, there may be some contraction of restaurant level margins this year.

However, as we have said before, we believe that BJ's over the long term is better positioned than many of the mass casual dining concepts, to defend these margins through our own sales and productivity initiatives, as well as an overall improvement in the macroeconomic environment.

Specifically looking at the middle of our P&L, we have locked in a majority of our commodities for all of 2008, or the majority of 2008, except for cheese, which we are currently in the spot market, and our oils which we currently have under contract until the end of March. On an overall basis, and consistent with our comments on our October Investor conference call, we currently expect our market basket of commodities based on our new contracts, to be up about 2 to 3% from where they were in the fourth quarter, and we therefore expect cost of sales to be somewhere in the mid-25% range for 2008.

In regards to labor, we expect $0.50 increase in minimum wage in California, as well as other state and the federal minimum wage increase for later this year, to have an impact of about 2% on our overall hourly wages. As such, we currently anticipate labor will be in the low-35% range for 2008. Included in this labor number will be about $1.1 million of non-cash equity compensation for our Gold Standards Stock Ownership Plan. In regards to our operating occupancy costs, based on current revenue expectations, this cost category is currently expected to fall in the low-20% range.

As Jerry mentioned, we anticipate our absolute G&A expense dollars for 2008 to increase in the mid-teens compared to 2007 absolute dollar level of approximately $26 million, which included equity compensation. The increase there was really represented growth in our MIT program and field supervision, to support the 15 new restaurants that we anticipate opening this year. Additionally included in G&A for 2008 will be about 2.4 million of expected non-cash equity compensation.

For those of you preparing your models, I would anticipate a little more margin pressure in the first half of the year, and then sequentially improving margins toward the back half of the year, primarily due to expected leverage from our regularly scheduled June menu update, which we anticipate will include some incremental menu pricing.

We will make our June menu pricing decisions during the next 60 days, based on the expected pushes and pulls of our operating margin component, and the general economic environment. As I have already mentioned we expect opening costs to be about $500,000 per restaurant, however we will incur pre-opening non-cash rent as much as 5 or 6 months before a restaurant opens, and therefore pre-opening costs for any quarter may not be indicative of the number of restaurants that opened in that quarter.

We currently anticipate interest income to be in the 1.7 million to $2 million range, based on current estimates of cash and our investment balances, as well as expected interest rates on those balances. And our currently expected income tax rate for 2008 should be in the 32% range. Additionally we expect our CapEx for 2008 to be approximately $60 million, net of expected landlord construction contributions or TI allowances, which should approximate $13 million this year. We anticipate funding our CapEx from operating cash flow and from our cash and investment balances. We expect that diluted shares outstanding for 2008 will likely be in the 27 million range.

A couple final last words before I turn the call back over to Jerry. This is probably the most difficult operating environment that I have witnessed in casual dining. Not only is there the pressure on the consumer's pocketbook, but there is also the major input costs for the business continue to rise. However we firmly believe BJ's is better positioned today to capture market share from the mass casual bar and grill restaurants. Over the last several years we have done nothing but raise the quality of our business, so that we can give the guest a wow experience for only a $12 average check. I am not sure there is anyone else in this segment in casual dining that can say that.

As such we are not going to change directions in our strategy, and try to save our way to success. You will not see us starting to defer maintenance in our restaurants, or reduce the number of hosts at the our restaurants to try and save our way to success. Great national brands are built by driving sales, and controlling everything they can control. Those are basic principles at BJ's, and we will not waiver from these basic principles. Today we only have 69 restaurants, we are not even a quarter of the way to our current estimate of domestic capacity for the BJ's concept of 300 plus restaurants.

And for us to get to 300 restaurants, we have to focus on quality execution and quality productivity. That the is how you build great brands. It is not about knee jerk reactions and cheating the guests. As such, we will continue to focus on our initiatives to drive sales, and continue to raise the quality bar in casual dining.

Jerry, back to you.

Thanks, Greg for an excellent financial review, and so now we will wrap up our prepared remarks. Once again, we had very solid goals for the fourth quarter and full year of 2007, in this difficult operating environment where consumer spending for casual dining occasions and the prime cost of doing business, will likely continue to be under significant pressure. We believe the more successful casual dining concepts are going to be those that really work hard, to protect their overall approachability to the consumer for all dining occasions, and those concepts that offer even greater quality differentiation, and overall value to the consumer.

Those have always been the competitive strengths of the BJ's concept, in fact, the 30th Anniversary of the opening of the first BJ's restaurant will be on March 27th of this year, so the BJ's concept has been around the for 30 years. It has proven its ability to pass the test of time, and I believe the concept through its various evolutions over those 30 years, has never been stronger from a competitive point of view. We have mentioned our pipeline for 2008, in terms of new restaurant development is in excellent shape.

We have got a comprehensive strategic and tactical plan in place, so now our challenge is to continue to correctly and consistently execute our plan, and keep our unwavering focus on the longer term growth and success at BJ's. So that the wraps up our prepared remarks. At this time we will open up the call for questions. Again, if we don't have time to get to your question on this call, please feel free to call us at our offices. We will help you as much as we can.

So Joshua, we will open it up here.

Thank you. (OPERATOR INSTRUCTIONS) Your first question comes from Larry Miller, RBC Capital Markets. Please go ahead.

Hi, guys. I had a couple questions. First, can you guys talk about what the economics of the contract brewing is to you guys?

We are not really prepared to really get into those specific economics at this time. We would like to finish the execution of our agreement, and then probably we will be in a better position to talk about those economics, as we get in to some actual production.

Obviously, over the longer run, when you are able to move a great deal of your beer production into a larger contract brewing situation, where they have much greater economies of scale, where they can brew in batch sizes of 400 or 500 barrels at a time, we would expect to have significantly favorable production economics, given what we are able to do on our own, but to really within the specifics of that I think we have got to get an agreement finalized, and get a few brewing runs underneath our belt, and then I think we will be able to talk about it.

I guess I was just thinking, Jerry in general terms, because obviously it is one thing that we don't model so specifically, so does it help on the dedicated labor side, and the cost of sales, effectively would come down? Is that how we should think about it? I wasn't asking for the terms of the agreement per se.

Oh, I am sorry, I misunderstood you, Larry. Obviously the cost of our beers whether it is internally brewed or externally brewed, is reflected in our Cost of Goods Sold, and over time, we would expect again, a favorable impact of that component, but we are not in a position yet to really put a dimension on that.

Okay, that is fair, and then you talked briefly about some of those investments that you made the last couple of years, and how they might help in '08. Can can you kind of give us some flavor for how some of these things could help sales, at least how you hope they might help sales?

Well, I think that when you, well first of all, we have a technological platform in our business, within the four walls of our restaurants, that I believe frankly is second to none for casual dining companies of our size and scope of operations, so when you take a a look at KDS, when you look at our POS system, when you look at the our automated table management system, when you look at our technology, with respect to carside cashiering, when you look at the ability to use handhelds in the dining room on peak meal periods to process orders, when you look at the our upcoming online ordering capability, when you look at call ahead seating, and how that can dovetail into our operation, using the strength of our table management system, I believe that the synergistic impact of all of the technological investments that we have made within the four walls of our restaurants the past couple of years, are going to be able for us to improve guest satisfaction, to effectively process all of the business that is being offered to us, and frankly, during peak meal periods, to actually increase our productive capacity.

We have spoken in the past about our off-premise sales channel being quite underdeveloped for BJ's, with only 4 to 5% of our total sales coming through that channel. We know that the mass market casual dining chains over a period of time have doubled from say 5 to 10%, based on information that we have seen, the percentage of their sales and their curbside programs are off-premise channels, so these are all opportunities from a technological point of view that I think we can leverage. On the other side of the coin, we have made significant investments in the overall quality of the BJ's concept, and it is hard to point to a single thing.

I think you have to judge and consider the collective synergistic impact of upgraded uniforms, upgraded china and silverware, glassware, our linen program, and a number of other things, which come together to clearly differentiate BJ's from the mass market bar and grill, or varied menu operators out there, and the key is, having all of that come together in a casual plus way, whereas keeping our average check in that the $12 range, which is very, very comparable to that, if not a little lower than that of our mass market competitors in this particular segment.

So that is, I believe will give us an advantage during these tough times to defend our business, and frankly, perhaps to take advantage of the weaknesses of some of the other competitors in the mass market arena, where due to their various competitive positions, their level of maturation, they are really unable to keep consumers interested in their primary offerings, unless they were able to discount the prices, and we are in a wonderful position, where we don't really have to get into that game, to keep consumers interested in our concept, so that is how I would summarize it.

Greg or Greg, would you guys want to add anything to that?

Well, I think you stated a lot there, Jerry. I think, I guess the only thing to add is I really do think that we are differentiated in the mass market casual dining players, and if you are going to go out, and you have got to make that decision to spend $12 for the BJ's dining experience, right now I think better than a lot of the mass market players.

And just to reconfirm, none of that the productivity that you just talked about is really in the 1 to 3% same-store sales guidance?

Well, most of that productivity or a lot of that was put in place in the last couple of years, from the pure productivity within the four walls. I this as Jerry talked about all of those initiatives, most of those are going to rollout in the second half of this year, and as we roll out, that is where we think we might have some ability to be on the upside, in regards to maybe our comparable restaurant sales.

Well particularly with respect to the off-premise channel, once we get online ordering out of test, and into a national rollout mode, and you can combine that with carside cashiering with the handheld devices, similar to where you go when you turn in your rental car, to be able to be cashed out in your car, and to really build that channel, with improved packaging and then to promote it, that is one thing that BJ's frankly, we have been around for 30 years, BJ's has really never been much of an external [commoder] of its business, with respect to media, whether print or radio. The fact of the matter is it has always been a small business to this point.

It is still kind of a small business, and we don't really get the traditional efficiencies of mass market media that the mass market casual dining guys do, with thousands of restaurants obviously, but now we are getting to the point of size, where in certain pockets of our company and certain markets, we do have some early efficiencies, and we are going to get out, and be a little more aggressive as I mentioned in my prepared remarks, with respect to promoting carside cashiering and online ordering, and some of these things that we believe provide a clear differentiation for our concept.

Okay, thanks, guys.

Okay, Larry.

Our next question comes from the line of Sharon Zackfia, William Blair. Please go ahead.

Hi, good afternoon.

Hi, Sharon.

It sounds like you were hinting pretty strongly that comps have gone down to that 1 to 3% range, and we have been really spoiled by you in this past, where you have given these kinds of ranges, and then you completely beat them, time and time again, and I guess I am curious as to, we know there has been weather in California. Are the units outside of California showing any softening?

You know, not that we noticed. When you think about our comp restaurants, I think we said 33 of 50 restaurants are in California, well the only other area we have got a strong base is Texas, where I think we have 11 restaurants today, and probably seven of those are in the comp base, that puts you up to 40. I mean you have got the Arizona as well. Arizona has been a little bit softer. I think people have talked about that. That is an area of obviously high growth over the last few years. Texas has continued to do extremely well for us even into 2008.

I would summarize in saying that again, we really prefer not to comment on monthly same-store sales data, or intra-quarter sales data by market, because short periods of time don't necessarily make a trend, and we really hesitate to comment on specific markets, because that kind of gives our competitors a roadmap to go, as to where we are doing well. But again to summarize I think it's fair to say that Texas has really been on-target, with respect to our same-store sales expectations.

It's really been California, particularly Southern California, that I think has experienced a little bit of weakness here quarter-to-date, although consolidated, our same-store sales remain up slightly on a quarter-to-date basis. And we'll just have to see how when this weather gets out of the numbers, and we get past Valentine's Day, and get into March, I think we will have a better assessment and judgment as to what some of the factors might be.

Okay, and then separately, I had a cost question. I know that through the operating and occupancy expense line we have been seeing some of those initiatives, such as the tableware and the linens run through that, and you mentioned some media that you are going to be exploring, so are we going to see, I had previously thought we would see pressure in the first half of the year, but is it more prudent to expect that throughout the full year, as you experiment more with this media?

Well I don't think I would characterize our media, our print media spending as experimental. We spend less than 1% of sales on advertising at BJ's. I would think that in this environment, we will have to get a little more aggressive, but I don't see us growing to 2% or 3 % or anything like that, and the types of print media that we will deploy, we do a pretty rigorous ROI analysis, and we really set breakeven guest count hurdle rates that are very, very reasonable for the amount of media that we may consider deploying, so we are not projecting any margin deterioration from ramping up our print media programs a little bit here throughout the rest of the year, because of those factors I have just described.

Okay, thank you very much.

You are welcome.

(OPERATOR INSTRUCTIONS) Our next question is from the line of Greg Ruedy with Stephens Inc. Please go ahead.

Thanks, good afternoon. As we have rolled into this deteriorating macro, can can you kind of walk us through your expectations of length of the honeymoon period, any changes there versus home and away markets?

You know, not really, in fact, looking at our new restaurants last year, and we commented both on Columbus as well as Tampa, but even our restaurants in California have opened up really strong, and continue to do really well. In fact, I think we made the comment that the two in the Inland Empire are still over 5 million, they are great ROIs. Every one of our restaurants in California is a really strong restaurant, and we are not seeing any real changes in honeymoon factors, or anything from that standpoint, and we wouldn't stay away, we wouldn't shy away from building in California at all.

Okay, given that before we talked your off-premise opportunities, how many of the 33 in the California comp base do you have close to capacity?

Do we have close to capacity, meaning actual sales capacity?

Yes.

I would probably say none. I think all of our restaurants have the ability to increase sales, both at off-peak meal periods, I think all of our restaurants in California still have the ability to increase off-premise sales, so I think there is an ability to continue to increase capacity and build real sales in the sense of guest counts in all of our restaurants, both in California as well as in the other restaurants.

All right moving to your HR buildout over the last couple of years, as you have built a pipeline, can you kind of walk us through some of the profiles of maybe where you have had some hits and some misses from the types of people you have brought on, and how do you narrow that focus going forward, and then what is the leverage opportunity left there? Thanks.

Well with respect to HR, I would assume, Greg, that you are talking about our restaurant manager pipeline. Last year, we recruited 200 managers, higher quality managers to join BJ's, this year I think we will need about 275 to 280 to support our planned growth this year, as well as to cover attrition, and back when I got involved with BJ's, starting my fourth year this month.

About three years ago, BJ's generally sourced its restaurant management recruits from the mass market casual dining companies, and at that time, the recruitment, the assessment, the selection, the compensation, was applied to those recruits was pretty much of a mass market, casual dining nature, and in order for us to successfully elevate the complexity, the quality, the operation, the basic competitive positioning of the BJ's concept, and clearly elevate it to the casual plus level, we needed to make investments, not only in the amount of actual management talent in the pipeline, but the quality of the pipeline.

So over the past three years we have really addressed each one of those factors with respect to that pipeline, we have dramatically upgraded our experience requirements, we have improved at the level of assessments and our interview process, to insure a higher quality more successful candidate that will pop out at the end.

We have increased our base levels of compensation slightly, to position our compensation from a base perspective where our concept is, in between the mass market casual dining players, but not as high as the upscale casual dining players. We have also added additional developmental programs, in terms of training and development including our home office, the corporate portion of that training, so basically, those are all of the things that we have done and then the other thing we have done with respect to retention of our key managers, is put in what the we call our Gold Standard Stock Ownership Program a year ago, which involves restricted stock units for our restaurant general managers, our restaurant kitchen managers, and field supervision team.

All of those have placed BJ's in a much better position to go out and compete for the best available talent out there, and I think that this slowdown in the economy, and some of the retraction of growth of some of our competitors in this environment, is really going to give BJ's an opportunity to take advantage of some of the weaknesses of our competitors, in terms of not only in terms of site availability and selection, as Greg Lynds mentioned a little earlier, but also in the flow of quality restaurant management talent to this business.

So those are all of the work that we have done over the past three years to really build this concept, build it standing in the operational community, build the overall quality I think will enable us to continue to retract and retain the very best talent, but I don't think we could have done that, had we not made all of those investments in recruiting, assessments, training, compensation, to be able to get to this position. Does that help you on that one?

That does help, that is great color. Thanks, I will pass it along.

Okay, thank you. Any other questions? Operator? I believe we have no other questions at this time.

That is correct, sir. Please go ahead with any closing or concluding remarks.

Thank you all for your support, and we look forward to any calls that the you might want to send our way here at the home office. Thank you.

Ladies and Gentlemen, this does conclude the BJ's Restaurants Incorporated fourth quarter 2007 results conference call. We would like to thank you for your participation. Have a pleasant day. You may now disconnect.