BJ's Restaurants Inc (BJRI) 2009 Q4 法說會逐字稿

Welcome to BJ's Restaurants' fourth quarter and fiscal 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). And now I would like to turn the conference over to Jerry Deitchle, President and CEO. Please go ahead, sir.

Thanks operator. Hello everybody, I'm Jerry Deitchle with BJ's Restaurants, and welcome to our fourth quarter 2009 investor conference call, which we're also broadcasting live over the Internet.. After the market close today, we released our financial results for the fourth quarter and for the full year of fiscal 2009 that ended on December 29, 2009. You can view the full text of our earnings release on our website at www. bjsrestaurants.com. Joining me on our call today is Greg Levin, our Executive Vice President and Chief Financial Officer, Greg Lynds, our Executive Vice President and Chief Development Officer, and Diane Scott, our Director of Corporate Relations. We're going to get the 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 differ from any future results, performance, or achievements expressed or implied by forward-looking statements. Investors are cautioned that forward-looking statements are not guarantees of future performance, and that undue reliance should not be placed on such statements. Our forward-looking statements speak only as of today's date, February 11, 2010. 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. As difficult as the operating environment was during both the fourth quarter and the entire year of 2009, our leadership team here at BJ's believes our overall performance during both periods of time was among the best ever for our Company in many respects. We believe that BJ's topline comparisons for both periods continued once again to outpace most of our casual dining peers. We are also very encouraged that our overall performance that continues to confirm to us that the BJ's concept itself is well built to withstand the toughest of economic times and that we can also continue to be successful and profitably growing our share of estimated $80 billion casual dining market over time. We also believe that our performance confirms that BJ's is on the optimal strategic path by competing as a higher quality, more differentiated and contemporary casual dining concept that has very broad approachability and good value for the consumer. While many of our casual dining competitors reacted to the pressures of the down economy last year by reducing or totally eliminating new restaurant openings, by closing restaurants, by cutting back their restaurant management teams, by trimming back their corporate office and field supervision support infrastructures, by deferring necessary R&M spending on their restaurant facilities, by excessively discounting their menu offerings and potentially damaging their brand equity, by reducing certain employee benefits and by eliminating some the small amenities that they offer their guests, BJ's did none of those things.

Despite the pressures of the down economy, we made a decision to stay focused on our longer term growth opportunity and keep prudently investing in the very core of our business by further improving the quality, the differentiation of the BJ's concept. As a result, we remain very, very confident that BJ's can emerge from the current tough economy as an even stronger restaurant brand, concept Company and market share taker. Greg Levin is going to review our consolidated financial results for the fourth quarter in more detail later in our call today. But there are a few metrics in particular that I would like to call your attention to. First, during the fourth quarter, we achieved an approximate 12% increase in total restaurant operating weeks, coupled with a 1.5% increase in average sales per operating week. There are not going to be many casual dining companies that are going to report positive comparisons on both of those metrics for the fourth quarter just ended. Our favorable topline metrics principally reflect the continued success of our new restaurant expansion program during the quarter, not only in terms of quantity, but also in terms of quality.

Secondly, our comparable restaurant sales decreased only 0.2% during the four quarter, which we believe will once again rank BJ's among the better performances on that metric in the casual dining industry for the quarter. In particular, after considering our significant presence in California, Arizona, Nevada and Florida, where about two-thirds of our base of comparable restaurants is located, and where the unemployment rates are much higher than the national average, we believe that BJ's ability to retain over 99% of our aggregate comparable restaurant sales during the fourth quarter and for that matter, for the full year of 2009, continues to be a strong testimonial to the popularity, the relevancy and the value of the BJ's restaurant concept, coupled with our steadily improving ability to correctly and consistently execute within the four walls of our restaurants. And also coupled with the effectiveness our media marketing execution. And while we are on the subject of comparable restaurant sales, for the first five weeks of the first quarter of 2010, our aggregate comparable sales were up about 1% to 2%, driven somewhat by higher gift card redemptions than we saw this time last year and obviously are not going to be sustainable.

We don't expect to see meaningful and sustainable increases in our guest traffic and comparable sales metrics until the overall job market begins to improve in our country, coupled with an increase in consumer spending for restaurant occasions in general. We always emphasize that our daily and weekly comparable sales comparisons continue to be quite choppy during the current economy, and therefore are not much value in helping us to accurately predict the future. And that's why we don't provide formal guidance on comparable sales. For those that are in the business of forecasting sales, we always suggest that your sales estimates be kept on the conservative side, particularly in a choppy economy like the one that we are in now. Finally, we always caution that our comparable sales results for any partial period of time do not necessarily represent what our results might be for a full period of time. Greg Levin is going to provide some additional color on our comparable sales trends in his comments later in the call today.

I would like to comment on a couple other metrics for the fourth quarter. First, our estimated four wall restaurant level operating cash flow margins improved slightly, to 18.3% compared to 18% for the same quarter last year. And on a full-year basis, they improved 18.5% versus 18.3% for 2008. These improvements were achieved in spite of the de-leveraging effect of slight decreases in comparable sales for both periods being compared. We continue to believe that our restaurant operators did a pretty good job of managing our food waste, labor productivity, and other controllable costs and expenses during the fourth quarter. Although we still have opportunities to improve in many of our restaurants. Greg is going to comment on our operating margins in more detail later in the call today. The next thing I would like to comment on. After adjusting for the one-time cost in the fourth quarter related to our auction rate securities liquidation settlement, our G&A expense as a percentage of revenue declined to 6.4% compared to 7.2% for the same quarter last year. And for the full year of 2009 on the same adjusted basis, our G&A expense decreased to 6.8% of revenues compared to 7.3% for 2008. We've worked very hard during the past couple of years to set up our infrastructure and business model for steadily increasing leverage over time as we grow, and we're beginning to achieve some of that leverage.

Last but not least, if you go to the detailed data on the non-GAAP reconciliation page in our press release today, we think another way to measure the performance of our ongoing established operations would be to adjust our operating income for all of the one-time and non-recurring items for all periods presented on that schedule. So if you add back to operating income, the legal and termination settlement cost, the natural disaster cost, the losses on asset disposals, the non-recurring G&A expenses related to the auction rate securities liquidation, and also add back our restaurant pre-opening costs for all four periods presented, then our adjusted operating income, again on a non-GAAP basis, would have increased about 31% during the fourth quarter and about 20% for the full year of 2009. To us, in the middle of the toughest year for the restaurant industry in my 36 years of being in the business, that's a pretty favorable indication of the strength of our established operations as we move forward into 2010. While we don't expect consumer spending for restaurant occasions to significantly recover during the upcoming year, we do remain confident in BJ's ability to continue to gain market share in the estimated $80 billion casual dining segment.

After many years of steady growth principally driven by favorable demographic and supply demand factors, the casual dining segment has largely matured during the past couple of years. The current supply of casual dining restaurants is often said to be out of balance with the current demand for casual dining restaurant restaurant occasions. But we at BJ's view this glass as half full, not half empty. The casual dining segment is still a large, highly fragmented $80 billion portion of $500 billion industry. Clearly, the battle for market share is going to be a much more significant factor for casual dining companies going forward than it has been historically. The market share winners are going to be those that excel with s low cost providers or higher quality differentiators at a good value for the consumer. The BJ's brand is going to continue to be focused on a higher quality, more differentiated and less commoditized restaurant experience in terms of every aspect of our concept and operations. This is going to require a continuous investment in the very core of our business -- our food, our beverages, our facilities and most importantly, the talent and engagement levels all of of our team members. When we were putting together our internal business and operational plan for 2010, we thought that it was very important that we carefully balanced our managerial time and capital resource allocations between our new restaurant expansion plan, which is usually the most fun and exciting part of building a restaurant business, and the need to reinvest in our established restaurant, which are the very core of our operations.

So invest in the core and build market share is going to be a key theme for BJ's during 2010. Our key sales building initiatives during the upcoming year are going to be focused on the following opportunities. First, we plan to roll out more standardized catering services Company-wide, including both setup and full service options. We are going to plan to roll out our expanded guest beer tap program to about 20 more restaurants. This is where we add as many as 25 additional guest craft beers to our proprietary beer offerings. We intend to create a new guest loyalty program to take better advantage of our large base of loyal guests. In fact, we already have about 90,000 fans on facebook, which ranks us among the top concepts in the restaurant industry on a fans per restaurant basis. We also are planning three menu upgrades this year with new and improved entrees and beverages. That's one more upgrade than we currently do each year. Obviously, this is going to involve some incremental training expense in the current quarter, but we believe it's going to be well worth it . Our extra menu rollout this year, that is going to occur this quarter, will include a completely upgraded and modernized kids program, and is also going to include some new individual appetizers and some new lunch specials at value price points, but at full normal margins Greg will comment on that a little later in the call today.

Our key productivity initiatives during 2010 are going to include, among other things, the rollout of a proprietary automated shift management score board, with realtime key performance indicators, the rollout of a new automated food prep system, the rollout of computerized recipe viewers that will help reduce our kitchen errors and our waste, the rollout of enhanced versions of our kitchen display systems and our labor scheduling systems. And we're also going to add more seating for parties of two, which we internally refer to as [deuce] seating to about 25 more of our restaurants. Moving to our new restaurant expansion program, we opened ten new restaurants last year, and in doing so, we created over 1500 new jobs for America. We currently plan to open as many as ten to 11 new restaurants during 2010. We've targeted an approximate 13% increase in our total restaurant operating weeks for the coming year. We believe that BJ's is one of just a few publicly held dining restaurant companies to achieved double-digit capacity growth during 2009, and that also plans to achieve a similar rate of growth during 2010. I'm going to turn the call over to Greg Lynds, our Chief Development Officer. He'll give us an update on our new restaurant development pipeline. Greg, go ahead.

Thanks, Jerry. Good afternoon everybody. As noted earlier, our 2009 new restaurant development targets were successfully achieved. During 2009, we opened ten successful new restaurants and achieved our targeted growth in total restaurant operating weeks for the year. In the fourth quarter, we opened five restaurants -- Culver City California on October 5, Concord, California on October 9, Carlsbad, California on October 26, San Rafael on November 2, and Hurst, Texas on November 9. Geographically during 2009, we opened five restaurants in our home court state of California, three restaurants in Texas, one in Florida and one in Nevada. We now have a strong base of restaurants from coast to coast and we're well positioned to continue building our brand in our core Western states, the state of Texas, the Ohio Valley, Florida and ultimately in other strategic East Coast markets. We are very pleased with the initial sales volumes and performance of our class of 2009 openings. We've worked very hard over the last five years to better position BJ's as a higher quality, more differentiated casual-plus dining concept, and our new restaurant designs continue to strengthen this positioning. Our team also implemented several productivity and capacity initiatives that contributed to the success in 2009.

Our deuce seating initiative that Jerry previously referred to resulted in a net increase of five tables per restaurant, and also improved operating efficiency. We also enlarged and improved our patio seating and designs, and we enhanced and upgraded music, video and lighting packages within our restaurants. As I mentioned on our last call, we believe the current struggling commercial real estate market represents a strong opportunity for BJ's to continue securing prime locations with favorable lease economics. For the next few years, our new restaurant development strategy continues to focus on acquiring AAA quality locations in mature, densely populated trade areas with premier [code] tenants that create maximum synergy in terms of guest traffic and brand positioning. The new development opportunities that we are seeing today are primarily within existing shopping centers that are being redeveloped as a result of bog box vacancies and other retail or restaurant closures. The landlord community today is focused on enhancing value by redeveloping and adding leasable space to these existing centers, and at BJ's we are very well positioned to take advantage of these redevelopment opportunities.

Overall, our new restaurant development pipeline remains in excellent shape, and we're very pleased with the overall quality of the new sites we are seeing. As previously announced, the Company currently expects to open as many as ten to 11 restaurants during 2010. As of this date, we plan to open two restaurants during the first quarter, one in Fort Worth, Texas and the other in Escondido, California. We plan to open two restaurants i the second quarter, four restaurants in the third quarter, and two to three restaurants in the fourth quarter. All of our 2010 openings have been secured with signed leases or letters of intent, and five of those restaurants are already under construction. As we've stated before, it is difficult to precisely predict the actual timing of our 2010 new restaurant openings due to many factors that are outside of our control, including the weather, landlord deliveries, approvals from municipalities. And again, our quarterly opening schedule will fluctuate. We will keep you advised of all future changes on our quarterly conference calls. Our plan for 2010 calls for all our new restaurants to be built within our current 13- state footprint. This will allow us to continue leveraging our brand position, consumer awareness, our supply chain infrastructure, and the field supervision resource.

As I have indicated in the past, our development plan for the next two to three years beyond 2010 calls for about a third of our new restaurants to be built in California, another third to be built in Western states outside of California, and another third to be built in our East Coast, or possibly a few new markets. We continue to believe that we have room to open at least 300 BJ's restaurants in various site types and sizes across the country. Lastly, 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 shares in each new designated trade area. Our team knows that we compete in the largest and most competitive segment in casual dining. And the best way to profitably gain market share in this segment is to steadily increase the overall level of quality and points of differentiation, and at the same time keep the broad approachability of the BJ's brand. Our development team is ready for the challenge and I'm confident BJ's should have many years of solid new restaurant growth to come. Now Jerry, back to you.

Thanks, Greg. We believe that BJ's four-wall economics continue to be very sound and they clearly support a continued steady pace of new restaurant expansion. And we are always going to pick quality over quantity when it comes to our new restaurant locations. Now I'm going to turn the call over to Greg Levin, our CFO, for his comments. Greg, go ahead.

All right. Thanks, Jerry. I'll take a couple of minutes and go through some of the highlights for the fourth quarter and provide some forward-looking commentary for 2010. All such commentary is subject to 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 ongoing operations. As Jerry previously noted, total revenues for BJ's fourth quarter of 2009 increased 13.5% to approximately $112.6 million from $99.3 million in the prior year's comparable quarter. This Increase is the result of approximately 12% more operating weeks and an approximate 1.5% increase in our weekly sales average. As Jerry mentioned, our aggregate comparable restaurant sales for the fourth quarter was essentially flat, at a decrease of 0.2%. While we do not give out monthly comparable restaurant sales, I would like to note that normalizing for the shift in holidays, our comparable restaurant sales within the quarter was fairly consistent from week to week. However, during the fourth quarter, our comparable restaurant sales were stronger during the Monday to Thursday midweek period than they were during the weekend periods. This was really the first time that we have seen this occur since overall comparable restaurant sales began to soften two years ago.

For those of you that have been following BJ's over the last two years, we began to mention that our softness in the comparable sales metric primarily began in late 2007, with ten restaurants located in the Sacramento-Central California region and the Inland Empire areas of California and three restaurants in the Phoenix, Arizona market. These are regions of high growth over the last several years, and the housing meltdown and related slowdown in construction activity has taken their toll on these local economies. In the fourth quarter of 2009, all of these areas had positive comparable restaurant sales. Collectively, these ten restaurants in the Sacramento-Central California region and the Inland Empire areas of California, and the three restaurants in the Phoenix, Arizona market had comparable restaurant sales, again in aggregate, of a positive 1.2% in the fourth quarter. We have also mentioned that for 2009, our 13 restaurants that we opened in 2007 were pressuring our comparable restaurant sales this past year. This pressure was due to the fact that these restaurants were opened in the previous recessionary environment, and due to the timing of their openings, entered the comparable restaurant base during the recession. In general, for the first three quarters of this year, these 13 restaurants had the effect of reducing our comparable restaurant sales in the 50 to 70 basis points range.

In the fourth quarter, these 13 restaurants in aggregate were slightly positive and therefore were not a drag on our comparable restaurant sales during the quarter. Our 1.5% increase in our weekly sales average during the fourth quarter is really a result of our strong fourth quarter new restaurant openings. All five of our fourth quarter openings occurred in mature or densely populated premier shopping areas. Additionally, four out of the five new restaurant openings in the fourth quarter were in California where we expect our weekly sales average to be greater than our Company average. As such, we had a favorable geographic mix of restaurant openings in the fourth quarter, with the majority being in California. And we also opened in premier shopping areas, resulting not only in a normal honeymoon, but what I would call a holiday honeymoon as well. While we are extremely pleased with the strong [initial] openings of many of our new restaurants, I do want to caution investors that many new restaurants will open up at volumes typically greater than their expected mature run rate, particularly in our home state of California. As such, I would caution investors not to read too much into the initial sales volumes of many of our new restaurants that are still in their grand opening honeymoon period. Additionally in 2009, we opened up five of our ten new restaurants in California, or approximately 50% of our new restaurant openings last year. In 2010, we currently anticipate opening as many as two new restaurants in California, or approximately 20% of our new 2010 openings.

During the fourth quarter, our estimated menu pricing factor was approximately 1.7%. We anticipate our menu pricing should be around 1.5% for the first and second quarters of 2010. In regards to the middle of P&L, our cost of sales were 25% of sales, which was pretty much in line with the prior three quarters of 2009, and 30 basis points lower than last year's fourth quarter due primarily to lower cheese cost. Labor and benefits during the fourth quarter was 34.9%, which is 10 basis points lower than last year's fourth quarter. While from a percentage standpoint, our labor number was basically flat with last year, frankly I believe that we could have been little bit more productive with labor we used. Internally, we measure labor based on hours needed to serve our guests. As a result of opening five new restaurants in the fourth quarter and the normal labor inefficiencies associated with thos openings, we also incurred some learning curve related inefficiencies related to certain changes to our scheduling standards which we believe will improve the overall guest dining experience at BJ's. We estimate that we incurred 70 basis points of hourly labor pressure related to these new restaurant openings and the learning curve inefficiencies which were offset by fixed cost leverage and management wages and workers compensation.

Operating and occupancy cost as a percentage of sales increased 20 basis points to 21.8%. This increase resulted from additional marketing spend in the fourth quarter compared to last year. In the fourth quarter, we decided to invest in an additional newspaper print drop promoting our holiday party for two menu special and our gift cards. As such, our marketing spend in the fourth quarter was about 1.4% of sales. We believe that we earned a good ROI on that investment when considering our solid sales performance for the fourth quarter and our excellent start here in the first quarter. Our general and administrative expenses decreased 40 basis points from the prior year to 6.8% of sales. Included in G&A, this $588,000 of equity compensation for 2009 or 0.5% of sales, compared to $634,000 of equity compensation for 2008 fourth quarter or 0.6% of sales. Excluding equity compensation, G&A increased approximately $550,000 compared to the prior year. Included in G&A in the fourth quarter, as noted in our press release today, was approximately $473,000 of legal fees and other expenses related to our auction rate securities settlement. Excluding these costs, our G&A spend was about $80,000 more than in the fourth quarter of 2008, and as a percentage of sales would have been approximately 6.4%, which is an 80 basis point improvement over the fourth quarter of 2008, as Jerry previously noted.

Our restaurant opening expenses were approximately $2.2 million during the fourth quarter of 2009, of which only about $100,000 is related to pre-opening rent for restaurants to be opened in this coming year. For all of fiscal 2009, our pre-opening costs related to the ten restaurants we opened was $5.3 million, which is really right in line with our estimated opening cost per restaurant of around $500,000. As we previously disclosed, in the fourth quarter, we have reached a settlement with our broker dealer regarding the full liquidation of auction rate securities portfolio. As a result of the settlement, we received $27.4 million in cash, plus a guaranteed minimum future payment based on the performance of the auction rate securities market over the next three years. As a result of this settlement, we recorded $1.7 million pretax charge related to the disposition of our auction rate securities portfolio. This $1.7 million pretax charge related to the disposition of our auction rate securities and the $473,000 of the aforementioned legal and settlement cost, resulted in a charge to our earnings per diluted share of approximately $0.06 during the quarter. A reconciliation of these charges is included in today's press release. Our tax rate for the fourth quarter was 28.2%, and our annual affective tax rate for the year was approximately 30%. Our total growth capital expenditure for fiscal 2009 was approximately $56 million, before any landlord allowances. This past year we received approximately $12 million in landlord allowances, reducing our net CapEx to approximately $44 million, which was in line with our initial expectations for this year.

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 2010. In regards to our liquidity, we generated approximately $43 million in EBITDA, in fiscal 2009, and ended the year with unencumbered cash and cash equivalents of approximately $45 million. Our line of credit is for $45 million, and does not expire until 2012 of which we only have $5 million outstanding. In addition to cash [flow from] operations, our cash balances and our line of credit, we just filed a $75 million shelf registration in early January. Although we do not have any immediate plans to raise capital, we anticipate that this registration statement will provide us with additional financial flexibility to quickly access capital markets as we continue to execute our national expansion plan. We believe the flexibility and efficiency that is provided by the increasingly common and [proactive] shelf registration process will be of significant benefit to the Company as we grow.

I will provide forward-looking commentary on sales and margin -- subject to risks and uncertainties associated with forward-looking statements as discussed in filings with the SEC. We are seeing improvement in the comparable restaurant sales and positive today. However, I would like to note that at the same time last year, our comparable restaurant sales for January 2009 were also positive and frankly about the same last year as this time for the current year. In this sequentially comparable restaurant sales slowed down for the quarter and remarried of the year N the past Q4 sold 49% more gift cards than we did in last year's Q4 comparable restaurants specifically sold 15% more gift cards in the Q4 compared to prior year, past experience has been that the majority of these gift cards are redeemed in first seven to eight weeks of the new year, with the majority being redeemed in first three to four weeks of the new year. We believe this is having a a positive impact on our comparable restaurant sales to date, but over time, this benefit will wane. So we will not have better visibility at the current time and we'll have to wait really to see how our trends stabilize throughout the quarter.

As Jerry mentioned earlier, we always emphasize that our daily and weekly comparable sales comparisons continue to be quite choppy during the current economy, and therefore are not of much value in helping us to accurately predict the future. Again, this is the main reason why we don't provide any formal guidance on comparable sales. And for those that are in the business of forecasting future sales, we always stress that sales estimates be kept on the conservative side. Therefore internally, we are still predicting a challenging year for 2010. We believe that any meaningful recovery will need to coincide with a continued 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. These macroeconomic forces make it very difficult to drive meaningful comparable restaurant sales, which really are the key to not only maintaining restaurant level margins but also to expanding restaurant level margins. That being said, as Jerry mentioned, we have numerous sales building and productivity initiatives for 2010, and the casual-plus positioning with broad approachability and an average guest check of around $12 should allow us to continue to have a good opportunity to gain market share and outperform many of our peers. In regards to revenues for 2010, as we mentioned today, we are targeting an approximate 13% increase in total restaurant operating weeks for the full year.

Specifically for the first quarter, we expect to open two new restaurants in the latter half of the quarter and therefore we expect total operating weeks for the first quarter to increase about 12%. Additionally during the first quarter, we temporarily closed our small pizza and grill here in Huntington Beach for two weeks for a major remodel so that we can execute our full menu there. And we also added a full service bar to this restaurant. The restaurant was expanded by about 1,000 square feet and we added about 40 more seats. This restaurant previously averaged about $30,000 a week in sales, and has just re-opened so we will have to see how it goes going forward. While we saw a nice increase in our weekly sales average in the fourth quarter, I would expect that our weekly sales average will come more in line with our comparable restaurant sales for 2010 as some of our newer home court California restaurants come off their honeymoons. Additionally, as I have already mentioned, in 2010 we anticipate only opening two new restaurants in California, where our restaurant sales volumes are typically the strongest. In regards to menu pricing for 2010, as we said before, BJ's competitive strategy has always been focused on providing a higher quality, more contemporary casual-plus dining experience at about the same average guest check of many of our mass market competitors. Accordingly, to the extent that our costs for key input such as food commodities continue to be lower than expected, we will be able to better protect our value concept positioning with consumers and thereby keep our expected menu price increases as small as we can.

We believe that based on what we know and expect as of today, we can keep our 2010 price increases in the 1.5% to 2.5% range and still help protect our profit margins, everything else being equal. Specifically, as I mentioned before, at the first quarter we anticipate menu pricing of approximately 1.5%. Based on information available and our expectations of today, we currently estimate the total cost of our food commodity basket to increase approximately 1% during 2010. The current estimate is based on negotiations with suppliers that have been completed to date coupled with current and expected market conditions for certain fresh and other commodity items that the Company is either unable to, or has currently elected not to contract for longer periods of time. As of today we have locked in approximately 85%-plus of our commodities in contracts of six months or longer. The current significant commodities not under contract are primarily cheese and fluid dairy. Additionally, while we do have contracts for the majority of produce spend, which in total is around 14% of our total food cost, these contracts are really collar agreements in which we have floors and ceilings and therefore we can be exposed to some minimal movement in the cost of produce. Based on the 1% expected increase in our commodity market basket, we anticipate cost of sales of approximately 25% for the full year of 2010, with some variations by individual quarter due to seasonality and the timing of new restaurant openings.

In regards to labor, we continue to anticipate labor costs in the 35% range for the full year of 2010. I do want to note that specifically for the first quarter, as Jerry mentioned, we are rolling out an additional menu change. In the past we have not rolled out a new menu during the first quarter. As such, based on our internal rollout plan, we expect to incur $200,000 to $250,000 of additional absolute training labor cost than normal in the first quarter. Therefore, I would expect some deleveraging of labor cost in Q1 2010 compared to Q1 2009. I anticipate that operating and occupancy costs will be in the mid-21% of sales range for the full year of 2010, based on our current marketing plan and the current cost of energy. Our G&A expenses for the full year of 2010 in absolute dollar terms are currently planned to increase by around 14% or so compared to 2009 total dollars expensed. As I've already mentioned, we currently expect restaurant opening costs to be about $500,000 per restaurant. However, we will incur pre-opening non-cash rent as much as five or six months before a restaurant opens, and therefore pre-opening costs for any quarter may not be indicative of the number of restaurants that opened in that quarter. Additionally, in the first quarter, we will incur $75,000 or so of incremental pre-opening costs related to the major remodel our Pizza and Grill location in Huntington Beach due to the extra food and beverage training required for our team there. Adding that amount to our normal pre-opening cost required for our two new openings in the quarter plus the pre-opening rent for restaurants expected to open later in 2010, we now expect total pre-opening costs in the first quarter to be around $1.2 million to $1.3 million.

In addition, in Q1 we will incur somewhere in the neighborhood of about $150,000 of asset disposal costs related to the Huntington Beach remodeled restaurant. We currently anticipate interest income to be in $300,000 range for the full year of 2010 based on our current estimates of cash and investment balances as well as expected interest rates on those balances. We currently expect our income tax rate for 2010 to be in the 30% range, and we expect that diluted shares outstanding for 2009 -- or 2010 will be likely in the $27 million to $28 million range. Similar to 2009, we have set in motion a very robust capital expenditure level for 2010. In contrast to many of our casual dining competitors, we are willing and able to commit significant financial resources to the development of new restaurants and to the maintenance and productivity of our existing restaurants thanks to our steady cash flow from operations and our strong, flexible balance sheet. We are targeting gross capital expenditures to be around $60 million before any landlord contributions for fiscal 2010. At the current time, we expect to collect approximately $6 million in landlord allowances, reducing our net capital expenditures to around $54 million. Our capital expenditure plan for 2010 takes into consideration CapEx for as many as ten to 11 new restaurants as well as a whole host of sales building and productivity initiatives that, as Jerry mentioned, include new television upgrades, new seating conversions, expanded guest, [beer selections], selective restaurant remodels as well as many other initiatives, All of our $54 million of planned CapEx for 2010 should be able to be primarily financed by expected cash flow from existing restaurant operations during the year. With that, Jerry, I'm going to turn it back over to you.

Thanks Greg for your usual thorough review of our financial performance for the quarter. We are going to wrap up our prepared comments right now with the following comments. We were very pleased with our favorable results for the fourth quarter of 2009. We are continuing our forward momentum so far in the first quarter of 2010 with some initially favorable sales. And we are really looking forward executing our 2010 restaurant expansion plan and our key sales building and productivity initiatives for the year. When we think about the BJ's Restaurant concept and Company and when we consider the strengths of our competitive positioning and the growth infrastructure that we have carefully bill over the past five years., we believe that BJ's is still a very special casual dining Company with and 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, more quality and more differentiation at a good value. These are all of the things that the BJ's restaurant concept stands for. We are going to maintain our unwavering courage to continue to play to those strengths during the good times and tough times. We also want to take a minute and thank restaurant guests, our team members, our supplier partners and our investors for their continuing support as we move forward to invest in the core and build market share here at BJ's. That concludes prepared comments, and now we will open up the call for questions. Operator?

Thank you sir. We will now begin the question-and-answer session. (Operator Instructions). And our first question comes from the line of Matt DiFrisco with Oppenheimer. Please go ahead.

Hi, this is the Rachel [Factor] in for Matt DiFrisco. You mentioned that your G&A was controlled pretty well this quarter. Can you go into a little bit more detail on where you were able to leverage that?

Yes, that G&A leveraged came from managers and training, while we didn't speak of it directly our turnover for fiscal 2009 was in the mid teen range. That internally, even this year we don't budget for that type of number. We budget for the higher than the mid-teen range. As a result, going into the fourth quarter, we didn't have as much travel and related cost for training new managers.

The other thing I would add to that, is that when you think about G&A in our business there are really three major components of that resource. The first one is the management and training program, which Greg just referred to. And that usually grows at about the rate of restaurant growth capacity growth, adjusted for changes in the turnover of our staff members at our established restaurants. And that's exactly what Greg just addressed. The other two components of our G&A are our field supervision resource, which should usually grow at a rate less than our capacity growth. And then our home office support resource, which will grow at a lesser rate than the field supervision component will usually grow. So over time, as we continue to expand our restaurant operations, the principle leverage points will be continuing leverage of the field supervision and the home office support investment.

Okay, thanks. Then are you anticipating any of the ten or 11 stores you are planning for 2010 to be in jeopardy at this point of maybe not opening until the very end of the year or possibly getting pushed back into 2011?

There is always a risk that due to factors outside of our control, a planned restaurant opening may slip for a certain period of time. But based on everything that we know today in terms of all of those variables, we are very, very confident that we can execute our new restaurant development plan as we've outlined in our press release and in our comments today.

Okay. And then -- sorry, I may have missed it. Did you quantify your same store sales for the first week of 1Q?

We said that for the first five weeks of our current quarter our comparable sales are running up about 1% to 2%.

1% to 2%. Okay. Thanks very much.

You are welcome.

Our next question comes from the line of Tony Brenner with Ross Capital Partners. Please go ahead.

Thank you. Jerry, your balance sheet looks a lot more flush with the settlement of the auction rate securities. [How does that show] for additional significant financing? You've got $40 million in available bank credit and you've noted that the commercial real estate environment is becoming much more favorable. Assuming there are suitable available sites. are you planning a return to your earlier 20% to 25% increase in operating weeks?

That's a great question, Tony. In terms of the reason behind the shelf filing, that provides us with a significant degree of additional financial flexibility to take advantage of opportunities to continue to grow our business over time. We are a casual dining Company that is a growth casual dining Company, and there aren't too many of those out there in the public capital markets today. We just thought that it was very prudent and very proactive in light of all of the opportunities that have presented themselves and that may present themselves in the future in terms of growing our business in a very productive way to have the ability to have that financial flexibility in the event that those opportunities arise. Over next couple of years, although -- and again, we've clearly said that our growth rate this year will be ten to 11 restaurants with a 13% increase planned in overall capacity. We really haven't specifically identified a growth target for 2011 or 2012, but again, I think we want to have the financial flexibility to be opportunistic to continue to grow our business and to take market share when those opportunities present themselves. So that's really as far as our scanners paint out into future at this time. It really was intended to provide us with maximum financial flexibility to be opportunistic as we continue to grow our Company.

What comprised the opportunities being available?

Well, it could represent a number of logical options to grow our business, from conversions of existing restaurant locations that may not be working out for other casual dining restaurant companies but clearly meet all of our site selection and demographic standards. We have a pretty good track record of converting other restaurants that haven't done that well, but are in great trade areas to superb BJ's restaurants. So we want to have the ability to continue to do that. Those may manifest themselves in several ways. They many manifest themselves one at a time, they may manifest themselves in groups or they may manifest themselves in certain entire concepts. So I think those are some of the opportunities that I think we need to be mindful of, and that may present themselves as we continue to execute our growth plan going forward.

Earlier I thought you had suggested that the barrier to a faster growth rate was that there are no developments in new building areas, and a number of developers were under financial pressure which was restricting the number of sites that actually were available to you. is that still the case?

I believe that is generally the case in terms of new projects. Greg, would you like to --

Yes, I think, as I stated earlier, the new developments that are currently available are typically where box boxes have gone out or retail -- or current retail and restaurants are being redeveloped. Part of the issue is that all of these projects, there is very little TA available So we used to -- in 2009 I believe, whee we have approximately $12 million in tenant improvement allowance. Right now, we're not seeing -- landlords really just don't have the capital available to loan or give to restaurants in terms of tenant improvement allowance. .

I see. Thank you very much.

You're welcome, Tony.

Thank you. Our next question comes from the line of Brad Ludington with KeyBanc Capital Markets. Please go ahead.

Guys this is actually John [Dravenstock] calling in for Brad.

Hi, John.

I was wondering if you could comment on how weather impacted your -- especially California restaurants in the 4Q. And also, if you could speak to the first quarter for your stores.

Couple of things. In regards to the fourth quarter, we didn't have that much weather impact. There could have been a couple of days in the Dallas market where they got some early snowstorms like they are having today. We saw that a couple of times. And there were a couple of other ones that might have come through some of our Midwest restaurants.

Oklahoma.

Yes, Oklahoma in particular in that regards. The fourth quarter being still California and Arizona-centric and Florida, which I know had the freeze, we didn't have quite the impact of weather that maybe other people may have had in the fourth quarter. In regards to the first quarter, we have seen obviously a lot more rain out here in California. And that does tend to slow down your lunch and dinner sales in the middle of week related to that rain.

Okay. Did you mention where that print advertising in the fourth quarter was spent geographically?.

What we do, is we are able to target our print advertising to the ZIP codes that surround our specific restaurants where we decide to make those newspaper print drops. So what we do is we look at all of our trade areas and we are able to have the flexibility to drop certain print messages from those specific trade areas. And we do that on a restaurant by restaurant basis. Usually when we do a free standing insert in a newspaper drop we are generally doing it in almost all of our restaurants. We have our next one which is scheduled here toward the end of the month which will be advertising our new menu creations that we're going to be rolling out here before the end of the month. And every restaurant will receive a free standing insert in the newspapers that are ZIP code targeted around their restaurants. And that's a very, very efficient way of getting a print message out in the mass media for us. For example in Los Angeles, we can avoid lots of trade areas where we just don't have restaurants and save money but yet target these drops around the ZIP codes -- in the ZIP codes around the restaurants where we do have business.

Just one more if I could, around the tenant improvement allowances.Have you found that these just aren't available at all? Or are the terms just unfavorable? Or how is that environment looking?

It's a little bit of both. I mean the larger institutional investors sometimes have more available to contribute to a project, but the smaller regional developers really have very little to -- I would say zero on the smaller regional developers. So, it depends on the project and it depends on the landlord.

Great. Thanks a lot, guys.

Thank you.

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

If I missed it I apologize, but the G&A growth rate in absolute dollars 14% for 2010. That appears to be exceeding the capacity growth rate. So are we looking at second half unfavorable on that line in order to get ahead of a 2011 growth ramp?

No, I think the comment was made around 14% or so. I think that will probably be pretty much in line. I think if we put together our plans -- frankly, a little bit of G&A this year turned out to be better than what we anticipated, frankly due to that Managers and Training program as we talked about. We've bumped up that Managers and Training program based on the fact that we just don't think a mid-teens turnover rate is a realistic rate going forward. Maybe it is. But I think we've got to plan on the side of caution. So when you bump up a little bit, you end up taking on a little bit more of an incremental cost at least from a mathematical perspective. If that rate continues to stay where it is, then I think we will see the ability to continue to get leverage in G&A.

To follow on with that, Greg, our stated goal over the longer run will be to have our infrastructure cost grow at a rate less than the revenue growth rate. That is a specific target of ours. We're going to manage our business towards that target given all of the variables that we have to deal with.

Okay. Question on the long-term pricing strategy. How much of your ability to take price will be centered around offsetting inflation on commodity and wage rate versus the need to price? Because it is important to remain relevant and stay ahead of the curve both in terms of front and back of the house operating and sales initiatives.

That is the number one challenge that we have and all of our competitors have in this business.Our strategy is just a very simple one with respect to menu pricing. We have a value concept . We want to protect that positioning. The last thing we are going to analyze and study and implement in order to protect margins will be menu price increases. We are going to work our business in terms of leverage and productivity and efficiency as hard as we can before we look to the menu to help us protect margins, Having said that, I think that BJ's is in a pretty good position with respect to pricing power going forward due to a couple of factors. Number one, when you look at all of quality and differentiation that we've added to the concept consistently, not only over the last quarter and the last year, but the last four or five years, there is clearly a gap between what we are asking consumers to pay when they come into the restaurants and what they are actually expecting to pay when they walk into our beautiful restaurants with all of the amenities and all of the quality that we have added with respect to the food and the china and the silver and the glassware and the television technology and our service standards and the facilities. So we have inherent pricing power that we have not yet deployed. We kept our powder dry purposely. Secondly, we're starting off with an average check, which is fairly low in casual dining. But we're still allowing $12 on and average guest check. So percentage increases 1% or 2%, is the impact on the average guest is going to be a little different than taking 1% or 2% or 3% if you are already at a guest check average of $20 a person. So I think those factors give us some confidence that if necessary, we can go to the menu and adjust our pricing and cover normal inflationary cost. However, that's the last thing we really want to do. And we are going to work very, very hard on all of the sales building and productivity initiatives that we have outlined for you that we are going to work on this year to try to do our best to keep our menu pricing as low as possible and keep that pricing power in reserve.

Great, thanks. Greg in the shelf prospectus, it says that -- it quotes development anywhere from $4 million to $5.5 million, inclusive of the pre-opening. Should we model differences in CapEx for California openings and non California openings?

You might want to look at that a little bit differently. But I don't think it's that material. I really don't.

Great, thanks. I will pass it along.

You're welcome.

Mr. Deitchle, I'm showing no further questions in the queue. Please continue with any closing comments.

Well if there are no further questions we are going to go back to work. Thank you all for listening in to the call. Please call us at our offices because we will be here for awhile if you have further questions. Thank you.

Ladies and gentlemen, this concludes the BJ's Restaurants fourth quarter and fiscal 2009 results conference call. If you would like to listen to a replay of today's conference, you may dial 303-590-3030, or 1-800-406-7325 with the access code of 4206546. Thank you for your participation. You may now disconnect