BJ's Restaurants Inc (BJRI) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the BJ's Restaurants, Inc. third quarter 2011 results conference call. During today's presentation, all parties will be in a listen-only mode.

Following the presentation, the conference will be open for your questions. (Operator Instructions). This conference is being recorded today, Thursday, October 20, 2011. And I would now like to turn the conference over to Mr. Jerry Deitchle, Chief Executive Officer of BJ's Restaurants. Please go ahead, sir.

Thank you, operator. Hello, everybody. I'm Jerry Deitchle with BJ's Restaurants, and welcome to our third 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 third quarter of fiscal 2011 that ended on Tuesday, September 27. And as always, you can view the full text of our earnings release on our website at www.bjsrestaurants.com.

Joining me on our call today in order of their prepared remarks are Greg Lynds, our Executive VP and Chief Development Officer; Wayne Jones, our Executive VP and Chief Restaurant Operations Officer; and Greg Levin, our Executive VP and Chief Financial Officer.

I will get started with our prepared remarks after Diane Scott, our Director of Corporate Relations provides our standard cautionary disclosure with respect to forward-looking statements. Diane, go ahead, please.

Thank you, Jerry.

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, October 20, 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 discussion of risks and uncertainties associated with forward-looking statements contained in the Company's filings with the Securities and Exchange Commission.

Thanks, Diane. As we noted in our press release today, our leadership team was very pleased to deliver another solid quarterly financial performance here at BJ's. Our total revenues for the third quarter were $151.4 million and our diluted net income per share was $0.24 after excluding the impact of a lawsuit settlement expense that amounted to about $0.02 a share.

Now, I'm going to take a couple of minutes to summarize our key operating statistics for the third quarter when compared to the same quarter last year. First and foremost, our total revenues increased a strong 18% to just over $151 million during the quarter, driven by solid increases in both comparable restaurant sales and sales from our new restaurant openings.

Next, our comparable restaurant sales increased a very strong 6.5% during the quarter, successfully hurdling a very tough comparison of 6.7% for the same quarter last year. During the quarter, our comparable sales increase reflected a favorable hat trick combination of positive benefits from menu price increases, guest traffic growth, and guest incident rate increases.

Next, our average weekly sales per restaurant also increased a solid 6.3% during the quarter, reflecting both our comparable sales increase and the impact of solid weekly sales volumes from our new restaurant openings. And our total productive capacity, as measured by total restaurant operating weeks, increased about 11% during the quarter, reflecting the continuing successful execution of our restaurant expansion plan.

Next, our estimated four-wall restaurant cash flow margin, which is a non-GAAP measure that also excludes noncash equity compensation, was managed within our targeted range at 20.3% for the quarter, despite some pressure from higher commodity costs and some labor inefficiencies associated with stronger than expected sales of some of our more labor intensive new menu items. Wayne Jones is going to comment on that a little bit later.

Additionally, we made a decision to defer most of our menu price increase that we typically would have taken last May to this November. So our menu pricing is slightly lagging our cost pressures and we plan to prudently deploy some additional menu pricing with the rollout of our fall menu update, which will occur in just a couple of weeks, and Wayne will also come on that a little bit later.

Next, our infrastructure-related G&A expenses favorably leveraged another 20 basis points, down to 6.2% of revenues. And last, but not least, our operating income margin increased a solid 50 basis points to 6.3% when you exclude the impact of the lawsuit settlement expense in the quarter.

So after considering all of these factors, we believe that BJ's third quarter performance was very favorable on all key operational metrics. Our top line results were truly outstanding, but since we are our own toughest critics here at BJ's, I think it's also appropriate to say that we could have processed all of those wonderful sales a little more efficiently during the quarter and we know where our opportunities are to executes even better.

I think it's important to remember that in the restaurant business, as long as you got the sales, you're going to have the best opportunity to become more efficient in your execution. If you don't have the sales, you're going to have very few opportunities to do that, and we continue to have the sales at BJ's. Greg Levin will provide his analytical commentary on our income statement for the quarter a little later in the called today.

With respect to the lawsuit settlement expense of $1 million for the quarter and to the similar expense that we recorded earlier this year in the second quarter, we have had two California class-action lawsuits pending since 2009 as disclosed in our SEC filings. These types of lawsuits are, unfortunately, a risk in doing business as a restaurant company in certain jurisdictions, particularly in California, and especially in a challenging economic environment.

The good news is, is that the parties have now agreed in principle to settle both lawsuits subject to court approval and we're sure looking forward to getting these two matters behind us along with all of their associated risks and uncertainties and ongoing legal fees. In fact, on a fiscal year-to-date basis, our SG&A expense includes about $600,000 or almost $0.02 a share of legal and professional fees related to just these two lawsuits. We currently have no other California class-action lawsuits pending.

Now, let's shift our attention to something a little more pleasant to talk about and that's our sales. As I previously mentioned, our comparable sales increase of 6.5% for the third quarter successfully hurdled a solid 6.7% increase for the same quarter last year, which in itself is quite impressive for any casual dining concept as of late.

At BJ's, we are sales builders first and foremost and we plan to continue our focus on driving additional sales increases through the effective execution of our operational menu, merchandising, and CapEx initiatives that we have discussed in previous conference calls. Our philosophy at BJ's is that if we're going to err, we will always err on the side of building sales. And in this tough operating environment, driving guest traffic and the number of items that we sell per guest will continue to be king as far as we're concerned.

We've also started off the fourth quarter of 2011 with continuing solid, positive, comparable sales comparisons against yet another tough comparison, and Greg Levin will comment on that a little later in our call today. Now, while our sales comparisons continue to be favorable to date for the fourth quarter, we always caution investors to remember that we're still operating in a very difficult and volatile operating environment for consumer confidence and discretionary spending.

So in light of the external factors that are outside of our control, our sales volumes remain pretty hard for us to reliably predict and 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.

Yes, we have yet another tough sales comparison in the upcoming fourth quarter, but that's nothing new to us here at BJ's. 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.

Going forward, we believe that growth in the casual dining segment is going to be more of a market share battle where brands become much more important. We believe the most successful market share takers in casual dining going forward are going to be those concepts that either excel as low-cost providers of convenience oriented or kitchen replacement meals or those that excel as dining out for fun destinations that provide a higher quality overall dining experience to the consumer at a solid value.

We at BJ's have chosen to more clearly compete 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 be an effective competitor for our share of convenience-oriented kitchen replacement meal occasions, particularly at lunch.

We also believe that our primary positioning as a higher quality destination restaurant gives us a little more pricing power compared to our mass-market more commoditized competitors.

Now, we have intentionally kept most of our pricing power in reserve during the past couple of years. As we prepare our operational plan for 2012 where food and energy costs in general are expected to be somewhat higher than they are at present, we believe that we're in a darn good position to carefully deploy some of our pricing power to help us manage through some of these cost pressures.

So pricing coupled with our productivity and efficiency initiatives will enable us to have a strong opportunity to continue to preserve our four-wall restaurant margins next year. You know, our estimated average guest check is currently running in the $13.25, $13.50 range, so we believe that we've got plenty of room for additional pricing relative to our peers, but we're always going to be mindful that we want our guests to always thinkthat they are getting the better end of the deal at BJ's.

With respect to our new restaurant expansion plan, we successfully opened 11 new restaurants to date during 2011 and we remain very pleased with the initial sales volumes of all of our new restaurants this year. We have two additional restaurants that are expected to open during the next couple of weeks, and those two openings will bring to a very successful conclusion our stated 2011 new restaurant expansion plan.

So we'll end the year by opening a total of 13 new restaurants and we'll achieve our operating week growth target for the year. In fact, 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. We're very proud of that and we intend to keep executing in that manner.

Our final restaurant opening this year will be in Anaheim Hills here in Southern California. This restaurant, which we call BJ's Grill-Anaheim Hills, will initially offer BJ's most popular menu and beverage items, including our signature pizza, our handcrafted beer, our Pizookie dessert at about the same average guest check as our other BJ's restaurants, but it's going to be in a slightly smaller footprint than our current large format brewhouse concept.

This particular BJ's Grill is initially intended to serve as a research and development restaurant for us where we're going to test different menu, beverage, facility, technological, and operational aspects of the BJ's concept for potential application to our larger brewhouse footprint. For example, this new restaurant will include, among other things, an exhibition kitchen, different menus for lunch and dinner, different key member attire for lunch and dinner, different china, silverware, and flatware, a different interior design and decor package, a different kitchen setup, and a very different guest service model using different technology.

To the extent that any of these features end up testing well, then we're going to consider applying them to our main brewhouse concept over time. So this BJ's Grill is principally intended to be a live R&D restaurant that we can get some really good learning from as we continue to evolve the BJ's concept to always keep it contemporary and relevant over the longer run.

Now, moving to our 2012 expansion plan, in our press release today, we announced our plan to open as many as 15 new restaurants during 2012. And we're also going to relocate one existing older smaller format pizza and grill restaurant to a new site that can support a larger format brewhouse restaurant. Our entire team is looking forward to executing a very robust and high quality restaurant expansion plan next year.

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

Great. Thanks, Jerry. As we noted in our press release today, our new restaurant development pipeline remains in excellent shape and we continue to be very pleased with the overall quality and quantity of the new sites that we're seeing. We've worked very hard over the past five years to better position BJ's to the higher quality, more differentiated casual-plus dining concepts, and our new restaurant designs and site selection strategy continue to strengthen this position.

Over the last year or two, we have become one of the casual dining restaurants of choice within the retail development community. Because of our strong brand positioning combined with our proven and sustained top-line performance, we are now seeing higher quality sites as we build our future real estate pipeline.

The development team has worked very effectively during 2011 to successfully achieve our previously stated expansion target and to grow our total restaurant operating weeks a low double-digit range and successfully execute as many as 13 new restaurant openings.

So far this year, as Jerry mentioned, we have opened 11 new restaurants and we are very pleased with the initial sales performance of every one of them. In the third quarter just ended, we opened four restaurants, College Station opened on July 11th; Jacksonville, Florida on August 29th; Pembroke Pines, Florida on September 19th; and Brentwood, California on September 26th.

Already in the fourth quarter, we have opened two restaurants. On September 28th, we opened in Dublin, Ohio, and then three days ago, we opened right here in Southern California in the city of Rancho Santa Margarita. We have two more planned openings in the fourth quarter, and they should both open before the Thanksgiving holiday.

As we build our new restaurant development pipeline for the next 24 months or so, our growth goals remain the same and that's to achieve a low double-digit capacity increase per year as measured by total restaurant operating weeks in the approximate range of the 10% to 12% range. With that in mind, we currently are planning to open as many as 15 new restaurants in 2012, and as Jerry mentioned, in addition to our 15 projected new restaurants, we are also planning to relocate one of our older, smaller format pizza and grill restaurants to a new site that can accommodate larger format brewhouse restaurants.

Geographically, our new restaurant development plan for 2012 total for about a third of our new restaurants to be built in our home court, California, another third are planned to be built in Texas and other western states. Another third are planned to be built in our current Ohio Valley and Florida markets.

One of our development imperatives is to ensure that we have a geographically balanced expansion plan that minimizes the impact of taking excessive new market risks. That also drives additional leverage to the entire BJ's business.

At the end of the 2011, we will have 115 restaurants open in 13 states. We have plenty of quality growth opportunities remaining in our core California and Texas markets, and we now have an established strong national brand presence, national footprint from California to Florida well into the Ohio Valley. We continue to evaluate a couple of new markets, major new markets as a matter of fact, for potential entry into 2013, and we will keep you advised as we firm up these plans.

As I have mentioned before on these calls that even though today's slow national economy and postponement or cancellation of many new retail projects, our BJ's new restaurant development pipeline remains in excellent shape. The BJ's brand within the development community has never been stronger and our team will continue to leverage and strengthen our brand to secure the triple-A real estate opportunities and gain market share as we grow from coast to coast.

Our team is definitely looking forward to continuing to executes a high quality and profitable expansion plan for many years to come. Jerry, back to you.

Thanks, Greg. You know, we continue to believe that BJ's four-wall economics are very sound and they clearly 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 and we're always going to continue to carefully execute our expansion program at the right pace that facilitates the achievement of three out comes -- quality, predictability, and leverage.

Now, there's no question that much of America remains wide open for the future development of BJ's Restaurants and, believe me, we're just as excited about that as many of our investors are. We continue to believe there is room for at least 300 BJ's Restaurants domestically that can perform at the current level of our economics, so we've got plenty of runway in front of us for longer-term expansion.

Now, having said that, our challenge is to resist the temptation to expand the business faster than it should be expanded and thereby take on the risk of out running our headlights, so to speak, when it comes to acquiring high quality sites and enabling high quality operational execution. Many concepts that have come before us and have executed their expansion plans have suffered, I think, 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 overall economic cycle.

And many of those concepts also took on way too much new market risk in the execution of their expansion plans too early, and thereby failed to achieve good leverage in all aspects of their operation. Well, we're not going to fall into those pits here at BJ's. We're going to avoid those pitfalls as we execute our national expansion plan.

We continue to believe it makes sense to be very careful and measured as we steadily develop our national geographical footprint in order to advance the quality, predictable, and leveragability of our business model. For us, expansion is not a strategy in and of itself. Instead, expansion is an outcome of our strategy to drive quality differentiation, predictability, and leverage in our operations.

Now, I'm going to turn the call over to Wayne Jones, our Chief Restaurant Operations Officer, for his operational commentary on the quarter. Wayne, go ahead.

Thanks, Jerry, and good afternoon, everyone. We've been very pleased with our execution of our sales building initiatives by our restaurant operations team, and in particular the execution of our recent menu-based initiatives which have proven to be solid drivers of incremental sales.

We also continue to see improved guest traffic and sales per guest as a result of our success of our CapEx-related initiatives, particularly our increased seating for parties for two, what we internally call our deuce seating initiative, and our expanded guest beer tap initiative.

About 90% of our existing restaurants currently have both of these initiatives in place and we plan to complete the remaining 10% during the first half of 2012. So there continues to be more upside yet to come from these two initiatives. All of our new restaurants have these two programs in place when we open.

Moving on to our menu initiatives, during the past 18 months or so, we have introduced about 50 new menu items that now represent about 12% of our total sales, which is truly an amazing accomplishment for any restaurants concept.

If you will recall, this past May as part of our spring menu update, we rolled out our new enlightened entree menu category, which consists of several innovative entrees that contain less than 575 calories each and have terrific taste profile. Sales of these entrees have well-exceeded our initial projections and combined with the strong sales of our other new menu items, required us to add some additional kitchen labor hours and related training hours during the course of the third quarter.

During the course of the quarter, we believed that we have gradually became more efficient in managing our kitchen productivity. However, we feel we still have some additional efficiency to be gained going forward and we are aggressively working on that front. Specifically, we know that we can pick up our productivity by improving the cross-training of kitchen team members and also by reallocating labor hours throughout the entire restaurant.

Overall, we feel our varied menu is positioned nicely and provides many delicious options for our guests. In fact, on a per person basis, our guests are ordering more items than ever before, which has bolstered our confidence in this strategy.

Our upcoming fall menu update in early November will feature our new burger line-up, which was test very, very well. We will merchandise our new burgers under the category name "Fan Burgers" with a tie into our Facebook social media network. We will also refresh our successful Small Bites and Snacks category with a few new additions and add some new delicious soups and tasty beverages.

Our upcoming fall menu update will also include an estimated effective menu price increase of approximately 2%, which, as Jerry mentioned, will help offset some of our current and expected cost pressures. Given our relative low guest check average in the $13.25 to $13.50 range, when compared to most of our casual dining peers, and in light of our belief that we have additional pricing power thanks to our many investments to raise the overall quality and differentiation of our concept, we have confidence that we can earn this price increase from our guests.

As we all know, the most effective four-wall profit margin protection program is always anchored by an effective sales building program. At BJ's, we always focus on sales building first and foremost, and we have several sales building initiatives planned for the next few quarters. These include, among other things, a new guest loyalty program, which has been successfully tested and will roll out in the first of half of 2012, along with a new catering program, and new menu and beverage items.

On the productivity and cost savings initiative front, we have completed roll outs of the new computerized recipe viewer to (inaudible) cooking errors and (inaudible) quality, and a new automated bar display system to improve bar service fees and order accuracy. In addition, we have begun piling some new labor scheduling and productivity metrics that we believe will help our restaurant operators to more effectively allocate, refine, and balance labor hours on every shift.

Last, but not least, we're continuing to make prudent investments to steadily advance the overcall quality, capabilities, and bench strength of our restaurant management and (inaudible) base. We have several talent development initiatives under way that are intended to further strengthen our ability to select, recruit, assess, train, develop, reward, and retain the best restaurant management talent available.

We can only open new BJ's Restaurants as fast as we can develop highly qualified and seasoned restaurant management teams to correctly and consistently execute our restaurants. Jerry, back to you.

Okay. Thanks, Wayne, for that great update. And now I'm going to turn the call over to Greg Levin, our CFO, for his financial commentary on the quarter. Greg, it's all yours.

Alright. Thank you, Jerry. Let me take a few moment here and go through some of the highlights for the third quarter and provide some forward-looking commentary for the rest of 2011 and also some preliminary forward-looking commentary for fiscal 2012.

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

As Jerry previously noted, total revenues for BJ's third quarter of 2011 increased approximately 18% to approximately $151.4 million from $128.8 million in the prior year's comparable quarter. This increase is a result of approximately 11% more operating weeks and an approximately 6.3% increase in our weekly sales average.

As Jerry mentioned, our aggregate comparable restaurant sales increase for the third quarter was 6.5%, which is a pretty solid number, especially considering we were hurdling a 6.7% comparable restaurant sales increase last year.

While we do not report monthly comparable restaurant sales, July, August and September's comp sales were pretty much the same each period. However, we did begin to see more choppiness around comparable restaurant sales in the third quarter, including slightly softer middle of the week sales offset by stronger weekends in comparable restaurants sales. This trend appears to be continuing here in the fourth quarter.

Our 6.5% comparable sales increase for the third quarter consisted of an approximate 2.2% benefit from menu pricing, an approximate 2.8% increase in guest traffic, and an approximate 1.5% net benefit from mixed and guest incident rates.

As Wayne mentioned, our average number of items sold per guest reached an all-time high for us in the third quarter, so our new menu and beverage items are being very well-received by our guests.

In aggregate, all of our 13 states in which we operate have positive comparable restaurant sales during the quarter. And consistent with trends over the last six quarters, our restaurants outside of California in aggregate had slightly higher comparable restaurant sales compared to our restaurants insides California. So on an overall basis, both restaurants inside California and our restaurants outside of California continue to perform very well for us in regards to comparable restaurant sales.

In the third quarter, our weekly sales average increased by 6.3%, which is just slightly below our comparable restaurant sales increase of 6.5%, which is in line with what we have been saying over the last few conference calls as we began to lap 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.

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 metrics 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 initial sales volumes of many of our new restaurants or changes in our weekly sales averages as compared to our comparable restaurant sales metrics since we will always have a diverse geographic mix of newer restaurants as we continue to build our national presence.

And as a previously mentioned during the third quarter, our estimated menu pricing factor was 2.2%. In regards to the middle of our P&L, our cost of sales of 24.7% of sales was up about 40 basis points as compared to last year's third quarter, and on a sequential quarter basis decreased about 10 basis points. The 40 basis point increase compared to the same quarter last year is primarily due to higher commodity costs, partially offset by menu pricing and mix shift.

Since the end of the fourth quarter of 2010, the cost of our overall commodities basket is up about 5% as we expected. In regards to both labor and benefits during the quarter and operating and occupancy costs, the margin improvement from the prior year's third 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, it provides the opportunity to leverage the fixed and semi-fixed nature of many costs. Specifically in labor, we were able to leverage our management labor as a result of our strong comparable restaurant sales.

This leverage was partially offset by higher hourly labor as a percent of sales to primarily the labor intensiveness of some of our new menu items and some additional training required in our kitchen as Wayne previously addressed in his comments. This was also coupled with higher payroll taxes and benefits that we saw in the quarter.

We were able to reduce our operating occupancy cost by about 20 basis points compared to last year's third quarter to 21.1%. Sequentially, our operating occupancy cost increased about 80 basis points and that was as expected. As I said in last quarter's formal remarks, I expected our operating and occupancy costs to increase as a percent of sales due to seasonality.

Specifically in this third quarter, our operating occupancy costs were approximately $22,700 per week, which was actually slightly less than the second quarter costs per week in which our operating and occupancy costs were about $22,008 per week. However, as we indicated in our forward-looking comments last quarter, in the third quarter, our weekly sales average was expected to be about 5% lower than our weekly sales average in the second quarter due to seasonality.

In general, the second quarter is usually our strongest quarter in regards to restaurant sales because of Mother's Day, graduation, and Father's Day. As Jerry mentioned, our general administrative expenses favorably leveraged another 20 basis points compared to the same quarter last year to 6.2% of sales, include in G&A is $772,000 and $661,000 of equity compensation for 2011 and 2010, respectively, for about 0.5% of sales for both years.

Excluding equity compensation, G&A increased about a $1 million compared to the prior year. The increase in G&A is primarily related to our continued investment in our field supervision, support infrastructure costs, and increased managers and training, or what we refer to internally as our Advanced Restaurant Management Program. Our depreciation expense for the third quarter was 5.7% and was flat with last year's third quarter.

Our restaurant opening expenses were approximately $2.4 million during the third quarter of 2011, which was higher than what we originally anticipated for this particular quarter due to the actual timing of our new restaurant openings. In the third quarter, our pre-opening costs were primarily related to the four restaurants that we opened in the third quarter, plus we incurred the majority of our pre-opening costs for our Dublin, Ohio restaurants, which opened two days after the end of the quarter.

On average, our pre-opening costs continue to be about $500,000 per restaurant. However, due to the timing of when a new restaurant opens in the quarter and the fact that we will incur pre-opening noncash rent as much as five or six months before a restaurant opens, pre-opening costs for any quarter may not be indicative of the number of restaurants that opened in that quarter.

We did incur approximately $257,000 in asset disposal costs during the quarter, with the majority of these costs related to remodels, our deuce seating retrofit initiative, and the expanded guest beer tab system.

Our tax rate for the third quarter was approximately 27% as we continue to generate state and federal tax credits. Our total gross capital expenditures for the first nine months of 2011 is approximately $65 million before any landlord allowances.

Before I turn call back to over to Jerry, let me spend a couple of minutes here commenting on our liquidity position and also provide some forward-looking commentary for the rest of 2011 and some preliminary commentary on 2012. Once again, all 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 a little over $49 million of cash and investments. Our line of credit is for $45 million and does not expire until September of 2012, of which $0 is outstanding today other than for standby letters of credit that support our insurance programs. As of today, we are targeting approximately $85 million in gross capital expenditures for 2011, and that's before any landlord construction allowances.

This is up slightly from the previous quarter as we decided to accelerate the pace of our dining room and bar/deuce seating retrofits and also completes a millwork upgrade and patio enhancements, as well as investing in some additional infrastructure investments this year.

Additionally, we will be purchasing the underlying land of one of our 2012 locations in this year's fourth quarter. Generally, our expansion strategy is predicated on leasing our restaurants locations, however, from time to time, we may decide to purchase the underlying land for a new restaurant if that is the only way to secure a highly desirable site. We still expect to fund our 2011 capital expenditures plans from our cash and investments on our balance sheet, cash flow from operations, and landlord allowances.

In regards to the remainder of 2011, as Jerry mentioned, we continue to see solid comparable restaurants sales so far this fourth quarter. However, as I mentioned earlier, we continue to see stronger comparable restaurant sales on the weekends and general choppiness day to day.

Our comparable sales comparisons for the first three weeks of October remain in the plus-5% to 6% range. And again, since we only have three weeks so far of sales information and I have seen more variability in our daily comp sales to date, it's very difficult to predict exactly where sales may end up for this entire fourth quarter.

I also want to remind our investors that our comparisons continue to be challenging and consumers today are still facing inflationary pressures on food, high unemployment with little job and income growth, and waning consumer confidence. Therefore, with only three weeks of sales information to date for October, it is difficult to ascertain that the current trends represent the trends we will end up seeing throughout the remainder of this year or how strong the holiday retail selling season will be.

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 and we believe over the long run there is still opportunity to drive additional guest traffic through our restaurants.

For those of you building your models, I would err on side of conservatism and build your models based more on our menu pricing and yearly comparisons. Currently, we anticipate having menu pricing in the 3% range for the fourth quarter. Additionally, I would anticipate menu pricing in the mid 2% to 3% range for Q1 and Q2 of 2012.

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 the second half of 2009 are all in our comparable sales base going forward. And 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 fourth quarter of 2011, the majority of our commodity costs are contracted at least through the end of this year. As such, I would expect cost of sales to remain in the upper 24% range, which is fairly consistent with what we have seen over the last few quarters.

In regards to labor, we currently do not anticipate significant pressure for the remainder of 2011 for both wages and salaries. Any slight increase or decrease in labor as a percent of the 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.

I expect our operating occupancy costs as a percent of sales to be pretty much in line with the past third quarter of around 21%. However, as I mentioned earlier, the slight increase or decrease in our operating and occupancy costs as a percent of sales, much like labor, will be more based on the ability to gain leverage in our comparable restaurant sales, productivity initiatives, and seasonality related to our weekly sales averages.

Our G&A in the fourth quarter should be around $10.3 million to $10.5 million. That's including equity compensation and takes into account the 53rd week.

As I have already mentioned, we currently expect restaurants opening costs to be about $500,000 per restaurant. However, we will incur pre-opening noncash rent as much as five or six months before a restaurant opens and, therefore, pre-opening cost for any quarter may not be indicative of the number of the restaurants that open in that quarter.

I anticipate opening costs in the range of $1.6 million to $2 million in the fourth quarter related to the expected four new openings in this quarter, plus some pre-opening rent for restaurants expected to open in the first quarter of next year.

We currently anticipate our income tax rate for 2011 to be around 28%, and based on our current stock price, we estimate that our diluted shares outstanding for the fourth quarter will be in the $29.3 million range.

In regards to some preliminary information for 2012, as Jerry and Greg Lynds mentioned, we anticipate opening as many as 15 new restaurants next year, plus we will be closing and relocating one of our older smaller format pizza and grill restaurants to a new site that can accommodate a large format brewhouse restaurant.

While all of our sites for 2012 have been identified, we are still completing our 2012 annual operating plan and have not yet precisely determined the timing of our restaurants openings for next year. Therefore, as of today, I would anticipate one to two new restaurant openings late in the first quarter of next year resulting in an expected increase of operating weeks of about 12% for Q1 of 2012.

I would anticipate four to five new restaurants opening in the second quarter. However, as we have said before, the actual number and timing of new restaurant openings for any given period is subject to a number of factors outside of the Company's control, including weather conditions and factors under the control of landlords, contractors, and regulatory and licensing authorities. Once we complete our 2012 business plan during the next couple of months, we will be able to provide additional guidance regarding the 2012 opening schedule.

As Jerry mentioned, we will continue to be investing in our core business and making sure our restaurants do not lose the relevancy and appeal with the guests. Therefore, in addition to our new restaurant capital expenditures for next year, we will continue to allocate capital to remodel and productivity enhancement initiatives.

Our CapEx plan for 2012 has not yet been finalize and approved by our Board of Directors, but at this time, I would anticipate our gross capital expenditures for 2012 to be in the range of $95 million to $100 million before any tenant or improvement allowances, which we currently anticipate to be in the range of $8 million to $10 million. As of 2011, we anticipate funding our 2012 capital expenditures plan from cash on our balance sheet, cash flow from operations, and landlord allowances.

In regards to margins for 2011 and inflationary costs for next year, it is still very difficult for us to comment with a high degree of certainty as our supply chain department is currently in the middle of negotiations for many of our key commodities for 2012. Based on our latest information, and this is still very preliminary, as we are continuing to negotiate with our suppliers, we currently anticipate the cost of our aggregate commodity basket to increase around 4% next year.

This expected increase is slightly lower than what we were expecting a few month ago. We currently believe this increase can be managed through a combination of marketing and operation initiatives, coupled with prudent menu price adjustments. While we do have some items locked for at least the first six months of next year, the majority of our protein contracts, including chicken, pork, and our angus ground beef expires at the end of this year.

Again, our current expectation is subject to significant risks and uncertainties in the food and energy commodity markets. We will know more specifics about our commodity cost positions for 2012 during the next 45 days.

BJ's competitive strategy has always been focused on providing that higher quality, more contemporary casual plus dining experience at about the same average guest check as many of our mass-marketing competitors. Accordingly, to the extent that our costs for key input such as food commodities are 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.

Therefore, as of today, we have not determined any specific amount of new menu pricing we may take in 2012 at our regularly scheduled menu rollouts in the string and fall time or at any other time. Having said that, at this time, I would expect our menu pricing factor for next year, including carryover pricing from 2011, to range somewhere between 3% and 3.5%.

Our hourly labor and management wages over the last year have been relatively flat and I do not anticipate significant pressure on wages for 2012 at the current time. However, we do continue to see pressure on medical benefits, which currently account for approximately 1% of sales.

We also see increases in our workers' compensation program for next year, and I do anticipate that many states will continue to increase some of their payroll taxes to help fund their state unemployment deficits. For 2012, again based on our preliminary renewal numbers to date, I anticipate these taxes and fringe benefits pressuring labor possibly 20 to 30 basis points next year, absent of any real strong growth in comparable restaurant sales.

In regards to our operating costs for next year, much like labor, we are seeing some increases in our general liability and other insurance programs, and I do anticipate some normal inflationary pressure for some of our other operating occupancy costs. However, in general, a significant percentage of these costs are fixed, such as occupancy and preventative maintenance contracts and, therefore, our operating occupancy cost as a percent of sales will vary based on comparable restaurant sales comparison and average weekly sales levels.

While we have not finalized our 2010 G&A plans as of this date, our continued goal is to gain leverage in our G&A cost. As such, the only way we can do this is by making sure that our G&A costs do not increase at a rate greater than our top line growth. Therefore, our G&A costs for 2012 should grow at a rate less than our combined comparable restaurant sales growths and our increase in total operating weeks for the year, which will likely range between 11% to 12% compared to the 53-week fiscal year 2011.

Our expected income tax rate for 2012 should be in the 28% range, and we continue to expect diluted shares outstanding for 2012 will likely be in the mid to upper $29 million range.

Finally, for those of you building your models, as we have said earlier, I would err on the side of conservatism and build your models based more on our menu pricing and growth and operating weeks. Therefore, in building your models, as we already laid out, we expect our operating weeks to grow around 11% to 12% this year and we expect our menu pricing to be around 3% to 3.5% for fiscal 2012.

Our estimated restaurant level cash flow margins are already quite strong for casual dining companies in general and, as Jerry mentioned, our target is to make sure we preserve these margins despite the inflationary pressure as we expand nationally.

We do expect to continue to leverage our G&A costs to gradually improve our operating margins over the long-term. Therefore, when you put it all together and assuming no material changes in the current operating environment as it impacts consumer confidence and discretionary spending, we continue to believe we have a good opportunity to drive revenue growth in the mid-teen range and achieve some additional operating leverage to help drive our overall earnings growth next year.

We do realize that we always have the opportunity to improve our restaurant level margins and get better. We are always acutely aware of this fact, and we will consistently work hard to not only preserve these margins but grow them. However, in building your models, I believe it is important to be prudent and err on the side of conservatism.

Also, please remember that Q1 will begin on Wednesday, January 4th of this year compared to Wednesday, December 29th last year. As such, Q1 of fiscal 2012 will not have the benefit of that strong sales week between Christmas and New Years. Therefore, I would anticipate a greater spread between comparable restaurant sales for Q1 and the change in average weekly sales.

Again, these forward-looking perspectives that I provide today is really preliminary and is subject to change. Our final operating plan for 2012 will be formally considered by our Board of Directors before the end of this year and we'll be in a better position to share some additional details of that approved plan with investors in January.

Jerry, with that, back to you.

Well, folks, there you have it. Thanks, Greg. A very thorough review, as usual. Thank you very much.

So to summarize our prepared comments, we were very pleased with our solid results for the third quarter of 2011. We're continuing our forward momentum so far in the fourth quarter of 2011 very solidly and we're gearing up to execute another year of profitable expansion for BJ's during 2012.

Now, we're going to do our best to navigate through the current and expected volatile operating environment using a combination of menu-related and merchandising actions, achievable menu price increases, and the continued 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 here at BJ's.

So all that concludes our prepared comments. And now, operator, we're happy to open up the call for questions.

Thank you, sir. We will now begin the question-and-answer session. (Operator Instructions). Our first question comes from the line of Jonathan Komp with Robert W. Baird & Company. Please go ahead.

Hi. Thank you. I just want to follow up on your commentary, Greg, around the volatility that you're seeing in the recent same-store sales trend. You know, obviously comp still being up 5% to 6% quarter to date is fairly strong, so I'm wondering if you can give us a little more magnitude, a little more color on the magnitude of the volatility that you're seeing and maybe what you think might be causing the trend.

You know, it's a good question, Jonathan, in regards to the volatility that we're seeing and, without getting into the specifics, I would tend to tell you that we continue to see positive comp sales on every day of the week. But I'm actually just surprised how much stronger the weekends are than the middle of the week. When you end up with a 5% to 6% comp, you're not going to make it up on two days, meaning a Friday and Saturday night per se, those are our strongest nights from that standpoint or even a Sunday. So, in general, every day has been pretty strong, but the weekends just frankly are a little bit stronger.

Okay. That's helpful color. And then, Jerry, one more question for you. Related to the outlook for pricing, it sounds like you're going to get a little bit more aggressive in taking some of the pricing power that you think you have. So I'm wondering -- I just want to hear your thoughts on how you think about balancing the need to take additional pricing given the cost pressures versus maintaining the strong traffic trend that you're seeing.

Well, that is always the $64,000 question in our business, Jonathan. You know, as we look to our margin protection initiatives and options, we always look at menu pricing as the very last decision that we're going to make in order to preserve our operating margins within the four walls of the restaurants.

When you sit down and evaluate menu pricing, at least here at BJ's and pretty much at every other restaurants business that I have been with, it is a very, very, very difficult decision. There's some science to it, there's also a lot of intuition involved and some art involved, plus you've got to take into account the relative ease or difficulty of the operating environment.

If you take a look at the history of our menu price increases at BJ's, I think for the year 2010 we ended up with about a 2.4% increase. And, again, that was during a pretty tough time in the economic cycle. This year we're probably going to end up with about a 3% increase in pricing, and I think the good news is, when you take a look at our overall comparable restaurant sales performance throughout the year, we've been hurdling very tough comparisons and we're still getting guest traffic growth and we're still getting increase in guest incidents rates in terms of what they're buying per visit and we're getting our menu price increase.

We're not having to discount any of that price increase back in order to drive traffic. So we feel comfortable that given the overall price value positioning of the BJ's concept, we have room and we continue to have more pricing power than that of what we call our mass-market, more highly commoditized peers in our particular segment of the casual dining business.

As we look ahead to next year, I think Greg commented that, again, based on final input costs from our commodity cost negotiations that we're going to finish up here in the next 45 to 60 days, and other factors that we determine in our operating margins, I think we're preliminarily looking for a 3% to 3.5% effective price increase for next year, which i don't believe will dislocate us at all from our peers and will still give us some latent pricing power when you take into consideration all of the incremental value that we've added to the BJ's dining experience.

So that's a little bit of a long answer. There is some science, there is some art, there is some intuition to our menu pricing increases, but at the end of the day with our average check only still running between $13.25 and $13.50, we believe that we can earn the ability to get another $0.30 to $0.40 per guest on their visit and still have them leaving very happy and satisfied and believing that they got the better end of the deal with BJ's. So that's how we kind of think about it.

Okay. Very helpful. Thank you.

Thank you. And our next question comes from the line of Destin Tompkins with Morgan Keegan. Please go ahead.

Thank you. My question is kind of following onto that. Looking at the -- in the quarter, you mentioned, Jerry, the trifecta of menu pricing, of mixed benefit, as well as traffic trends driving your very strong comps, and as I think about or as I'm listening to your comments about next year, it sounds like you're kind of cautioning us to think about sales in terms of mainly the menu pricing. And I'm just wondering are there things that you see that may prevent you from continuing to get that mix benefit or is it more just kind of conservatism around mix and traffic, and as you maybe get into next year and looking at your plan, can you kind of give me some color on kind of how you see that evolving as we go through the next couple of quarters?

Sure. I think the answer to your question is, and again to repeat what Greg said, in terms of setting expectations and building models in this very difficult and volatile operating environment, we always recommend that you take the conservative approach when doing so. Now, that doesn't mean internally at the Company that we're going to take a conservative approach as to how we're going to execute the business, how we're going to execute our operational initiatives, how we're going to drive and continue to drive our menu and merchandising initiatives. So that's really the best answer that I can give you.

I think that we should plan for a conservative operating environment and a continued challenging operating environment, but we're going to do everything that we can to continue to outperform on that very, very key measure. As we look ahead to next year, we have a number of initiatives that haven't been completed, that will be completed next year relative to our CapEx initiatives, which have been driving growth on average check.

As Wayne mentioned, we also have a loyalty program that we just finished testing and we feel confident that there is a solid return on investment for that particular program that we're going to rollout next year that we believe will have an accretive impact on our business. So there are a number of other things that we have in the hopper, particularly with respect to our menu that we've tested that we haven't deployed yet, we've been saving them up for next year, that we believe will continue to drive guest incident rates in our restaurant.

So, again, let's be conservative on our planning and in setting our expectations and then we, as a management team, are going to do our best to beat them every time.

That's helpful, Jerry. And I understand your -- maybe your interest in not giving out too many details on the plan. I guess as I'm thinking about that menu, as you're talking about the menu evolution or plan for next year, it seemed like this year there was a really enhancement to your barbell strategy and you've added the enlightened menu and maybe some more premium center of the plate type entrees, and do you see that continuing? Is that what you're talking about when you're referring to some of the menu strategies that you're looking at? And then just to follow on, are there any -- would you be willing to share any of the details from kind of how the loyalty program testing or what catering might do to your "to go" mix as you're rolling some of these sales initiatives out next year?

Well, as far as the loyalty program goes, since all of our competitors are listening in, I don't think we want to give them too much of a road map. I think they will see it when we have it implement and then they're going to have to scratch their heads and figure out how we were able to get this done technologically. So we want to keep a little bit of a head start on the competition, so we'll let you join our loyalty program and see it in action at a restaurant near you early next year.

As far as our menu development strategy, we're going to continue on what we call the four prongs of that. We're going to continue to work the barbell strategy, which is the Small Bites and snacks part of our menu. That particular category, which has price points anywhere from $2.95 to $4.95 for very creative innovative items that have been very, very successful for us and continue to build.

We're also going to work the other end of the barbell with the center of the plate protein items, particularly seafood and chicken. And if beef prices ever get back into a more reasonable area, we have a steak line that's been fully tested and we'd love to pull the trigger on that. It's tested very, very well. It's been well-received by our guests and it's incremented the average guest check. But we really don't want to offer any steak entrees above $20 in the BJ's concept, so we've kind of held back on that. But we're still going to work that into the barbell.

In addition, we're not going to forget our signature products. We have a major advancement coming on our pizza that will be set for rollout shortly where we have worked on the presentation and how we stage the toppings that has enabled us in test to sell more pizza. So we have that coming.

And then the last area that we're continuing to work a lot harder on is the whole nutritional profile of our menu, not only with respect to adding and expanding our enlightened entree category, which has been a tremendous success, much more successful than I think any of us thought, but we're also going to work hard to take a look at our existing menu items, particularly all of the sauces and dressings where you have most of your calories and your fat and your sodium, but that's where you also have most of the great taste. So we're going to continue to work on trying to improve the nutritional profiles of those.

So that's really our menu strategy in a nutshell, and I think there is a lot of things that we're working on that will continue to be really well-received by our consumers. The other side of the coin, though, is that that puts a hell of a lot more work in our kitchens and our operators are going to be continued to be challenged to really execute our kitchens and to keep the same levels of kitchen productivity that we've had in the past.

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

Thank you. Jerry, I had a question on the BJ's Grill, talking about that being the smaller square foot model. Is that going to be similar to -- I've noticed that this year there's been a couple of 7,500 square foot units, a 7,300 square foot unit, have those been a test, as well, or is that more of a function of what was available in that real estate, and will the BJ's Grill be a similar square foot size?

Well, this particular location is a smaller format. This one here has about 4,500 square feet of internal square footage. It does have about a 650 square foot patio, but that's really just relative to the characteristics of this particular site that we selected, so that's how we kind of thought about it.

As you noted, the typical brewhouse square footage runs between 8,000 and 8,500 square feet on an internal basis. So this is a little more than half of the size of a full brewhouse restaurant. But, again, this is all specific to this particular location that we selected for this R&D restaurant.

Okay. And then just on other ones, the Century City I think was 7,300 square foot and Pembroke Pines and Rancho Santa Margarita were 7,500. Was that just a function of the real estate that was available or are you purposefully moving down the square footage?

The answer is it was really a function of the real estate that was available to us. We have actually two prototypes. We have a larger prototype, freestanding prototype, with about 8,500 square feet, and then we have the smaller freestanding prototype, which is in, Greg, roughly --

Yes. It's about 7,900 square feet.

About 7,900, so we have someflexibility depending on the amount of square footage of the land to be able to pick one or two of those particular prototypes. And then the Century City restaurant, that is an in-line restaurant at the Westfield Century City Mall. So that was the amount of space that we had available and that just happened to be that square footage. But typically, we have flexibility on the in-lines to do anywhere from, if we want to, 7,500 square feet up to maybe 9,500 square feet if we think the level of business in the trade area will support that. And then we have our two freestanding prototypes of 8,500 and 7,900.

Okay. Thank you very much.

You're welcome.

Thank you. And our next question comes from the line of Matthew DiFrisco with Lazard Capital Markets. Please go ahead.

Thank you. Couple of questions here. So I'll just jump in with -- did you describe how much the 53rd operating week would benefit you as far as earnings given that, like you said, it will have New Years, it will have the 17th week of football, we'll have some bowl games?

I did not get into the specifics on that. Looking at it in the way we do our business here, we're going to continue to have most of those costs flow through that 53rd week, labor cost, sales. We do depreciation here by week, so you're going to gets maybe a little bit of benefit on some occupancy, which is a pretty small amount of your operating occupancy costs. I would tends to -- when I look at the numbers that we've run, somewhere in the neighborhood of three pennies, maybe four pennies.

Okay. And that's driven by also obviously recognizing that that's going to be an outsized average weekly sales week.

That's correct.

Okay. And then also just did you describe how many stores are going to actually open in Florida out of the 15 openings?

No, we did not, but right now, preliminarily, we have three in our list for next year.

Okay. That's good. And then what quarter are you going to do the relocation?

I think that will probably happen sometime in the third quarter.

Early third quarter.

Third quarter.

Okay. And last question. I'm wondering just hearing the commentary about sort of the choppiness during the week and the stability on the weekends, could any of that be attributed you think to -- or did it get worse when basketball season when you're lapping, what was basketball season last year and what's sort of been an absence of it this year? Or has there been any sign of that yet as far as the apathy by consumer to come in during the week?

Not yet. I mean basketball season I think actually starts in November, so it wouldn't have really affected us in the third quarter as of right now. And just looking at it, it just started getting that way, frankly, in the middle of August, we started seeing a little bit more of that volatility.

Thank you. And our next question comes from the line of Nick Setyan with Wedbush Securities. Please go ahead.

Thank you. Was the Party for Two promotion a contributor to sales growth in the quarter and do you anticipate any similar promotion in Q4 now that this promotion has expired?

Yes. This is Jerry. You know, the Party for Two at $19.95 is a key event that we've kind of run in the third quarter for a couple of years now. It's been well-received by our guests. You know, typically in tests, there's a trade up associated with anybody that purchases that particular promotion.

So in terms of an average transaction spend, we actually see a little bit more than the typical transaction spend. So that's why we like to run that particular key event, particularly during the summers, and we don't really have anything like that planned for the remainder of this year.

In fact, that's really the only period of time that we generally run that particular promotion. We do have a number of key events that we schedule out every year, and most of them don't really involve a specific price point, that most of them involve new product introductions at regular prices.

Great thank you. You mentioned the loyalty rollout next year, and I apologize if I missed this, but is the rollout slated for Q1?

We're going to start rolling it out in the first quarter of next year. That's correct. We just had a very successful test with a lot of moving parts and we believe that we got them all nailed down. We were testing it in our Las Vegas market in our three restaurants there. But we have gotten to the point now where we really don't like to rollout any new programs to our operations beyond the first of November because that's when we really start to focus on driving sales during the holiday period.

We don't want any distractions, we don't want anything else for our team to worry about except for driving sales. So we got to the point where we thought that we would start to roll it out in the first quarter of next year. And Greg just mentioned to me, back to your first question, that we do have, as part of our standard Christmas promotions, we do have the Holiday Party for Two promotion, if I'm not mistaken. Is that right?

Yeah, we'll have the Holiday Party for Two, which we have done in prior years. We will do some gift cards merchandising like many other restaurants companies as well, and we'll actually feature our Grand Cru, which is one of our most popular beers that we usually rollout closer to New Years Eve. We're actually going to roll that out a little bit earlier in the December timeframe.

Thank you. And we have a question from the line of Nicole Miller Regan with Piper Jaffray. Please go ahead.

Good afternoon.

Hi.

Hi. Jerry, I know you talked and I appreciates the comments around where you're putting the units and why from a regional perspective or a national perspective, so I know this question is really putting the cart before the horse, but a lot of your peers, and maybe I'll even use that term loosely, have entered into joint ventures and international markets through joint ventures. What do you think about that and what are the risks and the benefits?

Well, in terms of considering joint venture arrangements, I think we've always said that we're open to that, particularly if we were able to find someone that had a tremendous operational infrastructure, that understood premium casual dining, that had access to some solid real estate, and that had a management cadre that could more easily handle the complexities of the BJ's concept, I think we would be very open to considering joint venture structures like that, particularly to get us to certain geographical parts of the country a little bit earlier than we could get to them on our own, for example, the northeast.

I think we all believe very, very strongly that the entire northeastern United States represents a very fertile development ground for the BJ's concept. It's probably going to be a little while before we're going to be able to get up there on our own, so to the extent that those opportunities would come to our attention, we would certainly be open to doing that.

In fact, as I think back over the past 15 or 20 years in our business, a couple of the major chains, and again, if I remember correctly, I remember Chili's and Outback both entering into joint venture arrangements to get into the northeast and to get into California early on to facilitate their national development and then they ended up buying those restaurants back eventually. So we're certainly open to that.

In terms of international development, again, we think that there's certainly a tremendous opportunity for the BJ's concept to go down that road at some point in the future. Most of the casual dining concepts that are entering into those particular arrangements today in my own opinion are reaching -- well, they're certainly way past the mid points of their domestic development capacity and I think they're looking to international to help their overall system-wide growth and, believe me, I can understand that. We have so much runway ahead of us domestically, I think that we would be better served by continuing to focus on our own domestic expansion.

You know, international expansion is very interesting in the casual dining business. If you want to go internationally, it takes a lot of your own infrastructure, a lot of your managerial time, a lot of your own internal resources to go international and to do all the food cuttings that you've got to do to really work the supply chain. So it takes a lot of managerial time to do that and, frankly, all of our managerial infrastructure is really devoted to our own domestic expansion where I think it should be for the time being.

Now, having said that, if a tremendous operational partner in say Canada or Mexico were to knock on our door and, again, would have all of those wonderful attributes that I mentioned about a joint venture partner, then perhaps maybe we could give that some consideration. But I think for the time being, I think we're better served by focusing on our domestic expansion.

Makes sense. Thank you.

Okay. Thank you.

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

I was just curious on the promotional environment, not yours specifically, but it seems like in moderate casual, it's intensifying and it probably will continue to be intense. Is there any -- are you seeing anything in your business when folks are running some of those pretty strong value-oriented promotions, maybe that helps explain some of that volatility. And also as you look across the landscape where your stores are located, who's doing well, who's giving you a little bit of run for the money right now? Thanks.

Good questions, Larry. You know, in terms of the impact on our business of the promotional activities and particularly on television of that of the mass-market competitors, to date we really haven't seen anything materially.

You know, you take the state of Texas, for instance, where we have 23 or 24 restaurants now, our comps have been steadily at the double-digit level and that's a state where you probably -- if you add up all of our mass-market competitors in the bar and grill segment, I'm sure there's over a couple hundred of them there, and when they get on television doing their particular market share battling between one another, we really haven't seen any impact on our business materially.

I'm sure there's probably some segment of disloyal customers that are going to go wherever the best deal is, but the good news about BJ's and our overall competitive positioning is a higher quality, more differentiating concept. I think we have a higher base of more loyal customers that are going to stick with us.

Now, having said that, in our limited marketing executions, we are always leading with lower value price points, particularly our Small Bites and snacks because, again, the competitive environment is still very, very difficult out there. The consumer is still significantly challenged, significantly worried.

So we want to be out there with a very good price point in order to make sure that we can cut through all of that clutter and make sure that consumers understand that we can offer an excellent value here at BJ's at really any price point. Greg, did you want to comment?

No. The only point I was going to make actually the second part of your question there, Larry. Without getting into specific restaurant concepts, I really can't any. I think Jerry's point about the promotional environment really plays out in the sense of the fact that we're continuing to hold onto our sales.

The only thing that we tend to see is when new restaurants open by us, you're going to feel the impact from a new restaurant's honeymoon effect on our restaurants and that could last 30 days or so as that new restaurant starts to settle into its own sales pattern. We gradually then build back up our own restaurants sales. But other than that from a specific competitor, I can't really think of anybody that comes to mind.

No. I think that's correct, Greg.

Okay, thanks. And then you mentioned, Greg, that -- you know, I think your contracted on a majority of your items for the first six months of 2012 and you're not contracted on some things. I kind of missed what you're not contracted -- can you give us a little more color on what you're contracted on and maybe where and where you're not contracted if you could?

It's actually a little bit different than -- I think what I said is we're contracted on the majority of our items for the remainder of this year, so I think our fourth quarter numbers look pretty good going into this year. Looking for next year, we've contracted only about 30% of our items through the first quarter of next year, about 20% of our items through the second quarter of next year.

The areas that we have contracted right now primarily concern around our breads, our dressings, our pizza tomato, we've gotten through our pot roast, our pulled pork. We've gotten through some smaller items, but as I mentioned on the call, really, we need to get through the commodities approaching, I should say. Those are bigger areas.

We have also contracted on our pizza cheese, so that's kind of a fixed contract through April of 2012. So some of the smaller ones and really over the next 45 days as I said on my formal remarks is when our supply chain team will really nail down all of our commodities and all of our contracts for next year.

Thank you. We have a question from the line of Conrad Lyon with B. Riley & Company. Please go ahead.

Yes. First of all, thank you for not reporting earnings yesterday. I appreciate that. First question. I think Wayne talked about some significant changes to the menu coming up here in terms of items and so forth. The question is the net number of SKUs, is that going to change materially up or down and is the menu going to look for favorable from a margin perspective.

Well, I think the answer is that it is not our objective to increase the absolute size of our menu much larger an what it is today. And, in fact, as we rollout more new menu items that guests are interested in, we're increasing our effort to try to take off some of the slower sellers to try to maintain the overall menu at about the sizes where it is today.

And in terms of the margin profile of our new menu items,we really try to manage it to maintain our current gross profit percentage contribution and dollar contribution on an average basis in our restaurants. So we're trying to balance it out. We have a very large menu, as you know. We have a lot of different categories. And I think between our signature product development, our Small Bites and snacks, and the other end of the barbell, I think we have a good opportunity to kind of keep everything in a good balance kind of where it is today in terms of the economic impact on our gross profits.

Okay. A question about the average weekly sales trend. You're seeing a really nice trend here, and excluding the smaller formats, what kind of variability are you seeing between restaurants in terms of average weekly sales?

Well, excluding the smaller formats, we still have a wide dispersion in regards to weekly sales averages. As we mentioned in the past, California tends to be a stronger state for us in regards to sales volume. It's our home court, they know us, it's more dense.

I would actually say Texas is probably giving California a good run for its money per se. And then we continue to see just tremendous growth I think in our newer markets as our weekly sales averages have come up with our comp sales. But overall, we do still see some variability and I think you're always going to have that with 115 restaurants at the end of the this year. It would be great if every single restaurant did $9 million in sales or something, but you're going to have variability there.

Yes. Last question. Which restaurants did you purchase the land under?

It's going to open next year in the Austin, Texas market.

Okay. Got you. Okay. Thank you.

You're welcome.

Thank you, and our last question -- I'm sorry?

One more question.

Okay. Our last question, sir, comes from the line of Paul Westra with Cowen and Company. Please go ahead.

Great, thanks. I'll be quick for the last one. Just quickly, Greg, you mentioned -- just give us an update on the guest beer taps and deuce seating, the extra builds and extra expense this year, were you just bringing some additional stores forward in the calendar or have you found some more locations and, from my recollection, is that these were sort of winding down as far as additional opportunities?

They are and if I'm correct on what your question is from a cost perspective, when we went into this year, we were only going to do somewhere in the neighborhood of maybe -- I think it was like 25 deuce seatings and 25 guest beer retrofits. And what we decided to do was accelerate that and get closer to 90% of our units finished or our restaurants finished this year, which, if we stuck with the 25, we would have been about two-thirds of our way through. So that's that increase in the CapEx expenditure, that's why our capital expenditure number is up. I believe that was your question, Paul, but if you had something else in regards to the P&L, I think I missed that.

No. That was it. I was just curious that you didn't find additional restaurants you were going to add either the deuce seating or the guest beer taps. You just moved them quicker in the calendar so that answered my question. Okay. And then maybe the last question is curious since you're having so much success obviously in your core market in Texas, Ohio Valley, and you're sort of potentially further penetrating those markets since the performance is so good, I guess the overall national potential 300 we've heard for as long as I can remember, if that number moves up when will you know and how will you go about it? And I guess the most curious question would be if you knew there was any more potential locations in any individual trading area, would it change where you locate the stores if you realize you can build six in a town and you change it if you go into thinking why you aren't only going to do three? I guess that's my concern.

Paul, when you think about Olive Garden, for example, that has 600 or 700 restaurants and where they're located and you think every market we go into we look at where they are and where some of our other peers are located. You know, we think that long-term, the potential for BJ's well could be more than 300 but we just haven't done our final analysis on that and we're continuing to study that, and as we study that, we'll update everybody on our future calls.

I will say, Paul, though, when we look at markets, and Greg Lynds and his team, they come up and they basically start drawing three and five mile range for that entire market to show us what our cluster effect can be going into those markets. So we study all of that up front before we make a decision to go into certain markets so we don't necessarily come into a market and say, "Gee, we think it's a one restaurant market," and three years later realize that it could be a two or three restaurant market. So we try to have all that information ahead of time so as we look to develop new restaurants, we make sure that that clutter strategy stays on par.

Thank you, gentlemen. Please continue.

Okay. Well, that wraps up our call for today. If you have any further questions, please don't hesitate to call us here in our offices in California. We'll be here for a little while longer. Thank you.

Ladies and gentlemen, that concludes our call for today. Thank you very much for your participation. You may now disconnect.