BJ's Restaurants Inc (BJRI) 2008 Q4 法說會逐字稿

Good afternoon. Welcome to the BJ's Restaurants fourth quarter 2008 fiscal results conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions). This conference is being recorded today, Thursday, February 12, 2009.

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

Thanks, operator, and hello, everybody. I am Jerry Deitchle with BJ's Restaurants, and welcome to our fourth quarter 2008 investor conference call, which we are also broadcasting live over the internet. And after the market closed today, we released our financial results for the fourth quarter of 2008 that ended on December 30, 2008, and if you haven't seen our press release yet today, you can see it on our website at www.bjsrestaurants.com.

Joining me on the call today is Greg Levin, our Executive VP and CFO, Greg Lynds, our Executive VP and Chief Development Officer, and Dianne Scott, our Director of Corporate Relations.

The agenda for our call today will be as follows. First I'll provide a brief business and operational overview for the fourth quarter and full year of 2008, and also briefly comment on our expansion plans and our key sales building initiatives for the coming year.

Then Greg Lynds will comment on the status of our new restaurant development pipeline, and then Greg Levin will wrap up our comments with respect to his analysis of our consolidated income statement, our summary balance sheet and our liquidity position as of the end of the fourth quarter. And after that we will be happy to take your questions.

We will get our call started right after Dianne provides our standard cautionary disclosure with respect to forward looking statements. Dianne?

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 and 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 12, 2009. 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 on to the details of our conference call today.

In spite of some of the toughest operating conditions for retail and restaurant companies that I have seen in my 35 year business career, our leadership team here at BJ's was very, very pleased that our business was able to maintain its forward momentum during the fourth quarter and full year of 2008, and continue to build additional market share in the estimated $90 billion casual dining segment of the restaurant industry.

We believe that our restaurant operators, our brewery operators and our infrastructure support team did an outstanding job of moving BJ's forward during 2008, despite the difficult operating environment. And we always want to thank all of our colleagues at the Company for all of their hard work and their contributions to our successful growth this past year.

As we all know, most consumer businesses continue to feel the impact of the current recession. While our business is certainly not immune to the pressures of the recession, we do believe that BJ's continues to perform relatively well when compared to most of our similarly situated casual dining competitors in terms of size, scope of operations, available resources and geographical concentration.

Our fundamental shorter term objective at BJ's is to keep outworking and outperforming most of our peers during these tough times, and simultaneously continue to prudently invest in the overall quality and differentiation of the BJ's concept, as well as continue to invest in the strength of our restaurant support and growth infrastructure. But by doing so, we believe that BJ's can be a high quality, early recovery opportunity for even more consumers and investors when the current recession cycle eventually begins to bottom out.

Moving to our financial results for the fourth quarter of 2008 when compared to the same quarter last year, our total revenues increased about 16.5% to $99.3 million. Our comparable restaurant sales decreased by only 0.7% during the fourth quarter, which we believe ranked among the better performances on that metric in the casual dining segment during the quarter. Our net income and diluted net income per share for the fourth quarter were $2.3 million and $0.08 per share, respectively.

As we previously announced in our January 8 press release earlier this year, our fourth quarter results include $2.1 million of free cash charges that were related to a couple of items.

First, accrued compensation and related benefits for the departure of our two co-founders last December, as well as estimated costs to settle two California employment practices lawsuits that have been outstanding since 2004 and 2005. We also incurred a pre-tax charge of about $500,000 related to asset disposals in connection with selective restaurant facility image enhancements and upgrades during the quarter.

When excluding these $2.6 million of pre-tax charges in total and their related tax effects, we estimate that our fourth quarter 2008 net income and diluted net income per share would have been approximately $3.4 million and $0.13 per share, respectively. Now these are non-GAAP financial measurements, so please refer to the detailed disclosure with respect to the reconciliation of non-GAAP financial measurements in our press release today.

On a full year basis, compared to fiscal 2007, our total revenues for fiscal 2008 were up about 18.3% to $374.1 million. Our comparable restaurant sales decreased only 0.3%, which we believe was one of the stronger performances on that metric in casual dining this past year. Our net income and diluted net income per share for fiscal 2008 were $10.3 million and $0.39 per share, respectively.

In addition to the $2.6 million of fourth quarter pre-tax charges that I referred to earlier, there were other pre-tax charges totaling about $800,000, related to hurricane losses and asset disposals that were recorded in earlier quarters during fiscal 2008.

So, when excluding all of those pre-tax charges, $3.4 million in total and the related tax effects, we estimate that our fiscal 2008 net income and diluted net income per share would have been about $12.4 million and $0.47 per share, respectively. Again, these are non-GAAP financial measurements, so please refer to the non-GAAP disclosure in our press release today. A little later on our call today, Greg Levin, our CFO, will provide some additional detail on our quarterly and full year results.

Our leadership team was also very pleased at our comparable restaurant sales for the fourth quarter, and also for the full year of 2008 continue to outperform the Knapp-Track benchmark for casual dining at comparable restaurant sales.

In particular, after considering the slowing national economy and our significant presence in California, Arizona and Florida, which are three states which have been more negatively impacted to date by the slowing economy and the housing downturn, and where 42 of our 59 comparable restaurants for the fourth quarter were located, we believe that BJ's ability to retain over 99% of our comparable sales volumes during both the fourth quarter and the full year of 2008 is a pretty strong testimonial to the continuing popularity, the relevancy, the value of the BJ's restaurant concept, coupled with our steadily improving ability to correctly and consistently execute within the four walls of the restaurant.

And while we are on the subject of our comparable restaurant sales, for the first seven weeks of the first quarter of fiscal 2009, the current quarter that we are operating in right now, our comparable sales comparison is slightly positive compared to the same period in the first quarter last year, which is encouraging.

However, our weekly sales results continue to be quite choppy, and as a result continue to make it very difficult for us to predict our future sales with a high degree of accuracy. As was the case for both the fourth quarter and the full fiscal year of 2008, our estimated guest traffic counts continue to compare negatively and we don't expect much if any relief from that pressure in general during the rest of 2009, in light of the weak economy in general.

We mentioned on our last couple of quarterly conference calls and we are going to do it again on this call, that we continue to advise analysts and investors to err on the conservative side in their short term comparable sales expectations. In turn, we are going to do our very, very best to drive comparable sales through effective operational execution and the effective deployment of our limited media marketing resources. Again, Greg Levin will provide some additional detail on our comparable sales results later in the call today.

We also commented on our last couple of conference calls that our leadership team has never felt better about the factors in BJ's business that we can control. We still feel that way. We believe that our restaurant operators did a reasonably good job of managing our food waste, our labor productivity and other controllable costs and expenses during the fourth quarter, although we still have opportunities to improve on those metrics in many of our restaurants.

Additionally, we believe that our infrastructure support and G&A expenses were also well controlled during the fourth quarter. As we have mentioned in past calls, we are going to continue to make incremental G&A investments in our restaurant manager recruiting, training, our talent development, our recognition and retention programs going forward, since high quality restaurant management talent is the lifeblood of our restaurant business model and the most critical resource that we require for our future expansion. We can only grow our restaurant base as fast as we can recruit, train, develop and retain the very best restaurant managers available.

We also remain very confident in BJ's longer term ability to continue to steadily build market share in the casual dining segment. We believe that our current estimated share of the casual dining market measured in terms of sales is less than one half of 1%. We have only got 82 restaurants opened today, in only 13 states, so we believe that the vast majority or our new restaurant growth remains ahead of us.

Compared to many of the thousands of very mature mass market chain restaurants that currently compete in the casual dining segment, we continue to believe that BJ's has stronger levels of quality, differentiation, energy, relevance and approachability, at about the same average guest check. And as we move forward throughout 2009, we intend to continue to leverage these competitive advantages as we continue to execute our national expansion plans.

So internally, while we have to prudently react to the current economic slowdown in terms of certain elements of our capital execution, we are going to always keep an eye focused on BJ's longer term ability and opportunity to continue building market share by A, protecting the competitiveness of our restaurant concept, and B, by also continuing to invest in the overall capabilities of our growth and support infrastructure. By doing so, BJ's should be even better positioned when the current economic cycle eventually begins to turn around.

At BJ's, we've always had a sales building mentality first and foremost. While the current recession certainly presents some definite challenges in retaining your sales, much less building sales, at BJ's our fundamental operational mind-set is to do our best to overwhelm events instead of letting events overwhelm us.

It's important to note that our comp sales metrics are for both the fourth quarter and all of last year, are stronger than the comparable sales metrics reported to date by other casual dining companies that also have an extensive California, Arizona, Florida geographical concentration like BJ's does.

And the other comment we'd like to share with you is that our ability to retain over 99% of our comparable sales last year just didn't happen by chance. It was a collective result of a lot of hard work to develop, test and roll out several sales building initiatives, including among other things, new signature menu items, a new value oriented lunch program, an expanded happy hour program, new call ahead seating service, new online ordering service, new curb side cashiering service, new third party delivery services.

We also made considerable progress during this past year in completing the full evolution of the BJ's concept to a more complete casual-plus competitive positioning, which also makes a difference in our current and ultimate sales potential.

Moving forward into 2009, we plan to execute additional sales building initiatives that include but aren't limited to, the introduction of additional new signature menu items, the roll out of upgraded wine and spirits offerings, the roll out of more contemporary non-alcoholic beverage offerings, a more effective seasonal beer program. An upgraded kids program, a catering program test, a central reservation system test for large parties that want to use our restaurants, and a further expansion of our current test which has been very successful to date to offer several more craft beers in addition to our proprietary beers, which is intended to further advance BJ's as the craft beer expert in casual dining.

We will also complete our testing of a high tech pizza oven that has the potential to speed up our cook times and reduce some energy cost, and we are also going to test mode efficient table layouts and seating layouts that have the potential to improve our overall effective seating capacity, particularly during peak meal periods. So we have a long list of sales building initiatives that we are going to be working on in 2009.

We know that the current recession is going to continue to put pressure on the top lines of most consumer businesses and in particular, most casual dining restaurants, but we also know that some are going to perform better than others, and that continues to be the message that we send internally to our team. We are going to outwork and we are going to outperform our peers.

We have also said to our team, let's not let a good recession go to waste. We believe the recession can ultimately benefit, better position and better finance restaurant concepts in companies like BJ's, if we continue to have the courage to prudently invest and strengthen our business, while some of our competitors are either unwilling or unable to do that.

We are already beginning to see some benefits from the recession. For example, our annualized restaurant manager turnover rate is currently running less than 15% compared to about 25% this time last year, and the number and quality of restaurant management applicants continues to steadily improve for us. Last year we received over 10,000 applications for management positions, and we hired 140 new managers from that applicant pool.

Additionally, we currently plan to hire about 175 managers, all of which should have even better qualifications and experience. Better tenured and higher quality restaurant management teams generally produce higher quality results.

We also expect to see lower construction costs for our planned new restaurants as we move throughout the coming year. About half of the total restaurant construction cost involves labor costs, and we expect to see some reductions in that for the construction projects that we'll initiate here for the restaurants that will open towards the end of this year.

Additionally, when taking all of our restaurant trade areas as a whole, we have noticed more casual dining restaurant closings than openings in general during the past six months. Particularly in several of our California trade areas, thus thinning out some of the competition for the consumers casual dining dollar.

While the current recession is probably taking its toll on some other casual dining restaurant companies in terms of damaging their vital organs so to speak, we believe that not only are BJ's vital organs in great shape today, they're gradually becoming stronger over time. When we talk about vital organs, we are talking about the overall quality and differentiation of our restaurants, the overall approachability and relevance of our restaurants for the consumer, and most importantly the quality and spirit of the men and women that run our restaurants.

When restaurant companies stop opening new restaurants or start closing restaurants or experience larger than normal comp sales declines or are forced to adopt a save your way to success strategy in order to address debt service pressures and so forth, the collective impact of those factors on restaurant manager morale can be pretty severe and that will also reflect ultimately in the quality of their operational execution.

So our fundamental strategy here at BJ's remains pretty straightforward, and we are going to continue to strengthen our vital organs and continue to position BJ's to take additional market share going forward.

Moving to our new restaurant development plan, during 2008 we successfully opened 15 new restaurants and we achieved our targeted growth in total restaurant operating weeks for the year. Our new restaurant development program was very well executed during the year, and we are pleased to report that notwithstanding the impacts of the recession, the initial sales volumes for our 15 new restaurants continue to meet our exceed our current expectations in the aggregate.

Obviously our primary opportunity to increase market share is to keep opening more new restaurants, with only 82 restaurants open today in 13 states, we continue to believe there's room for at least 300 BJ's restaurants of various sizes and site types domestically. Having said that, we are going to maintain the discipline to execute our growth plan in a very careful and controlled manner, and only with the right operational talent, support infrastructure and tool sets in place.

As we noted in our press release, on January 8, earlier this year after carefully considering the pressures of the current recession and the related reduction in the availability of acceptable locations in both new and remodel retail projects in general across the country, we currently expect to open 9 to 11 new restaurants during 2009. Coupled with the carry over impact of partial year openings last year, we currently expect to achieve a 15% to 16% increase in total operating weeks during the upcoming year, which we believe is a rate of expansion that is both respectable and prudent in light of the current operating environment.

Now I will turn the call over to Greg Lynds, our Chief Development Officer, who will give you an update on our new restaurant pipeline. Greg, go ahead.

Thanks, Jerry. Good afternoon, everyone. As Jerry just mentioned, our 2008 new restaurant development growth targets were achieved. For 2008, we opened 15 successful new restaurants, and achieved our targeted growth in total restaurant operating weeks for the year.

In the fourth quarter we opened three restaurants. We opened Tacoma, Washington, on October 13, and Chula Vista, California, and Newark, California, both opened on November 10.

Geographically during 2008 we opened five restaurants in our home court state of California, three restaurants in our Texas and Arizona regions. We opened our first restaurant in the state of Washington in the cities of Tacoma and Tukwila.

We also opened our first restaurant in the state of Louisiana, in Baton Rouge, this is on a freestanding out parcel pad within the new lifestyle wing of the Mall of Louisiana.

Additionally, we continue to in-fill the LaHaya Valley region of Florida, then the Ohio Valley region we opened restaurants in Cincinnati, Louisville and Indianapolis. And our fourth restaurant in the state of Florida open in Kissimmee, a suburb of Orlando.

Now with a strong base of restaurants from coast to coast, and we are well positioned to build our brand in our core western states, Texas, the Ohio Valley, Florida and ultimately other strategic east coast markets as time goes on.

Looking forward into 2009 and 2010, we believe the softening commercial real estate market represents an even better opportunity for BJ's to continue securing prime locations, favorable to these economics. Our new restaurant development strategy continues to focus on acquiring AAA quality locations, mature densely populated trade areas with premiere (inaudible) to create maximum synergy in terms of guest traffic and our brand positioning.

For the last several months, our real estate team completed a detailed evaluation of potential restaurant sites available in our targeted trade areas. Based on this evaluation and taking into account the slowdown in retail development, and as we announced earlier this year, we currently expect to open 9 to 11 restaurants during 2009.

As of this date, we plan to open as many as two restaurants during the first quarter. We have no planned openings in the second quarter, and as many as four to five restaurants in the third quarter, and as many as three to four restaurants in the fourth quarter. All of our potential 2008 openings have been secured with signed leases and letters of intent, and four of those restaurants are already under construction.

As we stated before, it's difficult to precisely predict the actual timing of our 2009 restaurant openings. There are many factors that are outside of our control, including the weather, landlord deliveries, contractor delays and certain approvals needed from municipalities. Again, our quarterly opening schedule can fluctuate due to many factors, and we'll keep everyone advised of any future changes.

As indicated in the past, our development plan for the next three years or so calls for one third of our new restaurants to be built in California, one third of our new restaurants in western states outside of California, and a third of our new restaurants on east coast or new markets. This continues to be our long term geographic development focus.

In 2009 however, we plan to open as many as eight of our new restaurants in the states of California and Texas, where we already have a good presence and where our concept is still under-penetrated. This will allow us to even better leverage our strong brand position, our consumer awareness, our supply chain infrastructure and field supervision.

In addition to these eight restaurants, we are currently under construction in Henderson, Nevada, and Gainesville, Florida. Both restaurants are projected to open in the first quarter and are located within mature densely populated sub-markets with no co-tenancy or development issues.

Overall, the 2009 and 2010 development pipeline remains in excellent shape, and we continue to be very pleased with the quality of the new sites in our pipeline. Stated earlier, our team views the current economic issues surrounding retail and restaurant development, is the time to capitalize on securing these prime sites. Our team will remain disciplined in our approach to site selection and lease economics, so that our new restaurants will be well positioned to take market share in each designated trade area.

And in the design and construction area, our team continues to focus on delivering restaurants with a non-chain image and ambience. As Jerry mentioned, we are also working on more efficient seating and kitchen layouts this year to improve the overall productivity of our restaurants.

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 brand broad approachability of the BJ's brand. In 2009, this means opening our new restaurants in AAA locations within dense, high sales volume trade areas, and in delivering gold standard experience to our guests.

Our team is ready and I am confident BJ's should have many years of solid new restaurant growth to come. Jerry, back to you.

Thanks, Greg. We continue to believe that BJ's four wall economics are very sound. They support a continued steady pace of new restaurant expansion.

Now the hallmark of our development program, as Greg mentioned, has always been AAA quality locations in mature, densely populated trade areas with premiere co-tenants that create maximum consumer synergy. We strongly believe that delivering a high quality ROI on each of our new restaurants serves our long term interest better than opening a bunch of new restaurants just for the sake of maintaining a certain growth rate, particularly during a recession.

There's certainly not any lack of sites in general to support our longer term growth, but there are less high quality sites available in the trade areas where we want to develop during the next couple of years, as Greg outlined, that will best leverage our supply chain and our field supervision infrastructure.

So, if we have to choose between quality and quantity in a restaurant expansion plan during a recession, we will always choose quality. We can only grow as much as the operating environment will allow, and it's important to grow with quality because that facilitates dependability and predictability which are two pretty important considerations for investing in restaurants.

Additionally, based on our current plans and expectations, we should be able to finance our new restaurant expansion, and in fact our entire capital expenditure plan for the upcoming year, primarily with internally generated cash from operations and committed landlord construction contributions, and we believe that is a very favorable position to be in.

Now I will turn the call over to Greg Levin, our CFO, for his comments on the quarter. Greg?

Thanks, Jerry. I apologize to everyone ahead of time. I am fighting a cold and a cough, I will do my best to get through these prepared remarks without coughing in your ear too much.

As Jerry previously noted, our total revenues for BJ's fourth quarter of 2008 increased to 16.5% to approximately $99.3 million from $85.2 million in the prior year's comparable quarter. The increase is a result of approximately 20.5% more operating weeks, offset by a 3.4% decrease in our weekly sales average. The operating week increase is due to the 15 new restaurants that we opened this year, and the full quarter of operating weeks from the four restaurants we opened in the fourth quarter of last year.

As Jerry mentioned, our aggregate comparable restaurant sales for the fourth quarter decreased approximately 0.7%, which is pretty impressive since not only did Halloween fall on a Friday in the fourth quarter, but we also lost New Year's Eve and Day which slipped into the first quarter of 2009. As Jerry mentioned, the concentration of restaurants that we had here in California, Arizona and Florida.

While we do not give out monthly comparable restaurant sales, I would like to note that normalizing for the shift in the holidays, our comparable restaurant sales within the fourth quarter were fairly consistent from week to week.

We did notice a decrease in our large party business, primarily due to the size of the parties being smaller than in previous years and really not due to the actual number of reservations we take. Additionally, those smaller parties tended to choose one of our lower price buffet options and ordered less alcohol than they have in the past.

As we have previously mentioned, the softness in our overall comparable restaurant sales is primarily isolated to the Sacramento, central California region, the Inman Empire areas of California and the Phoenix, Arizona, market. These were regions of high growth over the last several years, and the housing meltdown and related slowdown in overall construction activity has taken their toll on these local economies. And we do see same sales trends from many of our other casual dining competitors in those markets.

As we stated before, we have 10 restaurants in the Sacramento, central California region, and the Inman Empire areas of California that were in our comparable restaurant base beginning in the first quarter of 2008. These 10 restaurants in the first quarter of 2008 had comparable restaurant sales decreases in the 6% range. In the second and third quarters, these same restaurants had comparable restaurant sales decreases in the 5% range.

In this past fourth quarter, those same restaurants had a comparable restaurant sales decrease in the mid 2% range. Additionally, these restaurants continue to generate weekly sales averages in excess of $115,000 a week, which at those sales levels these restaurants well exceed our return on investment targets.

In addition to the improvement in our comparable restaurant sales in the Sacramento and Inland Empire areas of California, our Phoenix, Arizona, restaurants also saw improvement in the fourth quarter. These three restaurants had comparable restaurant sales decreases in the 7% to 8% range in Q1, in the 6% range in Q2 and in the 5% range in Q3 of 2008.

In the fourth quarter, these three restaurants had comparable restaurant sales decreases just below 4%.

During the fourth quarter, our estimated menu price was a little over 4%, and I'll give you some comment on our menu pricing a little later in my formal remarks here.

Moving on to the, well actually before I move onto the middle of the P&L, I do want to elaborate on our quarterly comparison. As Jerry noted, in this quarter compared to the same quarter last year, we recorded a $2.1 million charge related to accrued compensation and related benefits from the December, 2008 departure of the Company's chief co-founders, and an estimated cost to settle two California point of practice lawsuits that have been outstanding since 2004 and 2005.

Additionally, we incurred a pre-tax charge of approximately $500,000 related to the disposal of certain assets in connection with our ongoing facility image enhancements and upgrades. These charges resulted in reducing our effective annual income tax rate from approximately 25% to approximately 21%. As a result, we had over expensed our taxes through the first three quarters of 2008. This resulted in a net tax benefit in the fourth quarter of approximately $386,000 to achieve the 21% annual effective tax rate.

If we exclude the $2.1 million of charges for the accrued compensation and legal settlement costs, and the $500,000 for the disposal of assets, our fourth quarter pre-tax income would be $4.5 million. Applying our normalized tax rate of approximately 25% to this adjusted non-GAAP pre-tax income of $4.5 million, results in our net income excluding these costs would be $3.4 million for the fourth quarter and net income per diluted share of $0.13 for the fourth quarter.

We did reconciliation of this non-GAAP net income and net income per diluted share in our earnings release today. If you have not seen it or have any questions, I would refer everyone to today's earnings release.

In regards to the middle of our P&L, our cost of sales of 25.4% of sales was 20 basis points higher than last year's fourth quarter, and flat sequentially from the third quarter of 2008. This increase compared to the prior year was principally driven by higher commodity cost for meats and oils, and it was offset by lower cheese cost and some menu pricing. Sequentially, compared to Q3, our cost of sales as I mentioned were flat at 25.4%.

Labor and benefits during the fourth quarter increased by 20 basis points for 35% of sales, from 34.8% of sales last year. This increase is primarily due to higher management wages as a percent of sales, as a result of the deleveraging from the fixed nature of management salaries over lower comparable restaurant sales.

Looking at labor on a sequential basis, we saw a ten basis point increase from 34.9% in Q3. This slight increase is primarily due to higher workers' compensation cost in Q4 compared to the prior quarter, and it was offset by lower hourly labor.

Our operating and occupancy cost as a percentage of sales increased 160 basis points to 21.6%. The majority of this increase is due to higher marketing cost and deleveraging of the fixed nature of many of our costs related to occupancy and net of fixed contract cost. As we mentioned on our third quarter conference call, beginning in the second half of 2008 we increased our marketing cost closer to 1% plus of sales, compared to really only about 0.4% of sales in prior years.

Our operating occupancy cost sequentially as a percentage of sales decreased 130 basis points, as utility and energy cost came back down from those extremely high rates in the late summer. In fact, utility cost make up over 100 basis points of the decrease from 22.9% in Q3 to 21.6% in Q4.

Our general and administrative expenses in the fourth quarter of 2008 decreased 60 basis points from prior year to 7.2% of sales. Included in G&A for both 2008 and 2007, is approximately $634,000 and $572,000 of equity compensation, respectively, or 60 basis points in 2008 and 70 basis points for 2007.

The reduction in G&A as a percent of sales compared to prior year was primarily due to less cost related to managers and training resulting from lower manager turnover, which Jerry commented on earlier today. This reduction in turnover should not only help our G&A cost but as we all know, the more experienced your management team is the better the results.

Depreciation and amortization was 5.5% of sales, which sequentially was up about 30 basis points primarily due to deleveraging from softer sales over the fixed nature of these costs.

Our restaurant opening expenses were $1.4 million during the fourth quarter of 2008, which was the result of the three restaurants that opened in the quarter. For the year, our pre-opening costs were $7.3 million, which approximates our expected average cost of $500,000 per restaurant.

Our CapEx for 2008 was approximately $65 million, and that is net of landlord improvement allowances.

Before I turn the call back over to Jerry, let me spend a couple of minutes commenting on our liquidity position and also provide some forward-looking commentary for 2009. In regards to our auction rate securities, we were able to redeem an additional 300,000 of these securities during the fourth quarter at par.

As such, we currently own 35 million in face for par value auction rate securities. The auction rate securities we own are also student loan, collateralized obligations. These student loans are public student loans guaranteed by the US government under the Federal Family Education Loan Program or the FFELP program.

Additionally, during this quarter, quarter one of 2009, we have or expect to be redeeming an additional 600,000 of these securities to partial redemptions at par. I do want to remind investors that the interest we earn on our auction rate securities is tax exempt. and from my understanding, because we own the tax exempt student loan auction rate securities, our investments continue to pay interest during penalty periods, and do not reset at 0 for any period of time, unlike some of the other student loan auction rate securities.

Because of the illiquidity of these investments at the current time, in accordance with FASB-157, fair value and measurement, we continue to obtain third party valuations for investments. Because there is currently not an active market to compare to like investments, the valuation process is very subjective in which slight changes to the inputs use can have a dramatic effect on the valuation of each security.

Based on these valuations, we have recorded a temporary impairment in the value of these investments of approximately $4.4 million or about 12% of the face value. This temporary impairment was recorded in other comprehensive income, which is part of the shareholder's equity on our balance sheet and was recorded in accordance with FASB-115, accounting for certain investments in debts and equity securities.

This temporary impairment does not affect current income or earnings, however if circumstances change in the future and we determine that we have 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 ended fiscal 2008 with approximately $9 million of cash and $9.5 million of outstanding on our line of credit. Our line of credit is for $45 million and does not expire until 2012.

Due to our higher than anticipated cash balance at year end, and based upon our projected capital expenditures over the next few months, we did make a principal payment of $1 million on our line of credit in January, and therefore as of today, our outstanding balance on our line of credit is only $8.5 million.

In regards to our capital expenditure plan for 2009, we anticipate spending about $32 million to $33 million net of landlord allowances, for our 9 to 11 new restaurants, and approximately $12 million to $13 million related to maintenance CapEx and capital initiatives. As such, we expect our entire capital expenditures for 2009 to be approximately $45 million, which includes the landlord allowances. We anticipate funding our capital expenditures primarily from our cash balances, operating cash flow and these allowances from our landlord.

At the current time, we do not expect to draw meaningfully on our line of credit in order to achieve our growth plans and initiatives for 2009.

I will now provide some forward-looking commentary in regards to sales and margins for 2009, and this information is really based on the expectations as of this date. All of this commentary is subject to the risks and uncertainties associated with forward-looking statements, as discussed in our filings with the SEC.

Although we remain very confident in the vital organs of the BJ's restaurant concept, and to date our comparable restaurant sales are positive as Jerry mentioned, we remain cautious about fiscal 2009. I know I am restating the obvious, but our economy is still in the midst of a deep recession and unemployment continues to rise. Consumer spending decreased in the last half of 2008, and most experts do not expect consumer spending to increase at least in the first half of 2009, if at all in 2009.

These macroeconomic forces make it very difficult to drive meaningful comparable restaurant sales, which really are the key to not only maintaining restaurant level margins but also to expanding restaurant level margins. That being said, as Jerry mentioned, we have numerous building and productivity initiatives for 2009 in our casual plus positioning, with broad approachability, and an average guest check of only $12 or so, should allow us to continue to have a good opportunity to gain market share and outperform many of our peers.

In regards to revenue for 2009, as we mentioned today, we are targeting about a 15% increase in operating weeks. Specifically for the first quarter, we expect to open the two new restaurants in mid March. I still anticipate seeing a decrease in our weekly sales average in the 2% to 3% range for 2009. This decrease is a result of primarily two functions.

First, over the last 18 months, about two-thirds of our restaurants were built outside of our home state of California, where our restaurant sales volumes are extremely strong. Therefore these newer restaurants, which in aggregate are performing within our expectations, will generally have lower sales volumes than our California restaurants.

Second, as I previously mentioned, with the continued slowdown in overall consumer spending, it will make it difficult to drive meaningful comparable restaurant sales.

In regards to our margins, our restaurant operators continue to do an excellent job at managing what we call the prime cost of our business. That is cost of sales and labor.

We all know that volatile food commodity markets were a major factor for most restaurants companies during this past year, including BJ's. Based on information available and our expectations as of today, we currently estimate the total cost of our food commodity basket to increase about 3% during 2009.

This current estimate is based on negotiations with suppliers that have been completed to date, coupled with current and expected market conditions for certain fresh and other commodity items that the Company is unable to or has currently elected not to contract for longer periods of time.

However, unlike past years where we were able to lock in 70% plus of our commodities per either six month or annual contracts, this year we have decided at this time to contract for only about 50% of our commodities on an annual or semi-annual basis. Therefore, our 3% expectation could materially change for the better or worse during the year. However, assuming the 3% increase in our commodities, we would expect our cost of sales to remain in the mid 25% range.

Just as a reminder, our commodity cost and availabilities are subject to a number of factors outside of our control, whether contracted for or not.

BJ's competitive strategy has always been focused on providing a higher quality, more contemporary casual plus dining experience at about the same average guest check of many of our mass market competitors. Accordingly, to the extent that our cost for key inputs such as food commodities continue to be lower than expected, we will be able to better protect our value concept positioning with consumers, and therefore keep our expected menu price increase as small as we can.

Our effective menu price increase for 2008 was in the mid to upper 4% range, which was generally in line with most of our casual dining competitors. We believe that based on what we know and expect as of today, we can keep our 2009 price increases in the 2% to 3% range, and still help protect our profit margins, everything else being equal.

Currently, we have menu pricing in the mid 3% range and expect to be in that range at least through the first half of 2009. Our next scheduled menu pricing if we decide to take any menu pricing, would be in late May with our regularly scheduled menu update.

In regards to labor, we do have the last nugget of federal minimum wage increase in July, and we do have some states that have annual CPI increases to their state minimum wage rates. That being said, I would anticipate labor to remain in the low 35% of sales range.

I anticipate that operating occupancy cost will be in the mid 21% of sales range for 2009, and that is based on our current marketing plan and the current cost of energy. Our G&A expenses in absolute dollars should increase by about 14% to 15% compared to 2008 total dollars expensed.

However, I do want to mention that in 2008 we only earned about 25% of our targeted cash incentive performance awards for the year.

As you may recall on our third quarter conference call, we noted that we reversed $1 million of accrued expenses for such performance awards that had been previously recognized in Q1 and Q2 of 2008. Assuming that we have earned the full targeted level of those performance awards during 2008, then our expected absolute increase in G&A dollars during 2009 would only be about 11%.

As I have already mentioned, we currently expect restaurant opening cost to be about $500,000 per restaurant. However, we will incur pre-opening non-cash rent as much as five or six months before a restaurant opens, and therefore pre-opening cost for any quarter may not be indicative of the number of restaurants that open in that quarter.

We currently anticipate interest income to be in the $1 million range for 2009. Based on our current estimate of cash and investment balances, as well as expected interest rates on those balances. We currently expect our income tax rate for 2009 to be in the 27% range, and finally we expect that diluted shares outstanding for 2009 would likely be in the 27 million to 28 million range.

Jerry back to you.

Thanks, Greg. I am going to take one more minute before we open up the call for questions and just reiterate our confidence in BJ's longer term ability to continue to build market share in the casual dining segment.

In our view, casual dining is still a very attractive place to be in the restaurant industry. We don't think the billions and billions of dollars of annual casual dining sales are going to disappear anytime soon.

Depending on current pressures and the macroenvironment, casual dining sales may not grow in the aggregate as fast as they have in past years, and they might even narrow a little bit. But it's still a large, highly fragmented segment that's populated with thousands of restaurants that, in our view, have gradually felled a gravitational pull downward over the years in terms of their overall quality, their points of differentiation, their overall energy level, their approachability, their relevance and frankly, their overall value for the money. And we believe that all of those factors play to the strength of the BJ's restaurant concept.

We also agree with the recent comment that I read that was made by Harry Balser, who is the chief restaurant industry analyst at the NPD group when he said that, and I quote, the growth of restaurant companies in 2009 will be for market share, even if the average number of meals that Americans eat out annually is down from 207 in 2007 to 205 in 2008, it's about getting a larger share of those 205 meals. People aren't cutting out eating and there are 800 or so other meals in a year that are prepared at home as a result of a potential market for food service is nowhere near saturation, end quote.

So at BJ's, we are going to stay committed to our longer term strategy to drive our concept and our business forward, and we are going to do as much as we can to position our business to really capitalize when the current economic cycle eventually begins to turn around. Until that time, we are going to do our absolute best to control what we can control. To do our best to drive sales, and to do our best to become even more productive and efficient in our overall execution.

So that concludes our remarks, and at this time we're going to open up the call for your questions. If we don't have time to get to everybody's questions today, and we'll stay on as long as we possibly can. We're in California, you can call our offices after the call, we'd be happy to take your questions.

Okay, operator, go ahead.

Thank you, sir. (Operator Instructions). Our first question comes from the line of Jeff Farmer with Jefferies & Company. Please go ahead.

Great, thank you. Going back to the same store sales through the first seven weeks of the quarter, do you control for that, I believe the New Year shift, would you still be looking at positive comps for the first seven weeks of the quarter?

We probably would. I would tell you to your point there Jeff, we did have a strong first week in January because of that New Year shift. Since that time it has probably come back down to what we've experienced for 2008, maybe at slightly better than that. But there's no doubt about that that first week has helped us.

Okay, and I guess this might be for Greg L, but as it relates to the 9 to 11 planned unit openings in '09, what does it look like in terms of new versus existing retail developments, and has it mattered in recent years in terms of being in established retail developments versus brand new, greener developments?

Yes. For 2009, I'm looking at our list here, everything is really in a mature densely populated area with no real co-tenancy risk, and that's been our strategy going forward. Our strategy back from really 2005 has been dense mature areas in existing centers. So, Jerry, do you have anything to add to that?

No. I would agree with that, as I look at the potential list of openings for this year. I really only see one out of the 9 to 11 that might be characterized as somewhat of a new project, although it's in a very, very densely populated trade area. The vast majority of them are in established projects, either additions or remodels, very densely populated retail trade areas with proven levels of retail sales, and that's why we selected these to move forward.

That's helpful. As it relates to development past '09, is it safe to assume that it's probably too early in 2010 to start reaccelerating this, that you guys will probably stay at the current '09 run rate in terms of absolute unit development?

Jeff, I don't think we've really targeted a specific number of new restaurants for 2010 yet. As you know in this business, you have to build your pipelines anywhere from 18 months to 24 months in advance. Clearly Greg and his team are working on putting together a very robust pipeline for our ultimate decision making here as we move throughout this year, but it's too early to really hone in on a specific number of new restaurants or a targeted level of operating growth.

But it is important to say that everything else being equal, based on what we know about the overall economy as of this moment, we would intend to continue to open additional new restaurants next year, but we will have to see exactly how many and when they are going to open here, as we move throughout the year, but we are moving ahead and putting together a very solid pipeline for our decision making later this year.

One more final, quick question. Greg, did did you say that the '09 share count, you expected that to be 27 million to 28 million?

It's probably going to be somewhere in that 27 million range. Right in there.

Thank you guys.

Thank you, sir. Our next question comes from the line of Greg Ruedy with Stephens Inc. Please go ahead.

Thanks, good afternoon. I think you mentioned that about a third of the system now is still less than two years old. You mentioned that on aggregate, they are all meeting expectations. Maybe you can talk to some specific units or areas where you have market share and average weekly sales ramp opportunities.

I'm thinking about your question a little bit here, Greg. When we talk about it in aggregate, with all of our children-- you have some that outperform others. When we look at California in general in that population, they did really well, but as I think about some of the areas out towards you, our Baton Rouge restaurant is doing extremely well. San Antonio we're very, very pleased with.

I think there's opportunity like in Temple, Texas, that is not disappointing us but there's opportunity to bring that up. There's also a couple of other opportunities up in the Ohio Valley to bring those up a little bit. But (inaudible) does extremely well, we're very proud of that restaurant. In Florida we have a couple of restaurants that do extremely well for us and then others I think with the economic condition of Florida, that have opportunity over time.

But we don't have a restaurant that disappoints us. Jerry, I don't know if you have--.

The only other thing that I would say is that restaurant sales for a emerging national concept like BJ's are really a function of awareness, trial and usage, the ATU formula if you will. When we open up in our California trade areas or in most of our Texas trade areas where we already have high levels of awareness, we get higher levels of trial and then we are able to convert that trial to regular usage on a pretty predictable pattern.

It's the opportunities in our newer markets, particularly Florida and the Ohio Valley where we've opened up with very satisfactory volumes, but over time awareness and trial will drive ultimate usage and it takes time for new concepts without national advertising umbrellas and national awareness to really build their reputations and get into the dining patterns or the dining location if you will of consumers in the trade areas.

So, I think I would say that Florida, Ohio, our newer markets probably have the most upside opportunity over time. Our restaurants in California are solid from day one, and notwithstanding some of the press and media reports that we hear about the wonderful state of California, California is still a very, very attractive state for BJ's to open up restaurants in.

We only have 44 restaurants in the state. We are clearly underpenetrated in the state. There are 36 million people that live in California.

We have noticed and I mentioned in my comments earlier in our call today, we have seen over the past six months several franchisees, some of the very menu mass market casual dining concepts have decided to close several restaurants in California, which is a tremendous benefit to us. It's our home court.

So for those that might think that opening new restaurants in California might not be the best idea for our business, I would suggest that every data point that we have suggests otherwise and we are going to continue to play to the strengths of our home court.

Looks like the majority of the '09 openings will be California, Texas. Are there things in specific trade areas or unique things going on in the pipeline that is precluding you from opening in Florida and the Midwest this year?

Not at all. Actually, we are trying to focus our development specifically targeted into trade areas where we can get maximum awareness trial and usage, which are a function right now of our California and our Texas development plans at this moment. We do have potential sites that we are working on for the next 18 months in central Florida and in Ohio, but right now we have chosen to really focus hard in areas where we can achieve maximum awareness, trial and usage, and to keep maximum leverage of our field supervision organization, our supply chain and our restaurant management talent .

Okay, last one and I'll pass it on. Multiple casual dining operators will mention that their customer service scores are at all time highs. From a service standpoint and excluding your deployment of the quality tool sets and the aesthetics within your box, what are some of the -- what is it about the guest server interaction at BJ's that differentiates you versus those other bar and grill or mass market guys?

That's a great question, Greg. We also track guest surveys and opinions with respect to food quality, service quality, facilities quality, overall intent to revisit the restaurant.

We've been tracking those in our databases over the past four years that I've been involved with the concept, and we have also seen a gradual increase in the overall top box ratings of yes, related to our BJ's attributes. And it's very, very hard to try to pick certain attributes of the concept and say, well, this favorable rating is due specifically to this factor or this attribute. It's very difficult.

You really have to take the concept as a whole, where it was, a very good concept four years ago when you consider all of the investments and improvements that we made in our operational tool sets, in the overall quality of our execution, in raising the overall positioning of the business from being on the fence, half mass market/half premium casual moving more clearly up in the premium casual range.

I think all of those factors have collectively acted in a synergistic way to improve overall guest ratings for us. It's very hard to isolate what we could have done with or without certain of those attributes because they are all working together to really drive our business forward.

Next question.

Our next question comes from the line of Matt Difrisco with Oppenheimer Capital. Please go ahead.

Thank you. Greg Lynds, can you give us a little update on what you might be doing right now or what is ahead for '09 as far as the contracts with brewers in markets like Texas and outside of California, where you might have greater advantage or move some more of your brews over in the capacity onto those lower cost basis, larger batch brewers?

Yes, we are continuing to move that forward, somewheres to the point of getting close to maybe 55% towards the end of this year.

What we've found right now is, while we can get it produced at a lower price that the large cost brewers because of their efficiencies, you lose it a little bit in the transportation cost. Right now the contract brewers that we are using for large contract brewing are out there really on the east coast. They are shipping some of our primary beer flavors into California.

So net net we are expecting our beer cost, delivered beer cost to our restaurants for at least 2009 to be flat. But as we continue to grow, we should be able to continue to leverage the large contract brewers and bring down that number.

This is Jerry. It's fascinating that in that particular part of our business, when you look at the total delivered cost per keg of beer to our restaurants, 25% to 30% of that total delivered cost represents transportation and freight cost. The ingredients, the direct labor, the direct overhead are much lower cost elements, taken separately. So as Greg mentioned, we do have our larger contract brewing operations in Texas, in the Midwest and on the east coast, and as we continue to expand that way, we'll obviously get some leverage on transportation and freight cost. We are also working very, very hard with not only the independent freight companies but also with our principal food service distributors, to work on ways where we can cross dock and where we can get some backhauls and get some benefits with respect to freight costs in advance of building more restaurants further east and further north.

Understand, and I guess Jerry, just on a comment on your commentary with respect to the world ahead, maybe the game changing a little bit more to share taking than sort of a rising tide, not necessarily for trying to swoop the guy out of the kitchen but to compete against peers. Is there a desire to maybe do a broader marketing campaign or anything, and given that your growth seems to be heavily back filling, which might provide the opportunity for better leverage to do regional, more vocal advertising whether on radio or TV?

That's an excellent question. I think in the short run, we would not intend to increase our media advertising to really drive overall awareness and trial. We are running at about 1% of sales, and to your point, probably the only market where we have a chance of becoming semi media efficient, and that would be on radio, would be here in southern California.

Our best bet in driving market share is to pick AAA locations and operate at the highest level of operational excellence, and that's how you build your reputation and credibility with consumers. And to maintain your overall points of quality and differentiation and to play to the strengths of those points of differentiation as we continue to grow our business.

And frankly, we are up against competitors, as I mentioned in my previous comments. There are thousands and thousands of varied menu mass market casual dining concepts that frankly have lost their warranty with consumers in many respects.

So we are going to start off by always focusing on AAA locations and AAA operational execution, and then over time, as we cluster develop, and that is one thought that we've had in the back of our minds as we continue to fill in California and Texas. At some point we might want to have the flexibility to increase media spending a little bit, but being in this business for over 30 years, being 15 years in fast food and 15 years in casual dining, frankly I worry a little bit about over-reliance on media advertising to drive overall awareness and trial and convert it to predictable usage in your restaurant.

We are always going to focus on quality and differentiation, great locations and great execution.

Okay, and then I just have a last question actually. On the occupancy deleverage, it looks as though you're degraded on the comp side throughout the year, yet the rate or level of degradation of that relative cost to sales hasn't really accelerated as much.

Is that a line item, is that reflective of deleverage or is that a reflection of a more expensive location or maybe just something in the market where your occupancy, you are willing to take on a little bit of a higher occupancy rent? I'm just curious why that hasn't been more sensitive to the movement on the top line but more so a by product it seems like of growth of some sort.

A couple of things there, Matt. When I look at purely the occupancy side of that, we have operating occupancy, it has not moved, the occupancy line has not moved that much over the last year or so. We spent somewheres in the neighborhood of about, a good way to look at it might be about $10,500 to $10,600 a week just on what I call operating occupancy side.

Where we have seen the movement on that is, one, we raised the quality in our restaurants and a lot of what we call a guest touch point, the better China, silverware, plateware, et cetera, in regards to that. That is one of the reasons that number has gone up.

The other side of it was the marketing, as marketing moved closer to 1% this last two quarters, we moved marketing a little bit above the 1% range in regards to that number. Those are the two primary drivers.

The operating occupancy hasn't been quite as much, or I'm sorry just the occupancy side hasn't been quite as much as more of our deliberate decisions to really increase the guest touch points. We think over time, that is how you are going to build sales.

Quite frankly, as we put all these things in, we weren't expecting to go into the recessionary environment that we are in. That being said, I think it really differentiates us from the other players out there, and I don't think we would ever take that back.

And the other thing too that I would add onto that Matt, is that when you roll out all of these sales building initiatives, and all of these platforms, online ordering, curbside cashiering, call ahead seating, third party delivery and so forth, you have to communicate with your customers periodically and tell them that you have these services in, and these services will take a little bit of time to build their productivity over time.

So initially, we made the decision, we are going to have to spend a little bit of media marketing dollars to make sure that everybody knows that we have these and over time as they begin to build and consumers begin to feel comfortable that their creditable services and they can rely on them, then perhaps we can take the foot off our media marketing and get back to something that's a little less than 1% of sales.

So just to conclude that, if we were to look for -- forward not backwards, then 2009 would be more along the line of a 1% not necessarily the degree of deleverage or sort of the, in excess of 1% in 3Q and 4Q?

Yes. I think that would be right if I understand what you are getting at. I would still go with my general commentary that I made on the prepared remarks that operating occupancy is probably going to be in that mid 21% range.

Perfect. Okay. Thank you.

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

Hi, good afternoon. Greg, I think I have your cold. A couple of questions, California looks like it's firming a little bit for you. How much of a tailwind does that give you going into 2009 because you have some of those really easy comparisons now in California .

And then secondarily, we are starting to hear some kind of rumors that Texas is starting to weaken some across the restaurant space. Are you seeing any of that?

A couple of things there. I loved the comment that you have easier comparisons to go over, I think if you talked to the guys that head our casual dining companies, they've been probably saying that for a year and a half to two years, that it should get better next year because we're going over easier comparisons.

That being said, what I think we are seeing here is a little bit of what you talked about, where I think if you looked at 2008, we had a little bit higher dispersion in regards to comp sales. So, the Texas restaurants doing some pretty nice comp sales, offsetting some of the California restaurants to get BJ's more or less back to a flatter type number.

I think as we go into 2009, you are going to see the California numbers as I talked about in Q4, probably being a lot less negative in comp but the fact of the matter is, Texas has been almost high single digits if not double digits comps for us for almost three or four years now. And we're starting to see those come down a little bit. So I think in essence you are going to see comp sales to some degree kind of like what we saw this year, meaning 2008 but dispersion is going to be less.

And then secondarily, Greg, if you go through some of the different parameters you gave us for restaurant contribution margin, it sounded as if you were expecting to hold that more or less with what you saw in 2008.

I think we have the ability to hold those (inaudible) margins. I would tend to hope, I know hope's not a strategy here, but I think we have the ability with the slowdown to get some of the newer restaurants to get a little bit more productive.

So, depending on where comp sales come in, I think we might have actually an opportunity to expand margins a little bit, but again a lot of that is driven by comp sales.

What kind of comp do you need to see expansion year-over-year, just given the difference in, you will have less new restaurant penalty this year than you saw in 2008.

Everybody loves that question, and it's always a difficult question to answer. Really looking at 2009, the headwinds or the tailwinds I guess that we faced these last couple of years, or the headwinds that we faced in regards to commodity and labor and so on have abated a little bit. We still have it with somewhat on commodities, labor a little bit less.

If energy costs stay where they are, we wouldn't see the spike that we saw in Q3. So I think you get back more towards a 2 percentage range, where you can start to maybe maintain your margins if not expand your margins, where the prior years you needed (inaudible) that 3 to 4% range.

What I would also add to that Sharon, that the real key to driving improvements in restaurant margins would be an increase or a flattening of guest traffic. That's really the key.

It's kind of like a reduction in the unemployment rate is the first indicator that the economy might be turning around or one of the earlier indicators that the economy might be starting to turn around. Guest traffic remains negative for us.

As soon as we begin to see that flatten out or even peak up a little bit, I think you will see us with a strong ability to get our overall cash flow margins within the four walls of the restaurants back closer to 20% over time. But I think in 2009, that will be a pretty tough challenge.

Best of luck.

Our next question comes from the line of Jonathan Comp with Robert W Baird. Please go ahead.

Yes, hi, this Jon Comp in for David Tarantino, just one quick question on your commodity cost. I now you said you had about 50% of your overall basket locked for 2009. Can you just give a little more color on the specific items, and maybe talk about the greatest opportunities for positive or negative variances versus the 3% that you quoted?

I think it's easier to talk about maybe where the pressures are going to be. Chicken is going to be a pressure point for us. We are right now in kind of a quarterly contract, and we frankly had a very good chicken contract in 2008. So that's going to be an area of pressure, and the other one would be our pizza dough.

The other item, and just, chicken is somewheres in the 12% range of our total food cost for sales, so you can get an idea of that impact there. That should be offset with lower cheese prices, which were currently on the spot market and cheese has dropped tremendously into that $1.15 per pound range. Our dressings, we should be able to get down a little bit, and our oils, but the pressure is really on chicken and our pizza dough is why we're probably going to see that 3% range.

Okay, great, thanks.

Thank you, sir. Our next question comes from the line of Paul Westra with Cowen & Company. Please go ahead.

Good afternoon, guys.

Hi Paul.

Greg, in your prepared remarks I think you commented on your square footage or operating week growth of around 15% and also your revenue growth at the same figure. You talked about your AUVs also expecting to be down. I want to be clear on your, that you expect total revenue growth, is it going to match your operating week growth.

I think we have the opportunity for it to match operating week growth.

How does that work?

I understand what you're getting at. You are probably looking at a range in regards to our revenues of anywheres from 13 to 17, it depends on what type of comp number you are going to put in there.

Absolutely pin me down? You can probably take the 15, 16 operating weeks. You can say your WFA is going to be down 2 to 3 and there is your 13, maybe our WFA won't be down as much.

Okay. And then with respect to your SG&A, I understand the accruals come to play in '09. We all wish that to be true. In light of that, any other G&A leverage perspectives? Your G&A growth is almost to your revenue growth. Do you have any other investments in that number, where we would expect a lack of leverage in that line.

It's really not. It's more of the fact that while we reversed a million dollars, as we talked about in that third quarter conference call, we also didn't continue to accrue. So our bonuses that we technically didn't take through this year are closer to more like a $1.5 million. But other than that, it's really -- other than adding that in there, there is nothing else going on in G&A, a normal number,.

It's also fair to say Paul, that if you exclude the performance and incentive award accruals on an absolute basis, we have planned for our G&A absolute dollars to increase at a rate less than our capacity growth rate. So there is inherent leverage there if you take out the impact of the performance and incentive accruals to both years.

And lastly, just following up, I know you boost your marketing, talked about it a little bit more, but do you feel as though you have the IRR, I have a question before about whether you maintain a little aggressive rate or did you pull back to normalized rate?

We are comfortable with 1% of sales in terms of how we can effectively deploy it. We use principally freestanding inserts in the Sunday papers in our trade areas, and the newspapers like Los Angeles Times and all the major newspapers, you can stick those freestanding inserts in the newspapers by zip code. So you can target the zip codes around each restaurant so that you are not flooding the Los Angeles area with lots of FSI's and cost, that there is in a restaurant trade area, and that's a very effective way for us to do some print advertising.

In terms of an ROI on the expenditure, I think the best judge of that would be our comp sales performance versus our peers. And the fact that for those companies like I mentioned in our conference call that have a significant concentration in California, Arizona and Florida, like we do, and you look at their comp sales performances for the fourth quarter and full year and you look at ours, you have to attribute some of our favorable performance to the effectiveness of the extra media investment that we decided to make.

Going forward, we think 1% is about the right number for us. The types of media we deploy, the freestanding inserts and we do some e-commerce advertising, and we also do some targeted local restaurant marketing and some trade areas that are significantly under pressure, and when we certainly talked about those in the Inland Empire and Arizona and so forth.

We really structure our particular promotions and media buys to have very low break even hurdle rates, so that we are not trying to invest marketing dollars with say an inherent 5% or 10% incremental break even guest count hurdle rate. We set them much lower than that.

So we believe they're lower risk and they have generated a good return, and I would also say qualitatively that during a recession, it is very, very important no matter who you are, to communicate with your guests even more. And to make sure that you are at the top of their minds and make sure that they are remembering you when it comes time to spend their hard earned casual dining bucks. And I think that that has helped us to out-perform our peers that are similarly situated to us.

The only other thing, I will just add on the end is, a lot of our marketing last year was done in connection with new services, and you have to get the word out that you have these new services. If we are having online ordering, you have to market it out there that people know that they can order from BJ's online.

If we are going to introduce lunch specials, you have to get it out there that we have lunch specials. So some of our marketing, we start thinking about it from an ROI perspective, was specifically targeted at the new initiatives that we had done to drive sales, and you will see that going into 2009 as we roll out these initiatives as well. We want to get that word of mouth out there that we have these things in place and come to BJ's to try it. That is another big portion of our marketing spend.

Thanks guys.

We'll take one more question.

Our final question comes from the line of Conrad Lyon with Global Hunter Securities. Please go ahead.

A quick question, more about California, the government that's going on here and marketing. Have you thought about trying to create a marketing program geared toward these folks, trying to get them in on a Friday or anything surrounding that?

What we have thought about is trying to put a little more resource allocation of our media against the early week activities, the Monday through Thursday period, lunch and dinner, particularly here in some of the trade areas where you've seen some heavier unemployment.

For the most part, on Friday, Saturday, and Sundays, all of our restaurants are on waits. So really where we've struggled for the most part and where most casual dining companies initially struggle during a recessionary period, has been in the early week, the Monday, Tuesday, Wednesday, Thursday, the lunch and the dinner, it's that extra occasion that in the past, when times are a little bit better they might have come to you for, but now when times are a little tougher, they will only come on the weekend and sacrifice that early week occasion. So we are going to work a little bit harder, particularly in California on that Monday, Thursday, lunch and dinner day part.

Great. Thank you very much.

Thank you. That is all we have for today's call and thank you all for being on the call today.

Ladies and gentlemen, this concludes the BJ Restaurant's fourth quarter 2008 fiscal results conference call. This conference will be available for replay after 4 o'clock pacific standard time today through February 19 at midnight. You may access the replay system at any time by dialing 303-590-3030 or 800-406-7325 and enter access code of 396-9531. Thank you for your participation and you may now disconnect.