BJ's Restaurants Inc (BJRI) 2010 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the BJ's Restaurants, Inc. second quarter 2010 earnings 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 Thursday, July 22nd of 2010.

I'll turn the conference over to Jerry Deitchle, President and Chief Executive Officer. Please go ahead, sir.

Thank you, operator. Hello, everybody. I'm Jerry Deitchle with BJ's Restaurants, and welcome to our second quarter 2010 investor conference call, which we are also broadcasting live over the Internet.

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

After the market closed today, we released our financial results for our second quarter of fiscal 2010 that ended on June 29th, 2010. You can view the full text of our earnings release on our website at www.bjsrestaurants.com.

We'll begin with our prepared remarks after Dianne provides our standard cautionary disclosure with respect to forward-looking statements. Dianne, go ahead.

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

Investors are cautioned that forward-looking statements are not guarantees of future performance, and that undue reliance should not be placed on such statements. Our forward-looking statements speak only as of today's date, July 22nd, 2010.

We undertake no obligation to publicly update or revise any forward-looking statement, 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, Dianne. As we noted in our press release today, our leadership team here at BJ's was very pleased with our overall performance for our fiscal second quarter. Greg Levin, our CFO, will comment in more detail about our financial results for the quarter later in the call today.

However, I'd like to note that, as of late, it's been pretty unusual to see any casual dining restaurants company post the positive quarterly comparisons on all key metrics that BJ's did for the second quarter just ended. Those key metrics are as follows. Our total revenues were up 21%. Our comparable restaurants sales were up 5.3%. Our average sales per operating week were up about 7%. Our total restaurants operating weeks were up 13%. Our estimated four-wall restaurants cash flow margin, which is a non-GAAP measure that also excludes non-cash equity compensation, that metric was up 90 basis points to 20%. Our consolidated operating margin was up 70 basis points. Our consolidated operating margin excluding restaurants preopening expenses was up 110 basis points. Our net income was up 44%, and our net income per share was also up 44%.

So, after considering all of those key metrics, we believe that BJ's performance for the second quarter was quite strong. And just as importantly, we were able to achieve favorable bottom line leverage from our solid top line performance.

Our assessment of the underlying factors for our strong results for the quarter suggest that it was a combination of both macro and BJ's-specific factors, but much more of the latter.

First, with respect to our top line results, sales from our newer restaurants that are not yet in our comparable restaurant base continued to exceed our expectations in the aggregate. All of these new restaurants were opened in mature, densely populated trade areas with relatively stable levels of retail sales, and that's our principal new restaurants development strategy going forward. And the strong sales volumes from our newer restaurants continued to give us solid confidence going forward as to the ability of the BJ's Restaurant concept to continue to gain market share in our segment of the casual dining business as we continued to execute our national expansion plan in a very careful and controlled manner.

Next, in our comparable sales base of 82 restaurants during the quarter, we experienced sales increases across the board in every one of the 13 states that we currently operating in. We think that was due to five primary factors.

First, we believe that macro conditions affecting consumer discretionary spending at the restaurant occasions in many of our markets have not deteriorated any further. Having said that, we don't believe that macro conditions have begun to materially improve yet, either. Until the job market starts to significantly improve in general, we probably won't see a significantly gain in overall guest traffic. And based on what many of the economic experts are saying as of late, it may be some time before we see significant improvement in the job market.

The other four factors that drove our favorable comparable sales during the quarter were BJ's-specific factors. First, our new menu introductions this year have been well received by consumers and have positively impacted our average check and our guest traffic. Our new offerings include, among others, our new Small Bites and Snacks menu, our new Kids Menu, our new gluten-free pizza offering, our new salmon entrees, and our new Ahi Poke appetizer.

Secondly, in light of our ramped up menu innovation, we also made a decision to push harder to fill all authorized restaurant management positions in our restaurants, particularly in our kitchens. Full management staffing levels typically facilitate faster cook and service times, and they also facilitate better quality execution in our concept.

Third, we also made a decision to strategically add some additional service labor hours to our dining room operations to facilitate faster service, but not rushing our guests.

Fourth, a couple of our 2010 capital expenditure initiatives, particularly our increased seating per parties for two, which we internally call our do-seating initiative, and our expanded guest beer tap initiative are beginning to show some solid traction.

Finally, thanks to our top of the line television capabilities, the Lakers/Celtics series and the World Cup Soccer games provided a little extra win for our sales during the second quarter.

And before we leave the topic of our top line results, we should note that our comparable sales trends for the first three weeks of fiscal -- July continue to be solidly positive. So, we're off to a very good start here in the third quarter. Greg Levin, our CFO, will provide some additional detail on our current sales trends in his remarks a little later.

Now, I'd like to shift gears and briefly comment on our favorable bottom-line performance for the second quarter, which increased 44% on a 21% revenue increase.

The number one operating principal of every successful restaurant growth company that I've been with during the past 30-35 years is, as long as you've got the sales, you've got the opportunity to steadily improve your productivity and efficiency and, therefore, achieve greater leverage in your business model. And without the sales, you really don't have much of a chance to do that, unless you decide to start cutting into the very fabric of your concept.

That's why we continue to work very, very hard to protect and build our sales here at BJ's. If you can't build sales, then your only operating option is to try to save your way to a better bottom line result, and that's a short-term operating option in the hospitality business. The best operating option is to grow your way to success in a profitable and efficient manner, and we believe that BJ's is one of just a few publicly held casual dining companies that still has the strong potential to keep doing just that.

With a restaurants concept like BJ's, that is steadily increasing its overall awareness and trial in the markets that we operate in across the country, we should also have the opportunity to continue to be successful in profitably growing our share of the estimated $80 billion casual dining market over time.

And we also believe that our recent performance confirms that BJ's is on the optimal strategic path by competing as a higher-quality, more differentiated and more contemporary casual dining concept and brand that still has one of the broadest approach-abilities and greatest values for the consumer today.

Despite the pressures on consumer spending and restaurant sales in general during the past couple of years, we avoided the temptation to start subtracting from our concept and our operations in order to report a short-term financial benefit. Instead, we decided to stay focused on our longer-term growth opportunity and to keep prudently investing in the very core of our business.

So, we're continuing to add to the overall quality and differentiation of the BJ's concept in every respect, our food, our beverages, our facilities, our guest service, and all of the underlying support systems and processes that enable higher quality execution. And we believe that our recent performance supports the soundness of our decision in this respect. Going forward we still remain very confident that BJ's will continue to emerge from the current tough economy as an even stronger restaurant brand, concept, company and market share taker.

We also believe that the battle for market share will be a much more significant factor for casual dining companies going forward than it has been historically, primarily because casual dining doesn't have as strong of a macro tailwind that it once had. We think the ultimate market share takers will likely be those that either excel as low-cost providers of kitchen replacement meals, or those that excel as dining out for fun destinations that provide a higher quality overall dining experience with a solid value for the consumer.

BJ's has chosen to compete as a higher quality differentiator with great value. And by definition, this is going to require continuous investment in the very core of our business, our food, our beverages, our facilities and, most importantly, the talent and engagement levels of all of our team members. So, our theme for 2010 here at BJ's continues to be invest in the core and build market share.

And moving to our new restaurant expansion program, the execution is solidly underway to open as many as 10 new BJ's Restaurants this year. We believe that BJ's is one of just a few publicly-held casual dining restaurant companies to have achieved double-digit capacity growth last year, and that also plans to achieve a similar rate of growth during 2010 and 2011.

And if you study the expansion of our restaurant base during the past five years, you will also notice that our base of restaurant operations is becoming much more diversified. About five years ago we only had 41 restaurants open in just six states, and two-thirds of the restaurants that we had open were concentrated in California. By the end of this year we'll have 102 restaurants open in 13 states, with only half of our restaurants concentrated in one state. Now we believe that we've demonstrated that the BJ's concept has strong enough legs to travel across the country and to continue to be successful in a wide variety of site types and trade areas.

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

Thank you, Jerry. And as noted in our press release today, our 2010 new restaurant development pipeline remains in excellent shape, and our 2011 pipeline is also coming together quite well at this point. We continue to be very pleased with the overall quality of the new sites in our development pipeline.

Our shorter-term new restaurant development plan continues to focus on taking advantage of current conditions in the commercial real estate market so that we can secure prime sites in densely populated, more mature trade areas at favorable lease economics.

To date in 2010 we have opened five successful new restaurants. In the first quarter we opened two restaurants, one in Escondido, California and one in Fort Worth, Texas. In the second quarter just ended, we opened two restaurants, both in San Antonio, Texas. Our first San Antonio restaurant opened on April 26th and the second on May 24th. And just 10 days ago, on July 12th, we opened our fifth restaurant of the year in Daytona Beach, Florida.

Based on the current and expected progress of our construction work at this time, we have five more restaurant openings planned for the remainder of the year. These will be in Tucson, Arizona; Colorado Springs, Colorado; Sparks, Nevada; Puente Hills right here in Southern California; and The Woodlands in the Houston market.

As we've said before, it's difficult to precisely predict the actual timing of our new restaurant openings due to many factors that are outside of our control. So with that in mind, as of today we currently expect to open three more restaurants in the third quarter for a total of four new restaurants in this quarter, and two restaurants in the fourth quarter.

Our 2010 development plan calls for all of our restaurants to be built within our 13 state footprint, which will allow us to continue leveraging our strong brand position, consumer awareness, supply chain infrastructure, and field supervision resources. And our segment of casual dining, clustering our restaurant development will be more helpful in driving awareness, trial and usage, which in turn should benefit our comparable restaurant sales.

Looking forward to our longer-term development plan, 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 over time. With only 97 restaurants open today, we still have plenty of quality growth opportunities in our core California and Texas markets. And we now have established a strong national brand presence and national footprint from California to Florida and into the Ohio Valley.

During the next 12 to 24 months our development team will continue to focus on securing triple-A sites and building a quality pipeline of real estate locations. Our new restaurant development strategy has always been centered on triple-A quality locations with premier co-tenants in densely populate, more mature trade areas, all within our current 13-state footprint of operations. We will maintain this discipline as we analyze and secure our pipeline for 2011.

And speaking of next year, we're in the process of finalizing our 2011 new restaurant development plan. And during the next 60 to 90 says we should be in a good position to share more specific details about that on our third quarter conference call in October. At this point, however, I believe that it's safe to say that we are targeting to open more restaurants next year than we'll open this year.

Lastly, our entire development team at BJ's is more focused than ever on delivering high quality, efficient and cost effective restaurants and, at the same time, providing the best atmosphere in casual dining. All of our new restaurants now feature large impressive entry statements, high ceilings with detailed contemporary decors. Our raised high-energy bar is visible from all dining rooms and contains the latest in audio/visual technology.

When we combine our contemporary casual-plus interiors with our broad menu and significant pizza and beer, we have a unique differentiated positioning that should give BJ's many years of solid new restaurant growth to come.

Additionally, we are also working to improve the overall green characteristics of our new restaurant facilities as we move forward to next year.

Jerry, back to you.

Hey, thanks for that update, Greg. You and your team have continued to do a tremendous job in keeping our development pipelines in superb shape for the next couple of years. We really do appreciate that.

We continue to believe that BJ's four-wall restaurant economics are sound and they support a continued steady pace of new restaurant expansion. And as Greg mentioned, we're 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 financial commentary on the second quarter. Greg, go ahead.

Alright. Thanks, Jerry. I'm going to take a couple minutes and go through some of the highlights of the second quarter and provide some forward-looking commentary for the rest of 2010. All 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 ongoing operations.

As Jerry previously noted, our total revenues for BJ's second quarter increased approximately 21% to approximately $130.5 million from $107.7 million in the prior year's comparable quarter. The increase is a result of approximately 13% more operating weeks and an approximate 7% increase in our weekly sales average.

Our aggregate comparable restaurant sales increase for the second quarter was 5.3%. And while we do not give out monthly comparable restaurant sales each period, I would like to say that April, May and June were all solidly positive, with June being our strongest period.

We believe that some of the strength in the June period was due to BJ's strong positioning as a place to gather and enjoy Father's Day and graduations, as well as a boost from this year's World Cup soccer games and the NBA playoffs that featured the Lakers and the Celtics.

While we are not a sports bar, we recognize that our 103-inch flat-screen plasma televisions in our restaurants provide a best-in-class in casual dining visual element to our restaurants that really allow us to take advantage of certain sports activities, but not yet rely on sporting events to drive our business.

In regards to our comparable restaurant sales for the quarter, as Jerry mentioned, all geographic areas during the quarter reported positive comparable restaurant sales in aggregate. In general, our restaurants outside of California in aggregate had higher comparable restaurant sales than our restaurants inside California.

However, it should be known that California was solidly positive for the quarter. And in fact, certain restaurants in California outperformed the entire Company. For example, our Torrance restaurant, which is in Southern California, and our Roseville restaurant in the Sacramento area of Northern California, each reported comparable restaurant sales increases of approximate 8% for the quarter.

Additionally, we continue to see strong comparable restaurant sales in some of our newer regions, such as the Ohio Valley, Florida and the Washington State markets. In fact, our four Ohio Valley restaurants, which is an area where we just began operating restaurants in 2007 and 2008, had an aggregate positive comparable restaurant sales of approximate 10% for the quarter.

And finally, our class of 2007 restaurants, which pressured comparable restaurant sales in 2009, had comparable restaurant sales increases in aggregate right inline with our Company total of approximately 5.3%.

Our 7% increase in our weekly sales average during the second quarter continued to be the restful of our solid new restaurant openings in the second half of 2009, as well as our recent openings this year in Texas and California.

As I mentioned last quarter, five of our last seven openings in 2009 were in California, where we expect our weekly sales average to be greater than our company average, and where we tend outstanding have a high honeymoon sales period. As such, right now we continue to have a favorable geographic mix of new restaurants that will abate as we continue to open new restaurants outside of California.

Therefore, 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, as well as changes in our weekly sales averages as compared to our comparable restaurant sales. In fact, as we get into the second half of this year and we begin to lap those last five openings, I anticipate our weekly sales average to be inline with our comparable restaurant sales, and may even lag our comparable restaurant sales in the fourth quarter of this year.

Please remember, with only a relatively small number of restaurants operating today compared to many other public casual dining companies, the timing and geographic location of our new restaurants will have an impact not only on pre-opening costs for the quarter, but also on our weekly sales average for the quarter, and may not be indicative of the mature sales levels for many of these restaurants.

During the second quarter our estimated menu pricing factor was approximate 2.2%. We added approximate 1.8% of menu pricing with our regularly scheduled Spring menu in early June. As such, we currently have approximate 3% of menu pricing.

In regards to the middle of our P&L, our cost of sales were 24.3% of sales, which was 60 basis points lower than last year's second quarter, and down about 30 basis points from the first quarter of this year. The decrease from last year was a result of lower commodity prices, primarily for poultry, coupled with the benefit from new menu pricing.

In regards to the percentage decrease from the first quarter, this is primarily a result of menu pricing as the cost of our commodities basket has been fairly stable from Q1 to Q2. In general, we continue to see pretty benign commodity cost increases. We were anticipating about a 1% increase in our market basket of commodities this year, and that was predicated on a 30% increase in cheese prices.

However, in the first half of this year our average cheese prices increased only a few percent as compared to last year, which was more than offset by savings we have in some of our other contracts for this year. As a result, the cost of our commodity basket was slightly down in the first half of this year as compared to the same period last year.

Our labor and benefits during the second quarter was 34.6%, which was 10 basis points lower than last year's second quarter. As a result of our solid comparable restaurant sales, we were able to generate significant leverage in hourly labor, probably somewhere in the neighborhood of about 50 basis points. However, this efficiency was offset by higher management labor, primarily due to higher and consequently better management staffing levels, as Jerry noted, higher incentive compensation for our managers due to better than anticipated performance, and higher workers compensation costs.

In the second quarter, our management staffing levels compared to [our pars] were at approximate 100%. And during my time in this business, I have rarely ever seen staffing levels at or near 100%. Generally, you're always looking to fill open positions, resulting in staffing levels closer to the low to mid-90% range.

Having a full complement of managers really allows our management team to concentrate on driving productivity and throughput in our restaurants. As we've said before, at BJ's we are sales builders first and foremost. And therefore, having the right managers, both quality as well as quantity, is the best way to drive productive sales in our restaurants.

Our operating occupancy cost as a percentage of sales decreased 10 basis points to 21.3%. This decrease is primarily a result of sales leverage over the fixed nature of many of these costs. On an absolute basis, we continue to see some higher costs related to the rollout of our new wine glasses, some higher utility costs and higher general liability insurance costs. Additionally, many of our leases require us to pay a percentage rent and, therefore, with our improving sales we are seeing a higher percentage rent than we've seen in the past.

Our general and administrative expenses were 6.8% of sales in the second quarter of 2010, which was down 30 basis points from last year's second quarter. Included in G&A is $738,000 of equity compensation. That's for 2010. It's about 0.6% of sales compared to $600,000 of equity compensation for 2009's second quarter, which also was about 0.6% of sales. Excluding equity compensation, G&A increased approximately $1.2 million compared to the prior year.

As we mentioned in the first quarter, we continue to incur higher G&A cost related to our investment in our managers, as well as higher legal costs. For instance, in this year's second quarter we averaged approximate 43 managers in training per week as compared to 29 managers in training per week in 2009. That is a 48% increase year-over-year. As such, our recruiting, development and training costs for new managers increased approximate $350,000 compared to the same quarter last year. And legal costs increased approximate $400,000 compared to the same quarter last year.

Our restaurant opening expenses were approximate $1.3 million during the second quarter, which includes preopening costs related to the two restaurants that opened during the second quarter, as well as some costs related to the restaurants that opened towards the end of the first quarter, plus preopening rent and other expenses related to restaurants expected to open in the third and fourth quarters of this year.

Our tax rate for the second quarter was approximately 27%, which is consistent with the first quarter. Our total gross capital expenditures to date, through the end of the second quarter, was approximately $32 million before any landlord allowances.

Before I turn the call back over to Jerry, let me spend a couple minutes commenting on our liquidity position, and also provide some forward-looking commentary for 2010.

In regards to our liquidity, we ended the quarter with approximately $39 million of cash and investments. Our line of credit is for $45 million and does not expire until 2012, of which zero is outstanding.

As we previously mentioned, we believe our cash flow from operations, as well as our expected landlord construction allowances and our current cash and investment balances, should provide us with the necessary liquidity to fund our expected CapEx requirements for expansion and other needs for the remainder of 2010 and for the full year of 2011, based on our current planned rate of expansion and expected landlord construction allowances as of today.

I will now provide some forward-looking commentary on sales and margins for the remainder of 2010, based on our information and expectations as of this date. All of this commentary is subject to the risks and uncertainties associated with forward-looking statements as discussed in our filings with the SEC.

As Jerry mentioned, we continue to see positive comparable restaurant sales comparisons for the first three weeks of fiscal July. However, we, as well as I am sure many of our peer restaurant companies, had the benefit of moving July 4th from a Saturday last year to a Sunday this year. Getting back a Saturday in exchange for a Sunday is a net benefit for many restaurant companies. As such, our July is off to a strong start. However, taking out the favorable July 4th holiday impact, we are currently seeing comparable restaurant sales closer to our menu pricing, which is in the 3% range, or a little greater than that.

Also, only three weeks into July, it is difficult to ascertain if the current trends represent the trends we will end up seeing throughout the remainder of the current quarter and year. Furthermore, we have not seen any dramatic changes to our national unemployment rate, or our California unemployment rate, where 50 of our 97 restaurants are located. And consumer confidence over the last two months appears to be declining. As such, even though we continue to have several successful sales building initiatives underway, I would caution investors to take all this information into consideration when developing their models. And as always, we suggest that sales estimates be kept on the conservative side.

In the third quarter, we anticipate opening four new restaurants and, therefore, we are targeting an increase in our operating weeks of approximately 12% to 13%. While over the last three quarters we have seen a nice increase in our weekly sales average, I would expect that our weekly sales average will come more inline with our comparable restaurant sales comparisons throughout the third quarter of 2010 as we begin to lap our California restaurant openings with their high opening honeymoon sales volumes, and we begin to open more restaurants outside of California. In fact, as I previously mentioned, I would not be surprised if our weekly sales average in the fourth quarter were to slightly lag our comparable restaurant sales comparisons as we lap those large honeymoon sales periods from last year.

In regards to menu pricing for 2010, as we have 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 as many of our mass market competitors. Accordingly, to the extent our costs for key inputs such as food commodities continue to be lower than expected, we will be able to better protect our value concept positioning with consumers, and thereby keep our expected menu price increases as small as we can.

For the third quarter our menu pricing will be about 3%. In November of this year approximate 1% of menu pricing will fall off, leaving us around 2% of menu pricing. As of today, we are not anticipating the specific amount of new menu pricing we may take as we roll out our regularly scheduled fall menu in November. However, we will likely take some new menu pricing at this time.

Based on information available and our expectations as of today, we are anticipating a slight increase in the cost of our commodity basket for the second half of this year. This is primarily predicated on expected higher cheese costs as we have now locked in about 75% to 80% of our expected cheese requirements for the remainder of this year.

As of today, we have approximate 90% of our total commodities locked for the remainder of 2010. Therefore, we anticipate costs of sales to be in the middle upper 24% range for the second half of this year, with some variations by individual quarter due to seasonality and the timing of new restaurant openings.

Our supply chain group is currently working on our commodity contracts for 2011, and we anticipate having some of these contracts fully negotiated before our Q3 conference call. At that time we will update our investors regarding our most current expectations for our 2011 food costs.

I anticipate labor to remain in that mid to upper 34% range. And in regards to our operating and occupancy, the third quarter tends to be our highest quarter in regards to operating and occupancy costs as a percent of sales on a historical basis due to seasonal increases in energy costs. As such, I would expect operating and occupancy costs to go up as a percentage of sales in the third quarter to the middle upper 21% range before abating a few basis points in the fourth quarter.

While I would anticipate our G&A to come down a little bit from where it was in the second quarter, unfortunately, I still anticipate higher legal costs throughout the remainder of this year. And therefore, I would anticipate G&A to be in the $7.8 million to $8 million range, excluding equity compensation.

As I've already, mentioned we currently expect restaurant opening costs to be about $500,000 per restaurant. However, we will incur preopening non-cash rent as much as five or six months before a restaurant opens. And therefore, preopening costs for any quarter may not be indicative of the number of restaurants that opened in that quarter. Therefore, based on our current openings schedule, I would anticipate preopening expenses for the third quarter of around $2.3 million to $2.4 million.

We continue to expect our income tax rate for 2010 to be in the 27% range, which is consistent with the first two quarters of this year. And we expect that diluted shares outstanding for 2010 will likely be in the $28 million range. We continue to target gross capital expenditures to be around $60 million to $65 million, and that's before any landlord contributions for fiscal 2010. At the current time, we expect to collect approximately $6 million in landlord allowances.

We anticipate funding our planned CapEx for 2010 with the cash flows from our existing operations during the year, as well as our cash and investment balances and our landlord contributions.

And with that, I'm going to turn it back over to you, Jerry.

Thanks, Greg. As usual, a very thorough review.

So, to summarize our prepared comments, we were very pleased with our solid results for the second quarter. We're continuing our forward momentum so far in the third quarter. And we're looking forward to executing our 2010 restaurant expansion plan and all of the key initiatives for the full year.

Just to summarize, in our view, BJ's ability to continue to take additional market share in the casual dining segment is steadily strengthening as time goes on. And we believe that we are continuing to make the right investments for BJ's long-term success; investments in our team members, investments in our guests, investments in our operating and support infrastructure, and investments in our brand.

Now, we believe the best years of growth are still well ahead of us here at BJ's, and I don't think you can say that about many publicly held casual dining companies today.

So now, we're going to open up the call for your questions. Operator, go ahead.

Thank you, sir. (Operator instructions.) And our first question comes from Matt DiFrisco with Oppenheimer. Please go ahead.

Hi. This is Rachel Factor in for Matt DiFrisco. In terms of development for 2011, you mentioned that you anticipate opening more than the 10 restaurants planned for 2010. Will your growth strategy be to open in new markets, or continue to stay in the 13-store footprint that you're currently in?

Well, for the next year or so our principal expansion strategy will be focused on filling in trade areas in our existing 13-state footprint. However, we've already begun working on and analyzing a couple of other major markets that would be new for us for future expansion beyond that point in time.

In order to execute a real estate pipeline in a very thoughtful and structured way, you've really got to be two or three years out in advance in terms of your planning and analysis of available sites and setting up all of your pipelines in order to be able to enter new markets and get enough presence in a very, very solid fashion so that you can begin to build awareness and trial and usage for the brand. So, that's our principal strategy going forward here for 2011, and probably into 2012.

Although, Greg, I would suppose that we may see some initial restaurants in a couple of those new markets beginning to show up in 2012 at some time. Would you agree?

Yes, I would agree with that. If you look at our pipeline right now, our 2011 pipeline looks pretty solid for our existing 13-state footprint. And our team is working hard on assessing some new markets for 2012-2013.

Okay, thanks. Also, regarding your comps for the second quarter, could you provide us with what the monthly trends were? And I just wanted to clarify. You said that July same-store sales were positive 3% and that was excluding the July 4th shift?

Yes. A couple things there, Rachel. We don't provide monthly comp sales numbers. We did mention in the call, on the formal remarks, that June was our strongest month. And if I remember correctly, I think when we did our first quarter conference call we said the first few weeks of April were in the mid-4% range. So, I would tend to say that we kind of trended around those numbers throughout the three months of the quarter.

In regards to July, if we take out that kind of July 4th holiday shift, which was favorable to us. I mean, as I mentioned, when you get a Saturday for a Sunday, you're going to make some money there in that regard because Saturday's a bigger day for you. If you pull that out, we're seeing comparable restaurant sales -- I'd say a little bit above our menu pricing, which is right around 3% right now. So, it's probably a little bit above that number.

Okay, thanks. And then just lastly, I know you did comment on your labor, which was controlled very well this quarter, especially after your first quarter deleverage. Just speaking real quickly, if you could just give us a little bit more detail on how you were able to leverage that, that would be great.

Well, a couple things in regards to that. For the last six months of -- really the last quarter of 2009 and the first quarter of 2010, we were rolling out new service enhancements where we think that those service enhancements really helped the productivity in the restaurant. And as a result, there were some inefficiencies with that and that carried over into Q4 of last year and into Q1 of this year.

And at the same time, in the Q1 of this year we rolled out a new menu, which we have never done before. That new menu included the Small Bites and Snacks. And that was a very comprehensive menu because it's not like adding a new key to our new pasta dish. You're adding an entire new line of menu items. And that learning curve was very difficult.

And frankly, our operators, though, did a great job as we got into this second quarter. They understood now the menu mix that was coming in in regards to Small Bite. They understood how to get the service initiatives that we put in place to deliver that hospitality and really get leverage. And frankly, I've got to give my hats off to Wayne Jones and the operations teams because they did a great job in this second quarter.

Okay. Thanks very much.

You're welcome, Rachel.

Thank you. (Operator Instructions.) Our next question comes from Brad Ludington with KeyBanc Capital Markets. Please go ahead.

Hi. This is actually John Dravenstott on the line for Brad. I had a couple of questions. The first was, I was wondering if you could give us a kind of progress report on how many restaurants you're in with new seating and the guest taps at this point? You said you were starting to see results with these programs.

Yes, I'd be happy to do that. For new seating we had 25 of those conversions planned for this year. We've completed all but one of them to date. Frankly, we had about 13 that were just completed within the last three or four weeks, so we really haven't begun to see the benefit -- the full benefit of that particular program in those restaurants quite yet.

We still have many other restaurants that will receive a new seating conversion. I think in light of all of our other capital expenditure plans for this year and the other programs and initiatives that we have slated, we're going to hold off and fit those into our 2011 capital expenditure plan, which obviously will give us the opportunity to drive additional comparable sales increases next year.

In terms of the expanded guest tap program, we had 20 planned for this year. We have completed eight so far. And the remaining 12 are all underway. All of the equipment has been purchased and now it's just a matter of doing the installations over the remainder of this year. By the end of this year we'll have 102 restaurants open. 61 of those restaurants will have our expanded beer tap program. And so, next year's capital expenditure program obviously will factor in at least 20 or 25 more expanded guest tap program additions. So, that's where we stand on those programs.

So, you said 61 of the 102 will have a beer tap. And just with the new seating, what would that have been then?

I don't have a count on that. Every new restaurant that we have opened for the past -- what, Greg?

Openings. Yes, I'd say 18 months.

Every new restaurant that we've opened for the last 18 months, which would probably be 15 restaurants, all have new seating capability. And then, by the end of this year, we'll have it in another 25 existing restaurants. So, we're still not even halfway through our entire restaurant base with significant new seating capability. So, we have quite a ways to go yet on that and still have all of that upside benefit to come.

Great. And then, also, I was hoping you could give us a little bit of breakdown on the traffic and the mix. I mean, we can surmise that traffic was positive in the Q2, right?

Yes. Traffic was probably positive in Q2. We got about 2.2% of the menu pricing in there. We did have some menu mix shift because of our Small Bites and some of the other things we've put in there. But I wouldn't surmise that out of that 5.3% the additional 3% was all traffic. There's going to be some mix in there. But I think, generally speaking, there was strong traffic, mix with the price and mix shift.

And mix was slightly positive, right?

That's correct.

Okay, great. And just one other housekeeping. Did you say there were still going to be some legal expenses in the second half of 2010 then?

There are. We're still working through the legal bills. And frankly, it's -- I'd like to say, gee, they were done and behind us, but these are legal costs that continue to move these things forward, unfortunately.

Okay. Alright. Well, thank you a lot.

You're welcome.

Thank you. Our next question will come from Paul Westra with Cowen & Company. Please go ahead.

Hey, great. Good afternoon and congrats on a good quarter.

Thanks, Paul.

I just have kind of a question (inaudible) have a question a little bit on development first. But are you seeing some anti-cannibalization as you fill out these markets and add new stores to your markets? Are you seeing the net benefit in your customer reach out of your presence in the market, and is this going to be (inaudible) if so?

Let me make sure I've got your question correctly. Are we saying anti-cannibalization because we're building brand awareness in the market?

Yes, as you add your third, fourth, fifth store to the market, or is that helping the market (inaudible) driving it up instead of -- one would assume it would be driving it down.

Paul, this is Jerry and the answer is yes. We began to see that in the BJ's concept starting in Houston and Dallas over the past three or four years. As we've begun to fill in those markets and build overall brand awareness, we've seen a very solid lift in comparable sales in almost every one of those restaurants in those markets as we began to fill them in.

We now have eight restaurants in the Dallas/Fort Worth market. We still have room for probably three or four more without running any cannibalization risk whatsoever. And in the Houston market we clearly have room to double our presence there. I think we've only got five -- four -- actually four or five restaurants open there now. We clearly have room to double our presence there.

But you tend to see that in the Ohio Valley. You tend to see that in Florida as well, as we have built our restaurants in triple-A locations, some of the great retail projects in America where we are building brand awareness. And it is giving all of our restaurants in those markets a nice positive lift.

As you know, we don't have a national advertising umbrella to build restaurants underneath where we get instant awareness and trial. We have to pick great locations and then through word of mouth and so forth steadily build our reputations over time. We have found that the BJ's concept, as Greg mentioned in his prepared remarks, we do get a benefit from clustering our restaurants, which addresses that anti-cannibalization factor that you referred to.

At some point in time, as we fill out some of our other markets, we will probably consider experimenting with some mass media in terms of television or radio to see whether that will give us an additional lift in comparable sales. Right now, we only have a couple of markets that could actually benefit from mass media of that nature in an efficient manner. But I think as time goes on that's something that we want to better understand in terms of the dynamics of driving sales for the BJ's concept.

So, that's what we've been seeing.

Great. That answered the question. Thanks. And as far as the same-store sales performance, sort of (inaudible) the quarter. Are you seeing any outliers on the upside or downside, either geographically or any other (inaudible) of stores?

No, not really. I think as Greg mentioned in his remarks and as I've mentioned, we had positive comparable sales comparisons in every one of the 13 states that we operate in. Clearly, some are more positive than others, but they're all positive. And we really don't see any dramatic outliers really either way.

And in terms of our day part performance and day of week performance, our comparable sales increases have been pretty much across the board fairly evenly.

Okay. And just two more questions. Initiatives you've taken out, can you update us there?

Yes. We're continuing to work it, Paul. Our off-premise sales are running at about 5%, 5.5% today. They're up maybe 100 or 150 basis points from where they were a couple of years ago. And we really do need to continue to reinforce that channel in terms of guest awareness to the BJ's concept. So, we're continuing to work it. They're making steady progress. And I think we've got to go back and reinforce it in our media advertising a little bit more strongly.

Okay. And then my last question is, Greg, the stock comps (inaudible) have been down. What do you expect stock comps to be this year and what do you seeing (inaudible) year to date?

In regards to stock comp, I think we're averaging about 900,000 a quarter, of which about 200,000 is in labor and the other 700,000 is in G&A. And I would expect that number to be pretty consistent both in Q3 and Q4, somewhere in that 900, 950 range.

Great. Thanks. That's it. Thanks.

Thanks, Paul.

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

Thanks. A question on the commodity side. Do you have anything locked yet for 2011? And where we stand today, what's kind of the ballpark expectation for the commodity basket for next year?

Greg, we do have items locked for next year already. Some of our items for next year going into 2011 is all of our shrimp and it comes from Asia. There's no impact from the Gulf oil spill. We've got our pizza dough ingredients, our Pizookie ingredients for Q2 of next year, and all of our tomatoes for our pizza through Q3.

So, there are some items contracted through 2011, but the majority of them, our proteins and other things will really get contracted, as well as our agriculture type grain items here coming up at the end of the third quarter really going into the fourth quarter.

Okay. I apologize if I missed this, but I think Jerry in one of the previous questions you said that three or four more possible in Dallas, four more in Houston. I think that would put you at 20. So, do we stick with 300 as the total US penetration opportunity?

Well, for the time being we're going to stick with 300. We are conducting an update of our own internal analysis with respect to the ultimate domestic capacity for BJ's Restaurants. That 300 number was a number that we came up with when I first joined the Company almost six years ago. And so, now that we've opened many more restaurants and have much more experience with different site types and different trade areas and different states, we are going back as we speak and updating that analysis.

I would be surprised if our revised analysis doesn't suggest that there is clearly more capacity domestically, but we're going to finish up our work and then we'll talk about that when we talk a little bit more about our 2011 development plan on the next quarter.

Okay. In terms of the MIT program, for each new planned opening, how many hires are made to fill out that restaurant?

Well, a new restaurant for us is going to be scheduled at seven to eight managers.

Okay. That's all I have. Thanks.

You're welcome, Greg.

Thank you. And I'm showing no further questions at this time. I'll turn the call back to Mr. Deitchle for any closing remarks.

Well, we'll just hold on for any more questions here. We'll just leave the line open for another minute or so, just in case anybody would like to ask a question. We did finish a little early here and so we want to make sure that we've answered all questions. So, we'll just sit tight here for just a second.

And thank you, sir, we do have a follow-up question from Brad Ludington with KeyBanc Capital Markets. Please go ahead.

Hi. It's John Dravenstott again. I was just curious. When you mentioned the new media, did you say that you were looking into testing that, or what was the specific comment you made on television/radio?

The comment that I made was that, as we continue to fully penetrate some of our markets, we do want to consider testing at some future point the notion of television or radio media for the BJ's concept. There is a reason why Darden and Breaker and Outback and the other big casual dining companies spend hundred of millions of dollars on television advertising. And I think at some point, as we fully penetrate out certain of our markets where they are more media efficient, then I think we need to understand whether or not that would also benefit the BJ's concept.

So, it's really something that we're going to evaluate in the future. It will not happen in 2010. And as we put together our 2011 plan and allocate our resources, we'll make our decision at that time as to whether we want to put our toe into the water in that area.

Thank you.

You're welcome.

Thank you. Our next question is a follow-up question from Greg Ruedy with Stephens. Please go ahead.

The second quarter had somewhat of a unique sports calendar. And I know you've retrofitted many of the restaurants with the video technology. How much of a help to the comp did you get, at least in the bar at some unique times of day?

Greg, I don't know the answer to that. I would tell you, though, generally some of the soccer games are on off-peak periods, but we got a benefit because of that because they weren't a normal lunch or a normal dinner in that regard. But generally speaking, it's hard to quantify that exact difference that happened because of those things. And again, kind of in our notes today that we thought that our June number was solidly -- it was a solid number. It was higher than what we saw in March and April -- or in April and May. And therefore, we figured some of it is due to that.

Just to follow up on that, our June number when both the Lakers/Celtics and the World Cup programs were underway was strong than April and May. It wasn't materially stronger. So again, as I mentioned in my comments, it gave us a little bit more wind into our sails, but it wasn't a major gust of wind in our sales.

Okay. A question on average check. I think if I go back a couple of years it might have been just over 12. You're still in that I think low 12 range. Is that mix shift over the last couple of years with pressure on the consumer? And where do you think that shakes out going forward?

Well, I think it's a factor of a couple of different issues, Greg. I think it's principally driven by consumer buying habits and behavior. But it's also driven by what we're advertising in our limited marketing budget. And it's also driven by the development of items and categories on our menu that offer the consumer additional abilities to trade up if they so desire.

So, our intention with respect to the BJ's menu is not to try to force consumers to trade up or trade down. Our intention is to offer a wide range of great appetizers and entrees and menu items and beverages at different value points, at full margins across the board, starting with our Small Bites and Appetizer category at $2.95 to $3.95. And then also ending with an expanded offering of protein-based center-of-the-plate entrees, and expanded updated steak lines, some new chicken entrees, some additional seafood entrees which we're working on right now and we're getting ready to test.

So, that's really our strategy, to enable the consumer to pick what they would like to buy at whatever prices they would like to pay. However, I do think that BJ's historically has been a little weak and underdeveloped on the upper end of its menu. When we look at our mass market dining competitors and we look at their menus, they're much more fully developed at that $10 to $15, $16 level than we are.

So, if we can do a little bit of work on that, which is in our plan, and still rely on the great everyday value of the BJ's menu that's currently there, we have our Small Bites and Snacks offering at the low entry value, which was so important strategically to get that in during the first quarter, that I think we'll have a very balanced set of offerings at different price points that may in fact encourage the guest to spend a little bit more, if they so desire at BJ's. So, that's really our strategy going forward.

Appreciate that insight. Thanks.

Thank you.

Thank you. And I'm showing no further questions at this time.

Okay. Thank you all for being on the call today. And call us in our offices if you have any further questions.

Thank you, sir. Ladies and gentlemen, this concludes the BJ Restaurants, Inc. second quarter 2010 earnings conference call. You may access the replay system at any time by dialing 1-800-406-7325, or 303-590-3030, and entering the access code of 4327249. Thank you for your participation and you may now disconnect.