BJ's Restaurants Inc (BJRI) 2009 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the BJ's Restaurant Third Quarter 2009 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, October 22nd, 2009.

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

Hey thanks, Douglas. Hello, everybody. I'm Jerry Deitchle with BJ's Restaurants and welcome to our third 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 our third quarter of fiscal 2009 that ended on September 29. You can view the full text of our earnings release on our website at www.bjsrestaurants.com. Joining me on the call today is Greg Levin, our CFO, Greg Lynds, our Chief Development Officer, and Diane Scott, our Director of Corporate Relations.

The agenda for our call today will be as follows. First, I will provide a brief business and operational overview for the third quarter. Next, Greg Lynds, our Chief Development Officer, will comment on the status of our new restaurant development pipeline and then after that Greg Levin, our CFO, will comment on our consolidated income statement, our summery balance sheet and our liquidity position at the end of the quarter.

After that, we'll be happy to answer your questions and we're going to get our call started after Diane provides our standard cautionary disclosure with respect to forward-looking statements. Diane?

Our comments on the conference call today will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by forward-looking statements.

Investors are cautioned that for 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, October 22nd, 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. We're pleased to once again to report that, in spite of the ongoing difficult environment for consumer spending for restaurant occasions in general, BJ's sustained its forward momentum during the third quarter, which we believe was probably one of the toughest quarters in recent memory for casual dining restaurants in general. And most importantly to us, BJ's continued to build its overall base of restaurant capacity during the quarter and we were able to thereby gain additional market share during the quarter in the estimated 80 billion casual dining segment of the restaurant industry and that's really our principal longer-term objective.

In the shorter term, we also have to stay focused on prudently managing our business and response to the pressures of the recession. Now our principle job as BJ's managers is to effectively balance our focus and our resource allocations so that we can make progress on the simultaneous achievement of both our short and long-term objectives and we believe that we are continuing to do a reasonably good job of doing that to date.

Moving to our financial results for the third quarter of 2009 when compared to the same quarter of last year, our total revenues for the quarter increased about 8.5% to $103.9 million. Our net income and diluted net income per share for the third quarter of 2009 increased approximately 55% and 50% respectively, up at $3.2 million and $0.12 respectively compared to the same quarter last year.

Our results for the third quarter benefited from a favorable comparison for restaurant pre-opening costs compared to the same quarter last year, which impacted the quarterly diluted net earnings per share comparison by about $0.03 per share. We opened just two new restaurants during the quarter just ended compared to six openings during the same quarter of last year. So when you exclude restaurant pre-opening costs from the results for both quarters, our income from operations still increased about 19% compared to the same quarter last year in spite of the pressures on our top-line results due to the ongoing recession.

Additionally we were very pleased to have maintained our estimated four wall restaurant operating cash flow margins in the 18% to 19% range during the quarter in spite of the de-leveraging impact of the 1.6% decrease in our comparable restaurant sales during the quarter.

We also mentioned on our last couple of conference calls that our leadership team had never felt better about the factors of BJ's business that we can control. We still feel that way. We believe that our restaurant operators did a good job of managing our food waste, our labor productivity, our other control of cost expenses during the third quarter, although we still have opportunities to improve in many of our restaurants. Greg Levin will comment on our operating margins in more detail later in the call today.

As we noted in our press release, our comparable restaurant sales decreased by only 1.6% during the quarter, which we believe will once again rank BJ's among the better performances on that metric in the casual dining industry here for the quarter. And we were also pleased that our performance on that metric for the quarter should once again out perform the widely followed Knapp-Track, a benchmark survey for casual dining comparable sales, which we believe will likely report an estimated decrease of at least 6% for the third quarter.

In particular, after you consider our significant presence in California, Arizona, Nevada and Florida where two-thirds of our base of comparable restaurants is located, we believe that BJ's ability to retain over 98% of our aggregate comparable restaurant sales during the third quarter is a pretty strong testimonial to the popularity, the relevancy and the overall value of the BJ's restaurant concept and I think it also reflects our steady and steadily improving ability to correctly and consistently execute within the four walls of our restaurants.

In fact, if you go back to the start of the current recession in late 2007, we believe that BJ's has retained more of its aggregate, comparable sales dollars than most publicly held casual dining restaurant concepts have during the past seven quarters. And, while we're on the subject of comparable restaurant sales, for the first three weeks of our fiscal October our aggregate comparable sales comparison has actually improved a bit. It's now exactly flat at 0.0%. While this is encouraging news, 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.

Now, also keep in mind that our weekly sales comparisons continue to be quite choppy during the current recession and they're really not of much value in helping us here to accurately predict the future. Finally, much like last year, the upcoming holiday season will combine a relatively short selling period with even more cautious consumer spending, so we continue to urge our investors and analysts to remain on the conservative side of the ledger in setting their comparable sales expectations for the upcoming fourth quarter.

Greg will give some additional color on our comparable sales trends in his comments later in the call today. There is no question that every restaurant operator in America would like to have better comp sales right now and so would we. And we also realize that it is necessary for us all to pay attention to the shorter-term pressures that we're all currently facing in terms of reduced customer traffic and comp sales. But we also think that it is very important for inventors that could keep an eye on longer-term growth opportunities for each restaurant concept in company.

We think the key question to ask is, when the economy does turn around which restaurant concepts and companies are going to be the ones that (a) have not damaged their brands and operations by over reacting to the current recession either through excessive cost cutting or excessive menu discounting; (b) the ones that have a leverageable business model in place that can effectively capture the benefits of sales increases when the overall economy begins to improve and (c) the ones that have clear advantages in their competitive positioning that enable them to take market share away from their competitors.

So when we look at the BJ's concept in Company and when we consider the strengths of our competitive positioning and the growth infrastructure that we carefully built over the past three or four years, we believe that BJ's is still a very special casual dining Company with an equally special opportunity to gain market share in a very large fragmented space where consumers are demanding more innovation, more freshness, more energy, more relevance and more quality and differentiation at a good value. These are the fundamental strengths of the BJ's restaurant concept and we're going to maintain our courage to continue to invest in our strengths during both good times and bad times.

And there are basically three principle drivers of enterprise value in most chain store consumer companies; unit expansion, four wall economics and overall leverage of the business model, not only economic leverage but also consumer leverage. We think that BJ's matches up very well on each one of those three drivers.

First of all, we're continuing to open new restaurants and we're continuing to steadily increase our overall capacity base but we're also doing it with careful discipline.

And next we're also working very hard to preserve our unit economics as we grow, notwithstanding the de-leveraging effects of comparable sales decreases principally caused by the current recession. This is the primary reason that underlies the investments that we've made and we plan to make in better operational talent and better operational systems and processes.

In my 30 plus years of working in chain retail and restaurant businesses, I have found that preserving the original unit economics of a concept when the concept embarks on an expansion plan outside of its original home court market that's usually the most difficult feat to accomplish. It's difficult but it's not impossible to achieve but it has to be aggressively and constantly attacked.

We've also worked very hard during the past few years to set up our infrastructure and our business model to achieve steadily increasing leverage as we grow. A good example of that in our business model is our gradual evolution to a contract brewing approach for our hand crafted beer.

So, recession or no recession that BJ's is going to keep moving forward. We believe that the BJ's concept and business model is solidly intact. It's getting stronger over time and that's why we're in this to build our overall enterprise value over the long haul.

Our leadership team is currently in the process of setting our key initiatives for our 2010 business plan. We're going to share some of those specific initiatives with you on next investor conference call. As in the past, we categorize our key initiatives into seven general categories; sales building, preserving four wall margins, elevating the quality and differentiation of our food, beverages and service, improving the productive capacity of our facilities, building talent at all levels of our organization, leveraging our brewing operations and, last but not least, minimizing the risk of doing business in the restaurant industry.

As we develop our business plan for 2010, we believe that it's very important that we balance our managerial time and our capital resource allocations between new restaurant expansion, which is usually the most fun and exciting part of building a restaurant business, and the need to reinvest in our established restaurants, which are the very core of our business. So reinvesting in the core will be a key theme for BJ's during 2010 in addition to building new restaurants.

But we still have many opportunities to improve the productive capacity of our core base of established restaurants. For example, we can improve the abilities of our restaurant managers to be better restaurateurs and better restaurant business people. We can add additional technology to improve our speed of service and our labor productivity. We can remodel some of our older cash cow restaurants to help sustain their performance. We can upgrade our signature video capabilities in many restaurants. We can reengineer the table and seating layouts of many of our capacity constrained restaurants. We can roll out our expanding guest beer cap configuration to more restaurants. We can become even more effect merchants and marketers of our food, beer and the BJ's brand.

While some of our peers have clearly adopted what we call a save your way to success strategy during these tough times and have essentially stopped investing in their core, we have not. Our strategy continues to be a grow your way to success strategy but only in a productive and efficient manner.

In addition to our four wall productivity initiatives, last year we made a decision to increase our media marketing spending level to about 1% of sales to more effectively communicate with our customers during the recession and we currently plan to maintain that general level of marketing investment during the fourth quarter this year and also throughout 2010, although the amount for a given quarter might be slightly more or less depending on our internal marketing calendar of key events.

While our media promotions are intentionally designed to convey a value message during the recession, which we believe is absolutely critical, the offerings themselves do not typically represent significant discounts in terms of absolute dollars or profit margins for BJ's. The upcoming print and online media advertising for our semi-annual menu update, which rolled out last week, I think is a good example of our primary media advertising tactic.

In this up coming Sunday's newspaper in most of our markets we'll be advertising five new menu creations starting at $7.50, our lightly breaded crispy calamari, a barbeque pulled pork sandwich, grilled barbeque chicken sliders, barbeque pulled pork sliders and a BJ's Pizookie trio dessert. All of these new menu items are being advertised at their full gross margins.

We'll also reinforce our call-ahead seating and our large party reservations services in our advertising. So we're continuing to focus on advertising new products and new services, not price discounts with the objective of building our base of loyal guests that also happen to be our most profitable guests.

Moving to our new restaurant expansion activities, we are very, very proud of the successful execution of our 2009 new restaurant development plan in spite of the significant difficulties faced by most of our retail project development partners during the current recession.

So now I'm going to turn the call over to Gregg Lynds, our Chief Development Officer, for his update on our new restaurant development pipeline. Greg, go ahead.

Thanks Jerry. Good afternoon, everybody. Our development team has worked very effectively this year to successively achieve our previously stated development targets to grow our total restaurant operating weeks by approximately 15% and successfully execute 10 new restaurant openings during 2009.

To date in 2009 we've opened seven new restaurants and we're very pleased with the initial performance of all of them. In the third quarter just ended we opened two restaurants, Downey, California on August 3rd and Allen, Texas on September 8th. So far in the fourth quarter we opened Culver City, California on October 5th and Concord, California on October 19th.

We have three more planned openings for the fourth quarter, which are Carlsbad, California, which is a northern suburb of San Diego; San Rafael, California, up in the San Francisco Bay area and Hurst, Texas located within the Dallas/Fort Worth trade area. All three of these retardants are under construction and should open before Thanksgiving and that's assuming the weather and other factors outside our control continue to be favorable.

We are also very pleased with the initial sales volumes of the restaurants we opened in the third and fourth quarter, in particular our home court restaurants in Downey, California and Culver City, California have enjoyed record breaking sales weeks and both continue to perform very well above our initial expectation.

As we noted in our press release today, looking forward to our development plan for 2010 we currently expect to open 10 to 11 restaurants in the next year and, similar to our 2009 development plan where we opened eight of our 10 restaurants within our core California and Texas markets, our current plan for 2010 calls for all our new restaurants to be build within our existing 13-state footprint. In today's economic environment we believe it's more important than ever to continue to cluster the development of our restaurants within our existing markets to achieve better leverage of our supply chain, field supervision, marketing and overall BJ's brand awareness.

In terms of our longer term development plan, we continue to believe that we have room to open at least 300 BJ's restaurants of various site types and sizes across the country. At the end of this year we'll have 92 restaurants open in 13 states. We have plenty of quality growth opportunities remaining in our core California and Texas markets and we have now established a strong national brand presence and national footprint from California to Florida and into the Ohio Valley.

We are currently evaluating a couple of new markets for potential entering to 2011 and we'll keep everyone posted on that as we move forward.

As I said on our last call, the current economic conditions have taken their toll on many national retailers and our external development partners and landlords as a result of these difficulties in the current stocks, commercial real estate market, our team has been more focused than ever on securing real estate within densely populated, more mature trade areas and we will maintain this discipline as we build our 2010 and 2011 site pipelines.

In addition, the slowing economy created a small but measurable reduction in our construction costs for 2009 openings and we anticipate that we will continue to see slightly lower construction costs and slightly improved lease economics as we move into 2010 and 2011. Even though today's down market has postponed or cancelled many new retail projects, our BJ's new restaurant development pipeline remains in excellent shape. Our brand within the development community has never been stronger and our team will continue to leverage the strength of our brands to secure the triple A real estate opportunities and gain market share as we grow from coast to coast.

And to reiterate a very important point that Jerry made in our press release, we believe that BJ's is one of the few publicly held casual dining restaurant companies that achieved high quality, double-digit capacity growth during 2009 and that plans to do so again during 2010.

Jerry, back to you.

Hey thanks, Greg. We continue to believe that BJ's four wall economics are sound and they support a continued and steady pace of new restaurant expansion. As Greg mentioned, there are certainly not any lack of sites in general to support our longer-term expansion plan but currently as a result in the recent slow down in retail project development, there is less visibility of high quality sites available 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 consumers. Now were always going to pick quality over quantity when it comes to our new restaurant locations.

I'm going to turn the call over to Greg Levin, our CFO, for his comments. Greg?

All right thanks, Jerry. I'm going to take a couple of minutes, go through some of the highlights for the third quarter and provide some forward-looking commentary for the remainder of 2009 and some preliminary forward-looking commentary for 2010.

All of such commentary is subject to the risks and uncertainties regarding forward-looking statements that are included in our SEC filings. Additionally, my commentary may also refer to certain non-GAAP financial measures that we use in our internal review of the business and that we believe will help provide insight into our on-going operations.

As Jerry noted, total revenues for BJ's third quarter of 2009 increased 8.5% to approximately a $103.9 million from $95.8 million in the prior year's comparable quarter. Increase is a result of approximately 12% more operating weeks offset by an approximate 3% decrease in our weekly sales average.

As Jerry mentioned, our aggregate comparable restaurant sales for the third quarter decreased 1.6%. While we do not give out specific monthly comparable restaurant sales, our weakness was primarily in July and August. As we mentioned on our second quarter conference call, that through the first three weeks of July our comparable restaurant sales were in the negative 2% range and that trend continued through August.

However, in September our comparable restaurant sales improved and we saw flattish comparable restaurant sales in September and, as Jerry mentioned, we continued to see flattish comparable restaurant sales through the first three weeks of October, albeit the sales trend continues to be very choppy. It is just as common place to have a day in which our comparable restaurant sales could be up 3% one day and then down 5% the next day. We don't expect this daily choppiness to abate any time soon.

For those of you that have been following D-days over the last year, we have mentioned that our softness in comparable restaurant sales metric primarily began back in late 2007 in the Sacramento, Central California region, the Inland Empire areas of California and the Phoenix, Arizona market.

These were regions of high growth over the last several years and the housing melt-down and related slow down in overall construction activity has taken their toll on these local economies. As we stated before, we have 10 restaurants in the Sacramento, Central California region and the Inland Empire area of California and three restaurants in the Phoenix, Arizona market that were in our comparable restaurant base since the beginning of 2008.

These 13 restaurants had comparable restaurant sales decreases in the 6% to 8% range beginning in the first quarter of 2008 and then gradually improving throughout last year. In 2009 these 13 restaurants have either been in line with total aggregate company comparable restaurant sales or slightly better than the total aggregate company comparable restaurant sales.

In the third quarter these 13 restaurants were down approximately 1.4%, which is pretty much in line with our overall comparable restaurants sales of negative 1.6% in the third quarter. We do continue to see pressure on our comparable restaurant sales from our newer restaurants as they come into the comparable restaurant sales base. These restaurants were opened in 2007 in the pre-recessionary environment and are just now becoming part of the comparable restaurant base after the first 18 months of operations.

If we exclude these 13 restaurants that recently came into our comparable sales base that opened in the pre-recessionary period of 2007, our overall comparable sales metric for our other 56 comparable restaurants would have been negative 1.1% in the third quarter.

As I stated before, even though the class of 2007 restaurants are pressuring our comparable restaurant base, we are pleased with the aggregate overall averaging of sales for these restaurants. The fact of the matter is these restaurants were simply opened in a pre-recessionary environment and are coming into the comparable restaurant base in a very challenging economic period for our Country.

Additionally, the class of 2007 is very geographically disbursed for there is not specific region or area that is driving the negative comparable restaurant sales for this class. In 2007 we opened restaurants in Florida, Oklahoma, Ohio, Texas and California.

During the third quarter our estimated menu pricing factor was approximately 2.8%. We just completed the roll out of our fall menu, actually of our fall menu in which we only added about 0.9% of menu pricing. Therefore, menu pricing should be around 1.6% or so for the fourth quarter to probably that same amount for the first quarter of 2010.

Our estimated guest traffic in our comp restaurants began about 4% in the third quarter compared to the same quarter last year. That was about the same traffic decline that we saw for the sequential second quarter. For the first three weeks of October, our estimated guest traffic is down about 3% compared to the same period last year, which is encouraging, but we want to caution investors that we continue to expect negative guest traffic comparison at least for the foreseeable future.

In regards to the middle of our P&L, our cost of sales of 25.1% of sales was 30 basis points lower than last year's third quarter and that was due primarily to lower cheese costs. Our labor benefits during the third quarter was 30 basis points lower than last year's third quarter. This reduction was principally due to a favorable adjustment to the forfeiture rate experienced in our restaurant level equity compensation program, based on actual forfeiture activity today. As such, excluding this $350,000 true-up adjustment, our labor for the third quarter would have been approximately 34.9%, which is flat with the third quarter of 2008.

Our operating occupancy cost as a percentage of sales decreased 100 basis points to 21.9%. This decrease compared to the same quarter last year was a result of lower energy costs by approximately 50 basis points and less market spend as a percent of sales by approximately 50 basis points.

As such, our marketing spend is currently at about 1% of sales. Our general and administrative expenses increased approximately 90 basis points from the prior year to 6.8% of sales. Included in G&A is $517,000 of equity compensation for 2009 or 0.5% of sales compared to $636,000 of equity compensation for 2008's third quarter or 0.7% of sales.

Excluding the equity compensation, G&A increased about $1.5 million compared to the prior year. And, for those of you who have been following BJ's, you may recall that last year's third quarter we reversed $1.5 million of accrued corporate level incentive compensations based on our then assessment of the compensation most likely to be earned for the full year of 2008. Therefore, excluding that incentive compensation adjustment for 2008 of $1.5 million, G&A on an absolute dollar basis was basically flat with the third quarter of last year.

Compared to the second quarter of 2009, G&A was down approximately $500,000 of which $100,000 was related to equity compensation and our remaining $400,000 was due to lower costs for our general managers meeting than anticipated and other cost controls that we have implemented this year.

Our depreciation and amortization was 5.9% of sales. This increase is a result of higher depreciation related to our newer restaurants and our commitment to reinvest and remodel our older restaurants as well as some de-leveraging from a 3% decrease in our weekly sales average for the third quarter.

From a trend perspective, depreciation and amortization per operating week only increased a little over 1% from the second quarter of 2009, yet our weekly sales average in the third quarter was approximately $93,000 compared to a weekly sales average of close to $99,000 in the second quarter of 2009 resulting in the de-leveraging from a margin perspective.

Our restaurant opening expenses was approximately $1.5 million during the third quarter of 2009 of which approximately $1 million was related to the opening of two new restaurants and the remainder related to pre-opening costs for the five restaurants scheduled to open in the forth quarter 2009.

Our tax rate for the third quarter was 29.6% and we expect our annual effective tax rate to be around 30% for the year.

Now 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 the fourth quarter of 2009 and some of our preliminary assessment of 2010.

In regards to our auction rate securities we were able to redeem an additional $1.4 million of these securities during the third quarter at par. As such, we currently own $31.9 million in face or par value auction rate securities. The auction rate securities we own are all student loan collateralized obligations and these student loans are public student loans guaranteed by the US Government under the Federal Family Education Loan Program or FFELP.

Because of the illiquidity of these investments at the current time, in accordance with FAS 157 Fair Value of Measurement we continued to update third-party valuations for our investments. Based on the evaluations we have currently recorded a temporary impairment in the value of these investments of approximately $3.4 million or about 10.6% of the face value. The temporary impairments was recorded in other comprehensive income, which is part of shareholders equity on our balance sheet and was recorded in accordance with FAS 115, Accounting for Certain Investments and Debt in Equity Securities.

We are currently scheduled for a FINRA Arbitration proceeding regarding our auction rate securities in early December. Once we learn the outcome of that proceeding either in late December or early next year, we will have a better sense of our available options with respect to the ultimate liquidity of these securities. We will keep you posted on these developments.

In regards to our liquidity we have generated approximately $33 million in EBITDA through the third quarter and redeemed approximately $3.1 million of our auction rate securities to date in fiscal 2009 and $5.2 million of our auction rate securities since February 2008. We entered the third quarter with just under $13 million of cash and $7 million outstanding on our line of credit. Our line of credit is for $45 million and does not expire until 2012.

Our CapEx to date is approximately $41 million and that's 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 investment to be in the $45 million to $48 million range, which is in line with our original expectation for the year. As we said before, 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'll now provide some forward-looking commentary on sales and margins for the rest of 2009 based on our information and expectations as of this date. I just want to remind investors that this commentary is subject to the risks and uncertainties associated with forward-looking statements and discussed in our filings with the SEC.

Although we've seen improvement in our comparable restaurant sales beginning in September and continuing through the first three weeks of October, we continue to believe the environment will remain challenging for the consumer at least through the remainder of 2009 and 2010. Additionally, we believe that any meaningful recovery will need to coincide with a stabilization of the unemployment rate and overall labor market, particularly in the states of California, Nevada, Arizona and Florida where we have the majority of our restaurants located.

That being said, we are confident in not only the BJ's concept and brand positioning but our strategy to navigate our way through the difficult economic environment. Our strategy, as we have mentioned many times, is to continually raise the bar in casual dining. Therefore, we will not save our way to success by cutting into the muscle or vital organs in our business nor will we discount our way to success. Instead we will continue to focus on the guests, control everything we can control, leverage our supply chain and infrastructure and ultimately grow our way to success. We believe this strategy has already worked well for us as evidenced by our continued out performance on comparable restaurant sales compared to the industry. In fact, over the last 21 months beginning January of 2008 in the heart of the recession our comparable restaurant sales have only been down 0.6%.

Specifically regarding the fourth quarter, based on the current estimated restaurant opening dates, I would anticipate approximately 1,170 total restaurant operating weeks. As I mentioned, to date we have seen comparable restaurant sales in the flattish range. However, in Q4 Halloween will be on a Saturday night and Christmas moves from a Thursday to a Friday, which is going to make December a very challenging month. We currently estimate that losing the after Christmas Friday this year everything else being equal could negatively impact comparable restaurant sales by as much as 0.7 in the fourth quarter. Therefore, I would continue to anticipate a decrease in our absolute weekly sales average in the 3% to 4% range.

In this upcoming fourth quarter we anticipate opening five new restaurants. Because of the large amount of restaurant openings in the fourth quarter I would anticipate some normal pressure on restaurant level margins associated with these openings, specifically cost of sales and labor due to the inefficiencies associated with opening new restaurants. Therefore, in the fourth quarter we anticipate cost of sales in the low 25% range and labor around the 35% range if not in the low 35% range. I am anticipating operating and occupancy costs coming back into the mid 21% range in Q4 from 21.9% in the third quarter. I expect G&A to increase in the fourth quarter on an absolute dollar perspective due to the travel related to the opening of as many as five new restaurants and the increase in our manager and training pipeline for our 2010 new restaurants. As such, I would anticipate G&A to be somewhere in the $7.9 million range including approximately $600,000 in equity compensation.

On regards to pre-opening costs for Q4, I would anticipate about $2.5 million or so related to the opening of five new restaurants and pre-opening rent for restaurants expected to open in Q1. We expect our tax rate to be in the 30% range for the fourth quarter and our diluted shares outstanding will likely be in the $27 million range in the fourth quarter.

One final note on the fourth quarter, as I previously mentioned we anticipate our arbitration regarding our auction rate securities to take place in early December. Based on discussions with our legal counsel the cost to bring this suit to arbitration may be in the $500,000 to $600,000 range. As such, separate of the information previously discussed, we anticipate incurring a one-time, non-recurring charge of approximately $500,000 to $600,000 in the fourth quarter for legal costs related to our pending auction rate securities arbitration. There is a chance that the legal fees incurred could be reimbursed to us based on the decision in arbitration. However, we believe it is prudent to model these costs in as a one-time non-recurring cost for the fourth quarter.

In regards to some preliminary forward-looking commentary for 2010, as both Jerry and Greg Lynds have mentioned, we anticipate opening as many as 10 to 11 new restaurants next year and therefore, increase our operating weeks approximately 13% to 14%. As we previously mentioned, we are currently preparing our 2010 annual business plan and therefore, certain sites that we have identified for next year are still preliminary in regards to their actual opening date. Therefore, as of today, I would anticipate one to two new restaurants opening late in the first quarter of next year resulting in an expected increase in operating weeks of about 11% to 12% for Q1 of 2010.

However, as we've said before, the actual number and timing of new restaurant openings for any given period is subject to a number of factors outside of the Company's control including weather conditions and factors under the control of landlords, contractors and regulatory and licensing authorities. Once we complete our 2010 business plan during the next couple of months we will be able to provide additional guidance regarding the 2010 opening schedule by quarter.

As for 2010, as Jerry mentioned, we will continue to be investing in our core business and making sure our restaurants do not lose their appeal with the guests. Therefore, in addition to the 10 to 11 new restaurants for next year, we will continue to allocate capital to remodels and productivity enhancement initiatives. Therefore, I would anticipate our gross capital expenditure for 2010 to be around $60 million before any tenant improvement allowance, which is roughly the same amount of CapEx that we currently expect for 2009.

As with 2009, we anticipate funding our 2010 capital expenditure plan from cash in our balance sheet to cash flow from operations and landlord allowances. In regards to margins for 2010 and inflationary costs for next year, it is still very difficult for us to comment with a high degree of certainty as our supply chain department is currently in the middle of negotiations for many of our key commodities for 2010 and we expect to wrap up most of these negotiations during the next 30 days. For those smaller commodities that we have completed our negotiations for next year, like our breads, tomatoes for our pizzas, bacon, frying oils and salad dressings, the vast majority will have 2010 costs that will be equal to or less than what we currently are paying, which is really good news. We are considering a favorable proposal for our chicken that when finalized should result in lower costs for next year.

Cheese really remains the wild card for us at this time and, as we remain largely on a spot market for that commodity, it's difficult to predict where cheese will fall for 2010, so to be conservative at this time we should anticipate the cost of our commodity cost basket to possibly increase in the 1% to 2% range next year and we'll update you in more detail on our next conference call. Again, our current expectation is subject to significant risks and uncertainties in the food and energy commodity market. Our hourly labor and management wages over the last year have been relatively flat and I do not anticipate any significant pressure on wages for 2010 outside of normal inflationary costs for manager salaries and medical benefits.

We are currently reviewing our current operating costs so that we may optimize some of these costs through better contracts and better management systems. However, because a significant percentage of these costs are fixed, such as occupancy, insurance and preventative maintenance contracts, our operating occupancy cost as a percent of sales will vary based on comparable restaurant sales comparisons and average weekly sales levels.

Given our current expectation for the cost of our key inputs for 2010, we have preliminarily targeted an effective menu price increase in the mid 2% range for next year. Of that target approximately 1.5% or so would be carry over pricing from 2009 and 1% or so would be new pricing. Having said that, if our 2010 commodity costs come in less than we currently expect our requirement to take new menu pricing next year will also be reduced. While we have not finalized our 2010 G&A plans of this date, our continued goal is to gain leverage in our G&A cost. As such, the only way we can do this is by making sure that our G&A costs do not increase at a rate greater than our top line growth. Therefore, if we plan on increasing our operating weeks for 2010 by 13% to 14% we would anticipate G&A growth to be less than that amount.

Our expected income tax rate for 2010 should be in the 30% range and we continue to expect that diluted shares outstanding for 2009 will likely be in the low $27 million range.

Jerry, back to you.

Hey, Greg, thank you very much for that very thorough review. So to wrap up our prepared remarks we were very pleased with our favorable results for the third quarter and we're continuing our forward momentum so far in the fourth quarter and we're looking forward to 2010 as we continue to execute BJ's national expansion plan and steadily increase our market share over time. And to reiterate a very important point, we believe that BJ's is just one of a few publicly held casual dining restaurant companies that achieved high quality double-digit capacity growth during 2009 and that plans to do so again during 2010.

Before we open up the call for questions, I'd also like to mention that it was announced last week that BJ's made the Forbe's Magazine list of the Best 200 Small Companies in America for 2009. And a few week's ago BJ's stock was added to the S&P Small Cap 600 Index. So those are some important milestones for a little casual dining restaurant Company that's continuing to grow for which we're very, very proud.

And before we take calls we want to thank all of our guests, our team members, our supplier partners and our investors for their continuing support during these tough economic times as we continue to build our business and our brand.

So that concludes our remarks and now we'll open up the call for questions.

(Operator Instructions). Our first question comes from the line of Matt Difrisco with Oppenheimer.

I'm sorry. I might have missed that but could you guys talk about the fourth quarter guidance and what you might be seeing currently as far as regional trends, strength and weakness?

Now, if we didn't get into specifics in regards to regional trends and we didn't note that our comparable restaurant sales, at least through the first three weeks of October, are basically flat. We're at 0.0 right now and we started seeing an improvement in that in September time frame. However, I did remind investors that we're going to lose the -- we're going to see the shift on the Christmas holiday move from a Thursday to a Friday so we're going to lose that Friday, which was a big booming day for us if you think about it, the Friday after Christmas, and that is going to have an impact I think somewhere in the neighborhood of about 0.7 in regards to our comp sales for the fourth quarter.

Does that encompass also Halloween falling on a Saturday?

It does. Looking at Halloween from a Friday to a Saturday it wasn't quite as impactful. It was really losing a Friday versus you pick up a little bit of a Thursday per se but that Friday afterwards going into kind of a full holiday weekend was a really big Friday for us last year.

And then if I guess with the comp comparison, could you remind us on how it progressed throughout the quarters or throughout the quarter last year? I would assume you had a significantly ease in comparison as we got closer to the holiday?

You know, looking at it last year it was -- I would say it was actually fairly even because last year Thanksgiving moved for us from what we call P-11 to key P-12 and, as a result of that, if I had to strip all of that out, looked over P-10, P-11, P-12, October, November and December, we were actually pretty consistent week-to-week taking out the normal shifts with the holidays.

Okay and then can you also talk about I guess where do we stand as far as the investment cost on the box and looking at your stores to come in 2010 relative to what you've opened over the last 12 months as far as investment costs and anything that you could have removed from there?

Where we've seen some reduction, Matt, is in the labor cost required to construct a restaurant. We're very pleased with the overall size and build out of our current box. We're happy with it, our current prototype at about 8,500 or so square feet. We have a couple of different prototypes. One is a little bit less than 8,000 and then one is about 8,500 square feet but in terms of the size of the box and the build out of the box and the FF&E package and all of the finishes and the décor and the presentation of BJ's brand within the facility we're generally very pleased with that, although we always have ongoing efforts to engineer out as much of the discretionary costs as we possibly can through better purchasing practices and, as the economy has taken its toll on some of the equipment manufacturers we've been able to sharpen our pencil and get some small decreases in some of the costs of our FF&E build out items.

But in terms of the overall construction costs, where we've seen on average about a $200,000 to $250,000 cost reduction in the overall build of the restaurant, has been in reduced construction labor. So coming into this year the average cost to construct our larger prototype and including our free standing, or I'm sorry, our in line restaurants, has typically averaged about $4.2 million, $4.3 million and we've seen that come down with reduced construction costs to about $4 million and in some cases a little bit less than that in the current environment.

Okay and then can you talk about the stores that you've opened not in your core markets of either Texas or California, how those are ramping and what we could expect as far -- I know they opened at a little smaller average weekly sales but how are their sophomore years and what's the expect -- what's the growth rate as they're entering the comp base?

Well, we don't have that many of the 2008 restaurants coming into comp base but it's a mixed bag. I mean, and that's since we're happy overall with the aggregate from that standpoint but when I look at this year we opened in Florida and we opened in Las Vegas. Both Gainesville and Henderson are great restaurants for us, very happy with that. As I think about last year's restaurants, Louisiana or Baton Rouge restaurant, very happy with that restaurant as it's getting ready to get into that sophomore or comp space.

One of the things that has happened to us this year, and I think you see it more in the third quarter, is purely just mathematics is the fact of the matter is last year you had 15 restaurants that opened up. They went through 15 honeymoon periods. As they're coming down from that honeymoon period and then we're replacing them with only 10 restaurants this year, it's going to drag down your weekly sales average just as they come through the honeymoon.

In fact, you know, if you look at our Press Release we had opened 12 restaurants last year through this period or so and then at this time we've only opened up five restaurants. So you've got 12 restaurants coming down from their honeymoon. That's going to drag down your weekly sales average being replaced by only five restaurants in the honeymoon period. So that's what kind of helped a little bit the weekly sales average there from that perspective but, Matt, overall I'll tell you across the board we're really happy with our restaurants, whether they're in California, Texas, Florida, Louisiana that we opened last year.

That's great detail. I really appreciate that on the average weekly sales detail and I guess is it correct then despite them dragging the average weekly sales they're becoming more efficiently managed so better margin stores?

Absolutely. I mean, that's got to happen with your sophomore class. There's no doubt about that. We have certain metrics that we look at based on when a restaurant's been open for a certain amount of time and those restaurants get better all the time.

Excellent thank you.

Steve West, Stifel Nicolaus & Company.

It's [Matt Banbley] in for Steve this afternoon but a couple questions on where the progression is on some of the delivery and curb side on line order or on line seating and some of those convenience initiatives and how they're progressing and maybe if you could break out each one or as a composite what they're -- what the percentage of sales is and maybe how much of that you really think is incremental?

Be happy to do that. Overall when we started these programs about a year to 18 months ago our total off premise percentage of sales was right around 4%. Since we've rolled those programs out and consumers have become more confident with them and more confident in our ability to execute against them, our overall off premise percentage of sales is drifting closer to 6% of sales.

It's been my experience and my observation that when these initiatives were put into place at other restaurant chains in the casual dining segment, you know, it's going to take three or four years for you to really maximize the overall benefit of these programs. These are longer-term benefits because consumers have to build their overall familiarity and level of confidence in your ability to correctly execute in that particular distribution channel. So we've seen some steadily increasing returns on that investment and we reinforced our call ahead seating, our curbside cashiering, our on-line ordering in all of our external media promotions and we continue to build that distribution channel.

Okay and then I guess sort of switching gears here in the development side, are you anticipating any of the 10 or 11 stores that you're looking at for next year to be in jeopardy at this point of maybe not opening until the very end of the year or possibly getting pushed back? I know you said that you haven't secured all of the sites yet. I don't know what kind of percentage maybe or handicap you put on maybe changing that number at some point.

Well, we have secured all of the sites. We just haven't slotted them into a specific opening schedule right now because we're still waiting for additional information from some of our landlords as to exactly when they're going to be able to deliver the sites or the spaces to us so that we can commence our build out. But we have signed leases or signed letters of intent on many more than 10 or 11 restaurants.

We have 10 or 11 that we have preliminarily prioritized based on all of the information that's available to us at this time but we also carry a bullpen of 10 to 15 additional sites that, again, depending on our ability to secure the sites and the landlords to timely deliver them to us, we have some flexibility if we run into a little bit of an issue with a particular site that's a primary site that we can substitute one in so Greg Lynds and his development team just don't really focus on 10 or 11 and if one has an issue we're down to 10 or if two have an issue we're down to nine, we have a very active bullpen of sites and it is very, very fluid and that's why in this particular environment that you've got to have about as many sites in your bullpen signed and working as you do have on your primary list.

Greg, do you want to add anything to that?

No I think you covered it. I mean, if there's always a risk that a project slipping but our pipeline is pretty full and we continue to see additional sites come down the pipeline so we're working hard and we're in pretty good shape as of today.

You know, one other comment, as long as I've been involved at BJ's, and I'm wrapping up my fifth year, we have always delivered on our new restaurant expansion targets as long as I've been here. It's something that we're very, very proud of. We have consistently executed against achieving those annual targets that we set out at beginning of the year and we don't have any intention of breaking that record next year.

Okay great but then I guess from the other side of that, if you have this bullpen of sites that you're happy with and they do start to progress would you move forward on them more quickly than maybe you're anticipating and go, you know, to 12 or 13 or are the bullpen sites a little more flexibility in terms of putting them off if you get the original 10 or 11 per se that are in play now?

Well, I think for now we're going to stick with our as many as 10 to 11 new restaurants for next year and as opportunities present themselves we have the ability to take advantage of them but I think for everyone's planning purposes right now let's stick with as many as 10 to 11 and we'll see how the year unfolds.

We -- you know, a year ago we opened 15 and we've kept our overall new restaurant development infrastructure largely in place. A lot of our competitors, which have curtailed their new restaurant development programs significantly, have reduced their infrastructures appropriately. We really have not so we're going to be very, very opportunistic and we'll take a look at the sites and we'll make those decisions as we move throughout the year but for right now I think sticking with 10 to 11 is really a good place to be.

Nicole Miller, Piper Jaffray.

I just wanted to understand sort of the context and margin this year comps down whatever they end up being down to slightly 1% range and yet it looks like store level margin will be up just slightly. In that theoretical context of a flat environment next year can margins continue to expand?

You know, it really comes down to your commodity costs. I think this year the restaurant industry in general got a deflationary environment in regards to cost of sales so, as a result, just purely looking at cost of sales even BJ's beating it by 30 basis points this quarter over last quarter. You know, three or four or five years ago that was really unheard of in that regard because commodity costs continued to go up.

The other thing that has benefited the restaurant industry this year is a slowdown in new restaurants or new units so your sophomore class that were speaking to earlier or your freshman class becomes sophomores and you get better productivity so you've got those two favorable variables going in your way. Going into next year in the context that the overall restaurant environment if you didn't grow any restaurants this year you're not going to grow any restaurants next year. You're not going to get that benefit so it depends on where your commodity costs come in. Looking at BJ's right now and taking a conservative point of 1% to 2% increase in commodity costs, you know what, we probably need based on that cost of sales being 25% to 26% of our costs you probably need about 0.4 of a percent in regards to menu pricing so if you saw a flat environment you probably have the ability to kind of manage your margins from that perspective. I don't think you really improve your margins. I hope that answered your question.

Yes it does. That's exactly what I was wondering. That's exactly right. And then just the longer-term pipeline, like really big picture here, like tell us what it looks like beyond the 10 to 11 next year, not how many per year but like what is in the future pipeline and what are some target markets?

Well, I think for the next couple of years, Nicole, we're going to try to maintain a very strong discipline to continue to open restaurants within our 13-state footprint in order to drive overall consumer awareness in trial for the BJ's brand and all of the consumer research that we've done, when I first arrived at the Company five years ago and we just did another second round, an update round earlier this year. When you look at the attributes of BJ's relative to awareness trial and usage and you compare those attributes as consumers have responded to our survey against other well-known casual dining brands in our key competitive markets, once they try us they become regular users at a rate equal to or higher than most other casual dining restaurant concepts.

The number one issue for BJ's is awareness, so what we've got to do is to have the discipline to continue to build overall awareness in markets like Denver, in markets like Dallas, which by this time next year we'll have eight restaurants in; in markets like Houston and markets like San Antonio, in markets of Central Florida and the Ohio Valley because that has a very important synergistic impact on the overall awareness of the BJ's brand. You know, we don't have a national advertising umbrella to where we can open up restaurants underneath and benefit from all of that wonderful awareness.

And, if you'll recall when BJ's first expanded into Texas back in 2002 and those first three restaurants in Texas were indexing at about maybe 65% to 70% of the sales average in the home court of California and it took a good three or four years for those restaurants to finally build their reputations and to finally get into the rotation of a lot of casual dining consumers and now those restaurants in Texas are among our very best and, in fact, are equal in many respects to a lot of our home court California restaurants, so we've got to continue to have the discipline to fill in. At some point, as Greg Lynds mentioned, we're going to have to take on a couple of new markets. We're not ready to tip our hand yet as to which new markets we're looking at. They are currently being evaluated. We have so many opportunities it's like a kid in a candy store to some degree and we just want to be very, very thoughtful and very, very careful that we continue to leverage our business model as we expand to new markets.

So that's really the best outlook that we can give you at this point in time. You know, in terms of the absolute longer-term rate of restaurant operating week growth, back in the old days when you had great tail winds in the casual dining industry and you could build it and they would come, annual increases in that particular metric of 18% to 20% or maybe even as high as 25% for many of the casual dining concepts that were rapidly expanding back in the mid 1990s and into the early 2000s were kind of what was expected and those were considered to be the higher growth rate concepts. In these particular times where you don't have a tail wind and where you have the casual dining segment kind of in all of the secular factors that drive casual dining restaurant occasions that's kind of flattening out over the past five years.

You know, it could very well be that a mid teens annual compounded annual growth rate and operating weeks will now become the high grower for a lot of casual dining companies and, again, I am just speaking as one long-term observer of growth rates in the restaurant business and particularly in the casual dining segment. So I don't think we have really made any particular announcement or set any long-term goal but clearly we have an opportunity to growth this business to 300 or more restaurants over time and we're going to continue to make steady progress towards that.

Larry Miller, RBC.

I was wondering if you could shed some light on what you think is behind the improvement that you've seen in September and October and then in the context of the peer group, the other bar and grill guys that are doing a heavy amount of discounting, do you think that's having an impact on your business right now? Thanks.

Well, in terms of the mass market casual diners and their various competitive discounting programs, we have not seen any impact on our restaurants in those particular trade areas where the mass market bar and grill competitors have large numbers of restaurants and where they're actively driving these particular promotional programs. It's our sense that -- and I think it makes a lot of common sense -- that the more, higher quality differentiated brands of any consumer business, whether it's restaurants or retail, you're going to have a higher percentage of more loyal customers and you're going to have a lesser percentage of disloyal customers that are going to just chase the deal of the day. So I think we're fortunate at BJ's to have a much higher percentage of loyal customers that are going to be loyal to us and that recognize our everyday value in the menu. So we have not seen any impact in those markets where in the mass market guys have been heavily discounting or couponing.

In terms of why we've been able to hang on to a larger percentage of our business during these tough times than maybe some of the others, particularly when considering our geographical penetration in a handful of states that have really taken it on the chin in this particular recession, I really do think it gets back down to two basic factors. I think we've effectively communicated the everyday value of the BJ's concept as best as we can with our limited media advertising budget of 1% of sales. I think we've been very thoughtful and effective in doing that and I think we've also continued to better execute within the four walls of the restaurants.

We have a number of operational initiatives that are intended to improve the overall speed of execution in our restaurants and we have a couple of other initiatives that are underway to improve the overall allocation of labor within the restaurant in terms of our station sizes, in terms of our front desk coverage, in terms of the number of bartenders that we have and the number of bussers that we have on a shift. As we continue to fine tune to optimize our overall execution to make sure that we're as productive and as efficient as we possibly can and I don't think that we can discount the impact of those initiatives in our overall sales performance over the past several months so I would have to attribute it to those two factors primarily, Larry.

And then just some clarification, when will you lap that 2007 class coming in, Greg, and then when the 2008 class begins to come in is it -- will it have an inverse effect? I mean, by those guys entered at probably lower volumes because of the recession and is it possible that they may get a little bit of mathematical head start on your comp?

Yes first of all, in regards to the 2007 it's going to be continuous because they all come into the comp base at different times and we're already starting to see here in the fourth quarter a little bit of improvement in class as those 2007 as they've just gotten through some of that initial honeymoon and so on in regards to the comp base.

In regards to the class of 2008, you know, it's hard to say because I think some of it is based on the macroeconomic environment. I think overall looking at them they look pretty good getting in there but I don't -- you know, I don't want to give you guys the indication that they're all the same and they're going to juice our comp sales from that perspective. I think they have a better chance of coming in what I've seen historically and that is neutral and maybe slightly up and then in that second years of through the comp they end up generating better comps for us, so I think we get back to more of our historical trend.

Okay and then finally from me, after you complete the arbitration if that gets resolved either favorably or unfavorably does that constitute an event that would become an earnings P&L event?

It could. I mean, obviously I think we would look at it as kind of a non-recurring, one-time event, both the fact that we resolve it at par and Citigroup, who are in a disagreement with takes it off from us and there's a no P&L event from that perspective. The legal fees would probably be that non-recurring hit. There is a possibility of recouping those again in the arbitration. It could be a couple of different things but I think, as we've always tried to do, we'll highlight those for the investment community and let them know what is related specifically to the auction rate securities versus what's going on in regards to our ongoing operations.

Okay thank you. That helps. I appreciate it.

John Dravenstat, KeyBanc Capital Markets.

Could you comment on whether you feel you've been successful in drawing a football bar crowd and if you have any goals as to that aspect of the business? You know, you're fully utilizing a bar area. Are those new menu items targeting that in any way?

Well, I will say that it would dramatically help our business if the Angels and the Dodgers would have won but the Angels are out and--

And the Dodgers are out.

The Dodgers are out too.

For those people in New York we're still rooting for the Angels here.

But to answer your question, the BJ's concept is really not presented to the consumer as a sports bar. We do have a very active bar. It's segregated in the restaurant with our video statement and we do attract a certain very vigorous clientele that loves to watch the games but at the same time when you look at the other two-thirds of our seating in our dining room it's full of soccer teams and folks like me with grey hair and so -- and lots of families, so again what we really concentrate on in the concept with respect to sports is to really have a state of the art video presentations with our 103 inch plasma, which I don't think there's any casual dining concept that's willing to make an investment in that particular machine, which is absolutely incredible. And that does help to differentiate us and draw some patrons that love to watch some of the games but we are not really a sports bar concept. We are a casual dining concept that offers 100 menu items. We offer some great hand crafted beer. We have some of the best video statements in casual dining but we're also a family restaurant.

Adding on to that I think, as Jerry mentioned, that the TVs and the video statement that we have really allow us to negate the veto vote that might happen when there is a big sporting event going on and, as a result, we don't get the impact, the negative impact, that maybe other restaurant companies do or other restaurant concepts do. So it probably adds a little bit of a net positive from that perspective but to Jerry's point, we're not putting up pennants in our restaurants. We're not having our bartenders wear jerseys for Monday night football but at the same time because we have that statement we will draw people in there and, as a result, we get a little bit of a net benefit from it.

That's helpful, thanks.

Amol Desai, Johnson Rice & Company.

Did you see any type of a deterioration, any certain day part sequentially from 2Q to 3Q?

From Q2 to 3Q, not really. You know, looking through our comp sales and I've got it kind of broken down here by lunch, dinner and late night, they were all kind of consistent in that regard. The lunch tended to be a little bit softer than dinner and late night for us and in the second quarter -- or I'm sorry -- in the third quarter, and I think that had kind of reversed a little bit in the second quarter where lunch was seeming to gain a little bit of traction but the difference is not meaningful, meaning lunch wasn't down 5% or something like that. It's kind of within 50 basis points of each other. We continue to see Monday through Thursday being a little bit softer than the weekends and that's been consistent through the last seven quarters.

Okay and in terms of the 10 to 11 units next year and I apologize if you alluded to this earlier but how many of those are remodels versus just non-remodels?

Remodels as in new restaurants or conversions of existing?

Sorry, yes are any of these conversions?

You could probably characterize one -- I'm sorry -- two as conversions of existing restaurants or retail space that's already standing there but basically what we're going to do is we're going to get in with a bulldozer and we're going to scrape them off and we're going to start over from scratch. You know, there really isn't any restaurant footprint out there, very few restaurant footprints that we can actually retain and just convert to a BJ's Restaurant and get the full brand identity and the full image that we want to project to the consumer, the full quality and differentiation of that facility, which is a very, very important competitive strength of the BJ's concept. But there are a couple where we're going to bulldoze them off and put our restaurants up.

So how would the cost of a similar conversion vary from just an average store?

Well, there's really not that material -- there is not a material difference in the cost really. Sometimes we pay fees and permits, that kind of thing but overall construction costs on what we call our remodel or a conversion versus a brand new restaurant it's within $200,000.

Right.

Okay thank you.

Take a couple more questions.

Greg Ruedy, Stephens.

The -- Jerry, I think you mentioned that you're not really seeing an impact from the discounting but I was just wondering maybe are you experiencing any shift away on your menu from higher priced entrees? And I have a follow-up to that.

No we aren't. We haven't. You know, we track our average check. We track the average weighted contribution of each component of our menu as it adds up to the overall average check for the business. We track incident rates of appetizers and desserts and beverages per 100 guests and over the last seven quarters that we've been in a recession we really haven't seen any material shifts in any of those particular statistics. I think the only thing that we've commented on in the past is that we've seen a slight increase in our beer incidence per 100 guests and a slight decrease in our wine and spirits incidence per 100 guests and I think that's probably price related to some degree but other than that there really hasn't been any material mix shift or incident shift in our overall average check since we've been in the recession.

Okay if competitors continue with the discounting strategy and you layer on growth from fast casuals, what risk is there that the consumer will basically become conditioned to paying under $10 for an entrée?

I'm not sure that I've got an answer for that one, Greg. It's very, very difficult to make a general statement as to what the likely impact would be. I think it has to be considered on a concept by concept basis and I think that when you consider BJ's and our current very attractive average check, which is still around the $12 range and when you consider how flexible our menu is and the number of ways that consumers can use us, the fact that a large portion of our menu, and particularly our pizzas, are very, very sharable, the fact that we do a substantial amount of business at happy hours either before the dinner day part.

We also run a late happy hour, the fact that we have compelling everyday value on our menu, the fact that we have quality and differentiation and a selection that when you combine it with the facilities that we have and the overall service levels that we have, it's a very, very difficult proposition for competitors to beat. That's not to say or suggest that we are undefeatable. We certainly aren't but I think when you look at the overall landscape and consider the different concepts out there and if you take that particular factor into consideration BJ's is probably positioned as well as anybody is to withstand that type of a competitive intrusion.

I think, Greg, your statements there and you can't dispute your statement but you're making a statement that means you're selecting purely based on price only.

Correct.

And I think with everything that we've talked about at BJ's and Jerry has touched upon it, is to make sure that we're reinvesting in our core. That 103 inch television, those facilities that we've upgraded, the linen napkins, everything else that goes into that dining experience is something that I think personally differentiates BJ's from a lot of the other casual dining competitors that we face and therefore we're not trying to just compete purely on price. We know it's very important in a guest's decision but if we can give them all of the other wow factors there I think we can have a compelling value statement for our guests and not get caught up just competing purely on price where maybe some of the other casual dining concepts because they haven't reinvested over the years are stuck to.

Absolutely and that's exactly what our business strategic plan has been over the past four or five years. When I came to BJ's I felt that the concept was on the fence. I thought we had certain components of the BJ's concept that fell in what we call that mass market low cost provider segment of our industry but then there were other components of the concept that really added more quality and differentiation and positioned us above the mass market players and so we made a decision to move the concept off the fence and move it up a little bit of a notch here with more quality and more differentiation. We cannot compete as a low-cost provider. We can compete with higher quality and differentiation at a great value and frankly when you take a look at the fact that we retained over the last seven quarters during the teeth of a very, very difficult recession over 98% of our sales with that particular strategy in place I think that says a lot about the longer-term competitive power of this concept and the ability to compete on that basis.

I appreciate that color. Greg, got a question on the forfeiture of equity compensation on the labor lines, I am assuming that's from managers that entered the management pipeline after the implementation of the gold standard program and I think you're reinvesting in management talent so should we think about voluntary -- how should we think about voluntary versus involuntary turnover of your restaurant managers?

Well, just so kind of to your point on the first part of the question, that is related to the gold standard stock ownership program and, again, not having a history at that time we used a different forfeiture rate. Now that we have a history it gave us an adjustment from that perspective.

In regards to voluntary and involuntary, I don't have that in front of me. I would tell you right now that we're seeing management turnover somewhere in the 19% to 20% range and I think based on kind of the current environment that's probably a reasonable turnover rate looking into 2010. And that's down about 500 basis points from prior years.

All right last question, Greg, you mentioned 300 units. You're sticking with that but at various sizes, so should we think about other prototypes below 8,000 square feet to get to the 300?

This is Jerry. I don't think that's what we're thinking at this present time. I think we've preliminarily dimensionalized a 300 restaurant capacity domestically based on the current large format restaurants, which are right around 8,000 square feet. You know, we have the two different prototypes today. We also have the ability to do in line restaurants of various square footages but that's where we've dimensionalized our what we call our larger format restaurant opportunity at this present time.

And, again, as we learn more about how the concept works in different trade areas and different locations and in different site types as we continue our expansion across the country, you know, it could very well be that we'll end up adjusting that 300 number up a little bit, which is typically what happens when you've got growth consumer concepts that are moving across the country but we're going to stick with that number for the larger format of size right now.

That's all I had. Thank you.

We have one more question and then we're going to call it a day.

Conrad Lyon, Global Hunter Securities.

Thanks for taking my question, guys. Simple one, of the California menu law, has that prevented any opportunities or issues or is it just something you guys look at as something that you just have to abide by going forward?

Yes this is Jerry, Conrad, and in terms of the required nutritional disclosures that we have to make here in California and frankly we had to make them in King County, Washington when we opened up our restaurant in Seattle last year. That was effective at the beginning of this year. We have not seen any material change in consumer buying patterns or behaviors with respect to the disclosure of all of that nutritional information so we to this point there really has been really no material impact on our overall sales mix or our average check related to that particular disclosure. We -- that's really it. You know, we would like to see a national disclosure versus having all of the states come up with their individual disclosures from an ability to manage it and then deal with it and I believe that there are various proposals in Congress underway to mandate kind of a standard national nutritional disclosure of all -- among all restaurants of a certain size, but to this date it really hasn't affected our sales mix one way or the other.

Got you. Okay thank you.

Thank you, operator, and we're going to be at our offices here so if anybody has any calls after we conclude the call here, we'll be happy to take them here at our office. Thank you very much for being on our call today.

Thank you. Ladies and gentlemen, this concludes the BJ's Restaurants third quarter 2009 results conference call. If you'd like to listen to a replay of today's conference please dial 303 590-3030 or 800 406-7325 and enter the access code of 4169328. Those numbers again are 303 590-3030 or 800 406-7325 and the access code is 4169328. We'd like to thank you for your participation and you may now disconnect.