BJ's Restaurants Inc (BJRI) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the BJ's Restaurants, Inc. second quarter 2011 results conference call. (Operator Instructions). I'd now like to turn the conference over to our host, Mr. Jerry Deitchle. Please go ahead, sir.

Thank you, operator. Hello everybody. I'm Jerry Deitchle with BJ's Restaurants, and welcome to our second quarter 2011 investor conference call, which we're also broadcasting live over the internet.

After the market closed today, we released our financial results for our second quarter of fiscal 2011 that ended on Tuesday, June 28, 2011, and you can view the full text of our earnings release on our website at www.bjsrestaurants.com.

Joining me on the call today in the order of their remarks are Greg Lynds, our Executive VP and Chief Development Officer, Greg Levin, our Executive VP and Chief Financial Officer, and we'll begin with our prepared remarks after Diane Scott, our Director of Corporate Relations, provides our standard cautionary disclosure with respect to forward-looking statements.

Diane, please go ahead.

Thank you, Jerry. Our comments on the conference call today will contain forward-looking statements within the mien 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 as 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 21, 2011.

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 discretion of risks and uncertainties associated with forward-looking statements contained in the Company's filings with the Securities and Exchange Commission.

Thanks, Diane. As we noted in our press release today, our leadership team was very pleased to deliver another very solid quarterly financial performance here at BJ's. But to summarize our financial results for the second quarter of fiscal 2011 compared to the same quarter of last year, our total revenues increased 17% to almost $153 million.

Our comparable restaurant sales increased a very strong 6.9% on top of a pretty tough comparison of 5.3% for the same quarter last year, which we believe is quite an impressive achievement this operating environment for any casual dining company.

Our average weekly sales per restaurant increased a solid 6.3%. Our estimated four-wall restaurant cash flow margin, which is a non-GAAP measure, increased 90 basis points to 20.9%, which is one of our strongest margin levels in recent history.

Our infrastructure-related G&A expenses favorably leveraged another 50 basis points, down to 6.4% of revenues, and our operating income margin increased a solid 110 basis points to 7.6% when excluding the impact of expenses for the legal settlements we recorded during the quarter.

And, as we noted in our press release today, if we exclude the expenses for the legal settlements during the quarter and also exclude the gain associated with a partial recoupment of cash associated with our former auction rate securities portfolio during the quarter, our net income and diluted net income per share were $8.5 million and $0.29 respectively on a non-GAAP basis.

We should also point out that our quarterly earnings per share comparison with the same quarter last year was also impacted by higher expenses for restaurant openings and asset disposals during the second quarter this year, it amounted to another $0.02 a share.

So after considering all of these factors, we believe that BJ's second quarter operational performance was clearly outstanding on all key measures. Greg Levin will provide his analytical commentary on our income statement for the quarter a little later in our call today.

We think it's worth mentioning again that our comparable sales increase of 6.9% for the second quarter successfully hurdled a solid 5.3% increase for the same quarter of last year, which is quite impressive for any casual dining concept as of late.

At BJ's, we are sales-builders first and foremost and we planto continue our focus on driving additional sales increases through the effective execution of all our operational menu, merchandising, and CapEx initiatives that we've already mentioned in previous conference calls, and that we intend to keep steadily deploying during the rest of this year and into next year.

Additionally, we're especially proud of the successful results achieved by our restaurant operational teams in nicely leveraging the technological and other systems we've implemented during the past few years to both improve the dining experience for our guests and to further improve our four-wall restaurant operating margins and our consolidated operating margins during the second quarter just ended.

Not withstanding our continued tough sales comparison going forward, we started off the third quarter of 2011 once again with positive momentum for our comparable sales-to-date, and Greg Levin will comment on that a little later in our call today.

While sales comparisons continue to be favorable to date for the third quarter, we always caution investors to remember that we're still operating in a very difficult and volatile environment for consumer discretionary spending.

The recovery of the economy, the job market, the consumer asset values, they all continue to be slow, choppy, and geographically uneven. Foreclosure rates and unemployment rates are still quite high in many of the states that we operate restaurants in, and overall consumer sentiment has not yet recovered to pre-recession levels.

More than ever, we believe that consumers are seeking to maximize the overall quality of their casual dining experiences at the best value possible, and are becoming increasingly selective about their casual dining occasions. So, in light of all of these external factors that are outside of our control our sales volumes remain difficult even for us to reliably predict, so we don't predict them. And we recommend that those who are in the business of predicting them keep their expectations on the conservative side.

Additionally, as we've noted previously, our comparable sales comparisons become increasingly more difficult as 2011 progresses. But having said that, we've typically had difficult sales comparisons to rollover year after year at BJ's, so that's nothing new for us.

Our entire team welcomes the challenge of surpassing our previous best on all key measures and to control what we can control to help drive solid results. And I might mention that we have a number of sales billing initiatives currently in place that are working very, very well. They're intended to drive both guest traffic and the average guest check for which we have continued confidence in the success of these initiatives.

Before I turn the call over to Greg and Greg for their comments, I always like to take a couple of minutes on our quarterly conference calls to reiterate our fundamental competitive strategy and our operating philosophy with our investors, as well as with all of our BJ's team members and our supplier partners that might also be listening in on our call today.

We continue to believe that the battle for casual dining market share is going to be a much more significant factor going forward than it has been historically, primarily because the casual dining segment doesn't have as strong of a macroeconomic tailwind that it enjoyed during the past couple of decades.

Now, having said that, annual casual dining segment sales are still estimated by most analysts to be well north of $80 billion, and annual sales growth for casual dining chains, excluding the independent casual dining operators, is still expected by most observers to be in the 4% to 5% range for the next couple of years.

Now, that 4% to 5% increase in total casual dining chain sales would likely be comprised of a 2% to 3% annual increase in capacity and a 2% or so increase in sales on the existing capacity base. So how does BJ's measure up to those expectations for chain growth in the overall segment?

Well, we currently expect to continue increasing our capacity rate and base as measured by total restaurant operating weeks in the low double digits during the next couple of years in the approximate range of 11% to 13%, depending primarily on the amount and timing of our new restaurant openings.

Additionally, at some point in the future we also expect annual sales increases on our existing capacity base, basically our base of comparable restaurants, will eventually settle into the range of 2% to 3% assuming a more normalized and constant operating environment. Therefore, it is BJ's intention to continue gaining market share at a much higher rate than the expected growth rate for the overall casual dining segment.

BJ's current share of the casual dining segment sales is still less than 1%, so we believe that the vast majority of our growth remains well ahead of us. We also believe that the most successful market share takers in casual dining going forward will likely be those that either excel as low-cost providers of convenience-oriented kitchen replacement meals, or those that excel as dining-out-for-fun destinations will provide a higher-quality overall dining experience at a solid value for the consumer.

We at BJ's have chosen to be more clearly competing as a higher-quality differentiator and destination restaurant with exceptional approachability and with an outstanding value proposition for all consumers. However, we're also structuring our menu and operational tactics to enable BJ's to also be an effective competitor for our share of convenience-oriented kitchen-replacement meal occasions, particularly at the lunch-date part.

We also believe that our primary positioning as a higher-quality destination restaurant also provides us with greater pricing power than most of our mass-market, more commoditized casual dining competitors. Restaurant concepts must have pricing power to help protect their margins, particularly in this operating environment where food cost inflation is steadily picking up.

Now, at BJ's, we've intentionally kept most of our pricing power in reserve during the past couple of years, and we're actually doing so at present with only about 2% pricing in place for the upcoming current third quarter.

Now, having said that, as we move forward through the rest of 2011 and plan our business for 2012 where food and energy costs in general are expected to be somewhat higher than they are at present, although it's presently unknown exactly how much higher they're going to be, we believe that we're in a very favorable position to carefully deploy some of our pricing power that we've been holding in reserve to help us manage through these cost increases, and coupled with our productivity and efficiency initiatives, give us a good opportunity to protect our margins.

Our current estimated average guest check is still in the $13.25 range, which is still relatively low compared to most of our mass-market casual dining chain competitors.

With respect to our new restaurant expansion plan, we've successfully opened six new restaurants to date during 2011 and we remain very pleased with the initial sales volume of all of our new restaurants. Seven new restaurants are currently under construction for potential openings later this year or early next year.

We remain solidly on track to open as many as 12 to 13 new restaurants during 2011, and we're well underway in securing high-quality locations for potential new restaurant openings in 2012, and we're even starting to work on 2013.

During each of the past several years we have consistently done exactly what we said we were going to do with respect to our annual restaurant expansion plan, again thanks to the effective work of Greg Lynds and his development team, and we intend to keep doing that. So now I'm going to turn the call over to Greg, our Chief Development Officer, for his update on our new restaurant development pipeline. Greg, go ahead.

Thanks, Jerry, and good afternoon, everybody. As Jerry just mentioned, our 2011 and 2012 new restaurant development pipelines remain in excellent shape, and we continued to be very pleased with the overall quality and quantity of the new sites in our pipeline.

Our new restaurant development strategy has always been centered on triple-A quality locations with premier co-tenants, and densely populated, more mature trade area, and we'll continue to maintain this discipline as we analyze and build our future real estate pipeline. So far in 2011, we have opened six successful new restaurants. In the first quarter, we opened two restaurants, one in Tyler, Texas, and one in Sacramento, California. In the second quarter just ended, we opened three restaurants. On May 16, we opened at the Simon Properties-owned shops at Arbor Walk in Austin, Texas, and this is our second restaurant in the Austin submarket.

On June 6, we opened in our home court of Southern California within the Westfield Century City shopping mall. This mall, as many of you know, is considered one of the finest shopping destinations in Los Angeles with over a million square feet of retail and ten million square feet of office within walking distance. On June 20, we opened in Las Vegas, Nevada, on a freestanding pad, the main entrance of the successful 1.3 million square foot Centennial Center, and just ten days ago on July 11, we opened our sixth restaurant of the year on a freestanding pad at the Post Oak Regional Mall in College Station, Texas.

Initial sales for all of our new openings this year has exceeded our expectations. We have six or seven more planned openings for the remainder of the year with seven restaurants currently under construction for 2011 or early 2012 openings. As we've said before, it's difficult to precisely predict the actual timing of our new restaurant openings due to many factors outside of our control.

So with that in mind, as of today we currently expect to open three more restaurants in the current third quarter, and that's in addition to College Station that just opened earlier this month, and three or four restaurants in the fourth quarter.

A development plan for this year called for all of our restaurants to be built within our thirteen-space footprint, which will allow us to continue leveraging our strong ground position, consumer awareness, supply chain infrastructure, and our field supervision resources. Looking forward to 2012 and 2013, our growth goals will remain the same, and that is to achieve a low double digit capacity increase per year as measured by total restaurant operating weeks.

That's in the approximate range of 11% to 13%. We have not yet announced the absolute number of new restaurant openings targeted for 2012 as we are putting the final touches on our development pipeline. However, we do expect to open more restaurants in 2012 than we'll open this year.

We should be able to provide more insight on our 2012 capacity growth target on our next conference call in October. Geographically, our development plan for the next couple of years still call for about athird of our restaurants to built in our home court of California, another third are planned to be built in western states outside of California, and another third are planned to be built in our current Midwest or Florida market, and possibly a few new markets that are currently under review by our development team.

One of our development imperatives is to ensure that we have a geographically balanced expansion plan that minimizes the impact of taking on excessive new market risks, and that also drives additional leverage for the entire business. With our solid new restaurant growth over the last few years, we now have a stronger base of restaurants from coast to coast and we're well positioned to continue building and leveraging the BJ's brand nationally.

We continue to believe that we have room to open at least 300 BJ's restaurants at various (inaudible) across the country over time. Our entire development team at BJ's is more focused than ever on delivering high-quality, efficient, cost-effective restaurants, and at the same time provide the best atmosphere in casual dining. Additionally, our architectural and design teams are currently working on a long-term strategy to incorporate green technology and sustainability solutions to achieve higher-quality and higher-performing restaurant buildings.

This will include the latest in automation which should contribute to reduce energy and water costs, simplified maintenance requirements, better productivity, and an overall improved restaurant experience. We've worked hard over the past six years to better position BJ's as a higher-quality, more differentiated casual-plus dining concept, and our new restaurant designs and site fluxion strategy continue to strengthen this positioning.

All of our new restaurants now feature large, impressive entry statements, high ceilings with detailed contemporary decors, and we've combined our contemporary, casual-plus interiors with our broad menus, signature pizza and beer. We have a unique, differentiated positioning that should give BJ's many years of solid new restaurant growth to come. Jerry, back to you.

Thanks for the update, Greg.

We continue to believe that BJ's four-wall economics are sound and they support a continued steady base of new restaurant expansion. But we're always going to pick quality over quantity when it comes to our new restaurant locations, and we're going to continue to carefully execute our expansion program at the right pace to facilitate high-quality, predictable results, and that also adds incremental leverage to our business model.

Today we have restaurants open in only thirteen states, and there is no question that much of America remains wide open for the future development of BJ's restaurants. Believe me, we're just as excited about that as most of our investors are.

We often get asked the question, well since BJ's has such an attractive opportunity to expand to many more states and increase its market share in casual dining, why don't you speed up your pace of expansion?

Our answer has been and continues to be, we're going to expand our business as fast as we can while maintaining the overall high quality of our restaurant locations, maintaining the high quality of our four-wall operational execution, preserving our currently strong four-wall operational profit margins, achieving our currently favorable ROI targets, and further facilitating the steady leveraging of our consolidated business model.

Now these are the fundamental objectives of any successful restaurant expansion plan, and we're going to stick to those fundamentals at BJ's, and we're going to resist any temptation to grow just for the sake of growth, and thereby take on any risk of outrunning our headlights, so to speak.

Many casual dining concepts that have come before us and executed their national expansion plans have suffered from a steady gravitational pull downward in their overall quality and predictability when they became too aggressive in setting the pace of their expansion, even during the better times in the economic cycle. Today, we're not yet in a favorable economic cycle and we don't have a tailwind pushing us along quite yet.

Therefore, we believe it's just good business to be very careful and measured as we steadily develop BJ's national geographical footprint in order to maintain the quality predictability and leveragability of our business model. Now as Greg mentioned, we are planning to gradually ramp up the annual number of our new restaurant openings, again within the framework of our fundamental expansion objectives. 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.

Thanks, Jerry. I'm going to take a couple minutes and go through some of the highlights for the second quarter, and provide some forward-looking commentary for the rest of 2011.

All such commentary speaks only as of today's date, and is subject to the risk and uncertainty regarding forward-looking statements as well as all of the risk factors 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 second quarter of 2011 increased approximately 17% to approximately $152.9 million from $130.5 million in the prior year's comparable quarter. This increase is a result of approximately 10% more operating weeks, and an approximate 6.3% increase in our weekly sales average.

As Jerry mentioned, our aggregate comparable restaurant sales for the first quarter increased approximately 6.9%. While we do not report monthly comparable restaurant sales, April, May and June were all solidly positive. From a trend prospective, June was our softest month with comparable restaurant sales still at a very strong mid-5% range, and where we faced a very tough comparison against our June last year.

Not only were there some macro-environment events like the Lakers/Celtics NBA Championship and the Men's World Cup of Soccer last June, but we also implemented about a 2% of new menu pricing last June, that's June of 2010, as compared to only about a half a percent of new menu pricing this past June. As such, June of this year had about 1.5% less pricing when compared to April and May of this year.

Despite this less pricing and the tough comparison, June this year still has solid comparable restaurant sales, as I noted, in the mid-5% range. In aggregate, all of our thirteen states in which we operate had positive restaurant comparable sales during the quarter, and consistent with trends over the last six quarters, our restaurants outside of California, in aggregate, have slightly higher comparable restaurant sales compared to our restaurants inside California.

So on an overall basis, both California restaurants and restaurants outside of California continue to perform very well for us in regards to comparable restaurant sales. In the second quarter, our weekly sales average increased by 6.3% as compared to our comparable restaurant sales growth at 6.9%.

As I frequently discussed over the last year, the difference is to be expected as we lab our strong, initial honeymoon sales volumes from our third and fourth quarter of 2009 restaurant openings. All of these high-volume restaurants are now in the comp base beginning in the third quarter of this year.

I do want to remind everyone that, as a relatively small restaurant company, our weekly sales average performance as compared to our comparable restaurant sales metric will be a result of many factors, of which one will be the geographic mix of our newer restaurants not yet in the comparable restaurant sales base.

I would therefore caution investors to not read too much into the initial sales volumes of many of our new restaurants or changes in our weekly sales averages as compared to our comparable restaurant sales metric since we will always have a diverse geographic mix of newer restaurants as we continue to build our national presence.

During the second quarter, our estimated menu pricing factor was approximately 3.3%. In regards to the middle of our P&L, our cost of sales of 24.8% of sales was up about 50 basis points as compared to last year's second quarter, and on a sequential basis, up about 10 basis points. The 50 basis point increase was primarily due to higher commodity costs, specifically in cheese, dairy, produce, and meat. Since the end of the fourth quarter of 2010, the cost of our overall commodities basket is up about 5%, and this is what we expected. The 5% increase was partially offset by menu pricing and some menu mix ship due to some of our new menu creations, like our Enlightened Entrees category.

In regards to both labor and benefits during the quarter, in operating and occupancy costs, the margin improvement from the prior year second quarter is really a result of sales leverage over the fixed and semi-fixed components of these costs. As we continually say at BJ's, we are sales builders first and foremost.

By driving sales provides the opportunity to leverage the fixed and semi-fixed nature of many of these costs. Specifically in labor, we were able to leverage our management and our benefit programs as a result of our strong comparable restaurant sales. This leverage was partially offset by higher hourly labor as a percent of sales.

The increase in hourly labor was primarily due to the additional training and initial learning curve associated with our spring new menu, which was more complex than some of our past menus due primarily to the introduction of our new, lower-calorie Enlightened Entree menu offerings, which have proven to be very popular with our guests.

As I mentioned, the effective leverage in our operating and occupancy costs as a percentage of sales in the second quarter was also a result of the strong, top line sales. At an absolute dollar basis per restaurant operating week, our operating and occupancy costs increased about 1% to 2% as compared to last year. However, this was offset by the solid increase in comparable restaurant sales of 6.9%.

Our general and administrative expenses decreased approximately 50 basis points from the prior year to 6.4% of sales. Included in G&A is $753,000 and $739,000 of equity and compensation for 2011 and 2010 respectively, or half a percent of sales and .6% of sales for 2011 and 2010 respectfully.

Excluding equity compensation, G&A increased approximately $820,000 compared to the prior year. The increase in G&A is primarily related to our continued investment in our field supervision and support infrastructure costs.

Our depreciation expense for the second quarter was 5.4% and that was flat with last year's second quarter. Our restaurant opening expenses were approximately $1.7 million during the second quarter, which primarily relates to the three restaurants that opened in the second quarter plus some pre-opening expenses for our College Station restaurant that just opened at the beginning of the third quarter, and some pre-opening rent and other costs for restaurants that will be opening in the third and fourth quarter of this year.

We did incur approximately $283,000 in asset disposal costs during the quarter, with the majority of these costs related to remodels, our juice seating and retrofit initiative, and the expanded guest beer tap system. Our cash rate for the second quarter was approximately 28%, and came down from the first quarter of 30.5% as we are now able to include some additional state tax credit which we had originally assumed would have expired this year when calculating our estimated effective tax rate for 2011.

Our total gross capital expenditures for the six months of 2011 is approximately $37.7 million before any landlord allowances, which was in line with our internal business plan. Before I turn the call back over to Jerry, let me spend a couple of minutes commenting on our liquidity position and also provide some forward-looking commentary for the rest of 2011.

Once again, all of this commentary is subject to the risks and uncertainties associated with forward-looking statements as discussed in our filings with the SEC. In regards to our liquidity, we ended the quarter with approximately $60 million of cash and investments.

Our line of credit is for $45 million and does not expire until September 2012, of which zero is outstanding today other than for standby letters of credit that support our insurance program. As of today, we are targeting approximately $75 million to $80 million in gross capital expenditures for 2011 before any landlord construction allowances.

This amount is up slightly as we have decided to accelerate the pace of our dining room and bar juice seating retrofits, as well as investing in some additional infrastructure investments this year. We still anticipate funding our gross capital expenditure for this year from cash flow from operations as well as our expected landlord allowances and current cash and investment balances. From a revenue perspective, as Jerry mentioned, we continue to see solid comparable restaurant sales so far in this third quarter.

Our most recent sales trends (inaudible) put a shift in the July 4th holiday, which moved from a Sunday to a Monday this year, seems to be trending in the 4% to 5% range. Specifically in July, we have seen some increased choppiness in our weekly sales comparison, making it a little bit more challenging even for us to predict where our comparable restaurant sales will be for this quarter.

I do want to remind our investors that, as Jerry already pointed out, that our comparisons for the second half of 2011 are significantly more challenging as we are lapping at 6.7% and a 5.9% increase in comparable restaurant sales for Q3 and Q4 of last year. Additionally, consumers today are still facing inflationary pressures on food, high unemployment with little job and income growth, and waning consumer confidence. As a result, these issues may temper restaurant sales in the future. Therefore, as we have mentioned in the past, for a restaurant concept like BJ's that is already one of the leading public restaurant companies regarding guest traffic, shooting par for this course is being able to get your menu pricing and maintaining your guest count.

That being said, each year we continue to work on additional sales-building initiatives and productivity initiatives that we believe, over the long run, it provides us the opportunity to drive additional guest traffic through our restaurant. For those of you building your models, I would therefore err on the side of conservatism, and build your models based more on our menu pricing and yearly comparisons. Currently, we anticipate having only about 2% of menu pricing for the third and fourth quarter that compares the menu pricing in the 3-plus percent range for both Q1 and Q2 of this year. This is based on information and our expectations as of today.

As such, the amount of menu pricing may be more or less depending on many things, including the consumer discretionary spending environment, commodity costs, and other sales-building and productivity initiatives. We have not yet determined what our menu price increase will be in our fall menu update, although we'll most likely take some menu pricing at that time.

Another potential sales upside during the next couple of quarters will be our intention to feature both our higher ticket signature entrees and our small bite and snack offerings which tend to increase our guest incident rate. This offering will be in most of our restaurants and also in our online restaurant merchandising. It will be featured internally inside our restaurant. Furthermore, in regards to our weekly sales averages, I would expect them to be pretty much in line with our comparable restaurant sales as our strong new restaurant openings from the latter part of the second half of 2009 are all in our comparable sales base going forward.

Additionally, as we mentioned, fiscal 2011 will be a 53-week year for us, and therefore Q4 will be comprised of 14 weeks as compared to our traditional 13-week quarters. In regards to cost of sales for the rest of 2011, and based on information available and our expectations as of today, like most restaurant operators, we continue to anticipate some additional net cost pressure on our overall commodity cost basket.

We expect to see higher costs for pizza dough and higher cheese costs partially offset by expected lower cost for some produce and other items. As such, we have 80% of our commodity market basket contracted through the remainder of the year, and therefore I anticipate cost of sales as a percentage of sales for the remainder of 2011 to be around 25% or so. This current estimate is based on a combination of annual and semi-annual agreements 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 has currently elected not to contract for, for longer period of times.

In regards to labor, we currently do not anticipate significant pressure for the remainder of 2011 for both wages and salaries. As such, the slight increase or decrease in labor as percent of sales will be more based on the ability to gain leverage based on our comparable restaurant sales, productivity initiatives, and seasonality related to our weekly sales averages. In general, I would expect to see some increase in operating and occupancy as a percent of sales for the remainder of 2011, due primarily to seasonality in regards to our weekly sales averages, and expected higher energy costs in Q3 and Q4.

I am therefore anticipating our operating and occupancy costs be closer to 21% of sales. I would anticipate our G&A costs be slightly greater in Q3 due to increased managers in training related to the new restaurants scheduled to open in Q3 and Q4, as well as building our manager pipeline for 2012, plus there will be some continued incremental investments in our support infrastructure.

Since the fourth quarter will be a 14-week quarter, I expect our absolute G&A dollars spent to be around $10.3 million in the fourth quarter, including equity compensation.

As I have 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.

As such, I anticipate opening costs in the $2 million to $2.2 million range in the third quarter related to the expected four new openings in the quarter, plus pre-opening rent for restaurants expected to open in the fourth quarter of this year. We currently anticipate our income tax rate for 2011 to be between 29% and 30%, and based on our current stock price, we estimate that our diluted shares outstanding for 2011 will be around $29.3 million going forward.

Jerry, back to you.

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 of 2011. We're continuing our forward momentum so far in the third quarter of 2011, and we're looking forward to executing another year of profitable expansion for BJ's during 2011.

Our new restaurant development pipelines are in solid shape for the rest of this year and for 2012, and as I mentioned earlier, we're already starting to work on 2013. In the shorter run, we're going to do our best to navigate through the current inflationary commodity cost environment using a combination of menu-related and merchandising actions, achievable and selective menu price increases, and the further deployment of certain productivity and efficiency initiatives.

At the same time, we intend to continue 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 the quality and differentiation of the BJ's brand. We believe the best years of growth are still well ahead of us at BJ's.

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

Thank you, sir. (Operator Instructions). Our first question comes from the line of Matthew DiFrisco from Lazard Capital Market.

Thank you. Greg, I think you gave some very good detail there, I appreciate that on the openings rolling into the comp base, and the comp looking like the more like the average weekly sales, or visa versa. Did you mean that in the beginning of the third quarter, or I think it was that the stores roll in, do the stores roll in for the complete third quarter, or the fourth quarter, so there would still be a little bit of a lag maybe in the third quarter?

No, they should have all been rolled in here by the end of the second quarter. So beginning in the third quarter they should be in there, more or less a 18-month comp. Anything opened in Q3 and Q4 in 2009 will now be in our comp entirely.

Okay. And then also looking at the remaining stores, the seven or eight or so, how does that break out the remaining ones from what is in California and outside of California?

This is Jerry, Matt. Our next opening will be in Jacksonville, Florida, we also have another opening in south Florida scheduled for the end of the year. We have an opening in Columbus, Ohio coming up, we have three more in California, and then one more in Texas, so I think that should add up to maybe seven at the most.

And it appears, looking through it, that the California restaurants will open up all towards the fourth quarter.

Correct.

Okay. Just as far as last question, with reference to your guidance. I think it's sort of the same language I think you used in prior calls also, reverting to looking at the price as the best component for measuring same store sales, however it seems like you keep coming above that. Should we look at that as prudently conservative and just given the economic environment we're in, or have we lost some momentum in July as far as the traffic from about the mid-range that you were sitting at before with about 2% or so of traffic?

I think what we're seeing is, as we roll off some of that pricing, obviously it's not in there, we have seen it drop off maybe in that comp in the June timeframe, albeit I think June last year was our strongest month with the World Cup and the Lakers/Celtics Finals from that standpoint, but when I look at the numbers overall, we are still continuing to get healthy trafficking, helping instant gains, and getting our pricing to pass through.

Great, thank you.

Thank you.

Our next question comes from the line of Destin Tompkins with Morgan Keegan. Please go ahead.

Thank you. My first question would be on the menu mix benefit you might be seeing from some of the higher-priced entrees, as well as Small Bites. You have got a lot of new things on the menu. I would just be curious if you could quantify, are you getting check benefit beyond pricing, how much that might be in the second quarter, and what your expectations are going forward?

Yes, this is Jerry. We don't want to get into the granularity of the average check impacts of our various menu initiatives. It gives all of our competitors that are listening into this call today a little bit more of a roadmap than we really want to give, but I think it's fair to say the impact of our Small Bites and snacks, as well as the impact of our new higher priced entrees, and this is all in accordance with the barbell strategy to really develop and merchandise our menu, they're both contributing to the size of the average check, and in terms of which one contributes more than price, Greg you might want to comment on that, it seems to me the contributions are roughly equal, with the difference being traffic gains.

That is correct. When we look through our menu mix and we've been able to move people through some of our newer items, such as the higher-priced entrees, or frankly the Enlightened Entrees have done really well for us, and they have become a big hit actually at the lunch time, so you trading people maybe from sandwiches to an enlightened entree, which frankly helps us a little bit in that regard. But at the same time and I think we have talked about this before, adding the snacks and small bites as Jerry mentioned with that barbell strategy has really allowed what we look at as incident rate. We start to think about how it can play out in regards to your average check. There's a combination of mix, pricing, guest counts and incident rate, and all of those things are moving favorably for us, based on the way we have designed our menu over the last couple of years.

Okay, great. And then, Greg, on the guidance that you provided on specifically operating and ops expense, I think that's an area where you've seen a pretty significant amount of leverage the first couple of quarters, and it sounds like you're talking about less leverage in the back half of the year, is that just a function of sales leverage because you're assuming a lower comp than what you've run in the first half, or I think you did mention some higher energy costs? Can you kind of help us understand why you're not going to see the same amount of leverage in the back half?

There's two-fold. One is the weekly sales average, if you look at our weekly sales average trends, Q2 is our highest weekly sales average trends, so if you just assume for lack of a better term, well I guess it isn't, you assume rent is fixed, you have a higher weekly sales average in Q2 than you have Q3, you'll get more leverage on that line, forgetting comp sales for a minute, does that make sense?

Sure.

So as we go into Q3, as we get out of our graduations and Father's Day where May and June are just our big booming months for us, and get back into kind of the September, slower time, frankly even into October and November until you get to the holiday times, that lower weekly sales average will tend to drive up your fixed costs as a percent of sales. Then we tend to see the higher utility bills in that August timeframe mainly for air conditioning because of the heat where some of our restaurants are located.

On a year-over-year basis if we just look at the third quarter, say you ran a similar comp that you ran in the second quarter, could you see a similar amount of leverage as what you experienced previously?

Well, we've been experiencing about 90 to 100 basis point on that line just, looking into Q3 and Q4 of last year where we did some really solid comps, I think we were 6.7 and 5.9 [at 4], generating a 400 basis points in Q3 and Q4 on that line might be challenging. I still think we will get leverage on that line, but I don't know if we'll get the same leverage that we got in the first two quarters of this year.

That's helpful, thank you.

Thank you. Our next question comes from the line of David Tarantino with Robert W. Baird. Please go ahead.

Hi good afternoon, and congratulations on another strong quarter. Just a quick clarification on a few of the questions. Greg, could you maybe give us an idea of what the traffic growth was during the quarter or guest count growth?

Yes, looking at that number overall, traffic at 6/9 a little bit under 3%. I would say incident rate and guest counts are kind of 50/50 on the remainder there. So if 6.9 was the number I said, we had the 3.3 pricing, takes you down to 3.6. Your 3.6 afterwards is going to be split fairly evenly between guest counts and incident rate.

Great, that's helpful. Then I guess a bigger picture question for Jerry. The restaurant level operating margin is now at least for the last couple of quarters above 20% and very healthy, and I think for a long time you talked about 19% to 20% as being a healthy economic model. I was just curious to know your philosophy as you look out over the next several years on how you approach or manage that line, whether it's something that you would continue to try to push higher with productivity gains and leverage as you good get comp store sales, or if it's a figure that you'd like to reinvest in to make sure that you're maintaining the right experience for your guests?

That's a great question, David, and our approach has been and continues to be one of careful balance on that particular line. I've been in the restaurant, the chain restaurant business for almost 35 years now, both in quick service and in casual dining, and I've been with concepts that undertook pretty aggressive expansion plans, and it's been my experience that the hardest thing to do when you're executing a national restaurant expansion plan is to preserve your original favorable unit economics as you get further and further away from your original restaurants and your home court. It's very, very difficult to do.

At BJ's, we've been able do that over the past almost 7 years that I've been involved with the business, and prior to that I think they had an outstanding record of preserving what we believe is a top quartile operating margin at that 20% to 21% level open a non-GAAP cash flow estimated basis. I think going forward because we're sitting at a top quartile level today, our challenge will be as I previously mentioned to do everything we can to preserve that margin as we continue our expansion across the country. To the extent that we get opportunities to do a little bit better on that particular statistic, our first tendency will be to try to reinvest in the concept, to add more quality and more differentiation to further strengthen our overall competitive positioning as a higher quality differentiator, in a pretty large niche of casual dining where you really don't have that many differentiators any more, so it is a significant competitive advantage for the BJ's concept, it enables us to take market share away from the thousands of pretty highly commoditized bar and grill, and other casual dining restaurants out there. That will be our first tendency.

The other tendency that we have is we want to keep our prices as low as we possibly can to the guests. We always want our guests to think they're getting the better end of the deal from us. We want them to walk into our restaurants and think oh my goodness, I am going to spend maybe $15 or $20 a person here, and then when they look at their check and see that they are going to spend less than that, we want them to remember that because that will bring them back again and again and again.

I think those are the factors that we consider as we manage that particular line item, to the extent that as we continue to move forward, and if we're a little more successful than perhaps we think we might be in terms of leveraging our business with very solid comp sales, and other productivity and efficiency initiatives and supply chain leverages going forward, we'd love to be able to give a little bit of that back to our shareholders in the form of a slightly higher operating margin on that particular measure, but I think at the end of the day we've got to do it in a very carefully balanced approach, but to make sure that we protect the fundamental competitive positioning of the BJ's concept as a market share taker. Probably a little bit of a long-winded answer for you, but that explains philosophically about how we think about that. Greg, is there anything that you would want to add to that, anything that I missed?

The only thing that I would add to that, David, as we continue to look at our restaurant and we're sitting at that 20.9 equity compensation number in this third quarter, we have a whole host of restaurants that are below that number that need to be above that number based on their stove levels and their productivity. The fact of the matter is that we can always get better in regards to our efficiency and productivity, and what that gets back to is as Jerry's philosophy or the philosophy of the Company, that is we'll get above that number we are going to get there because we're being more productive and efficient, not because we priced our way there.

I would add one final comment. We also have a whole host of restaurants that do much better than that number. Again, whenever you're operating 100 or so or even 1,000 restaurants at one time in my career, you always have got some that do better than others, but you always look at your top quartile performers and to Greg's point, you always ask yourself the question, why can't the rest of our restaurants perform at this demonstrated top quartile level in our business. That's an ongoing challenge that I think all of us face in this business, but we're sitting at a pretty nice position on that metric right now, and I think our challenge is not to do anything irrational to mess it up.

Makes sense. Thank you.

Our next question comes from the line of Matt van Fleet with Stifel Nicolas.

Hi. On for Steve West today. My first question is on the talk about accelerating the deuce seating roll out. I was wondering if you could maybe just walk through the rationale behind that, or are you just beginning to get more efficient at rolling that out, or is it outpacing expectations, and you want to get it through the system as quickly as possible?

I think the latter would be our position as we've taken a look at the results today from our deuce seating conversions, both in our dining rooms and in our bars, we've been extremely pleased with their impact on productivity within the restaurant, and so we've decided to go ahead and finish up all remaining deuce seating conversions before the end of this year, so we're going to get that project behind us, and I think it will benefit next years productivity in a very positive way as well. We're going get that behind us. As far as the other major CapEx initiative that is driving productivity which is our expanded guest beer tap initiative, we'll finish this year with about 80% of our restaurants offering that. We'll have another I think maybe 10 or 15 that will finish off during the first half of next year, that have enough room in their coolers and in their restaurants to take an expanded guest beer tap set, so we'll wrap that up during the first half of next year.

Okay. In terms of your overall sales mix shift, have you guys seen any trends that have been different in terms of either more alcohol sales or more non-alcoholic beverage sales, or just anything that may be indicating that certain customers are stronger, or you're just seeing higher incidents and that's why maybe the average check isn't growing as much as pricing?

Matt, I don't think we've seen any major changes that are not unexpected from BJ's. In that regard, when we roll out our seasonal beers, we see our beer instance go up, especially based on the popularity of some of the seasonal beers. Some of our newer restaurants where we spend more time talking about our handcrafted sodas, like the root beer and cream soda, that we have, we will see those rates go up. I think everything seems to be working based on how we're marketing and promoting the different menu categories at least over the last year plus.

Alright, and then just lastly. Have you seen or could you talk about the inflation that you've seen in your beer production? Maybe if that's being offset at all by additional outsourcing our just kind of trends there?

We haven't seen any inflationary costs in our contract brewing, or we haven't seen any inflationary costs in our own internal brewing, so it's been pretty steady for us on that part of the business.

Okay, thank you.

You're welcome.

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

This is John Dravenstott on for Brad today. Most of my questions have been answered. I was hoping that you could clarify. You made a mention about patios previously. I was just wondering are there restaurants that are being sited for patio additions, how many restaurants could handle it? If you are going to do that, are they going into all new restaurants, or some new restaurants? What's the approach there?

John, this is Greg Lynds. Our approach is we always try to permit for a patio or build it for our new restaurants, so if we can't get a patio put on our restaurants at the time we're constructing it, we'll try to permit it so we can add it later. So in terms of the number of patio additions that are happening right now, we look at every restaurant every year with our remodel teams, and we have a couple in process now. I don't have an exact number. Greg do you have an exact number?

Yes, I've got, I happen to have our capital expenditure initiatives here for 2011. It looks like we have five patios that we are working on right now, from Downey, Norman, Westminster, and some of those other restaurants.

Some are just patio enclosures, where we are enclosing a patio, and not necessarily adding 10 or 15 tables, which would be more impactful than just an enclosure.

Has the ROI been evident in the ones that you have done?

Absolutely. Absolutely. Those are the lowest costing occupancy costs per seat that you could add to a restaurant. Again, we're a Southern tier restaurant company primarily today, and we've got over 50 restaurants in California, over 20 restaurants in Texas, we're developing Florida out and you'll see more new development in Florida starting next year. Even in Florida, our plan is to have a permanent cap on every patio because of the rainfall rates down in that state. But as Greg mentioned, as part of the BJ's concept, it's our intention to always try to permit a patio, and for the most part we called them fair weather patios, so if we're in a cold weather climate, we'll just go ahead and collect the furniture and store it over the cold months, and then get it out for the spring, and try to run it as long as weather permits, so that is really our strategy there.

And just to get the scale, are we talking about 10% of the system currently, or 20%, or is there a number right now that we can go off of?

That is a good question. I don't think any of us have that number. We'll have to work that up, and Greg will provide that if you call him a little bit later.

Thank you.

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

Thanks. I just wanted to go back to the comp trend. I think you said, Greg, there was an adjusted July comp of 4 to 5. What would be the unadjusted comp in July be if you weren't adjusting for Fourth of July? And can you give us some sense here, if you look at July because it sounds like you had some pretty uneven comparisons last summer. If you look at July on a 2-year basis including less price in June, May, and April, how does that look?

Let me touch the first part of your question for you. Our comps a little bit higher right now because that's the July 4th flip-flop, but I think when I made the comment about the choppiness in the weeks, there's definitely a difference between that first week where you get the benefit from July 4th, moving from Sunday to Monday, the first of the last week. We're only three weeks into July and it's very hard to tell, and we're kind of up and down based on those first three weeks. In regards to our traffic trend outside of price, thinking about all of those other three months and going into July, it's actually been very consistent.

If you really think about our numbers, as I said, a mid-5% comp in the month of June with 1.5% less pricing recall in the month of June, without getting into specifics, without getting into every single detail. If you add that number back on top, you are probably getting pretty consistent to where we've been, so to speak. I think our numbers are consistent in that regard. I would say as we mentioned on the call, we're going into the toughest comparisons right now. We had a tremendous Q3 and Q4 of last year, and we're going into less pricing than what we had at the beginning of this year, and I just think everybody needs to be a little bit conservative as they build out their models.

And that doesn't mean we're going to be conservative in the way that we execute the business on our end. So I agree 100% with Greg's comments here. Let's model conservatively, and then from an operational prospective, believe me we'll continue to do everything we can with all of our sales building initiatives to outperform expectations.

That's really helpful. And I just want to clarify something, and ask one more question. I think you said on the pricing that you're going to run 2% to 3% in the third and fourth quarter, but you might take more when you roll out the new menu, was that correct?

Right now we've got 2% menu pricing and frankly based on the way our next menu will roll out in the fall timeframe, that means that specifically Q3 will more or less be 2% menu pricing. When our fall menu rolls on which comes some time in the October/November timeframe, we will at that time look for additional menu pricing. If we didn't take additional menu pricing, it would actually drop below the 2% going into Q4, so depending on what we have put on there will probably get you back into the 2% to 3% range.

We will take additional price in the October timeframe, we just don't know how much at this particular point in time until we get a better read on what some of our commodities are going to look like for next year, but we do have the ability to take price, and actually we can take price any time we want to, it's just that we have our menu changes scheduled, and that's just a convenient time to consider taking some price. The important thing for everyone to keep in mind is we do have the ability to take price, and we do have the ability to have it accepted by our guests, we just want to be very, very careful about how we employ it. And in the interim in between the price changes, we'll are going to be featuring in all of our merchandising and marketing, both externally and internally in the restaurants opportunities to trade the guests up a little bit, with our small bites, with our higher-priced entrees, and some other things that we'll be promoting here during the quarter which folks will see them when they see them.

Great. The last thing for me, it looks like if you guys stay around these unit development levels and it sounds like based on your commentary, you won't be accelerating development much going forward, maybe just a few units a year and stay in that 11% to 13% capacity range, your cash flow, and it is a good thing is starting to exceed your development rate, and that's clearly going to accelerate over the next coming year. Have you given any thoughts on how you might begin returning some of that excess cash to shareholders over the next couple of years?

Not at this time, Larry. We still have many more restaurants to develop in America to the extent that we get opportunities to perhaps pick up the pace and still maintain the achievement of all of the criteria and our development plan that I kind of outlined in my prepared remarks, we're going to take advantage of those opportunities. We've got a very strong real estate and construction department that has significant capacity. Our management pipelines which is our most critical pipelines are being well-managed at this time and have additional capacity. We're going to be as opportunistic as we can to take a look at opportunities out there. There are some retail chains that are folding up shops that present some opportunities for us to study from a real estate prospective. There's other restaurant chains that they're having their troubles, they have some great real estate that we continue to be on the lookout for and to evaluate. I think over the next couple of years with the tremendous opportunity that we have to build this business on a national basis, we ought to retain our cash and just take advantage of those opportunities that might come our way so that we can have the flexibility to execute against them, and continue to leverage and grow our business, so that's how we're thinking about it at present.

Great, that's very helpful. Thanks guys.

Thank you.

Our next question comes from the line of Phillip Juhan with BMO Capital Markets.

This question is for Greg Lynds. Greg, can you discuss the recent trends in your cast investment in new units and your key aisle allowance? It looks as if that might have been each, we are perhaps moving in the wrong direction during 2010. Could you just discuss trends in 2011 to-date?

Overall construction costs have been pretty stable from 2010 to 2011, we've actually been able to add more quality, better finishes, add patios and really keep costs about the same, so from a construction cost standpoint we have seen the materials stay pretty flat, but labor actually come down because we have a lot of subcontractors out there pretty hungry for work, and we're seeing that as we go into later 2011 as well. In terms of tenant improvement allowance, 2011 was a little thin, and 2012 is tough for the smaller regional developers, they basically have no TI available, but the Simon properties of the world, General Growth, [Mayfritz]. the larger REIT retail developers actually do have some TI available, so 2012 I think will be a better year in tenant improvement allowance than 2011.

Okay, thanks, guys.

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

Great. Thanks, guys. Just a quick one from me. Can you give us a little bit more color on your commodity cost comments? You mentioned Q2 was inline with your 5% up, then you mentioned some incremental increases I think in cheese for the second half. Do you expect the second half to be above 5% and how much higher do you think it's going to be than you thought three months ago?

It's a great question. Look at some of our peer companies and how they're talking about it, and I think when we look at 5% where it would be expected is because of the fact that we saw the higher produce costs come through in Q2 versus Q1 from that standpoint. When we look at our overall market basket, and we think about our number and we talk about a 4% increase, that was really based on where we were seeing the fourth quarter of 2010 in that regards, and in the fourth quarter of 2010, we had already started to see the increase in cheese, and some of the other costs from that perspective, so when you start to think how it will lap here into the fourth quarter, from a percentage basis it won't be as dramatic I think as what we saw in the second quarter here, where last year at this time cheese prices were in the $1.40 range, but by the fourth quarter of last year, cheese prices had already moved up into the $1.80 to $1.90 range.

I don't know if that helps you. Generally the way that I look at least into the Q3 and Q4 timeframe, is produce will come down a little bit. I think that we are expecting that to come down. We did take on a new pizza dough contract, that will be a little bit higher, and wheat prices are up a little bit, and we've locked about 50% of our cheese, which should help us mitigate through it, but where cheese is today,it will probably be a little bit higher than it was the second half of last year.

Great, that is helpful, and your 25% guidance kind of points to it as well. How much price did you say you took in this latest menu price increase?

Only about 0.05%, very little.

And then maybe a sequential 10 or 20 basis point increase, that would solve with that extra half a point?

Yes, I think there could be some of that in there as Jerry mentioned, as we look at some of our additional menu items, and how we're trying to promote different things, we might have the ability to move people around in the mix to maintain the numbers, but I do think overall we'll continue to see commodity pressure and we need to do everything we can within our restaurants, whether it our auto prep system, or theoretical food cost system, how we merchandise the products to offset the inflationary environment.

That's helpful. Last question. You had some state tax help this year that you didn't expect. What do you expect next year? Will it go back to the 30.5% range?

I hate to say this, it all depends on the California budget. There were discussions when we were putting our numbers together in the first quarter that was called the enterprise zone out here was not going to be a tax incentive or not going to get credit allowed any more. That stayed with the current budget, as a result we got the benefit and that was the difference between the two. Are we going to get the debt cap ceiling passed? (laughter) It is kind of that unfortunately Paul. I don't know until next year's budget comes out in California.

Yes, fair enough. Okay, congrats on a great quarter. Thank you.

Thank you Paul.

We have a question from the line of Bart Glenn with DA Davidson and Company. Please go ahead.

Thank you. Just curious with the programs with the guest beer taps, the deuce seating largely wrapping up this year. Will CapEx be pulling back next year for non new stores, or is there other exciting new stuff in the pipeline that maybe we haven't heard a lot about yet but that could provide a source for good returns as we move into next year? Thanks.

This is Jerry. We really haven't given a tremendous amount of detailed thought on a specific program basis for our CapEx program for our established restaurant base for next year. Thinking out loud a little bit, we're going to work on, we're likely going to work on kitchen capacity particularly in some stations where we know we can improve through-put if we had a little bit more capacity in certain stations in the kitchen, so my sense is kitchen capacity expansion will be on the list, and probably a few other things, but I don't think the overall level of capital spending on the baseline restaurant base is going to be any higher than it is this year, and there's a chance it might be a little bit less, but until we put together specific programs, we don't really know for sure.

Thank you.

Okay.

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

Good afternoon. One quick question. Jerry, I didn't hear you talk about the loyalty program which I thought was in test and was planned to roll out this year, so you could give us an update on that and if that's still in plan and what you have intact?

Yes, Sharon, our loyalty program is still in test in our Las Vegas market. We're continuing to work on the technological interfaces to our restaurant systems. Our particular loyalty program is very technologically savvy, and it's fully integrate into our restaurant POS system and our table management system, so we're working on getting through some of the implementation issues related to those interfaces. We're also trying to let the program to run long enough to where we can gather enough data to measure a potential return on investment on the program.

At this point, I think we all still believe that we are in a very good position to make a roll out decision in the next 90 days or so, I am personally very, very optimistic that we're going to have something here that's going be very differentiated, and it's going to be having a very strong ROI profile, and again as we have mentioned previously, this is not the classic buy 5, get the next one free type of program.

Our program is intended to really drive engagement and anticipation, and the connection with the consumer, and to provide an experiential set of rewards, based on their patronage in our restaurants, not just getting extra food which will be a very, very small part of this program, but we're going to have some very exciting experiential rewards and trips, and other features of our reward program.

But I think the most important part of our program is that overall engagement and connection and the anticipation with the guests, and that's really being driven by our technological interfaces, our loyalty program will be driven by mobile devices, we're also going to have a card I think for old users like me, that still can't figure out how all of these hands devices work 100%, but anyway, it's taking a little longer because of the heavy technological investment in it. but I think at the end of the day it will be a Best-in-Class loyalty program.

Okay, great, thank you.

Thank you. Our next question comes from the line of Conrad Lyon with B. Riley & Co. Please go ahead.

Speaking of loyalty, I have just got to ask this real quick, I was over at your Century City location, and I was surprised by this, actually that when we finished up, we had some beverages, and the server actually packed them up in to go containers when we were finished, is that a Company initiative, because it really garnered some positive mind share for some of the folks we were with?

Were these adult beverages that you were consuming?

No, I wish they were.

Well, what one of our standard practices in our restaurants to the extent that our guest would like anything to go, we'll do our best to accommodate that. What you're saying our server took it upon themselves?

Without asking.

That's one of the extra services that we provide in Century City. What did you think of that Century City restaurant by the way, the design?

I think it's fantastic. It's about time somebody did something right in that location. I think it's super. Great show piece.

It really is. This is our second restaurant where we've actually enclosed the ceiling, and it really makes a significant difference in the overall look and feel of the restaurant. I think it take its up to another higher level which is perfect for Century City, and we're going to use that new ceiling going forward in many of our prototypes, but it really caps it off and it's just tremendous. I'm glad you liked it.

Question is this. Staffing. Has your staffing changed much with your stores going forward, and is there an opportunity to change that, to help out labor?

No, we really haven't changed staffing at all in terms of our new restaurants. We're still hiring anywhere from 125 to 150 staff members in all of the different departments. If anything, one of our sales building initiatives over the past couple of years under Wayne Jones' leadership has been to insure that our restaurants are properly staffed to build sales, which has actually resulted in some incremental investments in certain departments and peak meal periods of additional labor, but it's had a tremendous return because we've been able to keep our restaurants full, and run them a little bit faster without rushing our guests. I think we're very, very satisfied with the overall labor deployment that we currently have in our restaurants.

We're working on one final initiative for this year, and Wayne and Greg Levin are working on that jointly, and that's to come up with a more effective way of measuring labor deployment and productivity in our restaurants. The standard approach in our business has always been to look at labor hours per 100 guests, or the reverse of that, guests per labor hour, and I think Greg and Wayne are trying to take that down to a more granular level, and try to measure kitchen productivity based on the number of entrees or the number of items cooked, and trying to measure bar productivity based on the number of items prepared, so we're trying to get down to another level which I think will have an eye-opening benefit in our restaurants.

Whenever you put a flashlight on anything in our restaurants, are it's amazing the amount of focus and improvement that you get. So we do have opportunities to do a little bit better, but I think we have made investments in labor which have helped our sales productivity significantly. Most chains when they look at labor, they're trying to figure out a way to reduce it as a way to make it more efficient, and we kind of look at it the opposite way. How can we smartly invest a little bit at pinch points at peak meal periods to improve our throughput? We look at it a little bit differently, and I think we've been very, very successful in that respect.

Yes I know, it shows. Just going back to Century City, I just noticed that it has been well-staffed even on the shoulders, so the preparation for that probably reflects in your sales.

Yes, it does.

Got you. Okay. Thank you.

Thank you. We'll take one more question, then we'll sign-off for the evening.

You have got it sir. Our last question comes from the line of Nicole Miller with Piper Jaffray. Please go ahead.

Hi this is Jonathan [Helsavink] for, thanks for taking my question. Just wanted to see your thoughts around any opportunities for the large party take out portion of your business, especially as we head into some of the slower months, with the graduation parties kind of winding down? Any opportunity to try to leverage that at the store level in a lot of your different markets?

Yes, there is, and we have a catering initiative that is getting ready to roll Company-wide here in the next 30 days or so. We've always offered in-restaurant buffets for our large parties, I think they've always been very productive for us in the BJ's concept, and frankly the layout of our physical facilities enable us I think to execute large party business probably better than just about any of our competitors. One thing that I think we've been particularly weak on is the off-premise large party business, in terms of a catering program.

So we've worked hard to get one ready to go. It will involve both a setup option and a setup and service option, something that a few of our competitors offer and they do very nicely with it. This is an initiative that's getting ready to roll here in the next 30 days or so, because we see the same opportunity that you just mentioned, to get a little more sales productivity, particularly during the slower months where there's still a lot of large party business out there, it just may not be coming to the restaurant.

Thanks Jerry.

Thank you. Thanks everybody for your questions today, and thanks for being on our call today. We'll be in our offices here in California for a little while longer. If you have any questions, please call us. Thank you.

Ladies and gentlemen, that concludes our call for today. If you would like to listen to a replay of today's call, you may dial 1-877-870-5176, and enter the access code of 4455529. Thank you very much for your participation. You may now disconnect.