BJ's Restaurants Inc (BJRI) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the BJ's Restaurants Incorporated first quarter 2012 results conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions).

I would now like to turn the conference over to President and Chief Executive Officer, Mr. Jerry Deitchle. Please go ahead, sir.

Thanks, operator, and hello, everybody. I'm Jerry Deitchle with BJ's Restaurants, and welcome to our first quarter 2012 investor conference call, which we are also broadcasting live over the Internet. After the market closed today, we released our financial results for our first quarter of fiscal 2012 that ended on Tuesday, April the 3rd, 2012. And you can hear 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 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. We're going to start 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.

Thanks, 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, April 26, 2012. We undertake no obligations 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 here at BJ's was very pleased to deliver yet another solid financial performance for the first quarter of 2012. And let me just take a minute and address some of the highlights for the quarter when compared to the same quarter last year.

First, our total revenues were up 16% to $167.6 million, driven by incremental sales from our new restaurant openings and incremental sales from our established base of restaurants. Next, our comparable restaurant sales were up 3.3%, successfully hurdling our toughest quarterly comparison from last year of 7.8%, and we were able to surpass last year's increase in comparable restaurant sales without the help of the favorable winter weather comparison that benefited the sales comparisons of many of our national competitors during the quarter. We only have 99 restaurants in our comparable sales base, and 87 of them are located in the western and southern states of California, Nevada, Texas, Arizona, and Florida, that didn't experience sustained severe winter weather conditions during the first quarter last year.

Once again, our quarterly comparable sales comparison outperformed the industry average for the quarter as reported by the Navtrack and the Blackbox intelligence surveys.

It's important to note that the 13 weeks in our first quarter this year do not include the week between Christmas and New Year's Day, which is a higher-volume sales week for us. Now, if you'll recall, that particular week was included in our 14-week fourth quarter last year, so when you line up the weeks in both first quarters on an apples-to-apples basis, our average sales per restaurant operating week also increased 3.3%, and thereby reflects both our comparable sales increase and our solid weekly sales volumes from our new restaurant openings. Once again, our new restaurant expansion program continues to be high-quality expansion, not just growth for the sake of growth.

Next, our total productive capacity, as measured by total restaurant operating weeks, increased about 13% during the quarter, and that reflects the continuing successful execution of the targeted base of our restaurant expansion plan. We opened two restaurants during the quarter -- one in Clearwater, Florida, and the other in Salinas, California. Our Salinas restaurant was originally expected to open in the second quarter, but we were able to move it up. As a result, we did incur most of its related pre-opening costs in the first quarter, which represented a timing difference of about $0.01 per share during the quarter.

Additionally, our G&A expenses favorably leveraged another 40 basis points, down to 6.4% of revenues for the quarter, and our net income margin favorably leveraged up another 20 basis points to 5.2%. Our net income and diluted net income per share also both increased a solid 20% in the quarter.

While some of our chain casual dining peers have recently reported comparable sales increases that either represent some recovery of sales that they actually lost during the past few years due to the economic slowdown, or that reflect easier winter weather comparisons or both, neither has been the case for BJ's. In fact, our two-year cumulative comparable sales comparison for the first quarter is up 11.1%, which we believe is among the best in chain casual dining on that particular metric.

We've also started off the second quarter of 2012 with continuing positive comparable sales comparisons. Now, based on information that we've recently seen and heard from some industry sources, it does appear that sales comparisons in the casual dining category have softened a little bit in general during the past six weeks or so. But for BJ's, our comp sales comparisons remained fairly steady, in the 3% range for the first three weeks of April, and continue to successfully hurdle another tough comparison of 6.5% for the same three-week period last year.

Now, while our sales volumes are always difficult to precisely predict in this continuing volatile operating environment, and we always encourage those who predict them to err on the conservative side, we should note that our sales comparisons do become slightly easier as we continue to move through 2012, although we don't believe the operating environment is going to get much easier any time soon from a consumer discretionary spending perspective. Now, while they may be backing off their recent highs, the fact remains that food and gasoline prices in general are still higher than they were this time last year for most consumers. And it doesn't take much for an average consumer to say, "Well, I just finished filling up my gas tank today, so I think I'm going to skip lunch today or not go to happy hour today." If there is an economic recovery underway, to us it remains pretty uneven, weak, and choppy.

While BJ's primarily competes as a higher-quality, more differentiated restaurant concept that offers a better overall dining experience for the money, and we will never deviate from our core strategic positioning, there are also times when the operating environment dictates that we respond with other competitive tactics in a measured and proportional manner if we want to both protect and grow our guest traffic. This is one of those times, and we're going to respond accordingly. Simply stated, the current operating environment requires us to get a little more aggressive with investments in our shorter-term marketing and promotional programs, and that we will do. We are very confident that our incremental investments should generate a favorable end result and also preserve the core strength of our brand.

At our investor conference call last February, we outlined several of our planned key sales-building initiatives for 2012, and the good news is some of these initiatives are now ready or almost ready for Company-wide rollout during the next 90 days or so. Wayne Jones, our Chief Restaurant Operations Officer, is going to comment on our 2012 sales-building initiatives in a couple of minutes, but I'd like to just take a couple of minutes myself and comment on three in particular.

First, our semi-annual spring menu update rolls out next week, and our update will include some innovative new entrees, Small Bites and snack items that sold very well in our test restaurants. Our new menu will also include a modest menu price increase of about 1%. In this more value-oriented, competitive operating environment, we have to be a little more cautious with our menu pricing in the short term. We would have certainly preferred to take a little more pricing with this menu update, but we decided to go with 1%, and we'll reassess the operating environment during the next 90 days or so.

Next, as many of you know, we've been developing and testing a state-of-the-art, technologically intensive guest loyalty program for several months now, and we're now ready to commence a Company-wide rollout that will go live at the beginning of July. We are probably a little early in making the upfront investment in a program of this nature, given the relatively small size of our Company and scope of our operation. However, in tests, this program generated incremental guest visits and spending per visit that have well exceeded our breakeven cost hurdle for the program, so we're confident that the benefits of the program should more than cover its ongoing related expense.

And for the first time in BJ's history, we are going to run a small test of television advertising here starting on April 30 in our media-efficient Sacramento, California, market, where we have six restaurants. Once again, we're probably a little early in the life of BJ's with a TV test and having to absorb all of the related upfront television production and media costs, but we think it's important to begin our learning as to what benefit, if any, TV advertising can provide BJ's in terms of driving our overall brand awareness.

The TV test is a direct result of our semiannual Awareness Trial and Usage study, or ATU market research study, that we conducted last year. What our ATU research told us was that BJ's brand awareness is still relatively low, even in our more mature, more deeply penetrated home-court markets in California, where we enjoy our strongest sales volumes when compared to that of the other casual dining competitors. Our ATU research also told us that once consumers become aware of the BJ's brand and give us a try, we have one of the strongest rates of conversion from trial to user to brand advocate.

So we think it's very important that we determine sooner than later if television advertising can help accelerate BJ's brand awareness and trial to a higher level and generate incremental sales that more than cover the investment cost of the media. So we're going to run our first test here starting April 30 in Sacramento, and we'll go over the results of this small test on our second quarter conference call in July.

I'd also like to note that the incremental expenses associated with both our television test and our loyalty program are only considered to be expenses from a financial accounting perspective. From a business perspective, these are really investments in the long-term future of the BJ's brand. Frankly, in our view they are requisite investments that are absolutely necessary to help BJ's continue to effectively compete for increased market share over the long run. And at BJ's, we have never been reluctant to make prudent upfront investments to drive even more innovation and quality in the BJ's restaurant concept brand.

Additionally, we also are working on a couple of other sales-building initiatives that we really haven't discussed much publicly. And for competitive reasons, we're going to reserve our comments on them until consumers start seeing them in our marketplaces, possibly during the next 90 days or so. We believe these initiatives have solid potential to further play to the strengths of the BJ's concept.

With respect to our new restaurant expansion plan, if you'll recall, we successfully opened 13 new restaurants last year, and we remain very pleased with the initial sales volumes of all of our new restaurants. 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 in terms of both quantity and quality, and we're going to keep doing the same thing.

While the comparable sales metric is certainly one important measure of a restaurant company's total revenue growth, particularly for the more mature concepts that have substantially completed the vast majority of their domestic expansion programs, in our view, the more significant revenue growth metrics for BJ's are growth in total restaurant operating weeks and average sales per operating week.

During each of the last two fiscal years, more than 70% of BJ's annual growth in total revenues was derived from our new restaurant expansion program, while less than 30% came from increased sales from our comparable restaurant base. Now, most of our major, more mature casual dining chain competitors are in the opposite position today in terms of the primary drivers of their total revenue growth. So for BJ's, the continued success of our restaurant expansion program remains most critical to our future revenue growth and overall financial performance.

So when moving to our 2012 expansion plan, in our press release today we reiterated our plan to open as many 16 new restaurants this year, which includes the relocation of one existing older, smaller-format Pizza & Grill restaurant in Boulder, Colorado, to a new site in Boulder that can support a larger-format, more productive Brewhouse restaurant. Our entire team is looking forward to executing a very robust restaurant expansion plan this year. Of our 16 planned openings for this year, three have already opened, and the remainder are either in the permitting process or are under construction.

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

Thank you, Jerry, and a good afternoon, everybody. As we noted earlier in our call today, both our 2012 and 2013 new restaurant development pipelines are in excellent shape, and we continue to be very pleased with the overall quality and quantity of the new sites that we are seeing. Our new restaurant development strategy continues to focus on acquiring AAA locations in mature, densely populated trade areas with a premier co-tenant whose brands and operations are consistent with the BJ's brand and operations. We have worked hard to solidly position BJ's as a higher-quality, more differentiated casual-plus dining concept, and our new restaurant designs and site selection strategy continue to strengthen this positioning.

Our development plan for this year calls for most of our new restaurants to be built within or contiguous to our current 13-state footprint, which will allow us to continue leveraging our brand position, consumer awareness, supply chain infrastructure, and field supervision resource.

In the first quarter just ended, we opened two restaurants. One was in Clearwater, Florida, where we built a custom footprint restaurant as part of the newest addition to the 1.2 million-square-foot Westfield Countryside Mall. Our Clearwater restaurant represents our ninth restaurant in the state of Florida, where we have achieved some of our strongest comparable sales restaurant growth over the last couple of years. We plan to open two additional restaurants in the state of Florida during 2012, consistent with our plan to gain leverage and drive brand awareness as we grow.

Our other new opening for the first quarter was in Salinas, California, which we were able to open earlier than originally planned. And this past Monday, we opened in Dublin, California, in the San Francisco Bay area, where we enjoy some of our highest-sales-volume restaurants.

All of our remaining 2012 openings have been identified and secured with signed leases or letters of intent, and 11 of these restaurants are currently under construction. We plan to start construction on a couple more restaurants within the next 60 to 90 days.

As Jerry reiterated, the Company currently expects to open as many as 16 new restaurants during 2012, which includes the relocation of one of our older, small-format legacy restaurants in Boulder, Colorado. We'll locate this restaurant to a new location in Boulder and reopen it as a large-format Brewhouse restaurant.

As we stated before, it's difficult to precisely predict the actual timing of our 2012 new restaurant openings, as there are many factors outside of our control. So with that in mind, as of this date we plan to open as many as five new restaurants in the second quarter. That includes the one in Dublin, California, that we just opened; as many as six new restaurants, including our one relocation, in the third quarter; and as many as three new restaurants in the fourth quarter. Again, we will keep everyone advised of any future changes on our quarterly calls.

Additionally, our team has made solid progress in firming up our new restaurant development pipeline for 2013 and 2014. As I mentioned in our last call, most of the new real estate opportunities that we are seeing today are primarily within existing shopping centers that are being redeveloped as a result of big box vacancies or other retailer restaurant closures. With very few new shopping centers currently under construction, the landlord community today is focused on enhancing value by redeveloping and adding leasable space to these existing shopping centers, and BJ's today is very well positioned to take advantage of these redevelopment opportunities for 2013 and beyond.

Longer term, our growth goals remain the same, and that is to achieve a low double-digit capacity increase per year as measured by total restaurant operating week in the approximately range of 12%. We have not yet set a specific operating week growth target for 2013, but we'll be able to provide more insight on that target later this year as our development pipeline firms up.

Geographically, our development plan for the next year or so still calls for about one-third of our restaurants to be 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 and Florida markets. We also are planning to add a major new market on the East Coast some time in 2013 or 2014.

As we mentioned on our last call, we recently engaged a consultant of national standing that provides customer analytics for the restaurant and retail industries to assist us with updating our estimate of domestic capacity for BJ's restaurant. Based upon this analysis, along with the analysis of our internal real estate team, we now believe there's conservatively room for at least 425 BJ's restaurants domestically that can perform at the current level of our average unit economics. With only 118 restaurants open today in 13 states, BJ's has plenty of runway in front of it for longer-term expansion.

Having said that, our team will always view quality over quantity, and we will continue to ensure that we execute an expansion plan that is geographically balanced, which helps drive additional leverage for the entire business. In today's environment, our team is more focused than ever on remaining disciplined in our approach to site selection and lease economics so that our new restaurants will be well positioned to take additional market share. Our team is looking forward to the next several years. I'm confident that BJ's should have many years of high-quality, solid new restaurant growth to come.

Back to you, Jerry.

Hey, thanks, Greg. We continue to believe that BJ's four-wall economics are sound and they support a continued steady base 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 going to continue to carefully execute our expansion program at the right pace to facilitate the achievement of three outcomes -- quality, predictability, and leverage.

And once again, we want to remind our investors that in contrast to many of our more mature, more fully penetrated casual dining competitors that rely more on comp sales growth as the key driver of annual growth in total revenues, BJ's will continue to rely more on high-quality new restaurant expansion as the key driver of our total annual revenue growth for the next several years.

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

And really, that's the difference between a good restaurant company that is growing and a restaurant growth company. The restaurant growth companies really focus on increasing differentiation, quality, predictability, and leverage as they expand. The good companies that grow don't quite focus on that as intensely as we do.

But before I turn the call over to Wayne Jones for his operational commentary on the quarter, here's a quick update on our research and development restaurant that we call BJ's Grill here in Anaheim Hills, California. This restaurant has been open about six months now. We continue to be very encouraged with its overall performance, and more importantly, its overall acceptance by consumers. We continue to fine-tune the menu and the operating system in restaurant.

Additionally, due to much higher-than-expected consumer demand in this particular trade area, we're going to go ahead and expand the interior square footage of this restaurant from 4,600 square feet and 137 seats to about 5,800 square feet and 180 seats. By comparison, our larger-format Brewhouse restaurants contain about 8,500 interior square feet and 270 or so seats.

We are also evaluating the potential locations for another Grill restaurant as part of our 2013 new restaurant development plan. So we're excited about BJ's Grill, and we're eager to keep learning more about it during the next several months. Now, Wayne, we're ready for your operational update.

Hey, thanks, Jerry, and good afternoon, everyone. We continue to be pleased with the execution of our sales-building initiatives by our restaurant operation, and particularly the execution of our 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 the result of the success of our CapEx-related initiatives, particularly our increased seating of parties for two, what we internally call our two-seating initiative, and our expanded guest beer tap initiative. About 90% of our existing restaurants currently have both these initiatives in place, with plans to complete the remaining 10% by the end of the current quarter. So there continues to be more upside yet to come with these two initiatives. All of our new restaurants opened with these two programs in place.

Additionally, we plan to increase the capacity of several existing restaurants by operating the patio seating layouts, and we have also added two completely new patios in our Rancho Cucamonga and San Bruno, California, restaurants, which are two of our better-performing restaurants.

Moving to our menu initiatives, as Jerry mentioned, next week we'll be launching our spring new menu, which will continue to bolster our barbell approach to our menu positioning. We will also be adding our third steak option, a top sirloin at a very attractive price point, which will complement our current rib eye and New York steak offerings. Additionally, we are also considering further additions to our steak line over time. These offerings have been extremely well received by our guests while providing a nice lift in our per-person average.

On the other end of the barbell, we have added two new Small Bite offerings and lunch specials as we work to keep these offerings fresh and enticing to drive incremental sales and provide additional value for our guests.

Rounding out the new menu, will be introducing Hop Storm IPA as one of our new flagship beers. The IPA craft beer category has enjoyed solid growth over the past year or so, and our brewing operation has created one of the best-tasting brews ever. Hop Storm will be our ninth addition to BJ's flagship line of proprietary craft beers.

Finally, we are just completing the rollout of Dr Pepper to all BJ's restaurants in response to strong guest demand.

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. Our culinary team has been working effectively to build a solid pipeline of innovative menu items in addition to continuously evolving our current menu. We're also working on updating our catering program, which should roll later this year, as Jerry mentioned, and we will be rolling out our guest loyalty program starting in July.

On the productivity and cost-savings initiative front, we have continued piloting a new labor scheduling and productivity measurement system that's based on item count methodology that we believe will help our restaurant operators to more effectively allocate and balance labor hours on every shift. Over the course of the quarter, we are also reconfiguring our automated kitchen display system to improve capacity and throughput and speed of our cooking station, which results in a meaningful improvement in our overall cook times through (inaudible). We're also undergoing an evaluation of our line equipment package to add capacity where needed for more effective execution and to remove bottlenecks.

We continue to aggressively work our cross-training program in our kitchen in order to gradually create greater labor efficiencies over time. In addition to the cross-training, we know that we can pick up our productivity by reallocating labor hours throughout the entire restaurant.

Finally, we are working with our supply chain team to complete the testing of certain ingredient and product specification changes that have the opportunity to generate as much as $2 million of annualized cost savings without reducing quality. Thus far, a number of these tests have proven successful, and we have locked in about $1 million of annualized savings potential starting in the second half of this year. We'll continue to work the balance of our list and expect that final (inaudible) support.

Last but not least, we're continuing to make prudent investments that advance our quality, capabilities, and bench strength of our restaurant management and field supervision talent base. We have several talent development initiatives underway that are intended to further strengthen our ability to select, recruit, assess, train, develop, reward, and retain the best restaurant management talent available and only go for new BJ's restaurants (inaudible) develop highly qualified and (inaudible) restaurant management teams to correctly and consistently execute our restaurant operations. Jerry, back to you.

Thanks, Wayne. Once again, our restaurant operations team certainly has a lot of sales-building and productivity initiatives to digest this year, but we also know they're excited as we are to have the opportunity to keep driving the overall quality of our menu and our overall execution going forward.

And I'm going to turn the call over to Greg Levin, our CFO, for his financial commentary on the first quarter.

All right, thank you, Jerry. I'm going go ahead and take a couple of minutes. I'll go through some of the highlights for the first quarter and provide some forward-looking commentary for the remainder of 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 operations.

As Jerry previously noted, our total revenues for BJ's first quarter of 2012 increased approximately 16%, to approximately $167.6 million from $144.9 million in the prior year's comparable quarter. This 16% increase was comprised of an approximate 13% increase in operating weeks and an increase in our average weekly sales of approximately 2.7%. However, as Jerry mentioned, the 13 weeks in our first quarter this year did not include the week between Christmas and New Year's Day, which is a higher-volume week for us. In fact, our weekly sales average for this holiday week was approximately $121,000, compared to our reported weekly sales average for the first quarter of 2012 of approximately $112,000. So when lining up the weeks in both the first quarters on an apples-to-apples basis, our average weekly sales per restaurant operating week also increased approximately 3.3%, which was equal to our increase in comparable restaurant sales for the quarter.

While we do not report monthly comparable restaurant sales, each period was solidly positive. Our comparable restaurant sales trends during the quarter followed the industry trends, with January and February higher than the March period. However, when we look at our trends, our lower March comparable restaurant sales appears more to more due to comparisons from the prior year than really any direct macro trend.

Our 3.3% comparable sales increase for the first quarter consisted of an approximate 3% benefit from menu pricing and an approximate 0.3% increase in guest traffic and increased item purchases by our guests.

In regards to comp sales for the quarter, all of our day parts and weekend compared to weekdays remained positive. However, the weekends are showing slightly more strength than the middle of the week, and our dinner is slightly stronger than our lunch period. And consistent with trends over the last two years, 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 our restaurants inside California and our restaurants outside of California continue to perform very well for us with regards to comparable restaurant sales in all of our days parts as well as weekends, and weekdays continued to have solid comp sales for us.

In regards to the middle of our P&L, our cost of sales was 24.6%, which was down about 10 basis points as compared to last year's first quarter, and on a sequential quarter basis, increased about 30 basis points. The decrease compared to the same quarter last year is primarily due to an approximate 2% increase in commodity costs, offset primarily by menu pricing. On a sequential basis, the increase in cost of sales as a percent of sales was primarily related to the increase in commodity costs.

As a percent of sales, labor increased 10 basis points to 34.9% as compared to 34.8% last year. We continue to see slightly higher hourly labor, primarily in the kitchen due to the intensiveness and complexity of our new menu offerings. These new menu items continue to drive sales, as evidenced by our ninth consecutive quarter of solid comparable restaurant sales, and are being offset by the levers we are getting in our total management labor and our other fixed labor costs, again, by driving the comparable restaurant sales line.

That being said, we still have an opportunity to improve our labor productivity in many of our restaurants. We believe we should be able to see some of that productivity begin in the third quarter of this year, when all of our restaurants will be on our new labor productivity analyzer, as Wayne mentioned, which really helps us identify opportunities based on the items being cooked and sold in our restaurant.

Our operating and occupancy costs increased about 50 basis points to 20.7% as compared to last year's first quarter. This increase was due to slightly higher marketing costs, which were about 1.3% of sales in the first quarter, and slightly higher general liability and property insurance. Our general and administrative expenses decreased by about 40 basis points compared to the same quarter last year, to 6.4% of sales. Included in G&A is $772,000 and $680,000 of equity compensation for 2012 and 2011, respectively, or approximately 0.5% of sales for both years.

G&A came in a little bit lower than I was anticipating, primarily due to lower costs associated with our managers in training program, which is primarily due to some seasonality based on when our new restaurants will be opening, and lower-than-expected legal and professional fees.

Our restaurant opening expenses were approximately $1.1 million during the first quarter of 2012, about $300,000, or $0.01 more per share than I was anticipating. The increase in our opening costs from my internal target is a tiny difference, primarily related to the early opening of our Salinas restaurant, as Jerry mentioned, coupled with the non-cash rents for restaurants that will open in Q2 and Q3 of this year.

On average, we are still targeting our pre-opening of around $500,000 per restaurant. However, I think it's important to note that our opening costs may vary greatly, based on many factors, including the infrastructure we have in place based on the geography of the surrounding restaurants, the construction period, labor markets, and occupancy costs.

Over the last two years, we have primarily opened new restaurants in our existing markets, and we have received less tenant improvement allowance, resulting in lower construction period rent. As we continue to build our nationwide presence and take on newer markets, we could experience higher opening costs until we have enough restaurants in the markets to provide opening support for new restaurants.

Our tax rate for the first quarter was approximately 29%, and I would expect our tax rate for the year to be somewhere between 29% and 30%.

Before I turn the call back over to Jerry, let me spend a couple of minutes commenting on our liquidity position and also to provide some forward-looking commentary on 2012. 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 about $55 million of cash and investments. Our current line of credits are $75 million and does not expire until January 2007 (sic), of which zero is outstanding today, other than for standby letters of credit that support our insurance programs.

During the first quarter, our gross capital expenditures were approximately $18.8 million, or approximately $19 million, and we continue to expect that our capital expenditure plans for 2012 will be approximately $100 million to $105 million before any landlord allowances. This capital expenditure plan is based on the construction of as many as 16 new restaurants, as well as our maintenance capital expenditure plan and our list of sales and quality initiatives, our productivity initiatives, and our branding and infrastructure initiatives.

We do anticipate receiving approximately $10 million to $13 million in landlord allowances and proceeds from the sale of land this year. As a result, our net CapEx for fiscal 2012 remains in our originally planned range of $90 million to $95 million. We continue to believe that this amount can be primarily funded by our expected cash flow from operations during the year, although we do have our investments on hand and credit line in place as solid liquidity backstops.

From a revenue perspective, as Jerry mentioned, our comparable restaurant sales so far in the second quarter of 2012 are trending in a 3% range. 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, as Jerry and Wayne discussed, and we believe over the long run, there are still opportunities to drive additional guests to our restaurants and improve both the mix shift and incident rate.

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. We currently expect to have approximately 3% of menu pricing for Q2, and around 3.4% of menu pricing for Q3.

After our main menu, our next regularly scheduled new menu is anticipated for early November, in which 2% will be rolling off. We have not yet determined what additional pricing we may take at that time. We have said before, pricing is the last lever we pull to drive sales. Our goal is to drive sales by offering a higher-quality, more differentiated dining experience in a more contemporary facility, executed with sincere hospitality and gold standard service.

We will not try and price our way to success. Our pricing strategy is about preserving our unit economics, and any pricing we take is considered only after contemplating the success of our productivity initiatives on our four-wall margins.

As Greg Lynds mentioned, we currently anticipate opening as many as five new restaurants in the second quarter, as many as six new restaurants in the third quarter, and as many as three new restaurants in the fourth quarter. One of the planned new restaurant openings in the third quarter will be our planned relocation of our smaller-format Pizza & Grill restaurant in the Boulder, Colorado market.

As of today, we are still anticipating our total weeks for 2012 to increase by about 11% from 2011. This increase is on a 52-week to 53-week comparison. If we exclude the 53rd week from last year, we are targeting an increase in operating weeks of approximately 13%. 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.

For the second quarter, we are also anticipating approximately 1,550 total restaurant operating weeks. In regards to cost of sales, we expect our food commodity basket to increase around 3% for the second through the fourth quarter of this year. This is slightly more than the current 2% we saw in the first quarter. This increase is predicated on higher Angus beef prices and higher prices for our pizza dough, and that will be somewhat offset by lower cheese prices and lower produce prices.

As of today, we have locked in approximately 65% of our commodities for the remainder of the year, and based on this slight increase in our commodity basket from the first quarter, I would expect our cost of sales to be in the mid to upper 24% range.

In regards to labor, we currently have not seen any significant pressure on our hourly wages, and we are currently staffed at or about 100% in regards to management pars. Outside of a slight increase or decrease in labor as a percent of sales, will be more based on the ability to gain leverage based on our comparable restaurant sales and our productivity initiatives scheduled for later this year.

As Jerry mentioned, we will have more marketing spend in the second quarter to promote our new menu and test our television commercials in the Sacramento market. We are currently anticipating our total marketing spend for Q2 to be approximately $3 million. This compares to about $2.1 million in the first quarter, which was about 1.3% of sales. Therefore, based on some normal inflationary pressure plus the additional marketing spend, I am anticipating operating and occupancy costs to be in the low 21% range. Again, due to the largely fixed and semi-fixed nature of this expense category, this percentage will be impacted by the degree of sales leverage.

Based on our upcoming restaurant openings as well as the rollout of some of our initiatives, I would anticipate our G&A costs to be in the $11 million to $11.5 million range per quarter, including equity compensation. The majority of this increase from the first quarter is really predicated on the expected increase in our training of new managers for our upcoming restaurant openings.

As I've already mentioned, we currently expect restaurant opening costs to be about $500,000 per restaurant. However, we will incur the pre-opening non-cash rent as much as five or six months before a restaurant opens, and therefore pre-opening costs for nay quarter may not be indicative of the number of restaurants that open in that quarter. As such, I anticipate opening costs of approximately $2.7 million to $3 million in the second quarter related to the expected five new openings in the quarter, plus pre-opening rent for restaurants expected to open later in 2012.

As I mentioned, we currently anticipate our tax rate for 2012 to be between the 29% and 30% range, and based on our current stock price, we estimate that our diluted shares outstanding for 2012 will be in the $29 million range.

And finally, as I stated before, for those of you building your models, I would err on the side of conservatism and build your models based more on our currently expected menu pricing factor, coupled with our expected growth in total restaurant operating weeks. Therefore, in building your models, as we already laid out, we expect our operating weeks to grow around 11% this year, and we currently expect our full-year menu pricing to be around 3% for fiscal 2012, although our expectations could change.

Our estimated restaurant level cash flow margins are already quite strong for casual dining companies in general, and as we 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 with additional revenue growth 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, much in the same way we did this past quarter.

Jerry, back to you.

Hey, thanks, Greg. As usual, a very thorough review. So to summarize our prepared comments today, we were very pleased with our solid results for the first quarter of 2012. We're continuing our forward momentum so far in the second quarter, and despite the pressures of the operating environment.

Most importantly, we're well underway with the successful execution of yet another year of profitable new restaurant expansion for BJ's. We're going to keep doing our best to navigate through the current tough operating environment for both consumer discretionary spending for casual dining occasions and the higher commodity cost environment.

And we're going to use a combination of menu-related and merchandising actions, achievable and selective menu price increases, and the deployment of certain productivity efficiency and cost savings initiatives. And 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.

Compared to our larger, more mature casual dining competitors, BJ's is still a youngster in many respects. We still have our fair share of the typical growing pains to overcome. But we're in this for the long haul, and we're going to continue to build a solid foundation to support the continued growth of our concept and our Company in a productive, leverageable manner.

The best years are yet to come at BJ's. And we're now going to open up the call for your questions. Operator, it's all yours.

Thank you, sir. (Operator Instructions.) Jonathan Komp, Robert W. Baird and Company.

Jerry, I just wanted to start off, hoping you could maybe provide a little bit more color on the recent sales trends. I know you mentioned maybe not taking quite as much pricing as you'd maybe like to with the upcoming menu change. So I just want to ask you, is there anything specific in the customer patterns that you're seeing that's making you a little bit more hesitant, or is it really just taking a cautious approach amid a tough environment?

Well, let me answer that I think we just want to be very cautious in this operating environment. We haven't seen any material shifts in guests' management of their checks with us, but again, with this very tough environment on the consumer in general for discretionary spending, with higher food and gasoline costs and, frankly, with the vast majority of our larger, more mature casual dining competitors really driving value promotions on television -- not only during the dinner day part, but we've also seen a significant increase of lunch promotion -- I think we have to be very, very careful with our overall menu pricing. And I think we also have to competitively respond to that particular pressure in the operating environment.

Greg will comment more on his assessments of sales trends to date for the second quarter. I will say, however, that the incremental marketing spend that we've talked about deploying for this quarter has not yet started. It will start in the second week of May and will benefit the last eight weeks or so in the quarter. So again, I think we've still got a better opportunity to drive sales as the quarter progresses and as some of this increased marketing spend begins to hit the marketplace.

Greg, you want to add anything to that?

The only thing I was going to mention, Jonathan, is when we look through our trends and we look at the information, our incident rate per guest has not changed. It's still very strong. It's right around 2. If you remember us talking about our business, that's gone up from about 1.7 to 2 over the last two years, and we haven't seen any real change in that number.

Additionally, as I mentioned, all of our day parts, which when we look at our days parts, there's really four day parts. There's lunch, mid-afternoon, dinner and late night. All of them are solidly positive. As I mentioned, the weekdays are a little bit softer, I would say, than the weekends. That seems to come a little bit at lunchtime. But they're all generating nice, positive comp sales in that regard. So it's just generally a little bit maybe softer than what we've seen last year in that regards, but there's really nothing, no significant patterns that we see in that regard.

Okay, that's very helpful. Great color. And then, Greg, just one question on the outlook, the comp to sales line, in case that's specific inflation targets for the past three quarters. I just want to ask, does that include the incremental supply chain savings that you had mentioned? Is that being factored into that inflation you gave, or is that incremental on top of that, I guess?

No, I think that could help maybe bring that number down a little bit. When we look at the number around 3%, it doesn't include all those savings that could come through in the second half of the year that Wayne talked about. Most of those have been tested, and based on our initial testing, we feel pretty comfortable on achieving the savings that we mentioned. But I take a little bit more of a conservative approach and just kind of look at where we are on some of the commodity costs.

And the big wildcard for us, frankly, is that Angus beef. While we've got the savings coming onboard, our Angus beef partner right now is some of it's (inaudible) and some of it's mostly meat, see where that's going to be locked down at.

Okay, great. Thank you.

Jeffrey Bernstein, Barclays Capital.

A couple of questions. Just first to follow up on the industry volatility that it seems like a lot of you and your peers are talking about. Just wondering how you think about it, how you measure the health of your consumer, whether there are specific macro indicators that would lead you to be more cautious, or whether it's your own internal? Just trying to get a feel if the volatility that we've seen lately, whether you think the next six months, it should be an improving trend or whether there's some signs a little more concerning for you, just from a macro perspective.

From our perspective, it's a little tough to be 100% precise. The only measures that we have internally to judge would be the one measure that Greg referred to earlier, and that's the number of items purchased per guest. And that number has held steady, even during the last six or eight weeks, where we've also read that the casual dining industry in general has slowed down with respect to its sales.

So in terms of what consumers are interesting in purchasing in our restaurants, we haven't really seen any material change. And in fact, our new menu development and beverage development programs are intended to further increase that statistic, offering more innovative and creative items for purchase at great values, not only at the Small Bite snacks, $2.95 to $4.95 price point, but also at the other end of the barbell, with our center of the plate protein and seafood and other dishes.

So we really haven't seen anything, nor can we discern anything in particular in the macroeconomic environment that is impacting our sales trends. However, I do think, as we mentioned in our comments earlier, there is no question that the higher food and gasoline prices that are being felt by consumers across the board certainly does impact their decisions for dining occasions on their shoulders, if you will.

As Greg mentioned, our sales during the weekend continue to be very positive. Where we've seen any slight weakness would be in the earlier weekdays and during the lunch period where, like I mentioned in my comments earlier, if you're going to fill up your car and it costs $70 or $80 to fill it up, which it happens to do out here in California, even for someone like myself, it makes you take a second look at that gas pump and say, "Man, I just think I'm going to skip lunch today," or, "I'm not going to go to happy hour today," or, "I'm going to go to a quick-service restaurant and get the dollar menu for lunch today," or, "I'm going to go to a sandwich shop and get a two-for-one for $5.00 today." So I do think that that does impact consumer dining decisions, particularly during the work week and particularly during the lunch period.

Greg, you got anything to add to that that you've seen?

No, the only thing I would be, maybe I could comment from a BJ's perspective, Jeff, might be the fact that because we didn't have restaurants in the Northeast or in that Midwest that got some of that kind of weather, our patterns through the first three months here and going into April have been somewhat consistent. I mean, they're not like -- obviously, we're not putting up the comp sales that we did last year in that regard.

But when I look at January, February, March, and now going into April, the numbers are consistent period to period. Could they be up 1% from a comp standpoint versus one month versus the other? They can, but I don't think that's really that significant, and you've got, obviously, holiday shifts, et cetera, where some of the other concepts earlier this quarter really got that benefit, at least in that first month of January, and then it's come down. So maybe theirs is really coming down so they're more normalized trends. And because we didn't see that benefit of weather, we're just seeing more of a longer normalized trend versus them.

Got it. And to that point from the operating cost side of things, you gave a lot of color on the individual line items. When it comes down to the restaurant margins, I'm just wondering how you think about the comp and/or perhaps the pricing to sustain. I know you mentioned your longer-term goal was to preserve that level of restaurant margin which is already industry-leading. But specific to 2012, like with the pressures we're seeing, but yet the 3%-plus pricing, what do you think you need from that pricing or comp perspective to preserve that margin?

Well, our plan for this year calls for something between 3% and 3.5%. I think Greg mentioned in his comments right now that we're looking at about a 3%, although we haven't made our final menu pricing decisions for the year. We want to be very, very cautious in this operating environment. We're going to take 1% here in May. I think we would have preferred to take another 1% in May, but given the volatility of the operating environment, we felt it was prudent to hold off on that, and let's take a look at some of the input costs and some consumer discretionary behavior patterns over the next 90 days.

If we need to go out and reprint our menu, we can certainly do that at any time. But I do think we have to be very, very careful not to get ahead of ourselves in terms of pricing in this environment. It is our long-term goal to preserve the current overall unit economics that we currently have, which in the casual dining space, are among the best in class. But at any point in time in the operating cycle, we may be a little bit ahead of the game in terms of pricing; we may be a little bit behind the game in terms of pricing, depending on conditions in the operating environment.

You know, right now, as I mentioned, we'd like to have another percent of price in there, but we don't feel comfortable enough in taking it right now. There will be a time later in this operating cycle where we'll get the opportunity to move ahead in terms of our pricing and catch up a little bit. But over the long run, it's not all science. There's an art to it. And there's some intuition to it. But at the end of the day, we're trying to preserve the value of the business as it relates to the operating environment.

And Jeff, a separate time we talked about this on prior calls. We still have too many restaurants that aren't running the optimal margins that they should be running. So forget menu pricing, forget food inflationary, forget anything in that regards. We've just got restaurants that aren't as productive as they should be. I can tell you right now because I look at it at the end of each period and during the middle of the week.

Our class of 2,011 restaurants -- last year's restaurants -- they're doing $6 million AUVs. Those are tremendous AUVs. We're very happy with that. But their operating margins? They're kind of stuck at the 20-yard line, using the football adage, and they're not at the Company margin that we show from a consolidated basis. So there's 13 restaurants that we opened up last year, $6 million AUVs, maybe even better. But frankly, probably a little bit of ways to go for getting new menu pricing, et cetera. And believe me, by moving those restaurants up, you're moving the entire Company up significantly. And that's what we need to focus on.

And we'll always look at the menu pricing, as Jerry mentioned. But there's a lot of work to be done within the four walls of our restaurants to be better, and that's where we want to spend a lot of our time -- driving productivity, efficiencies, getting better dining experience, et cetera, throughout the margins.

I would agree with what Greg said. We are our own toughest critics here at BJ's, so we have opportunities to take those bottom quartile performers that have the sales volumes, that concurrently deserve to operate at a four-wall margin 100 or 200 basis points higher than where they are. And that's what Wayne and his team are diligently working on. That's why we make all of the technological investments in our operating systems to service those opportunities and to identify the specific areas, whether it's in the cook times or the run times or the saving times or the kitchen times or the speed of the restaurant, the table turns. This is why we've made this investment.

Understood. Thank you.

Nick Setyan, Wedbush Securities.

You have talked about how well the hand-tossed pizza is testing in your Anaheim Hills location. Do you plan to roll that out system-wide in your July refresh, or will that refresh (inaudible) deep-dish pizza? And then also, with the uptick in marketing and the menu rollout, is there an opportunity to strengthen the weekday versus the weekend a little bit more?

Well, with respect to pizza, we are very, very proud of our casual dining, industry-leading positioning with respect to pizza. As far as all of the consumer surveys that we've ever seen, hand-tossed pizza is something that we continue to evaluate, but we haven't made a final decision as to when it might appear in our Brewhouse restaurants side-by-side with our deep-dish pizza. We are very, very encouraged with the results we see with the hand-tossed pizza alongside our deep-dish pizza in our Grill concept. We do have some operational and supply chain considerations that we continue to work on.

And then as far as the traditional marketing investment, I think where you're going to see it get beginning the week of May 6 will be primarily in advertising our new products. We have our new menu rollout that's effective here next week, so we're going to give that some advertising. We're going to be doing some additional advertising for Mother's Day week and for Father's Day week, which are big weeks for us at BJ's. We're going to have some other print executions with respect to some new menu items that we've been working on that we really haven't talked too much about. And like I said, we'll wait to comment on those when the advertising hits the marketplace.

And then we also have some other social media executions that we're working on. We're in the process of developing a couple of very strategic partnerships with a couple of the most large, well-known social media networks, which will remain unnamed, but you can probably figure out who they are. And I think over time, those are going to be very, very powerful for us, because both of those social media networks see BJ's as an innovative player in the space, and that's where they want to be.

So I think that's where you're going to see the majority of our incremental spend -- really driving new and existing products. And we will probably have an underlying, small current of promotional activities. But for us, it's driving overall awareness of our new products and our quality and differentiation. That is most important to us.

Great, thanks.

Matthew DiFrisco, Lazard Capital Markets.

This is Phan Le for Matt DiFrisco. Early in the call, Greg had mentioned that your real estate team was taking advantage of some vacancies in (inaudible). And I was wondering, as you shift away from your traditional model of building at new sites, does that alter your expectations for new unit volumes, opening volumes? And looking at it in terms of development, what percentage would you say is going to be new sites versus, say, taking over vacancies?

And then a second question, if I may slip it in. I was wondering if you could provide an update on (inaudible) established last year for Jerry Deitchle's potential departure. I was wondering, is there any updates there in terms of actually (inaudible) those candidates yet or how far along you are in the interview process. Thank you.

Yes. This is Jerry. You were breaking up, so it was very hard to discern your question, at least your first question. But I did hear your second question, and let me comment on that. Again, as mentioned in our proxy statement both last year and this year, the Board of Directors has formed a special committee consisting of myself, our lead independent director, and another director to plan CEO succession for the Company. We've been working on it for a while. We've engaged the services of a nationally respected executive search firm to help us in that planning, and I think we continue to make good progress in that respect. And as soon as we make additional progress and have something, really, to talk about, we're just going to continue to keep working on it.

And then I think your other question was related to development.

Right.

And you broke up, and would you mind repeating it? Because we couldn't clearly hear it.

Not at all. So Greg had mentioned earlier in the call that the real estate team was able to take advantage of some vacancies at existing sites. And I was wondering, as you sort of shift away from your traditional model of building in new sites, does that alter your expectations for opening volumes at these existing vacancies?

I think the point I was making is that there's very little new construction today. So the fact that we're not seeing a lot of new projects out there, you don't have a lot of developers building new shopping centers, that we're taking advantage of tearing down older restaurants, or developers are taking advantage of redeveloping centers. And we are very well positioned to take advantage of that. We've been developing in that environment for the last two to three years, and we don't see a lot of change compared to what we've seen in the last couple of years.

Yes, and in fact, I think your question was related to the expected average volumes coming out of those particular locations compared to others. And the fact of the matter is, whenever you can get into a well-established, densely populated, mature trade area with known levels of retail sales, get into projects with higher-than-average sales per square foot, when you're able to know the sales volume of a lot of the restaurant competitors in the trade area, then your chances of actually hitting a higher average unit volume are, on a risk-adjusted basis, I think, are much, much higher. And that's really been our experience as we've continued to execute this development plan going forward.

Great. Thank you.

Conrad Lyon, B. Riley and Company.

A question. I'm not sure who's about to answer this, but you talked earlier about the fact that you have some stores that could have some improvement. This might help some insight, just where you might go with that. I'd be curious to know what the manager tenure is at some of those stores that you think it's -- I know you talked about technology, but I'd be curious to see what the personnel side of the equation is -- if you think there needs to be more tenure or if it's just something that technology that will help out eventually?

Hey, Conrad, this is Wayne Jones. We're very keen on the teams that we open restaurants with and the subsequent management teams that are left behind for the existing restaurant. So we're very conscientious. We never open a new restaurant without a seasoned management team. There might be a few new folks on there, but it absolutely goes into our calculus, because it makes it far more difficult, obviously, to ramp up with a brand-new team. It's unfair to them and it's unfair to the guests. So we do have internal metrics that we look at. We are steadily improving, actually, in terms of our average tenure for our general managers and our executive district managers in each of our restaurants. And we've actually been very pleased with our progress on that front.

As part of our pipeline in terms of our development, we're pretty forward-looking when it comes to the individuals that we look for specifically to staff new openings and to backfill existing restaurants as those restaurants come online. So it's a metric we definitely look at. We certainly pay attention to it. It's moving in the right direction. And I have to say that it is -- notwithstanding some of the comments Greg made earlier -- it has been instrumental in sustaining solid operations, especially at our new restaurants as we get them open.

Got you. Helpful. Okay. Second question, kind of a follow-on on the earlier question about development. Is there any trade area that has developed into, say, better demographics than you might have seen a couple of years ago that might be opportunistic? Specific reasons that you might be able to identify?

Not for competitive reasons.

I was listening, but I'd be curious to see if that dynamic is occurring at all.

Well, let me take a crack at that. First of all, our development plan remains largely filling in our existing 13-state footprint. We have found that as we fill in trade areas, the other (inaudible) nearby generally benefit from the new restaurant entering the market. For example, in Austin, Texas, we had our first restaurant down in Sunset Valley on the southwest side of Austin that had been opened, I guess, three or four years ago. And then when we opened our second restaurant at Mopac and Braker there on the north-central part of Austin a year or so ago, the Sunset Valley restaurant had a nice pickup of double digit in sales, and it's still doing very nicely because we were able to increase the overall revs of the BJ's brand in the trade area.

So that's an important strategy from a development perspective going forward. Filling in, driving awareness, driving leverage. And most of the trade areas that Greg has selected, and I'm speaking for him, and I'm sure he has something to add to this, but when we map out a market -- for example, the DFW market -- we draw our five-mile radiuses, and we look at all of the demographics and population densities within each radius, and we try to carefully space our restaurants so that we get complete coverage of the market without incurring any cannibalization, to the maximum extent possible. And again, that's something that most restaurant companies do. I think we've been extraordinarily good at it here to this point at BJ's. And Greg, you want to add anything?

Well, I'd just say when you go into a market like a DFW or a Houston or even a Tampa, you've got strong retail trade areas in all those markets, and they've been generally strong for a long time. And so we're not really seeing a big shift on that. The ones that we are seeing is we are seeing if there is any new development, we are seeing some new development in infill areas that you wouldn't maybe think about. There are a lot of green pasture development areas. So if you get a Whole Foods coming in or a Trader Joe's in some of these infill areas, it does change the dynamics of that trade area a little bit, and we are studying that quite a bit as we look into some of the newer trade areas.

That's helpful, what I kind of led into. Okay, great. Thank you very much.

Bart Glenn, DA Davidson and Company.

This is Adam on the line for Bart today. Can you repeat what the traffic and mix was in the quarter?

We had about 3% of pricing in the quarter and the traffic and mix combined is about 0.3%.

Okay, thank you.

David Dorfman, Morgan Stanley.

I just wanted to ask about a little more detail on your expectations for rolling out the loyalty program, maybe to understand how you expect it to ramp with people signing up and getting used to using it and maybe how that creates a mismatch between some of the costs you're incurring right now and when you actually do expect to see meaningful benefit? And I guess related to that also, how that might affect the accounting, as we think about our models in terms of ramping up if you have to expense things along the way or drop down revenue along the way for that. And I guess the one last piece of that would also be, as you said it was a little bit early in the lifecycle of BJ's for a program like this, just a little bit of the context about why you maybe accelerated when you would launch a program like this. Thanks.

Sure. Well, I'll take a crack at the business side of it, and then Greg will answer the financial accounting questions. And with respect to the program itself, again, we don't want to get into too much granularity as to how the program works and what the cost and expected economic benefits are. We have a lot of competitors who would love to benefit from the learning that we've obtained over the last year in terms of that particular test.

But as I mentioned in our prepared comments, in our test markets, the overall increase in the visit frequency by a guest in the loyalty program and the related increase in their spend per visit more than offset the incremental ongoing cost of executing the program. So that gave us additional comfort to move forward with a Company-wide rollout.

As with any program of this nature, you have an initial startup cost that you're going to have to expense related to printing up all the materials, the promotional, introductory marketing that you've got to put behind the program. Then, obviously, like any ongoing program that needs technological care and feeding, we have an outside provider that does a great deal of that for us. There is an ongoing fee that we have to cover. So there will be an upfront cost that we're going to have to cover, but then the ongoing fees should be able to be more than offset by the benefits of having the program.

As far as making the decision to get into it a little earlier, BJ's is a higher-quality, more differentiated restaurant concept. And by definition, particularly in the space of casual dining that we compete in, the varied menu or the grill and bar space, that space is really dominated by the more commoditized mass market competitors that, frankly, for whatever reasons, don't have the focus on quality and differentiation that we do. So by definition, the proportion of our guest base that would be defined more as being loyal guests is going to be much higher. And I think that goes for any higher-quality, differentiated consumer brand, frankly, in any segment of the economy.

So because we have a higher number of loyal guests, we felt like we needed to get out front and offer them a reward for their loyalty and drive increased frequency and spend because we have a larger base of loyal guests. Some of our other competitors have a less loyal base of guests, and therefore a program like this may not generate the required return on investment for them as it would for us.

Now, having said all of that, I think it's important to keep in mind that we're not Panera Bread, and we're not Starbucks. The frequency of use of our restaurant and casual dining restaurants, even by their most loyal customers, is going to be much less by definition than that of a loyal customer for Starbucks and for Panera. I went to Starbucks twice today. I often go twice a day. I'm a very loyal customer. And I get a free drink every 15 times I go. And so it's going to operate a little bit differently here, but nevertheless, we do think it will be beneficial to the overall quality and differentiation in building an increased loyalty base for our brand, and that's why we decided to go ahead and make this investment.

And the other thing that we've commented on before is that this is not a "buy 10 pizzas, get the next one free" program. This is an experiential program. And it has components of you can build points for experiential rewards, you can bid on great things. But it will also have some surprise and delight components that are more instantaneous that you would find at a Panera Bread program or a Starbucks program. So that's the business thinking behind it.

Greg, you want to address the financial accounting side of it?

Yes. A couple of things here. I think, first of all, what that means is Jerry ends up getting a free cup of coffee every three or four days, based on the amount of coffee he drinks. The other thing in regards to the financial accounting for it, David, there's two different ways that are accepted under Generally Accepted Accounting Principles, and I don't want to get into all the specifics, that we are going to probably adopt what's called the cost method, where you're going to have to recognize a liability. It will be in our marketing expense, and everybody uses their loyalty card and builds up their points in that regard.

We haven't necessarily nailed down all those costs yet, as we're actually still evaluating the different offerings under the program which, as a result, have a different value on those individual costs per point. I think, as Jerry mentioned, there will be investment costs that will start to hit us in Q3 and Q4 as we build this up.

Based on what we've seen over our learnings, it's about a six-month buildup timeframe, and then you kind of reach altitude, and then it kind of pays for itself in that regard. And frankly, as we're rolling it out in July -- we'll be on our quarterly call in July -- we'll give you some of the updates that are very specific to that part of the business that are outside of, really, the ongoing operations on a day-to-day basis.

And again, just to conclude and to follow up here, the intention of the program is that it will more than pay for itself.

Okay. Do we have any other questions? Okay, well, thank you all for being on the call today. We'll be at our California offices here for a while. If there's anything we can do for you, give us a call. Thank you.

Ladies and gentlemen, that concludes our call for this afternoon. We thank you very much for your participation. You may now disconnect.