BJ's Restaurants Inc (BJRI) 2008 Q1 法說會逐字稿

Technical difficulty (echo) on some Executive remarks. Transcript is best product.

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the BJ's Restaurants Incorporated First Quarter 2008 Results Conference Call. (OPERATOR INSTRUCTIONS) 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'm Jerry Deitchle with BJ's Restaurants and welcome to our quarterly investor conference call, which, as usual, we are broadcasting live over the Internet. With me on the call today are Greg Levin, our Executive VP and CFO; Greg Lynds, our Executive VP and Chief Development Officer; and Diane Scott, our Director of Corporate Relations.

After the market closed today, BJ's released our financial results for the first quarter of 2008 that ended on April 1, 2008. So, if you haven't had a chance to see our press release yet today, you can view it on our website at www.bjsrestaurants.com.

Our agenda today will be as follows. First I'll provide a brief business and operational overview for the first quarter and then Greg Lynds will provide an update on the status of our new restaurant development pipeline, which continues to be in outstanding shape. Greg Levin will then comment on our consolidated income statement, summary balance sheet and liquidity position as of the end of the first quarter and then after that, we'll be happy to answer as many questions as we can.

We'd like to complete the call in about an hour and we'll get started right after Diane provides our standard cautionary disclosure with respect to forward-looking statements. Diane?

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, April 24, 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, unless 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. Now to the call, here.

As we indicated in our press release today, we believe that our restaurant, brewery and infrastructure support teams did a very good job of executing and controlling the parts of our business that are within our control. And despite the pressures of the weakening economy and despite the steadily increasing pressure on the casual dining consumer in general, but particularly out here in California, during the first quarter just ended.

Compared to the same quarter last year, our revenues for the first quarter increased a very strong 22% to $86.8 million. Our net income for the quarter was $3.1 million, compared to $1.6 million for the same quarter last year and our diluted net income per share was $0.12, compared to $0.06 for the same quarter last year. Now we should also note that our results for the same quarter last year do include a non-cash after-tax charge of about $1.3 million or $0.05 per diluted share related to asset disposals.

We commented, on our last conference call in February, that going forward into 2008 our leadership team here at BJ's has never felt better about the factors in BJ's business that we can control and we still feel that way. Short-term among the operational execution front, we, along with all of our other casual dining competitors, are up against a slowing economy. We're up against a casual dining consumer that certainly is feeling more pressure to make ends meet today, in view of steadily increasing costs for the necessities of food and gasoline.

This morning I paid $4.00 a gallon for gas for the first time in my life and it was a bit disheartening to have to pay $85 to fill up my own car this morning. So a lot of restaurants that consumers out here in California and across the country, for that matter, have to be feeling the same way that I felt this morning.

Nevertheless, in response to the softer sales volumes that we experienced during the first quarter, principally out here in our California and our Phoenix area restaurants, our restaurant management team did a very good job of managing our controllable costs and expenses during the quarter and our infrastructure support and G&A expenses were also well-controlled during the quarter.

We're also doing an excellent job of managing and controlling another key component of our business execution and that's our new restaurant expansion plan. I believe we have one of the best development teams in the casual dining segment of the restaurant industry. Our development team has worked very hard to put BJ's in an excellent position to successfully execute our previously stated restaurant expansion plan for this year, which remains solidly in place. And which continues to call for the opening of as many 15 new restaurants in high quality locations and with increased levels of landlord construction contributions.

I think it's important for our investors to keep in mind that our targeted 20 to 25% increase in total restaurant operating weeks for 2008 represents the most significant component of our expected growth in total revenues for the year and for that matter, for the next few years to come. We've only got 69 restaurants open today, so we're not even one-fourth of the way to achieving our current estimate of domestic capacity for BJ's Restaurants of various site types and sizes.

Greg Lynds is with us on the call today. He's our Chief Development Officer. He'll comment in more detail on our 2008 and 2009 development plan a little later in our call today.

Longer-term, all of us here at BJ's remain both excited and confident about our ability to capture additional market share in the estimated $90-plus billion casual dining segment of the restaurant industry. We tell our teams internally here that we're running a marathon. We're not running a sprint. And we're very fortunate to have a world-class marathon runner on our team, the BJ's concept itself.

BJ's is a proven, higher quality, more differentiated casual dining restaurant concept that is positioned right in the middle of the fairway for the American consumer. And we've taken that basic positioning and we worked very, very hard during the past three years to complete the evolution of the concept to a fuller casual-plus positioning level, which we believe will thereby further improve it's long-term competitiveness and it's ability to take market share away from those thousands of what we call mass market casual dining restaurants that we're up against in a lot of our markets.

Tough times will never last, but well-positioned casual dining concepts that are well managed and well executed by committed, professional, restaurant company management teams will last. So at BJ's we've remained fully committed to our longer-term strategy, to drive our concept and our business forward. And by doing so, we should be even better positioned when the current economic cycle eventually begins to turn around. Until then, we've told our troops internally that we're going to do our absolute best to control what we can control, to continue to do our best to drive sales and to do our best to become even more productive and efficient in our operational execution.

As we noted initially in our February conference call, our first quarter results that reflect softer levels of comparable sales than what we're used to reporting here at BJ's, our consolidated comparable restaurant sales were approximately flat for the first quarter. Now we say approximately because they were slightly positive for the quarter, but not positive enough to be able to round that statistic up. Now, having said that, our comparable sales comparison for the first quarter will probably outperform the Navtrak Survey of Casual Dining comparable restaurant sales for the first quarter when the final numbers are published by Malcolm from the survey.

Compared to our mass market grill and bar competitors with thousands of restaurants in the comparable restaurant base, BJ's only has 50 restaurants in our restaurant comp base as of today. And 37, or about 75% of those 50 are located in the States of California and Arizona, two states in particular that appear to be feeling more of a significant impact from the slowing economy, the credit crunch, the decline in home prices, and the rising cost of food and gas.

Of those 37 restaurants in our comp base that are located in California and Arizona, there are 13 of those that are located in what's called the Inland Empire Market of Southern California, the Sacramento market of California and in the Phoenix market of Arizona. Those 13 restaurants are generally located in areas that experienced rapid residential and retail growth during the past three-to-five years, as a result of easy credit availability, lots of new home construction, steadily rising home prices, all of the factors that drove growth over the past three-to-five years were particularly evident in the trade areas within those 13 restaurants.

As construction activity continues to slow, as the foreclosure rates continue to rise in those trade areas, our sales in those trade areas, as well as sales for our competitors, from what we hear, also continue to feel appropriate impacts.

On the one hand, I think it's also important to remember that we set opening sales records for some of those 13 restaurants when they initially opened. And its also very important to remember that absolute sales levels for all of those restaurants are still very healthy for us, even with their recent pressures. We just need these handful of restaurants to stabilize at their new sales levels sooner than later.

If we exclude those 13 restaurants from our comparable restaurant base, then our comparable restaurant sales would have been up about 3.1% for the first quarter. For example, sales per our comparable restaurants in my home State of Texas, where the economy is in a little bit better shape right now, those sales were up over 7.0% during the first quarter. So we believe the BJ's concept itself continues to be as popular and as approachable as ever with consumers.

Everything else being equal, we've got a handful of restaurants in an economically challenged trade areas here in California and Arizona that need to settle in where they're going to settle in and then we're going to keep moving ahead. Greg Levin will have some additional comments on our topical sales a little later in the call today.

As we also noted in our press release that while no one that I know of can accurately predict how the consumer is going continue to react in the volatile and slowing economy, we here at BJ's don't believe that the current difficult operating environment is likely to ease up in the near future. But we don't think that we're close to the bottom of the economic cycle.

Accordingly, we're doing what we can to accelerate our internally planned schedule of 2008 sales building initiatives. These initiatives include, but are not limited to, the rollout of our online ordering and curbside cashiering services, with some external promotion, the external promotion of our call-ahead seating service, which provides a competitive advantage against a lot of other mass market casual dining operators and even some of the upscale casual dining operators that operate call-ahead, due to the capabilities of our automated seating management and table management system.

We're expanding our delivery service to as many restaurants as we possibly can. We're introducing a new and more impactful lunch special program in several restaurants here in the next few weeks. We plan to roll out a more contemporary beverage program and we'll be deploying additional print media promotions for some of our new menu entrees and our other new services that we're offering to consumers. We think that most of these initiatives should be well underway to full implementation before the end of the second quarter.

We also have a couple of new productivity initiatives underway that Greg Levin is going to comment on here in a few minutes.

Moving on to our restaurant expansion plan, we opened two new BJ's Restaurants during the first quarter, one in Cincinnati and one in Louisville and we are very, very pleased with the initial sales volumes of these two new restaurants, even though both were open during periods of significant winter weather in both cities. And we've told Greg, "No more winter openings in the Northern tier states", believe me. We like the warm climates in the winter.

Both of these new restaurants are inline custom footprint layout, with two highly productive improvement malls in very mature, stable trade areas and that's a very, very important hallmark of our 2008 and 2009 new restaurant development plan. We are deliberately avoiding greener trade areas for the time being. And we're 100% focusing on the more mature, densely populated trade areas where we're able to get enough information from the developers to know exactly how the major retailers perform and how the mass market restaurant markets perform in those trade areas.

By elevating our concept to the full casual-plus level, I think we've mentioned before that we're now in a very exclusive restaurant club, if you will, with the national mall and retail center owners/developers. As these developers have continued to reinvest in the most productive projects, with major facelifts and other upgrades, they typically add lifestyle wings with a few exciting high volume restaurants to help drive overall traffic at their projects. And the major developers are the ones that usually offer the best landlord construction contributions.

During this year, 2008, we still expect to receive approximately $13 million in total landlord construction contributions to help finance the development of our new restaurants and that's a tremendous advantage for those of us in that exclusive club with the national developers. I personally believe that our 2008 new restaurant year class has the opportunity to be our best yet

And now I'm going to turn the call over to Greg Lynds, our Chief Development Officer who will give you his perspective on our pipeline. Greg, go ahead.

Thank you, Jerry. As we mentioned in our press release today, our 2008 and 2009 new restaurant development pipeline remains in excellent shape and we continue to be very pleased with the quality of the new sites in our pipeline. Our internal goal is to maintain at least 18 months of forward visibility for specific new locations at all times and our development stays focused and works hard to stay on track with that goal.

So far in 2008, as Jerry mentioned, we have opened 2 successful restaurants. On February 11th, we opened in Cincinnati, Ohio at the main entry of the Tri-County's Regional Mall and on February 25th we opened in Louisville, Kentucky at the Oxmoor Center Regional Mall. All of our 2008 openings have been identified and secured with signed leases or letters of intent and 9 of these restaurants are already under construction.

We're currently under construction in Orlando, Florida; Indianapolis, Indiana; Baton Rouge, Louisiana; Torrance, California; Phoenix, Arizona; San Antonio, Texas; Houston, Texas; Seattle, Washington; and Modesto, California. We also plan to start construction on as many as 4 more restaurants within the next 60 to 90 days. As we've stated before, it's difficult to precisely predict the actual timing of our new restaurant openings, due to many factors that are outside of our control, including factors under the controls of our landlords, contractors and outside municipalities.

With that in mind, as of today, we currently expect as many as 4 openings in the second quarter, as many as 5 in the third quarter and as many as 4 openings in the fourth quarter. Again, this opening schedule will fluctuate and we'll keep everyone advised of any future changes on our quarterly calls.

As we indicated in our last call, our team views the current economic issues surrounding retail and restaurant development as a time to capitalize on securing prime sites in densely populated, high volume retail trade areas. Over the last three-to-four years, we've opened high quality, differentiated restaurants with some of the largest and best-known retail developers in American, including Simon Property Group, General Growth Properties, Westfield, (Maysrich), DBL and others. These relationships are solidly in place and should become even stronger over the next few years.

Looking forward into 2009 and 2010, our current growth goals remain the same and that's to increase our productive capacity by approximately 20 to 25% each year, as measured by total restaurant operating weeks. Our internal real estate design and construction teams continue to focus on delivering restaurants with a non-chain image and ambiance. 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 and quality of pointed differentiation while at the same time keep the broad approachability that we have here at our BJ's brand.

In 2008 and 2009, this means opening our new restaurants in AAA locations within dense, high sales volume retail trade areas and then deliver our gold standard experience to our guests. Our team is ready and I'm confident that BJ's should have many years of solid new restaurant growth to come.

Jerry, back to you.

Hey, thanks for the update, Greg. That's a hell of an update and thank you and your team for putting us in an outstanding position here to execute our restaurant growth plan over the next couple of years. You know we've only got 69 restaurants open today and we're only in 9 states, so we continue to believe that there's room for at least 300 BJ's restaurants of various sizes and site types, domestically.

As Greg mentioned, our goal is to continue to increase our productive capacity as we measure it in total restaurant operating weeks by 20 to 25% for the next couple of years. But I think it's also important for our investors to understand that we're not growing just for the sake of growing.

As long as we continue to have a high degree of confidence that our new restaurants in the aggregate can achieve our targeted returns on capital employed, we think it makes good business sense to continue to expand and strengthen our overall market share and to take advantage of the pullbacks and some the weaknesses of our competitors during these tough economic times. But having said that, we're going to maintain strong discipline to execute our growth plan in a very careful and controlled manner and only with the right operational talent and infrastructure and tool sets in place.

Before I turn the call over to Greg Levin, I want to update you on a couple of other things. First, as most of our longer-term investors know that we've been intentionally strengthening our field supervision and home office support infrastructures to support a lot of our planned growth here. We've been strengthening those infrastructures during the past couple of years. We've written a lot of checks. We've made a lot of investments.

The good news is, as we've commented before and I'd like to reiterate today, substantially all of what I would call our catch up investments, in that respect, were completed last year and we should be on more of a normalized incremental G&A investment spend pattern going forward in our business.

We will continue to make incremental investments in our restaurant management to recruiting, training, development and retention programs, because in our business model that's the most critical resource requirement for growth. We can only grow our restaurants base as fast as we can recruit, train, develop and retain the very best restaurant managers available.

Also, I'd like to give you an update on our brewing strategy. After several months of hard work, after careful operational due diligence, we have executed a contract brewing agreement with one of the top ten largest commercial brewers of craft beer, quality craft beer, in the United States. And we've received our first shipment of our proprietary craft beer from that brewer last week.

I have to tell you that our in-house brewery operations team was very, very pleased with the high quality and consistency of this first brew, because our in-house brewers are a pretty tough crowd to impress. So we're well on our way with this new relationship that we believe is absolutely critical to our future growth. I think a lot of our investors know that we've been using a smaller contract brewer for several years to support our Texas restaurant beer requirements and now we're able to add a large contract brewer to our contract brewing resources.

Previously, our beer requirements were too small to attract the attention of the larger-scale contract brewers, but now that we've got 69 restaurants open and now that our annualized total beer requirement is in the 50,000 barrel range, we've been able to get the attention of the larger contract brewers. During 2007, about 15% of our beer was contract brewed. This percentage could reach as high as 35% during this year, 2008, and over the long run will probably move closer to the 75 to 80% range.

Our longer-term objective is to have the large contract brewers produce substantially all of our large volume proprietary beers and we'll continue to create and brew our smaller volumes, seasonal, and specialty beers. And again, the primary reason why we're moving in this direction is because the large-scale contract brewers have greater economies of scale. They've got stronger quality control systems and they've got a more effective and leveragable national supply chain relationship than we have as a small restaurant company.

As a result, over the longer-term, we logically expect that the production cost of our larger-volume proprietary beers can be gradually reduced, while simultaneously providing an improvement in the overall consistency of our beer.

Now, I think it's also important for all of our constituencies, our investors, our team members and most importantly our restaurant guests, to understand that this brewing strategy is not intended to diminish the role of high quality craft beer at BJ's Restaurants. We would never want to diminish this quality point of differentiation for our concept. But our brewing strategy is really the outcome of a basic core competency analysis.

BJ's core competency, with respect to beer, is in the creation of unique, award-winning craft beers. BJ's core competency is not in the large-scale mass production of craft beer in mass quantity, soon to be approaching 100,000 barrels annually for our business that is going to be needed to supply the growing requirements of a nationwide restaurant operation. It would take a considerable incremental investment in additional resources, our management time, talent, systems, capital assets for us to develop this large-scale production competency internally and frankly, it could potentially get in the way of some licensing issues for our restaurants that serve the states.

So it's better for us to hand that part of the brewing process over to the professional large-scale craft brewers, under our supervision, and essentially liberate our internal brewing operators to become even better creators, better marketers and better versions of quality, unique craft beers in our restaurants and possibly in other retail distribution channels in the future.

And now, before I turn the call over to Greg, I want to take a minute and reiterate our very strong confidence that 2008 offers a significant opportunity for BJ's to continue to gain market share in casual dining. Our leadership team has never felt better about the factors in our business that we can control and we're well positioned to execute our expansion plan this year, again, which calls for the opening of as many of 15 restaurants in high quality locations and with increased levels of landlord construction contributions.

Our targeted 20 to 25% increase in total restaurant operating weeks during the upcoming year represents the most significant component of our expected growth of total revenues for the year. We also feel confident that our average guest check in the $12 range, coupled with our strengthening casual cost competitive positioning and our sales building initiatives in progress, should provide BJ's with a solid opportunity to continue to outperform most of our peers in this difficult environment, notwithstanding our current geographical concentration out West.

So now I'm going to turn it over to Greg. Greg, take it from here.

All right. Thanks, Jerry. Let me spend a couple minutes and I'll go through the highlights of the first quarter. I'll provide some forward-looking commentary for the remainder of 2008.

As Jerry previously noted, our total revenues for BJ's first quarter of 2008 increased approximately 22% to approximately $86.8 million from $71.2 million in the prior year's comparable quarter. This increase is the result of approximately 24% more operating weeks offset by a slight decrease in our weekly sales average of about 1.7%. The operating week increase is due to 13 new restaurants that we have opened since the first quarter of 2007.

As Jerry mentioned, our aggregate comparable restaurant sales for the first quarter were approximately flat compared to last year's first quarter. What is notable about BJ's is the fact that we only have 50 restaurants in our comp base, so a change in sales impacting just a handful of comp restaurants can significantly impact the total Company's comp sales metric.

Also, because those 50 restaurants are spread between several markets with different economic pushes and pulls, we have an interesting mixture of comp sales increases and decreases as the economy begins to slow and slow faster in some markets than others. And unfortunately, California and Arizona appear to be those markets that fall into the slowing faster category right now and that's where we happen to have 37 of our 50 comp restaurants at present. We're not as geographically diversified as our larger competitors right now. So I think everybody needs to keep that in mind as we review our comp sales for this quarter.

As we mentioned in today's press release, the softness in our comparable restaurant sales were primarily in Sacramento and the Inland Empire areas of California and the Phoenix, Arizona markets. And as Jerry mentioned, these are regions of high growth over the last several years and the housing meltdown and related slowdown in overall construction activities are really taking their toll on these local economies.

In our aggregate comparable restaurant base for the first quarter, we have 10 restaurants located in these areas in California as having an aggregate comparable sales decrease of approximately 6.0% for the quarter. We hear from many of our other casual dining competitors that also have restaurants in these same areas that their sales are equally as impacted, by, if not more, than us. And as we mentioned before and I think this is really important to note, those restaurants in those impacted areas still continue to do extremely well for us, well exceeding our return on investment hurdles and averaging over $118,000 a week in sales.

In the Arizona market, the weakness is in the Phoenix area where we have three restaurants, which on aggregate had decreases in comp sales of approximately 7.0 to 8.0% for the quarter. And again, we hear the same sales trends from many of our casual dining competitors in this market as well.

As we noted, if you exclude those 13 restaurants from the comparable restaurant base, our comparable restaurant sales would have been approximately 3.1% for the quarter. As Jerry mentioned, we continue to see solid comparable restaurant sales increases in taxes as well as many other areas. Some of our strong performing comparable restaurants include our San Jose restaurant in San Jose, California, which achieved a comparable restaurant sales increase of about 10% for the quarter and our Summerlin, Nevada restaurant, which is a suburb of Las Vegas, which achieved a comparable restaurant sales increase of about 6.0%.

Additionally, we continue to be pleased with our sales volumes at many of our new restaurants in Florida, Ohio and Oklahoma. During the first quarter, our estimated menu pricing factor was in the mid-5.0% range. In the second quarter, we currently have menu pricing in the mid-4.0% range, which we currently expect to maintain throughout most of this year.

As we 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 counts by improving and differentiating the BJ's experience from other dining choices facing our guests and by improving our efficiencies within the restaurant.

Thankfully, we do believe that BJ's has this additional pricing power thanks to the many quality improvements that we've 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 in the $12 range.

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 bar and grill competitors. That is offering a better overall dining experience at BJ's at about the same price as the mass market bar and grill competitors.

We believe that most of our guest traffic declines during the first quarter have occurred during lunch and during the Monday through Thursday days of week, as is likely the case of many casual dining concepts in this environment. So, as we mentioned, we have been testing a new lunch special program that has been quite successful in a couple of our restaurants and we will roll this out to several more restaurants by the middle of May.

And as Jerry also previously mentioned, we have a couple of new productivity initiatives underway to help us better manage our restaurants at peak meal periods and potentially increase our table turns. For example, we are testing handheld POS devices in two of our restaurants. Using handheld devices should allow our servers to save time by instantly sending a guest food or beverage order to our kitchens and bars, therefore expediting the entire service process.

We're also developing what we call the "real-time manager scoreboard" that will be displayed in each restaurant's back of the house area and that will give our managers ongoing access to real-time key performance indicators as each daily lunch or dinner shift progresses. Our approach is to provide more of an automated scoreboard that emulates a dashboard in a car, with red lined and green lined dials for key shift productivity indicators, like actual sales and guest counts compared to the initial expectation for the shift, the calculated guest wait time at the front desk, kitchen ticket time, labor productivity, staff overtime and break alerts and so forth.

In discussions with our restaurant managers, this is one of the most requested tool sets since it will provide information in a real-time format that will allow our managers to better adjust their execution, as each lunch or dinner shift is progressing. Our systems look pretty good right now, providing what we would call "lagging indicators". This tool set will really help provide some leading indicators during the shift.

In regards to the middle of our P&L, our cost of sales of 25.2% was 10 BPs better than last year's first quarter and on a sequential basis was flat with the fourth quarter of 2007. This decrease, compared to prior year, 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.

As we mentioned in our fourth quarter conference call, we expected to see about a 3.0% increase in our overall commodities basket. To date we have seen less than the 3.0% increase that we expected. This lower than anticipated increase in our commodities, coupled with the efficiencies from our theoretical food cost system, has allowed us to maintain our cost of sales percentage. We estimate that our theoretical food cost system has delivered about 30 to 40 BPs improvement in our food costs.

And as an additional enhancement to our theoretical food cost system, we are also working diligently on automating our daily food, prep and power requirements. This should allow our restaurants to further improve our production yields and reduce waste, with the resulting improvement in food quality and freshness. But I think even more importantly, this feature really can help our newer restaurants ramp up their food production quality and efficiencies faster than before.

Labor and benefits during the first quarter decreased 70 BPs to 35.3% of sales from 36% of sales last year. In last year's first quarter we incurred a $0.75 increase in the State of California for minimum wage, which we later offset with some menu pricing in March 2007. In this later year's first quarter, the California minimum wage increase was $0.50 and we anticipated this increase in our November 2007 menu pricing.

Additionally, our operators really did a nice job optimizing our labor system. In fact, despite the soft comparable restaurant sales, the majority of our restaurants continue to operate at such high sales volumes that our restaurant management team was able to continue to drive productivity and maintain their targeted productivity levels, which really are based on what we call here labor hours per 100 guests.

Looking at labor on a sequential basis, we saw a 50-BP increase from 34.8% in the fourth quarter of 2008. This increase is a combination of higher payroll taxes, which we incur at the beginning of each year as we work through many of the state and federal minimum employer tax requirements and the aforementioned minimum wage increases in California and some slight increases in some other states. On an overall basis, hourly wages were up about 2.0 to 30% range in the first quarter of 2008, compared to the fourth quarter of 2007.

Our operating and occupancy costs, as a percentage of revenues, increased 160 BPs to 20.4%. This increase is due to a combination of higher costs related to the implementation of the previously-mentioned hospitality enhancements. Which included upgraded china, glassware, linen and a new uniform program, just to name a few of the items, as well as some de-leveraging of many of these fixed costs in the flat comparable restaurant sales.

As we mentioned before, our hospitality initiatives were rolled out at the beginning of the third quarter of 2007 and in fact, if you look sequentially at our P&L beginning in Q3 of last year, our operating and occupancy costs were 20.2% in Q3 and 20% in Q4 of 2007. So while our 20.4% is higher than what we expected, this is really due to that de-leveraging of the flat comparable restaurant sales versus maybe where we were in Q3 and Q4.

While these hospitality initiatives costs more money in absolute dollars, as we've said before these changes are integral to our overall strategy of moving BJ's away from the commoditized mass casual restaurant chains while still maintaining BJ's broad consumer approachability for any dining occasion. We believe that these enhancements are directly related to the strength of our averaging the volumes, which are close to $5.0 million on an average guest check of only $12. And we really can't think of many other volume growth concepts that are doing close to $5.0 million averaging the volumes, again, on a $12 check average.

And we firmly believe, we've said this before, that in these tougher economic times these high quality guest touch points continue to help differentiate the BJ's dining experience and therefore give us a competitive advantage over many of the commoditized and outsider players that might be looking to pave the way to success instead of clearly controlling what they can control and growing the way of success by exceeding the guest dining experience.

G&A expenses in the first quarter of 2008 decreased 30 BPs from prior year to 8.5%. Included in G&A for 2008 and 2007 is approximately $608,000 and $539,000 of equity compensation, respectively, or 70 BPs for this year compared to 80 BPs last year.

If you exclude the equity compensation, G&A for the first quarter of 2008 was $6.8 million or 7.8% of sales, which is an increase of about $1.1 million in absolute dollars and down about 20 BP as a percent of sales compared to prior year. The $1.1 million increase in G&A is primarily related to costs for our Managers in Training program to support our new restaurant growth and travel and lodging costs to support our new restaurants.

In regards to our MIT program, or the Managers in Training program, we had about 480 MIT weeks in G&A this quarter, compared to about 364 MIT weeks in the same quarter in 2007. As Jerry mentioned, we expect that our infrastructure costs related to our recruiting and training of new managers really to grow at the rate of our capacity growth. So, while we'll get leverage in G&A on an absolute basis, we will continue to invest in that MIT program as we grow.

D&A was 4.9%, which sequentially was up about 10 BPs and really that's due to some of the de-leveraging related to flat comparable restaurant sales. Our restaurant opening expenses were approximately $1.1 million during the first quarter of 2008, which is a result of 2 restaurants that opened in the quarter, plus pre-opening rent of approximately $300,000 for the restaurants expected to open in the next two quarters.

As we previously mentioned, for 2008, over three-fourths of our planned new restaurants will be partially financed with 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 reduced BJ's net capital investment for new restaurants in return for higher minimum rent.

In many cases, we're 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 investments in new restaurants, we are in essence converting a portion of what would have been percentage rent paid to the landlord to be part of the fixed minimum rent. This will result in higher minimum fixed rent and when we expect, therefore, our phantom non-cash rent for the pre-opening period to be around $100,000 to $120,000 per location in this current year. And therefore we also anticipate total pre-opening to be in the $500,000 range per restaurant.

Our effective tax rate for the quarter was 30%, which is about 200 BPs lower than what we anticipated. The lower effective tax rate is primarily due to our tax rate interest on our auction rate securities, which I'll comment on here shortly.

Our CapEx for the first quarter was approximately $10.7 million and that is net of tenant improvement allowance and we anticipated our CapEx for 2008 to be around $60 million, and again, that's net of landlord allowances.

Before I turn the call back over to Jerry, let me spend a couple of minutes discussing the auction rate security investments we have. Then I'll provide some forward-looking commentary on the rest of this year.

In regards to our auction rate security investments, as we mentioned in our press release dated March 6, 2008, as well as in today's earnings release, we currently own 37.1 million in face or par value auction rate securities that at the current time are illiquid. In the past, BJ's, like the vast majority of public companies, invested its temporary excess cash in highly liquid investment grade securities to buy the capital preservation. Generally speaking, this included government paper, municipal bonds and money market accounts.

The auction rate securities we currently own are all student loans, collateralized obligations. These student loans are public student loans guaranteed by the U.S. government under the Federal Family Education Loan Program or what is known as FFELP. These securities were sold every 7 to 35 days as part of the normal auction process, which up until February 2008 had worked for over 20 years. However, beginning in February, as a result of the credit crisis and the auction process failed these type of investments. And we still have not been able to liquidate our investments as of this date.

We're not alone here, as many corporations and individual investors currently hold over $300 billion of illiquid auction rate securities of many types. As a result of the failed auction process, the interest that we earned on these securities is higher than they would have been under the normal circumstances. Additionally, the interest we earn on our auction rate securities is tax-exempt. This so-called penalty interest rate for the investments we hold is primarily based on what is called the SIFMA Municipal Swap Index. SIFMA stands for the Securities Industry and Financial Markets Association. Plus there's an applicable penalty spread.

In the first quarter, our interest rate on our portfolio was about 10% on a tax-equivalent basis. With thee easing of the interest rates over the last several months and the increasing volatility of the credit markets, the SIFMA index has itself become more volatile and has also come down. Our best guess at the present time is to anticipate our interest rate on a tax-equivalent basis on these securities to be closer to the 5.0% range in the second quarter.

As I mentioned, our student loans are backed by the U.S. government at about the 97 or 98% level. Based on the information to date, there has been no credit deterioration on what we own and we continue to receive our interest income. Therefore, the issue at hand is not one of credit but of liquidity. Because of the illiquidity of these investments at the current time, in accordance with FASB 157, which is the fair value of measurement, we obtained third party evaluations for investment.

Because there is currently not an act of market to compare to like investments, the valuation process is very subjective, in which slight changes to the inputs use can have a dramatic affect on the valuation of each securities. Bases on these valuations, we recorded a temporary impairment in the value of these investments of approximately $1.5 million or about 4.0%. This temporary impairment was recorded in Other Comprehensive Income, which is part of shareholder's equity on our balance sheet and was recorded in accordance with what is called FASB 115, accounting for certain investments in debt and equity securities.

This temporary impairment does not affect current income or earnings. However, if circumstance change in the future and we determine that we have an impairment of what we've called a permanent impairment in the value of these securities, then we would be required to take a charge directly to our income statement. In regards to our liquidity, we currently have a $45 million line of credit with zero drawn. This line of credit, cash flow from operations and our expected tenant improvement allowance should be sufficient to provide us with the liquidity to execute our current restaurant expansion plans.

Based on what we know today, I will now provide some forward-looking commentary on sales and margins for the remainder of this year.

All of this commentary is subject to the risks and uncertainties associated with forward-looking statements as discussed in our filings with the SEC. Additionally, I'd like to restate the obvious, that in the economy as it's slowing and the changes to the consumer and the pressure to the consumer, with gas costs moving closer to $4.00 a gallon, food costs continuing to rise and so forth, we're kind of in uncharted territory here.

So again, what we're kind of laying out here is what we currently see in our current trends and what we know based on really taking out best educated guess to date.

In regards to sales and margins for the rest of this year, I think it's important to note that while we have many sales-building initiatives underway we do need to take into consideration the structural change in the local economies that have occurred and continue to occur in the Sacramento and Inland Empire areas of California and the Phoenix, Arizona area. These areas continue to have good overall population densities to allow us to achieve our sales targets and return hurdles in our restaurants there.

However, from a comparable restaurant sales perspective, we should not be looking for our 13 restaurants in these particular trade areas to be positive contributors to our consolidated comparable sales metric in the near future. At some point they will settle into their new run rate sales levels and will no longer be a negative factor in our consolidated comp sales metric. But we just really don't know when that point will come.

Specifically, in the second quarter, we'll be going up against some of our toughest comparisons for all of last year. In the second quarter of 2007 we had comparable restaurant sales increases of 7.5%. Therefore, this tough comparison coupled with the drag from the aforementioned restaurants in the Sacramento and Inland Empire areas of California and Phoenix, Arizona and just really the overall economic slowdown and pressures on the consumer will make it very difficult to drive meaningful comparable restaurant sales.

As such, I would tend to expect our consolidated comparable restaurant sales in the second quarter to trend generally in line with the first quarter. We believe that our prospects to improve consolidated comparable sales remain better during the second half of this year when the majority of our sales-driving initiatives are fully implemented and really being executed at what we would call the gold standard level.

Based on our upcoming opening schedule, we will only be opening 1 restaurant in California during the first six months of this year. Our California openings tend to generate a higher absolute sales volume than our non-California openings. I would therefore anticipate our average weekly sales to be about 1.0 to 2.0% below our comparable restaurant sales figures for the second quarter, which is really pretty much in line with the first quarter of this year. For the second half, I would anticipate our average weekly sales and comp sales to be more in line, since we'll be opening 4 restaurants in California.

In regards to margins, our restaurant operators did an excellent job managing the areas within their control. However, as we mentioned on our fourth quarter conference call, we anticipated needing about a 4.0% increase in comparable restaurant sales this year to match our four wall restaurant economics that we achieved in 2007. While our gross menu pricing will likely be close to our originally expected target of 4.0% for 2008, our guest traffic in our comparable restaurants is expected to be negative this year, which will have the affect of de-leveraging certain fixed costs in our business model.

Based on our current commodities contracts and the productivity from the theoretical food cost system, which was implemented in the fourth quarter of 2007, we have been able to maintain our cost of sales in the mid-to-low 25% range. Currently, the majority of our commodities are under contract, except for cheese, which is about 9.0% of our cost of sales. We also have are sandwich bread contract, which is expiring this June and sandwich bread is currently about 4.0 to 5.0% of our cost of sales.

However, based really on the current and expected cost trends, I still anticipate our cost of sales to remain in that mid-to-low 25% range. The contracts that we do have in place are really for 2008 and our supply chain group is currently reviewing the commodities market and our contracts, getting ready for 2009.

In regards to labor, we currently anticipate that labor that will likely be in the low 35% range for 2008. Included in this labor number will be about 20 BPs of non-cash equity compensation for our gold standard stock ownership plan. We expect our operating occupancy costs, based on our current revenue expectations, to be in the low-to-mid 20% range.

As Jerry mentioned, we have pretty much completed the requisite investments necessary for our infrastructure as we build a national restaurant growth Company. Therefore, we should continue to see leverage in G&A this year, based largely on the incremental sales expected to be contributed from new restaurant openings.

In this first quarter our G&A increased about 18%, compared to the first quarter of 2007 on absolute dollars and I anticipate that this percentage increase will come down slightly throughout the year and end up in the mid-teens for the full year. For those of you preparing your models, I would anticipate a little bit more margin pressure in the first half, but really in the second quarter and then sequentially improving 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 and some expected benefit from our sales-building initiatives.

We currently expect opening costs to be around $500,000 per restaurant. However, we will incur pre-opening non-cash rent as much as five or six months before our restaurant opens and therefore pre-opening costs for any quarter may not be indicative of the number of restaurants that open in the quarter.

For the second quarter, we expect to open 4 restaurants, plus we expect non-cash standard rent for as many as 9 restaurants to be opened later in the year. I estimate that our pre-opening costs could be as much as $2.8 million in the second quarter.

Our expected income tax rate for 2008 should be in the 30 to 31% range, due primarily from the tax-exempt interest expected to be received from our investments. And we continue to expect that diluted shares outstanding for 2008 will likely be in the $27 million range.

With that, and I know there was a lot there, I'll turn it back over to Jerry.

Hey, thanks for that great review, Greg, and I'm just going to have one more comment here and then we'll open it up for questions. And we'll stay on the line as long as we need to today to answer all of your questions, because we've taken a lot of time during the call today in our prepared remarks to really give you a solid update on our business.

And again, just to wrap it up, you know in a tough economy consumer spending is under pressure, the prime costs of business are continuing to be under pressure and we certainly haven't felt the bottom of this economic cycle yet. But having said all of that, the more successful casual dining concepts are going to be the ones that really work hard to protect their overall approachability for all dining occasions and continue to offer great quality, great differentiation and overall value to the consumer.

And these have always been the long-term hallmarks of the BJ's concept and we're going to do everything that we can to protect and enhance those longer-term advantages and keep an eye on the long-term development of our business. While at the same time, we're going to do what we can to prudently respond to all of these pressures here with respect to the economy and the consumer.

We're not at the bottom of this economic cycle yet, in our view. We don't know when the consumer in general is going to start feeling better. So the only thing that we're going to commit to do is to do our absolute best to control what we can control and continue to do our best to drive sales. We've got some very good initiatives underway. We're going to do our best to become even more productive and efficient and frankly, we want to do our best to outperform our peers.

So -- and remember, our restaurant pipeline is in excellent shape for 2008 at this point and we've got a solid lineup of outstanding sites for this year and our 2009 pipeline is coming together very solidly at this point. We've got a comprehensive strategic and tactical plan in place, so now our challenge is to correctly and consistently execute out plan and keep steadily gaining market share.

So that concludes our remarks and now, at this time, we'll open up the call for questions. So, Joshua, take it from here.

Thank you. (OPERATOR INSTRUCTIONS) Our first question comes from the line of Steve West, Stifel, Nicolaus. Please go ahead.

Hey guys, just a couple quick questions on the sales boosting initiatives you're doing. We've seen some of these in other casual dining concepts. Some do well, some not so well. One of the things I'm really curious about is have you tested these initiatives maybe in some of the Inland Empire stores and if so, did you see any decent results to kind of help offset some of the negative trends you're seeing there? And then I got kind of a follow-up to that as well, please.

Sure. This is Jerry, good to hear from you, Steve. With respect to the initiatives, the one that we've tested extensively in Sacramento and the Inland Empire would be our lunch initiative. We already have some lunch specials, but frankly, in this environment, I'm not -- and I think we all believe that they're probably not as impactful in terms of communicating great value and great quality for the consumer today.

So we have tested a new lineup of lunch specials. Whenever you get into a lunch test or any type of test in our business, as you know, you're trying to balance turn and earn, because we're in a turn and earn business. So to the extent that your going to give up a little bit of the earn per guest you've got to achieve at least an equal percentage increase in the turn of guests in order to break even. And we've seen in our lunch tests that we have achieved an increase in turn that exceeds the decrease in earn on that particular metric. And so we're very, very excited about that.

There's some noise in the numbers, as we compare our numbers in the test to a control group and to the base performance of the restaurant. But nevertheless there's enough information at hand to be able to give us confidence to move forward and take this expanded lunch test out to another 20 or 21 restaurants, particularly those that are suffering the most at lunch.

We have a number of restaurants outside of California where their lunch business is very, very steady and I think that we need to really introduce a new lunch test there, a new lunch program in those restaurants. But at this time, we'll keep our powder dry in that respect.

As far as the other initiatives, we have -- by the end of this month we'll complete the rollout of delivery services to nearly every restaurant where we can offer that. Most of the incremental delivery service that we're offering will be provided by third parties. We're always a little nervous. Casual dining restaurant companies are always nervous about using third party delivery services to correctly handle and process the business.

However, over the past three or four years there have been a few of these delivery services that have really passed the test of time and are really great executors. So we have that in the process of being rolled out to as many restaurants as we possibly can get it done here by the end of this month.

As far as the online ordering, we are testing that in a handful of restaurants. We will gradually increase that rollout. We haven't really promoted it yet to the consumer in a very big way, other than within the restaurant. And as soon as we get it out and get through the initial operational rollout considerations, then it is our intention to promote through prep media the availability of online ordering and curbside cashiering at BJ's. So we're excited about that.

We have also completed the internal rollout of call-ahead seating, which interfaces well into our automated table management system, which most mass market casual dining companies do not have that capability. And we're in the process of upgrading our phone systems in every restaurant and once we're completed with that then we will also externally promote call-ahead seating to provide our guests with a much better service, I think, than you typically get during peak meal periods at most of the mass market casual dining restaurants.

So that's the best summary I think that we can give you at this point.

Okay. So, on the curbside, can you kind of tell me are you still looking at around 5.0% of sales and then for the delivery, with third party, is that being, I guess, an extra charge on there to the consumer via the third party? Or are you kind of out of that transaction piece? How does that -- I guess that transaction worked then?

A couple things there, Steve.

A couple of things there, Steve, in regards to our off premise. And we look at it as total off premise, meaning people coming and taking it out, as well as the delivery.

Okay.

It's still in that kind of 4.0 to 5.0% range and again, we think over time we can double that number. In regards to the delivery, that additional charge, if there is any additional charge, really comes from the third party delivery service. It's not something that we collect here at BJ's. So it just depends on the individual delivery service.

Now what we've noticed is usually those third party delivery services really cater to the corporate consumer, to the businesses in the area and as a result, are really delivering to maybe like an office of seven or eight people at one time versus kind of a onesie-twosies that maybe we do in some of our older restaurants.

Okay, great. I was just looking maybe if that was just kind of a system-wide thing, so I think I understand it more. Thank you very much.

Okay, Steve. Thank you.

Jeff Farmer, Jefferies & Co.

Hey guys, how are you?

Good, Jeff.

Greg, I'm just hoping you can do some of the math for me here. Can you sort of cut to the chase on the full year restaurant level margin and the EBIT margins for us, your (inaudible - multiple speakers) executions?

I really can't. I mean, I try to give you guys enough pieces to kind of go through those numbers. I think what we saw here in the first quarter is probably going to be fairly indicative of what we're going to see through most of the year.

Okay, on both, though, well I'm assuming you're just referring to the EBIT margin?

Pretty much, yes. But I mean, we've talked about specifically where the cost of sales is going to be. It's going to be probably that low-to-mid- 25% range. Could I tell you it's going to be 25% too every single quarter? I don't know. Labor, while it's in the mid-35% range, our WSA goes up a little bit here in Q2, just because of seasonality starts to drop a little bit in Q3. As you hit September, it goes, I think flat into the fourth quarter and that'll play into that a little bit.

Okay.

But again, I think the first quarter is somewhat indicative of where maybe margins are from most of this year.

Okay and then sort of shifting gears on you, you referenced the 13 and 15 units in your comp base that have been impacted by the credit crunch. But what about the 19 units that are not in the comp base? Do you see any of those being potentially impacted?

I think on those other restaurants, you've got your general pushes and pulls. You've got some that are doing really well. You've got others that might be kind of flattish or up, flat on guest traffic, seeing menu pricing coming through there. I wouldn't -- I guess what we're saying is those 13 aren't just the only 13 ones that are negative, from that standpoint. But the other ones that are negative aren't anything that we're too concerned about. They might just be competitive intrusion in the area, maybe a little weather plays into it or something else.

Okay and then in terms of what you're willing to tell us on the intra-quarter same-store sales trends in the first quarter, considering that I think you were pointing to roughly a 1.0% comp for the full quarter, just changes to it that things got a little bit worse as we went from January to March?

No. They were actually pretty flat.

Traffic was pretty steady.

Pretty steady traffic, (inaudible - multiple speakers)

Okay and then it sounds like it's been study as we've rolled into April then?

You know our results, April to date, are representative of the first quarter's consolidated results. We've only got, what, three weeks in for the first quarter?

Right.

And our consolidated comparable sales metric is still flattish and we still see the same dispersion within the different regions. We still see the Inland Empire and parts of California, Phoenix under pressure. We still see Texas very, very strong.

Okay and then a final question for me. I think it was the third quarter was the first time you actually referenced the Inland Empire units, so I'm assuming that that was actually the first units to break down, from a topline perspective.

That's correct.

With that have you seen any stabilization there? I mean, understanding that you don't have a perfect sort of crystal ball here, but in your estimation is sort of long-term, at least, Greg, California residents, do you think we're finding some stability at least on a two-year same-store sales basis?

I wish I could say that we're beginning to feel bottom there. But we're not and I think until we hit this summer and begin to roll over some of those initial pressures that we began to feel, again, in the third quarter last year, we'll certainly get a better sense of it.

But if you drive those trade areas, if you're out there, and not just in our restaurants but in any casual dining restaurants, there have been, as Greg mentioned earlier, some structural changes in the economics of these trade areas. And every week out here, in the California papers anyway, they publish all of the subprime statistics and all of the foreclosure rates and all the housing price declines and its just report after report of negative news in that particular respect.

And I think until that negative news begins to feel bottom, I think our sales are probably going to be under some continuing pressure. Although we're hopeful it'll be of at (inaudible - background noise) rate, particularly as we move into the third quarter and bump up against those weaker comparisons.

Okay, thank you, guys.

Okay.

Tony Brenner, Roth Capital Partners.

Thank you.

Hey, Tony.

Hey, Tony.

Jerry, it sounds like you should walk away from your car.

Well, you know I'm not driving some big massive four wheel drive car that's got a 35-gallon gas tank, believe me. For a guy that grew up in South Texas in the '60s and bought his first tank of gas for $0.20 a gallon back in 1966, when you hit $4.00 it got my attention.

I have two questions. One was sort of touched on but not exactly by a previous caller. Of the 19 stores that are not in the comp base and the 13 to be added this year, which was, I guess, a total of 32, how many of those 32 stores are in the Inland Empire, Sacramento and Phoenix markets?

Just looking quickly, as far as our new restaurant development for this year, of the 15 restaurants that we would expect to open there is only 1 that is scheduled to open in a suburb of Phoenix, in the Glendale market. Is that right, Greg?

Yes.

And that's under construction. We're highly confident about that particular opening. It's a densely populated trade area. We've got an outstanding developer there, backing us up. So we feel very, very strong there. I believe that is the only one that would fall into that classification for the 15 that we're opening this year.

Right and I think, Tony, if you're asking as we're looking down the road what's coming into our comp base, we probably have, to make the comp base, probably about 3 to 4 restaurants that are kind of in the Sacramento, Inland Empire that'll be dropping into the comp base later this year at different times.

Looking at those restaurants, though, again, like I think we've said, I mean, these are great restaurants for us to have, $6.0 million-plus. In fact, Palmdale, which will probably drop in really towards the end of 2008, set an all-time record for us, opening up. So it was close to $190,000 a week in sales. Good restaurants in there, but they will be a little bit -- they will have some impact on comp sales, I guess, as they come into that base.

But I think the point, though, is that those particular restaurants represent a disproportionate percentage of our total additions coming into the comp base than what's currently represented by the restaurants that are having the most struggles in those particular markets.

Disproportionately low you mean?

Yes, disproportionately low, yes. I mean, when you look at 15 that we're opening this your and 19 or so to come into the comp base, when you total all of those up I think we, what, said about half a dozen or so that probably fall into that category.

Modesto is not considered close to the Sacramento market or?

I think it is it's own separate trade area, don't you, Greg?

Yes. It's a separate trade area. It's not as impacted as some of the suburbs of Sacramento.

And frankly, we have a restaurant that we opened in Stockton last year and I know Stockton has gotten a lot of national press on being one of the highest cities or trade areas in the country, with the highest numbers of foreclosures. And yet our average sales in Stockton are still holding at about $120,000 a week. So we're -- again, once you get outside of some of these other areas, you see some different pressures.

Okay. So my second question relates to your financial condition. I understand that you've arranged for an expanded bank credit line to take you over the near-term. But I'm wondering, given the illiquidity of the cash on your balance sheet whether you might consider accelerating the timing of obtaining more permanent long-term financing.

Yes, it's a good question. Honestly, I don't think we have any answer for that right now. We went ahead and increased the line of credit up to $45 million. From what we understand in regards the auction rate securities market they're expecting obviously that to fall out somewhere like here in the next 12 months. We'll have to see how that plays out. We feel based, at least this year and through 2009, even with just a line of credit, cash flow from operations, with the tenant improvement allowance that we're receiving from landlords that we've got more than enough capital at least for the next two years.

Going into 2010, we don't really know what to think at that time, but again, as you start thinking about our growth and the amount of restaurants we're building and increasing cash so that differential becomes pretty small. And it might just as well be easy just to continue to fund it through the line of credit until we kind of go through that hurdle point or that inflection point where we're cash flow neutral.

And I would just add to that that, as we've clearly commented in all of our filings and at our investment conferences, based on our current expansion plans, we are not yet self-financing our growth. So, Tony, to answer your question, at some point in the future where we need one more, I hate to use gas tank, here top off our gas tank to get us to that point, where we do become self-financing, I think the answer to that is probably yes.

When that'll occur and in what form that'll occur we really haven't decided. But I think, as Greg mentioned, when you add up our operating cash flow, our landlord construction contributions, which, quite frankly, going forward, we're able to secure a minimum of $1.0 million landlord construction contribution for the vast majority of our new restaurants.

We also have the cash and investments that we have on hand. We also have 4 restaurants where we own the underlying real estate fee simple and not only do we actually own that land, but those 4 restaurants have outstanding sales and cash flows. And those could be monetized in the 1031 market at a cap rate that I think could be very, very attractive to our Company.

So I think that we have several alternatives available to us and I think what we have to do is to watch the capital markets, watch our performance, be opportunistic where it makes the best sense for our stockholders. But in the interim here I think we can move forward and execute our expansion plan with great confidence with the resources that we have available.

Fair enough. Thank you very much.

Okay, Tony.

[Julie Welcher], Piper Jaffray;

Hi guys. Most of my questions have been answered, but I just have a couple quick ones here for you. First being the shift here that you stir into the quarter, did that have an affect on the same-store sales?

It did. I think we calculated it somewhere to be a little, about a half a percent or so in the comp sales that were split from Q1 to Q2.

Okay and can you talk a little bit more about the beverage program that you had mentioned as one of the initiatives?

Yes. Obviously we continue to evolve our handcrafted beer program and we do that in-house with our base set of beverages and our seasonal program and that represents still about 11% of our sales. The beverage program that we're continuing to evolve would be our non-alcoholic beverages and our wine and spirits programs.

And we have just engaged an outside, nationally recognized beverage consultant to provide us with data and resources and relationships with a lot of the vendor community out there so that we can bring our current non-alcoholic and alcoholic beverage programs up to a more contemporary positioning in the casual dining restaurant business.

I frankly think our current programs are okay, but we've been more of a follower than a leader in those programs and now that we've evolved our BJ's concept up to the full casual-plus level, I think we need to begin to show some more innovation, some more leadership in our wine and our spirits and in our non-alcoholic beverage programs. And we'll be in a position to begin testing some upgrades to those programs here before the end of the third quarter and depending on the results of those tests, obviously, I would expect that that would benefit our fiscal 2009 results.

Our wine and spirit sales represent about another 9.0% of our sales. Our non-alcoholic beverage sales are probably, I would guess, around 4.0 or 5.0% or our total sales. So you've got a good chunk of business there that really needs to be worked and frankly, we haven't worked it aggressively as our competitors have. So that's really our strategy there.

All right. Thank you very much. That's it for me.

Okay. Thank you.

Greg Ruedy, Stephens, Inc.

Good afternoon.

Good afternoon.

A question on the brewing contract, I guess, more specifically your cost of sales guidance. When I take a look at where you guided, we look at theoretical yield. You have another couple of quarters of help from that. You've got commodity inflation running a little bit below and if you take some price, I'm wondering why not -- why you wouldn't get maybe a little bit of leverage on that line, given you've got a brewing contract now in place?

Everything else being equal, we would have gotten leverage this year. But as with commodity costs for food, we've seen also significant pressures on the commodities required to produce handcrafted, high quality beer. When you look at the situation of barley and hops in America today, those relationships, those availability and costs of those commodities are pretty much under the same pressure as corn and wheat and rice and everything else out there.

Had those costs remained relatively flat with last year, we would have seen some leverage this year. But unfortunately, everything not being equal, we won't see that this year and again, if we can get some relief on those commodities going forward then we would expect to see a lower absolute production cost begin to manifest itself in our cost of sales beginning next year. But those markets for hop and barley, if you're as confused as I am about how the wheat markets work and the corn markets work and the rice markets work today, the barley and hops markets are even more confusing. But really, that's the best answer we can give you.

Okay. Shifting to the labor line, you came in below our expectation. I was just hoping for maybe some more color there. Is that better utilization at mature units at higher capacity or are you realizing efficiencies at new units a little bit quicker than normal? Can you give us some color there?

I would just say that our operators are beginning to utilize some of the tool sets that we've provided them over the past couple of years. They've overcome their learning curves and are beginning to really fine tune our execution with respect to labor productivity. And that's really what was really the desired outcome here of what we've all been working on.

As Greg mentioned earlier, our major labor productivity statistic that we use internally, we don't publish it. I think every company has its own labor productivity statistic. Most use guest per labor hour, but we kind of flip it at BJ's and we use labor hours per 100 guests. So that's something that you want to see decline to a certain point, over time, in your operations, but you don't want to get it too low, because then you're going to be interfering with great quality execution for our guests.

And frankly, we put a lot of visibility of this particular statistic in all of the different work groups, in each of our restaurants, in the hands of our operators. And in our business any time that you're able to shine a flashlight on a particular area of the business and show your operators and compare them to sister restaurants in terms of labor productivity between the different work groups in a restaurant, between restaurants in similarly situated guest counts and sales, it is amazing how that flashlight, that illumination can create some changes in behaviors in terms of labor scheduling at a lot of our restaurants.

So really, that's really what's happening here and I think that again, we always have room to improve our labor productivity going forward. Now we're never done. We never want our operators to think that they're done, but we have made a lot of progress in that respect, thanks to the system. Greg, is there anything else you want to add to that?

No. The only other comment that really, Greg, is that number also plays into how many restaurants get opened during a quarter and how many new restaurants you might have in your kind of space. And we opened 2 restaurants here in the first quarter, but because of Greg Lynds and his team to get all of our restaurants in 2007 open, really, in early November, those newer restaurants, again, they get really matured pretty quick. As they go into the first quarter there, you're only kind of set with 2 restaurants, possibly, that are going through learning curves.

So that's plays into it as well and its going to probably fluctuate a little bit more as we go into the rest of this year, just because of how the new restaurants play out.

That's very helpful. Thanks. Separately, on the development front, in the past you've mentioned that the strategy is kind of a one-third/one-third/one-third and given what you're experiencing in the California and Phoenix markets, do you revisit that for '09?

The answer is no, because of the particular trade areas that we're targeting in those particular states, Greg, and then projects that we're targeting. Greg, do you want to comment on that?

Yes. No, with our 15 restaurants that they're opening this year and our 20 to 25% capacity growth and the relationships that we have with our regional mall earners, we think we can continue with a third/a third/ a third strategy. And for example, the Modesto restaurant that was brought up, that's a (Maysrich)owned mall in a very dense populated area and that will continue to be our strategy as we move forward, to continue to leverage our relationships with the mall owners where we know the exact sale volumes of the retailers and the restaurants in the trade areas that we're going to enter.

And the other thing that I would add to that is that as we previously mentioned, our development strategy is targeting very densely populated, mature areas and mature projects. So as you looked at our lineup for this year, the ones that are going into California, for example, are going into Torrance, the Del Amo Fashion Center. We've been trying to get in. BJ's has been trying to get into that densely populated trade area forever. Thanks to our relationship with Simon Properties we're able to get in there now and boy, I'll tell you that is densely populated. The restaurants there get tremendous volumes.

Another one here in Southern California we're going to do would be Chula Vista. Again one of the more densely populated mature trade areas in the San Diego area and that's really the hallmark of our development planning going forward.

We don't have to go to the green areas and open new restaurants. Because we've been able to elevate BJ's and get it into this exclusive club, if you will, and become a preferred tenant with the major developers, as they continue to remodel and add to their mature projects and add lifestyle centers. We're on their list and that's exactly the sweet spot for BJ's and that's exactly what we contemplated as we evolved the concept. It's a tremendous competitive advantage for us versus a lot of the other restaurant concepts out there that are trying to grown.

Those are all my questions. Thank you, gentlemen.

Do we have any further questions?

Ladies and gentlemen, that does conclude our Q&A session. I will turn the conference back over to management for closing remarks.

Well, thank you very much. Thank you for being on our call. We'll be in our offices if you have any further questions. Thank you.

Ladies and gentlemen, that does conclude the BJ's Restaurants Inc. First Quarter 2008 results conference call. If you would like to listen to a replay of today's conference, please dial 303-590-3030 or 1-800-406-7325. The pass code is 3866823#. Once again, the pass code is 3866823 pound. We would like thank you for your participation. Have a pleasant day. You may now disconnect.