BJ's Restaurants Inc (BJRI) 2009 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the BJ's Restaurants first quarter 2009 results conference call. (OPERATOR INSTRUCTIONS)

This conference is being recorded for replay today, Thursday, April 23, 2009, and will be available after 4:00 o'clock Pacific Standard Time today through April 30th at midnight. You may access the replay system at any time by dialing (303) 590-3030 or toll free (800) 406-7325 and entering the access code number of 4052692.

I'd now like to turn the conference over to Mr. Jerry Deitchle. Please go ahead, sir.

Well, thanks, operator.

And hello, everybody, I'm Jerry Deitchle with BJ's Restaurants, and welcome to our first quarter 2009 investor conference call, which we're also broadcasting live over the Internet.

After the market closed today, we released our financial results for the first quarter of 2009 that ended on March 31st, and you can view the full text of our earnings release on our Web site 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 Diane 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 first quarter of 2009 and also discuss some of our upcoming key initiatives and expansion plans. Then Greg Lynds will comment on the status of our new restaurant development pipeline. After that, Greg Levin will comment on our consolidated income statement, our summary balance sheet, and our liquidity position as of the end of the first quarter, and after that, we'll be happy to answer your questions.

So we're going to get our call started right after Diane provides our standard cautionary disclosure with respect to forward-looking statements.

Diane, go ahead.

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

Our forward-looking statements speak only as of today's date, April 23, 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 substance of our conference call today.

I think that, in spite of all of the continuing pressures of the current recessionary economy, our leadership team here at BJ's was very pleased that BJ's continued to achieve solid forward momentum during the first quarter in terms of building both our top-line and our bottom-line results, but, most importantly, we continued to build additional market share in the estimated 80 billion or so casual-dining segment of the restaurant industry.

We also have a responsibility to prudently manage our business in response to the shorter-term pressures of the current recession, and we believe that we've been reasonably effective in doing that so far, as we continue to 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.

As we mentioned on our last conference call, our principal short-term focus is to outwork and outperform our peers during these tough times and -- but at the same time continue to prudently invest in the overall quality differentiation of the BJ's concept and the strength of our restaurant support infrastructure. 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 eventually begins to abate. While some of our competitors have adopted a -- what we would call a "save your way to success" strategy during these tough times, BJ's continues to execute our "grow your way to success" strategy in a very productive and efficient manner.

Over the long term, we plan to continue building profitable market share in the casual-dining segment, primarily through the gradual and steady opening of new restaurants over time. This year we plan to open as many as 9 to 11 new restaurants and thereby increase our total restaurant operating weeks by about 15% to 16% while many of our casual-dining competitors have elected to reduce their expansion rates for a variety of reasons. So at BJ's we're continuing to keep a very carefully balanced focus on the achievement of both our short-term and our long-term initiatives and expansion plans as we simultaneously do our best to successfully navigate our business through the recessionary economy.

Moving to our financial results for the first quarter of 2009, when you compare them to the same quarter last year, our total revenues for the first quarter increased about 18% to $102.4 million, and that's a milestone for BJ's. This is the first quarter in our history that our revenues exceeded the $100 million mark.

Our comparable restaurant sales decreased by only 0.1% during the first quarter, which we believe will rank BJ's among the better performances on that metric in the casual-dining segment during the quarter.

Our net income for the first quarter increased a solid 20% to $3.8 million, and our fully diluted net income per share for the first quarter was $0.14, which represents a favorable 17% increase compared to the same quarter last year.

With respect to our comparable sales comparisons for the first quarter, our leadership team was also pleased that our essentially flat comparison for the quarter outperformed the widely followed BAPPTrack benchmark survey for casual-dining comparable sales, which we believe will show a decrease of about 4.2% for the first quarter.

In particular, after considering the slowing national economy and after considering BJ's significant presence in California, Arizona, and Florida, where 43 of our 62 comparable restaurants for the first quarter were located, we believe that BJ's ability to retain essentially all of our comparable restaurant sales during the quarter is a very strong testimonial to the continuing popularity, the relevancy, and the overall value of the BJ's restaurant concept for consumers, coupled with our steadily improving ability to collectively and consistently execute within the four walls of our restaurants. Greg Levin will provide some additional detail on our comparable sales later in the call today.

And while we're on the subject of comparable restaurant sales for the first three weeks of the second quarter of fiscal 2009, which is the current quarter that we're in, our absolute to comparable sales comparison is running just slightly negative, about 0.4%, compared to the same three weeks in the second quarter last, but that includes the impact of the shift of the Easter weekend into the second quarter this year, which is a soft sales weekend for us. We always caution that our results for any partial period of time do not necessarily represent what our results might be for a full period of time. Our weekly sales results continue to be quite choppy during the current recession, and as a result, it's very, very difficult for us to accurately predict what our future sales are likely to be.

As was the case for both the first quarter and the full fiscal year of last year, our estimated guest traffic counts for the first quarter continue to compare negatively, as will be the case for most casual-dining restaurants during the quarter, and we don't currently expect much, if any, general relief from that overall pressure during the rest of 2009. We mentioned on our last couple of quarterly conference calls -- and we're 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, particularly given the fact that we're in a recessionary economy.

We here at BJ's are certainly mindful of the fact that, of our 84 restaurants that are currently open, 59 of them are currently located in states where the unemployment rate is higher than the national average rate. So while we should definitely err on the conservative side of short-term expectations for comparable sales, we're going to keep doing our best to strengthen BJ's competitive positioning as one of the best overall values for the casual-dining consumer, and we're going to continue what we can do to stimulate guest traffic in a profitable way. We do have some additional sales-building initiatives ready for launching, and we're going to comment on those in just a few minutes.

We also mentioned 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, and we still feel that way. We believe very strongly that our restaurant operators did a good job of managing our food waste, our labor productivity, and our other controllable costs and expenses during the first quarter, although we all recognize that we still have opportunities to improve on those critical performance metrics in many of our restaurants.

Additionally, we believe that our infrastructure support and G&A expenses were also well controlled during the first quarter, although the absolute amount of G&A expense for the quarter was favorably impacted by some timing differences compared to the same quarter of last year that were associated with a restaurant management recruitment and training pipeline and a few other items, and Greg Levin will comment on some of those timing differences later in the call today.

We will continue to make incremental G&A investments in our restaurant management recruiting, training, talent development, recognition and retention programs because that's really the most critical resource requirement for future growth in our pure company operations business model. We can only grow our restaurant base this fast if we can recruit, train, develop, and retain the very best restaurant managers available.

At BJ's we continue to have a sales-building mentality first and foremost. While the current recession continues to present some pretty tough challenges in retaining sales, much less building sales, at BJ's our fundamental operational mindset is to continue to do our best to overwhelm events instead of letting events overwhelm us.

So, that's the reason why we continue to work very hard to execute several new sales-building initiatives during the upcoming year that are going to include but aren't limited to the introduction of new signature menu items, the rollout of upgraded wine and spirits offerings, the rollout of a more contemporary nonalcoholic beverage program, a completely reengineered kids program, a further expansion of our current test to offer several more draft beers in addition to BJ's proprietary draft beers, test of a catering program, and test of a central reservation program for larger parties.

Our upcoming regularly scheduled menu update, which will take place here in late May, will be one of our most exciting and one of our most ambitious undertakings in many years here at BJ's. We're planning to introduce several new and improved menu entrees and beverages that are intended to further accentuate BJ's competitive positioning as a higher-quality, more-differentiated, casual-plus restaurant but still maintaining our overall price point at about the same levels that a consumer would pay at what we internally refer to as a "mass-market, casual-dining chain restaurant."

Concurrently, during the next quarter we're also going to be reinforcing several of our sales-building initiatives that we introduced during the last six to nine months, including our call-ahead seating service, our online ordering and curbside cashiering service, and in certain targeted trade areas, our value-oriented promotional offerings, including our successful lunch specials.

Last year we made a decision to increase our media marketing spending to about 1% of sales so that we would have the ability to more effectively communicate all of our new products and services to consumers, and we currently plan to maintain that general level of media marketing investment during 2009, although the amount, rather, for any given quarter may be slightly more or slightly less depending on our internal marketing calendar of key events.

While our media war chest is quite small when you compare it to the collective hundreds of millions of dollars spent annually by some of our larger mass-market, casual-dining, chain competitors, we do believe that we're investing our limited resources very efficiently by using free-standing newspaper inserts, we use restaurant point-of-purchase merchandising, and we recently ramped up our e-commerce marketing efforts -- our e-mail database marketing. We're increasing our use of online media including Google, Yahoo and Facebook, which we found initially to be very effective for us.

As is the case with many of our competitors, we're going to do our best to keep our menu prices as low as we can during the recession. Our next menu update, which I mentioned is scheduled for late May, will contain a very nominal price increase of only a few tenths of a percent of sales, because that's all we feel that we really need right now to help protect our margins at this point. As in the past, we're going to closely monitor all of our input costs during the next several months, and we'll consider additional pricing, if necessary, when we update our menu in the fall. We do believe that we do have room to take additional pricing over time and not dislocate our overall pricing from that of our principal mass market competitors given that our average check is still in the $12.00 range.

We mentioned during our last conference call that we were not going to let a good recession go to waste here at BJ's and -- because we believe that the recession can ultimately benefit better-positioned and better-financed restaurant concepts and 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 unable or unwilling to do that, and I think we're beginning to see some of the benefits from the recession. As we mentioned in our last call, for example, our annualized restaurant manager turnover rate continues to run less than 15%, compared to over 20% this time last year. The number and quality of our restaurant management applicants continues to steadily improve. Better tenured and higher quality restaurant management teams generally produce better results for both our guests and for our investors.

We're also beginning to see more construction bids for some of our planned new restaurant openings for the second half of this year. Some of these recent bids represent CapEx reductions of as much as $350,000 per newly built restaurant, and we believe that's a significant favorable development for us.

Additionally, when taking all of our restaurant trade areas together as a whole, we continue to notice more casual-dining restaurant closings and openings in general during the past several months, particularly in our California trade areas, thus thinning out some of the competition.

And while the current economic recession is definitely taking its toll on some other casual-dining companies in terms of potentially 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 even stronger over time. We consider our vital organs to be the overall quality, differentiation of our restaurants, the overall approachability and relevance of our restaurant's for the consumer, and, most importantly, the morale and spirit and quality of the men and women that operate our restaurant.

Moving to our new restaurant development plan, we remain very confident in BJ's longer-term ability to continue to steadily build market share in the estimated 80 billion or so casual-dining segment of the restaurant industry. We believe that BJ's current estimated share of the casual-dining market in terms of sales is currently less than 0.5%. So, obviously, we've got a long way to go. Our primary opportunity to increase our market share is to keep opening more restaurants steadily over time. With only 84 restaurants open today in 13 states, we continue to believe there is room for at least 300 BJ's Restaurants of various sizes and site types domestically. But having said that, we're going to [mean] strong discipline to execute our growth plan in a very careful and controlled manner. And only with the right operational talents, support, infrastructure, and operational tools that's in place.

As we commented earlier this year after carefully considering the pressure of the current recession and the related reduction in the availability of acceptable locations in either new or remodeled retail projects across the country, we currently expect to open 9 to 11 restaurants this year. Coupled with the carryover impact of partial year 2008 openings, 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, and I'm going to turn the call over to Greg Lynds, our Chief Development Officer now for his update on our new restaurant development pipeline.

Greg, go ahead.

Thanks, Jerry.

Good afternoon everybody. As we noted in our press release today, our 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 new restaurant development strategy continues to focus on acquiring triple-A, quality locations in mature, densely populated, trade areas with premiere co-tenants that create maximum synergy in terms of guest traffic and brand positioning. We also continue to believe that today's softening commercial real estate market represents an attractive opportunity for BJ's to continue securing prime locations with favorable lease economics.

So far in 2009 we've opened two successful restaurants. On March 9th we opened in a dense, mature submarket of Henderson, Nevada. We opened at the main entry of an existing mixed-use retail and office complex known as Silverado Center. Then on March 16th we opened on a free-standing pad to the main entry of the 950,000 square foot Oaks Regional Shopping Mall in Gainesville, Florida. This site was a former Don Pablo's Restaurant that we completely bulldozed prior to starting the construction of our new BJ's.

As we mentioned in today's press release, both of these restaurants have opened with strong initial sales volumes. Our Gainesville restaurant set a new non-California BJ's opening sales record for us by generating sales in excess of $150,000 a week. And our Henderson site continues to achieve sales well in excess of $100,000 per week.

The rest of our targeted seven to nine restaurant openings for 2009 have been identified and secured with signed leases, letters of intent, and four of these restaurants are already under construction. We're under construction in Mesquite, Texas; Downey, California; Allen, Texas; and Concord, California. We plan to start construction on as many as four more restaurants within the next 60 to 90 days.

As we stated before, it is difficult to precisely predict the actual timing of our new restaurant openings due to many factors that are outside of our control, including entitlement and permit approvals, the weather, landlord deliveries, and third-party delays. With that in mind, as of today we currently do not expect to open any restaurants in the second quarter. We plan to open as many as four to five restaurants in the third quarter and as many as three to four in the fourth quarter. Again, our quarterly opening schedule can fluctuate, and we'll keep everyone advised of all future changes on our quarterly calls.

Looking forward towards the next three years or so, our development plan calls for roughly a third of our new restaurants to be built in California, another third of our restaurants in western states outside of California, and roughly another third of our restaurants on the East Coast or new market. This clustering strategy will allow us to even better leverage our strong brand position, consumer awareness, supply chain infrastructure, and our field supervision.

Lastly, and as stated earlier, our team views the current economic issues surrounding retail and restaurant development as a time to capitalize on securing high-quality, prime sites in densely populated, more-mature trade areas that have proven levels of retail sales. 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 new trade area we enter. Our team's looking forward to the next several years, and I'm confident that BJ's should have many years of high-quality, solid, new restaurant growth to come.

Jerry, back to you.

Hey, thanks, Greg.

We continue to believe that BJ's (inaudible) economics remain very sound. They support a continued steady pace of new restaurant expansion. As Greg mentioned, the hallmark of BJ's new restaurant development program has always been triple-A, quality (inaudible) location in very mature, densely populated trade areas with premiere co-tenants that create maximum consumer synergy.

Now, there are certainly not any shortage of sites in general to support our longer-term expansion plan, but, currently, I think as all of our investors know, in (inaudible) of the recent slowdown in retail project development across the country, there are less high-quality sites available today in the trade areas where we want to develop that will best leverage our supply chain, our field supervision infrastructure, and our overall brand awareness with the consumer. We're always going to pick quality over quantity when it comes to our new restaurant locations. So, as we put together our pipeline for 2010, we'll keep you informed as this current year unfolds.

One benefit of our reduced pace of planned expansion during 2009 this year is that we should be able to finance our new restaurant expansion primarily with internally generated cash from operations and our committed [inaudible] construction contributions. We believe that's a very favorable financial position to be in.

So now I'm going to turn the call over to Greg Levin, our CFO, for his comments on the quarter.

Greg, go ahead.

All right. Thanks, Jerry

Let me take a couple of minutes and go through some of the highlights for the first quarter and provide some forward-looking commentary for the rest of 2009.

As Jerry previously noted, our total revenues for BJ's first quarter of 2009 increased 18% to approximately $102.4 million from $86.8 million in the prior year's comparable quarter. This increase is the result of approximately 20% more operating weeks, offset by a 1.5% decrease in our weekly sales average. The operating-week increase is due to a net 15 more restaurants that we have open compared to the first quarter of 2009.

As Jerry mentioned, our aggregate comparable restaurant sales for the first quarter decreased only 0.1%, and while we do not give out monthly comparable restaurant sales, in general, our monthly comparable restaurant sales trends were pretty consistent with what we have heard from other restaurants and retailers and that our comp sales comparisons for the month of January were slightly better than our comparisons for the month of February and March.

For those of you that have been following BJ's over the last year, we have mentioned that our softness in the comparable restaurant sales metrics primarily began in the Sacramento-Central California region, the Inland Empire areas of California, and the Phoenix, Arizona, market. These are regions of high growth over the last several year, and the housing meltdown and related slow down in overall construction activity has taken their toll on these local economies.

As we stated before, we have ten restaurants in the Sacramento-Central California and the Inland Empire areas of California that were in our comparable restaurant base since the beginning of 2008. These ten restaurants had comparable restaurant sales decreases in the 6% range to last year's first quarter and then gradually improved throughout 2008. In the first quarter of 2009, these same restaurants continue to improve and were only down 0.7%.

In addition to the improvement in our comparable restaurant sales in California, our Phoenix, Arizona, restaurants also continue to see gradual improvement from their comparable restaurant sales. As we previously mentioned, these three restaurants were down in the mid 7% range in Q1 of 2008 and then gradually improved throughout 2008 as well. In the first quarter of 2009, these three restaurants had comparable restaurant sales decreases of 0.1%, or basically flat.

This gradual improvement in sales comparisons for these restaurants, I believe, is really a testament to the BJ's concept and the outstanding work by our restaurant managers and team members. These areas are still suffering from the effects of the housing bubble, yet our high-quality -- or higher-quality casual-plus positioning, the broad approachability of the BJ's concept, coupled with an average guest check in the $12.00 range, and really in our ability to correctly and consistently execute our restaurants in what we call a quality-fast manner, really have allowed us to stabilize our sales in these markets.

However, to be expected, we are seeing some pressure in some of our newer restaurants as they come in to the comparable restaurant sales base. These restaurants were opened in 2007 in the prerecessionary environment and are just now becoming part of the comparable restaurant base after their first 18 months of operations.

As such, these newer restaurants are slightly pressuring our overall comparable restaurant sales metric, and we expect them to continue in this respect throughout the remainder of this year. For example, in the first quarter, if we exclude the 7 restaurants that recently came into our comparable sales base that opened in the prerecessionary period of 2007, our overall comparable sales metric for our other 55 comparable restaurants would have been positive .7%, or seven tenths of a percent. As such, these 7 newer restaurants have resulted in decreasing comp sales by about .8%. When you have a relatively small base of comparable restaurants to begin with, a smaller -- a small number of those restaurants can often impact the overall comp sales metric either way.

During the first quarter our estimated menu pricing factor was approximately 3.5%. In the second quarter we currently expect our menu pricing to be in the 3% range, which we currently expect to maintain throughout most of this year.

In regards to the middle of our P&L, our cost of sales of 24.8% of sales was 40 basis points lower than last year's first quarter and 60 basis points lower than the fourth quarter of 2008. This increase compared to prior year's first quarter was principally driven by expected higher commodity costs for chicken, wheat products, and oils, offset by menu pricing that we implemented in the second half of 2008. As you may recall, the majority of the commodity increases in 2008 occurred in the middle of the year and then subsided towards the end of the fiscal year.

Sequentially, compared to Q4 of last year, the decrease in cost of sales was a result of lower-than-expected cheese and oil costs, which have been offset by higher chicken and pizza dough costs. Additionally, we did see some expected lower costs related to our BJ's beer resulting from lower transportation costs and efficiencies gained from contract brewing.

Our labor and benefits during the first quarter was essentially flat at 35.4%, compared to 35.3% in last year's first quarter. We continue to staff our restaurants to take excellent care of our guests and to capture every sales dollar that we can in a productive and efficient manner.

Sequentially, labor and benefits increased 40 basis points from the fourth quarter of 2008. This increase is primarily a result of higher payroll taxes which we incur at the beginning of each year. On an overall basis, hourly wages were flat with Q4 2008 and up about 1.3% compared to the first quarter of 2008, and that's what we really expected.

Our operating and occupancy costs as a percentage of sales increased 80 basis points to 21.2%. The majority of this increase is due to the planned higher marketing costs as a percent of sales. As we previously mentioned, beginning in the second half of 2008, we made a business decision to increase our marketing costs closer to 1%-plus of sales compared to about 0.4% in prior quarters. We believe that our incremental investment in marketing has generated a good return, as evidenced by our recent sales and profit margin trends.

Operating and occupancy costs sequentially as a percentage of sales decreased 40 basis points, as utility and energy costs were slightly lower and our restaurant operators continue to improve their efficiencies on a cost per guest basis.

Our general and administrative expenses in the first quarter of 2009 decreased 150 basis points from prior year to 7% of sales. Included in G&A for both 2009 and 2008 is approximately $600,000 of equity compensation, respectively, or 60 basis points in 2009 and 70 basis points for 2008.

On an absolute dollar basis, we were able to reduce G&A by approximately $260,000. The reduction in G&A both in absolute dollars and as a percent of sales compared to prior year was primarily due to less costs related to managers in training, resulting from lower manager turnover and a reduction in the absolute number of new restaurants to be opened this year. The reduction in turnover should not only help our G&A costs, but as Jerry already mentioned, the more experienced our management team is, the better the result.

Our depreciation and amortization was 5.6% of sales, which is pretty much in line sequentially with the fourth quarter of 2008.

Restaurant opening expenses were approximately $1 million during the first quarter of 2009, which was the result of two restaurants that opened in the quarter.

Our tax rate for the first quarter was 30%, which was slightly higher than what we were originally anticipating. The increase is due to lower-than-expected tax-exempt interest income on our investments and, on the favorable side, higher-than-expected taxable income. As such, based on our analysis to date, we now expect our tax rate for 2009 to be in the 30% to 31% range as compared to our previous estimate in the 27% to 28% range.

Our CapEx for the first quarter was approximately $8.3 million gross of any tenant improvement allowance. We still anticipate our CapEx to be approximately $56 million to $60 million before any tenant-improvement allowance. We anticipate tenant-improvement allowance to be about $12 million in 2009, reducing our net use of cash for capital investments to be in the $45 million to $48 million range, which is in line with our original expectations for the year.

Before I turn the call back over to the 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 auction rate securities, we were able to redeem an additional 600,000 of these securities during the first quarter at par. As such, we currently own 34.4 million in face or par value auction rate securities. The auction rate securities we own are all student loan collateralized obligations. These student loans are public student loans guaranteed by the US government under the Federal Family Education Loan Program, or FFELP program.

I do want to remind investors that the interest we earn on our auction rate securities is tax exempt. Yet, from my understanding, because we own the tax exempt student loan auction rate securities, our investments continue to pay interest during the penalty period and do not reset at zero for any period of time, unlike some other student loan auction rate securities. However, as credit spreads have recently come down for LIBOR and other municipal indices, our auction rate securities are currently generating a return of approximately 1.3% before taxes, or 2% on a tax-effective basis.

Because of the illiquidity of these investments at the current time, in accordance with FASB 157, Fair Value Measurement, we continue to obtain third-party valuations for our 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 used can have a material effect on the valuation of each security.

Based on these valuations, we have currently recorded a temporary impairment in the value of these investments of approximately $4.9 million, or about 14% of the face value. This temporary impairment was recorded in other comprehensive income, which is part of shareholders' equity on our balance sheet, and was recorded in accordance was FASB 115, Accounting for Certain Investments in Debt 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.

Excuse me.

In regards to our liquidity overall, we, again, raised an approximate $11 million of EBITDA in the first quarter and paid down $1.5 million on our line of credit. As such, we ended the first quarter with just over $6 million of cash and $8 million outstanding on our line of credit, and our line of credit is for $45 million and does not expire until 2012.

In regards to our capital expenditure plans of 2009, as I mentioned, we expect our entire cash outlay for capital expenditures for 2009 to be approximately $45 million to $48 million, which includes approximately $12 million from landlord allowances. We anticipate funding our capital expenditures primarily from our cash balances, operating cash flow, and our landlord allowances.

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 on sales and margins for the second quarter and the rest of 2009 based on our information and expectations as of this date. All of this commentary is subject to risks and uncertainties associated with forward-looking statements, as discussed in our filings with the SEC.

Although we continue to see some improvement in the sales comparisons for our restaurants in the Central-Sacramento areas of California, as well as the Inland Empire areas of California and the Phoenix, Arizona, market, as Jerry mentioned, we continue to take a conservative view about our comparable sales volumes for the rest of fiscal 2009.

Additionally, as I previously mentioned, some of our newer restaurants that were opened in 2007, before the current recessionary environment, will continue to have some pressure on our overall comparable restaurant sales metric for the rest of 2009. Until we begin to see some improvement in general economic conditions in those states and trade areas where we have significant concentrations of restaurants, as reflected by a topping out of the unemployment rate and-or an uptick in consumer spending, it will be very difficult to drive meaningful increases and overall guest traffic, which, in our view, is really the key to not only taking pressure off our restaurant-level margins, but also giving us an opportunity to gradually move those margins back to prerecession levels.

That being said, as Jerry mentioned, we have numerous sales-building and productivity initiatives for 2009, and our casual-plus positioning with broad approachability and an average guest check of around $12.00 should allow us the opportunity to gain market share and outperform many of our peers.

Our next scheduled restaurant opening is not until early July. Therefore, our Q2 restaurant weeks should increase by 19%. As we previously mentioned, for 2009 we continue to anticipate a decrease in our weekly sales average in the 2% to 4% range.

Specifically, in Q2, as Jerry mentioned, we will be rolling out a significant update to our menu that will feature new items, a refreshed and more contemporary bar menu, and the upgrading and replating of numerous menu items. In total, we are either adding or updating about 25 menu and beverage items. As such, we will spend about $250,000 more than we typically do to roll out this menu change in terms of restaurant-level training, most of which will be in restaurant labor.

In regards to cost of sales, at the start of 2009 we were anticipating about a 3% increase in the total cost of our commodity basket for 2009. To date, our lower cost for cheese and oils have helped to offset the expected increases we have seen in our chicken and our pizza dough. As such, the cost for our commodity basket in the first quarter compared to the fourth quarter of 2008 was basically flat, and we currently expect the same flat comparison in the second quarter. However, we have only contracted 25% of our cheese this year, and our chicken is on a quarterly contract. Additionally, our angus beef, which is about 6% to 7% of our cost of sales, is on a monthly contract, and our supply chain department currently expects angus beef, and possibly other proteins, to increase in the second half of this year. As such, I would anticipate a little more pressure on cost of sales in the second half of this year compared to the first half.

I continue to anticipate labor to be in the mid-35% range for both the second quarter and the rest of this year. As I mentioned, we do anticipate about $250,000 of training labor in Q2 related to our regularly scheduled menu update in May.

I anticipate that our operating occupancy costs will be in the mid-21% of sales range for 2009 based on our current marketing plan and the current cost of energy.

I do expect an increase in our absolute dollars in G&A going in to Q2 and the rest of this year. Specifically, as we plan to open seven to nine new restaurants in the back half of this year, our manager-in-training pipeline will gradually increase compared to the first quarter. Our manager training program is an 11-week program. Therefore, to have our managers ready for new restaurants, these managers must be currently in training in order for us to properly staff and correctly execute in our new restaurants.

Additionally, as we ramp up our development in the second half of this year, I would anticipate travel and other support-related costs to increase. As such, for the last three quarters of 2009, I would expect G&A expenses for each quarter in absolute dollars to be about 11% to 12% higher than our actual G&A expense for the first quarter.

Even though we are not opening a new restaurant in the second quarter, I still anticipate preopening costs in the $600,000 to $750,000 range related to preopening rent, as well, preopening training for many -- for as many as two restaurants expected to open up in the July timeframe.

I anticipate interest income to be pretty consistent with the first quarter, which would be in the $75,000 range for quarter, and as previously mentioned, we expect our tax rate to be in the 30% to 31% range for 2009, and our diluted shares outstanding for 2009 will likely be in the 27 million range.

Jerry, back to you.

Hey, thanks, Greg.

Before we wrap our remarks and take some questions, just a couple of more comments here.

First of all, we've gotten off to a very solid start here in 2009 on almost every measure. We've got solid forward momentum in place today, and we really look forward to executing our key initiatives and our expansion plan as we move throughout 2009.

The other thought that we'd like to leave with you before we take some questions is that we've got to reiterate our confidence in BJ's longer-term ability to continue to build market share in the casual-dining segment. In our view, the casual-dining segment is still a very attractive place to be in the restaurant industry. We don't think that the estimated $80 billion or so annual casual-dining sales is going to disappear any time soon.

Depending on current pressures in the macro environment, the segment may not grow as fast as it did in past years, it may even narrow a bit, but it's still a large, highly fragmented segment that's populated with thousands of restaurants that, in our view, have gradually felt 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.

But we believe that all of these factors play to the strengths of the BJ's concept. So we remain 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 begins to turn around. Until it does, we're going to keep doing our absolute best to control what we can control, to drive sales, to do our best to become even more productive and efficient in our overall execution.

So that wraps up our remarks, and now we're going to open up the call for your questions. And if we don't have time to get to your question on the call, please feel free to call us at our offices. We're on California time, and we'll be around for a while.

So, operator, we'll take some questions.

Thank you, sir.

(OPERATOR INSTRUCTIONS)

Our first question comes from the line of David Tarantino with Robert W. Baird. Please go ahead, sir.

Hi. Good afternoon, and congratulations on a good start to the year.

Thank you, David.

One clarification question on the comps. I think, Jerry, you mentioned that the Easter shift had an impact on the early Q2 comps. Can you quantify what the impact was on that early Q2 figure that you mentioned, and, I guess, (inaudible) mirror and (inaudible) in Q1.

Sure. I'm going to turn -- I'm going to let Greg comment on that because I think he's got the data.

Greg?

Yes, David, the flip-off was worth about 0.2% in regards to comp sales, and the reason for that is you get the pickup in the middle of the week related to spring break all around Easter time, then you lose it on the Saturday-Sunday. So, in essence, you probably picked up about 0.1% to 0.2% in the first quarter and then down 0.1% to 0.2% here in the second quarter.

Okay. That's on a quarterly run rate basis so-- ?

That's correct.

Right. Okay. Great. Thank you.

And then on your average weekly sales guidance down 2% to 4%, what -- it looked like the gap between the comps and the average weekly sales narrows this quarter, presumably because of the good new unit performance. Do you expect the spread between those two numbers to continue to be in the Q1 range, or would it widen as the year progresses?

Well, there's a couple things. In regards to the first quarter, I think we got a little bit of a narrowing spread. Some of it might have been due to we -- due to January, which, frankly, was a good month for us overall all weeks in January, and as we come in to this quarter with Easter and so on, we're still kind of that continued trend as the flattish that we've seen. I do think as maybe you get back towards the second half of this year, with a little bit more California restaurants in there, that that spread would narrow.

Okay. So I guess the implication then would be your guidance would contemplate negative comps for the rest of the year? Is that how you're thinking about it?

Well, we don't really give guidance on comps specifically. I think what we've seen over this first quarter, what we saw, frankly, last year, is probably pretty consistent to what we're going to see through the remainder of 2009.

Okay. Thanks. That's helpful.

And then last question on the comp side, Jerry, you mentioned a lot of initiatives to drive comps, and could you just elaborate on some of the menu initiatives that you mentioned? You cited several exciting new entrees and product. Could you just tell us a little bit more about what's going on there?

Oh, I'd be delighted to. In our upcoming May menu change, which is going to be, as I mentioned, one of the most ambitious, I think, that BJ's has undertaken, we're going to do a number of things. We're going to be introducing our flatbread appetizer pizzas. We're going to be introducing a Thai shrimp lettuce wrap dish, which is absolutely terrific. We're going to be introducing two new signature pizzas, a Southwestern pizza and a combination pizza -- pepperoni, sausage, and mushroom pizza -- which happens to be one of the most popular combinations that our guests already order so we're going to go ahead and put that on the menu as a regular item.

We're updating our alcoholic beverage spirits offerings with 10 to 12 new bar drink recipes. We're upgrading several of our current entrees with new presentations and new flavor profiles. We're going to totally upgrade, what we call, our current country-fried steak with a Texas-style chicken-fried steak. Being from Texas and having consumed mass quantities of chicken-fried streak over my lifetime, I was finally able to convince Ray Martin, our corporate chef, to really take another look at our presentation so we've got a new version of that coming out.

We've also got a new version of our pot roast, our Italian chopped salad, which we're going to call something else. We've got a new plating for our crispy potato skins. We've got a new plating presentation for our meatloaf. And many, many other things. In fact, I think we have as many as 25 to 27 different menu additions or updates associated with this particular rollout. So we're very, very excited about the ability to add more variety, more quality, more differentiation to our menu.

You know, I've been involved with BJ's for 4 1/2 years now, and really for the vast majority of my time here so far, we've really worked hard on our operational execution ability, our kitchen systems, our -- and, frankly, working on upgrading our kitchen talent. And now after done a lot of that work, we're now more comfortable and really beginning to work on expanding our menu and adding much more quality to our menu because we feel that we have a much -- a better chance of correctly and consistently executing some of these higher-quality menu items in our kitchens today. So we're very, very excited about that.

Great. Thank you.

Thank you.

Thank you, sir.

And our next question comes from the line of Nicole Miller with Piper Jaffray. Please go ahead.

Good afternoon. Greg, I'm sorry. I missed the preopening guidance for the second quarter.

Preopening guidance will be somewhere in the $600,000 range.

I thought it was $600,000 to $750,000. Did I miss that?

I thought you said you missed it, but that's what I think I said. I think I said --

Okay.

-- it's $600,000 to $750,000.

Okay. Okay.

And then I guess my question, Jerry, if you had any thoughts, it seems like the price points in casual dining are moving to extremes, and I'm just wondering what you, kind of, think is philosophically sustainable and some of the mass-market peers, if you will, are getting these entrees under the $10.00 and now under the $7.00 range, and I'm just wondering how that impacts your business in the industry?

Well, those are all very good questions, and I'm not sure I'm really in a well-informed position to comment on the menu and pricing strategies of our mass-market, casual-dining competitors. I watch television, and I certainly see the heavy television advertising with respect to some of the brands, and I'm sure that they've all done their homework and have done their research and have looked at the impact on gross profit dollars in terms of trading per person expenditure for per person profit and how that all manifests itself in additional per persons or guest traffic, and I think they've all made their own decisions in that respect.

With respect to BJ's, though, I think that we're very, very comfortable in managing our menu and our price points to be right around the $12.00 range. I think that's really the sweet spot given our current economics of our concept and our current pushes and pulls on our operating margins for us to protect margins, particularly during this period of time.

I do think, however, over the longer run, once the recession abates, here at BJ's we're going to continue to work hard to add more quality and more differentiation with respect to our menu and give our guests more opportunities to spend a little bit more money if they feel comfortable in doing so, if our guests feel like that they're going to get additional value for the money in our restaurants. But having said that, our overall strategy, I think, remains in place here at BJ's to kind of peg our average check pretty close to what the mass-market competitors currently charge.

So that's really the best insight that I can give you. I think our strategy is pretty sound, and I think we're going to continue to execute it and try to protect that value positioning of the BJ's concept while at the same time offer a higher-quality, greater-differentiated dining experience to the consumer.

Thank you.

You're welcome.

Thank you.

And our next question comes from the line of Larry Miller with RBC Capital Markets. Please go ahead.

Yes, a couple of questions, if I might.

You talked about the seven new stores -- Greg, I think you mentioned that they're entering the base. I realize that they're young comp stores, but are they following that same sort of trend as some of the West -- California -- Southern California-Phoenix trends? Are they getting (inaudible)?

Are they following that -- those trends? I guess from a comp sales standpoint, they probably are following those trends. They just now enter the comp bank. I'll have to see how they mature throughout the year, meaning, when you look at California and Phoenix, Arizona, last year, they dropped off in Q1, as we mentioned, and then slowly, gradually built themselves up throughout 2008. It's too early to tell if they're building themselves up or not at the current moment.

From a geographical standpoint, three of those seven are the Florida restaurants, and that is the Florida market, which is a market that is, I guess, more severe in recession from that standpoint. So we'll have to see how those ones mature out this year. Some of the other ones are just more geographically disbursed, meaning they're not just California restaurants or Arizona restaurants.

Okay. That's helpful. And then can you talk about some of the markets that have been good for you. I think, like, Texas was pretty good and maybe Northern California. How are those guys performing?

We still continue to see the same type of trends that we saw last year. Texas, as we said, has come down, but it's still a solidly comp state for us, and we continue to do well there. We continue to see some nice restaurants throughout Southern California or Northern California. In one of our restaurants in the Phoenix area, it's been positive in the first quarter. So it's really a mixed bag, so to speak.

Uh-huh. Yes. Okay. I got it.

And then just on your long-term targets, you had always been talking, I think, a 10% operating margin. Any reason that that should have change at all?

No. In terms of the longer-term outlook business model, Larry, I think, again, over the next several years, assuming that we continue to execute our expansion plan at a reasonable rate and grow our revenues in excess of the rate of growth and an infrastructure expenses, assuming that we get additional supply chain leverage as time goes on, over the next several years, there's -- everything else being equal, we still strongly believe that a -- an operating -- consolidated operating margin for this business that that 9% to 10% range is clearly achievable for a business model like BJ's.

Okay. Great. Then I just have two kind of housekeeping questions I wanted (inaudible). Did you say, Greg, that the 19% operating week gross and the negative 2% to 4% average weekly growth -- average weekly sales impact was for the second quarter or for the year?

I said the 19% operating week is specifically for the second quarter. The WSA -- negative 2% to negative 4% -- is throughout the year.

That's how you mix it up. And so are you still on target for something like 15% to 16% operating week growth? Yes, you said that in the press release. Okay. Perfect. That is helpful.

And then D&A guidance -- did you mention that at all because it looks like it has a big jump?

I think -- you've seen the trends. They're probably going to be sitting there in that middle- to upper-5% range.

Okay. And what's the cause of that?

Couple things. One is just the increase in capital expenditures for new restaurants over the last two or three years, both from an inflationary environment. So our restaurants generally from kind of 2006 -- well really 2007 -- 2008 were more expensive than what we previously built. And then the other side of the -- as we moved outside of California a little bit, we've seen a decrease in weekly sales average so you just get a higher percent of sales.

Okay. Thanks, guys.

You're welcome.

Thank you, sir.

And our next question comes from the line of Steve West with Stifel Nicolaus. Please go ahead.

Hey, guys, I got, kind of, a question on the longer term -- I'm not asking for unit growth in 2010 -- but, Jerry, just longer term, if you talked about real estate development becoming tighter, not as many people building, you guys are looking for just triple-A spots, and there's a lot of peers out there that you have that are also looking for those same spots, how do you see that longer-term developing? Because there doesn't appear to be very much construction going on and probably not for the next three to five years as far as malls and kind of where you guys have that sweet spot. Is that something you can address or that you're thinking about?

Well, I think you have to take it in to the context of the geographical markets that you select for development. So when you consider the major metropolitan areas that we operate in today, our first preference would be to open new restaurants during the next couple of years as fill-in locations so that we can obtain maximum leverage of our supply chain, of our field supervision organization, and continue to build overall consumer awareness for the brand in these trade areas. And, clearly, with the current real estate project slowdown, that's presented some challenges. If you want to strictly follow that strategy of being more of a fill-in development strategy, and I think that it's very, very important for a business model like BJ's to do our absolute best to maintain as much discipline as we can to stay within that particular strategy for the next couple of years, particularly when you're in very uncertain periods with respect to the national economy.

Now, over the longer run, there are -- what? -- if we're in 13 states today, there are something like 37 states that we're not in today, and Greg Lynds, our Chief Development Officer, as I -- as we sit here looking at one another, in our monthly real estate committee meetings, believe me, Greg is here saying, "Look, Jerry, turn me loose on the East Coast. Turn me loose up in the Northeast. Turn me loose in the Midwest. Turn me loose in the Southeast." There are many, many tremendous retail projects that are available for us today in triple-A, very mature locations that will quite adequately support the longer-term growth and expansion of our business, I think, in a very leveragable way.

So, as time goes on, as we take a look at the -- at how the retail development begins to recover over time, as we move out of this recession, we're going to try to maintain as much discipline as we possibly can to manage to achieve maximum leverage in our business model, and we're going to pick those new markets for expansion in a very thoughtful, disciplined way, and over the long run, I think we feel very, very confident that there's plenty of room to get up to at least 300 BJ's domestically. It's really how we want to execute against that opportunity, and we really want to do it in a very thoughtful, leveragable way.

You know, I've been in this business for over 30 years, I've been with different business models, and time after time, as I think back over the last 10 to 15 years, for companies that have come the public capital markets and have tried to execute growth plans, not facing a recessionary environment, more often than not, a lot of those companies lose their discipline. They take on much more exposure to new markets earlier than they should. They outrun their supply chains with respect to the availability of management talent. They outrun their ability to leverage their absolute food and distribution supply chain. So, but what we're trying to do here at BJ's is to maintain that discipline as hard as we can, and I believe that we're going to be able to do that within the context of our current footprint and then take on new markets as they become available.

So that's a bit of a long answer to your question, but I wanted to kind of inject a little bit of our philosophy towards expanding the business so you'd have a good understanding of it.

Okay. And then couple beer questions -- and you guys are so good at the beer side of it. One thing, you mentioned you're talking about bringing some other craft beers in. Last time I was in one of your stores, I noticed some people drinking some mass-branded light beer, which surprised me, and I wonder what your view is on that, and why would you do that? It seems like it be a littler margin product. It almost seems like it'd be like going to Napa Valley and ordering a box glass of wine at one of the wineries or something like that.

And then, Greg, maybe if you could talk about some of the cost savings you should be getting on the outsourcing of the beer, and is there maybe some opportunities on your COGS guidance at that 3%? Maybe it'd be a little bit lower than that with some of the beer savings coming through.

Well, let me -- this is Jerry. Let me to try address a couple of those questions for you.

First of all, with respect to the cost side, at least during 2009, we are increasing the overall percentage of our own craft beer that's being produced by contract brewers. This year we believe that probably around 55% or so of our total internal craft beer requirement for BJ's brand of beer will be produced by contract brewers. We believe that the contract brewers have much greater economies of scale and purchasing power with respect to the production of our beer, and we will see that this year.

However, those savings on an absolute production cost basis are going to be offset to some degree by inefficient freight. As we select contract brewers that are willing and able to produce our beer that, frankly, are a bit of a distance away from our own restaurants at the current time. So, as we continue to build restaurants further east, increase our penetration in those markets, and as we continue to work additional freight savings through our own supply chain -- and we have other opportunities to do that today -- I think over time it's fair to say that we would expect the delivered cost per barrel of our own beer to our restaurants to gradually decrease over time, but for 2009 we do have some freight inefficiency.

As far as the overall presentation of craft beer in the BJ's concept, we've been experimenting for the last year and a half to determine whether or not we can establish a consumer positioning as the premiere retailer of craft beer in casual dining. Our first experiment of this nature was in our Austin, Texas, restaurant. When we opened that restaurant up, we took our core set of BJ's beers, and we surrounded that with approximately 24 other popular craft beers on tap in America just to see how the consumer would react. And not surprising to me, but perhaps surprising to some others, not only did the overall incidence of beer in terms of beer incidents per 100 guests increase but -- and not only did the absolute average check increase, every favorable economic measurement related to beer in our concept improved, and it did not cannibalize BJ's beer hardly at all.

So based on that, we started other tests, not only in some of our newer restaurants but also here in our core Southern California market, and for the last year or so, for every new restaurant that we've opened, we have taken this approach with our beer presentation. We always lead with BJ's craft beer and -- but we're surrounding it with some of the other craft brands, and we have seen the same economic phenomenon. We sell more beer, the margins on the craft beer set we're introducing with our own beer are, frankly, almost equivalent to that of our own craft beer. So we're selling more beer, and, overall, I think it's been done in a very classy way. We are not offering the mass-market beers on tap, they're only craft beers, and I believe that this may be a very special competitive positioning for the BJ's brand that I think we can really capitalize on as we continue to expand the business across the country.

We probably have close to 20 of our restaurants now offering the expanded craft beer tap set, and, again, we're still learning a little bit from it, but so far every economic indication and every response from the consumer has been very, very positive. And, most importantly, it has not taken anything away from the positioning of our own proprietary craft beers within our restaurants.

So, so far it's quite exciting, and if you think about it the way we've thought about it, when the brew pub phenomenon kind of got started 10 or 15 years ago in the restaurant business, the beers were kind of presented in kind of a production brew house approach to the consumer: We're only go to sell what we're actually producing here at the restaurant. Whereas BJ's, we've kind of thought about that, and we thought, Well, gosh, why don't we try a retail brew house approach? In other words, why limit ourselves by selling only what we can produce? Why not create the basic consumer positioning of being a premiere retailer of craft beer in the casual-dining space -- we believe that is a very unique competitive positioning -- and at the same time do it in such a way that -- where we surround it with high-quality food and with our video statement have a very, very unique consumer positioning?

So that's, in a nutshell, kind of what we've been thinking and what we've been executing, and, again, so far, every economic and consumer indication has been very, very positive.

And, Steve, just (inaudible) because I know you and I have talked. Not everybody out there is a beer connoisseur like yourself, and as a result, we do get a handful of people that come in and they want a Bud Light or a Coors Light or a Miller Light. So BJ's, from day one, always offered a, kind of, light beer from one of the mass players in the bottle only.

Bottles only. Right.

That's been there from the beginning.

Okay. Thank you very much.

You're welcome.

Thank you, sir.

And our next question comes from the line of Paul Westra with Cowen and Company. Please go ahead.

Hey, thank you. Good afternoon, everyone.

Hey, Paul.

I was wondering if you could just do another quick just comment or two on the menu initiatives. It looks like, obviously, a ton of [separate] after it's underway there, but was there any one overriding opportunity you saw? Was -- did you want to get more price points at lower or higher levels or you went after certain (inaudible) and customers in particular?

Well, we do a gap analysis internally. We look at the competitive set. We look at our menu. We look at certain gaps. We also have a longer-term menu strategy for each category in the menu, Paul, and what we're trying to do is to attack them in a very systematic way. We felt that our signature products -- our pizza and, frankly, our beer -- we are -- I didn't mention we'll be rolling out our Nit Wit seasonal beer, which has been an award winner, and we'll be doing that as well.

But we wanted to put some emphasis against our signature products. I think in casual dining today more than ever it's so important to have signature products, and for us it's our pizza, it's our beer, it's our Pizookie dessert. So we put some effort against that.

We also wanted to strengthen the appetizer category a little bit, and that's why we wanted to introduce our own version of the flatbread appetizer pizzas, which we believe is very complementary as appetizers to our signature entree pizza line.

But we also really wanted to take a look at some of the comfort foods that we have had on our menu for some time -- the meatloaf, the pot roast, the chicken-fried steak -- or what BJ's thought chicken-fried streak was until the Texas guy showed up here -- and really do some work on enhancing those presentations. So we have a long list of menu evolution and menu upgrades that we want to do but that's -- but this is kind of where we're starting.

And, Paul, I think kind of to your question a little bit. We didn't look and say, gee, we need to have a $5.95 lunch bowl or some $5.95 lunch item or a $9.00 item that we could bring in there to maybe come from a value perspective that maybe you're seeing from some of the other peers. We think our menu already offers a pretty wide variety in regards to price points for any guests, and, really, we looked at, to Jerry's point, as to what are we missing on the menu that we can continue to enhance our business versus specifically looking at lower-priced items or smaller-portion-sized items that I think you're seeing at a lot of other companies.

Yes. Very good point, Greg. Very good.

Has the total number of items on the menu changed materially?

No, not all. We've got a couple of items that we're going to delete from the menu, but I think we're very, very comfortable with keeping our menu size at the 100- to 110-item level right now.

Okay. And then I was wondering if you just best you can talk a little bit about the overall restaurant level margin environment we're seeing out there? I mean, clearly, you guys have a (inaudible) expectations here, holding margins potentially flat without the -- year over year without the marketing spend change, and you found traffic, which is obviously a heroic performance, but I -- as you probably know already, that we've seen some incredible margin performances elsewhere in casual dining. I was just wondering if you comment, generally, perhaps what the level of opportunity is for you and perhaps what your major competitors may or may not be doing that you choose not to?

There's a couple things that are going on that -- I think we mentioned in our call about we're seeing cost of sales more or less flat with the first quarter of 2008, and across the board it seems like most of the restaurant companies are getting a benefit from that. I can't speak to them specifically, but that seems to be the -- one of the areas that is a benefit going in to 2009.

Additionally, as we mentioned as well, we're not seeing much increase on hourly labor. So that area has become a little bit easier for us to manage, per se, and I would imagine our peers are getting the same thing there.

I do think, though, there's a -- the slowdown in unit growth has really helped the restaurant business overall, both BJ's as well as other companies. Last year we had 15 freshmen, and those 15 freshmen are now sophomores. They've got to play better. They've got to get those margins up, and I think you're seeing that across the board with many restaurant companies.

That being said -- and we were very clear about it in today's formal presentation -- the only way to sustain margins and to grow margins is you've got to drive top-line sales. You've got to get comp restaurant sales back into positive territory to really move your margins, and the ability to offset it in one year by not having growth and other things, I don't think that is sustainable in regards to growing your margins over time.

That's why at BJ's we're very proud to be only down (0.1)% from that perspective. But as Jerry mentioned, everything we're doing here is thinking about driving that top-line sales in regards to better menu items, more efficiency within the restaurant, better energy within our restaurants, investing back into our restaurants so we can take -- so we consider -- so we can continue to be relevant to the guests.

And this -- maybe just one last question following up on margins. I mean, some others are talking about some pretty significant, I guess, cost reductions in energy and health care, and I was wondering what yours are looking like and maybe looking -- going forward for the rest of the year if there was more opportunity to get leverage there?

You know, health care's an interesting one because our contract is basically a calendar contract. So as we went in to this year, we saw a nominal increase in our medical insurance, nothing to be -- too alarming. We'll have to see how that plays out in to 2010.

On utilities, it's an area that we're concentrating on. We've hired a third-party service that seems to help other restaurant companies as well so we can understand which restaurants maybe are using more energy per guest than some of our other restaurants. So I do think there's opportunity there. If energy costs stay the way they are, I think you're going to see some major opportunity there, really, through the summer months, where those summer rates spike up across the board.

Good. And then I think -- I mean, you have a bunch of other initiatives beyond the menu, which is an initiative in and of itself. I'm just -- maybe talk about your -- maybe one that would have the most impact going forward for the remainder of the year. I know you're doing a lot of work on your larger-party initiatives, you're table seatings, your to-go, and the other ones I might be missing.

Well, I think there are a couple that are worth mentioning, Paul. First of all, we're going to be testing a bar system or -- for example, in our kitchens we call it our "kitchen display system," where we rolled out over the past couple of years to really automate the firing of all of the orders as they hit the different stations on the cook line. We're also going to be working on experimenting with a bar system that's very, very similar.

We're also in the process of -- well, we just completed the rollout of a theoretical beverage cost component to our theoretical food cost system. So we've just rolled that out, and we'll be uploading that over the next few months. And that's another -- our alcoholic beverages represent about 20% -- 21% of our sales, and we really haven't had a theoretical cost system associated with 20% to 21% of our sales until just now. So I think that represents an opportunity for us going forward.

The other one that we're working on of a technological nature is a virtual shift management display system, which will be on a flat screen in the back of the house -- in the kitchen -- which will integrate with our kitchen display system, our automated table management system, and our POS system to capture critical metrics related to the execution of the shift as the shift unfolds, and it'll be just like looking at a scoreboard. And everyone in the restaurant, particularly management, will be able to quickly glance at this scoreboard in the back of the house and the restaurant. It's not going to be buried in a manager's office. It's going to be out there for everyone to see. And that will give another data point to take a look at guest counts versus plan, looking at the weight, looking at staff members that are on the clock that are getting ready to go in to an overtime mode or that are getting ready for a break, looking at all of the different critical shift metrics, your ticket times -- all of those critical metrics as the shift unfolds to increase overall management awareness and gives them the opportunity to take action if they see some of the indicators moving in different directions.

So I think those are a few of the more important initiatives that we're working on in addition to our sales-building initiatives.

Okay. One last one -- sorry. You mentioned the tax rate up to 30%. Again, I didn't quite get hear why. Was there an offset (inaudible)?

Yes. Two things. One is less tax-exempt interest, and the other is, frankly, favorable free-tax income.

Yes, favorable to the extent that we've had more than what we thought we were going to have.

Yes.

Yes.

But we don't pay taxes on it.

Okay. Thanks. Take care, guys.

Okay, Paul.

Thank you, sir.

And our next question comes form the line of Tony Brenner with Roth Capital Partners. Please go ahead, sir.

Thank you. I have two things I wanted to ask about. First of all, can you give us a little update on what's going on in Texas? I know that -- as the subprime markets here were stabilizing, Texas has been weakening a little, and I'm wondering what impact that's having on your sales trends?

Tony, we mentioned earlier that Texas is still comping positive for us and continues to comp positive for us. It's not where it was last year or the year before that, and I'm sure that a combination of the economy there slowing down, and I think the other part of it is, the fact of the matter, we were doing high-single if not double-digit comps there for three to four-plus years. So it's come down, but it's still solidly positive for us.

Okay. And, second, regarding costs, particularly ingredient costs, you mentioned that two in particular, cheese and beef, costs are down sharply. Cheese is down nearly 50% from this point a year ago. You're contracted only for one quarter out, and at least for beef you're expecting an upturn. So the question is why would you not contract for a longer period?

A couple things there. On the cheese, we've contracted out 25% of it, and, frankly, the risk premium, for lack of a better term, that they want -- the suppliers -- is too expensive. So it makes more sense for us to kind of float it a little bit at this time.

But we're going to continue to evaluate that on a quarterly basis, and we'll take a look at it here for the next -- in the next couples of months. And I think that goes --

Exactly.

-- for every one of our commodities that we don't have contracted on a full-year basis. We always watch them on a quarterly basis, and as Greg mentioned, if we can get a supplier to step up and charge us a risk premium or an insurance premium that makes sense to us, well, then it would make, obviously, sense for us to go ahead and lock in, but we haven't seen that make it itself available yet.

Fair enough. Thank you very much.

Okay.

You're welcome.

Thank you, sir.

And, ladies and gentlemen, due to time constraints, we have time for one final question, and that's from the line of Greg Ruedy with Stephens, Inc. Please go ahead.

Thank you. As you ramp the growth up to an expectation of 25% capacity growth to manage your pipeline group, now that you've pulled back, can you just kind of maybe describe where the delta's at in the first quarter in terms of the number of managers, how that should progress as the year goes on, and how many managers will be in the pipeline at year end?

Well, I can tell you for the full year, based on our own estimates of turnover and our requirements for growth, I think we're going to need to recruit about 145 total managers this year. Last year we recruited, I believe, about 175 managers. So that's as much information as we can provide at this time.

Greg, do you have additional information?

Yes, just some real basic information, and I kind of give you a little bit of an idea.

In the first quarter, our average -- we had about 11 to 12 MIT's in our program per week. And we're expecting that number to double plus coming here in the second half. In fact, even here in the third quarter, we just had a meeting this week. I will tell you that we had the highest amount of MIT's in our system this week than we've had all year, which is close to 30. So that 11 to 12 MIT's that we averaged in Q1 has gone to 30 MIT's currently today.

Okay. I appreciate that color. When we look at the openings in the back half, if you could highlight any input costs or G&A leverage from the majority of these openings being in your home Texas and California markets?

In regards to G&A leverage, you're just going to get normal G&A leverage as you add the additional restaurants because we're not adding G&A at the same rate of new restaurants. So that should take care of that.

In regards to the overall cost environment in regards to the middle of the P&L, I think it'll be a little bit closer to what we saw in the second half of last year when we opened up just about the same amount of restaurants. You'll see preopening go up. I would hope that operating and occupancy costs would come down versus where they were in Q3 with not having the energy spike and having a little bit more of a [radical] number in regards to marketing of around 1% for the -- each quarter versus Q3 and Q4. I think we bump that number above 1%.

Great. That's all I had. Thank you.

Greg Levin; Okay. Thanks.

Thank you all.

Thank you, sir. And that does conclude our question-and-answer session. I'd like to hand the call back over to management for any closing remarks.

Thank you all. If you want to contact us at our office, we'll be here for a little while. Thank you all for being on the call today.

And, ladies and gentlemen, this concludes the BJ's Restaurants first quarter 2009 results conference call. We thank you for your participation, and you may now disconnect.