BJ's Restaurants Inc (BJRI) 2012 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the BJ's Restaurants, Incorporated second-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 open for questions and instructions will be given at that time. (Operator Instructions) I'd now like to pass the call to Jerry Deitchle, Chairman and Chief Executive Officer. Please go ahead.

Thanks, Operator, and hello everybody. I'm Jerry Deitchle with BJ's Restaurants and welcome to our second-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 second quarter of fiscal 2012 that ended on Tuesday, July 3, 2012. You can view the full text of our earnings release on our website at www.bjsrestaurants.com. Joining me on our 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'll begin with our prepared remarks after Diane Scott, our Director of Corporate Relations, provides our standard cautionary disclosure with respect to forward-looking statements. Diane, 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 the forward-looking statements. Investors are cautioned that forward-looking statements are not guarantees of future performance and that undue reliance should not be placed on such statements.

Our forward-looking statements speak only as of today's date, July 26, 2012. 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 here at BJ's was very pleased to deliver another solid financial performance for the second quarter of 2012, particularly when considering the continuing weakness of the economy and the relatively weak sentiment of the consumer. I'm going to start off today by commenting on our key performance metrics for the second quarter just ended compared to the same quarter last year, and then after that, Greg, Wayne, and Greg will provide some more detail and color on our performance in their respective areas of responsibility.

First, our total revenues for the second quarter were up a strong 18% to $180.7 million. We have two primary revenue growth drivers at BJ's. First and foremost, our most significant revenue driver is the continued successful execution of our new restaurant expansion program, which contributed 78% of our total revenue growth in the second quarter. The continued successful execution of our new restaurant expansion program at the right pace, and with solid quality predictability and leverage, drove an approximate 14% increase in our productive capacity during the quarter, as measured in total restaurant operating weeks.

We opened five new restaurants during the quarter compared to just three openings during the same quarter last year, and that's a solid testament to the strength and depth of our new restaurant development and opening teams. Additionally, our average sales per restaurant operating week also increased almost 4% during the quarter and reflects not only the solid weekly sales volumes from our 20 new restaurants that are not yet in our comparable restaurant base, but it also reflects the increased sales on our base of 102 comparable restaurants. Once again, our new restaurant expansion program continues to be high quality expansion, not just growth for the sake of growth.

Our other revenue growth driver is comparable restaurant sales, which contributed the remaining 22% of our total revenue growth for the quarter. Our comparable restaurant sales were up a very respectable 4.4% for the quarter, successfully hurdling a pretty tough comparison of 6.9% for the same quarter last year. Once again, we believe that our quarterly comparable sales comparison should well outperform the casual dining industry average for the quarter as reported by the Knapp-Track Survey and the Black Box Intelligence Survey.

Our next key performance metric is our estimated four-wall restaurant cash flow margin, which is a non-GAAP measure, but it came in at a very strong 20.5% for the second quarter. And that was a little stronger than our current longer-term target on this metric, which is in the 20% range.

Next, our total G&A expense favorably leveraged another 20 basis points down to 6.2% of revenues for the quarter. Our G&A expense for this quarter also includes about $400,000 or about $0.01 per share of additional spending for the production and media costs associated with our first television advertising test that we ran in the second quarter. So that amounts to about 20 basis points of quarterly revenues by itself. So our G&A expense leverage was actually better when excluding the impact of the costs associated with that TV test.

Lastly, our reported diluted net income per share for the quarter was $0.31. As we noted in our press release, on a non-GAAP adjusted basis when excluding certain charges and gains that we separately identified in our press release today, our non-GAAP adjusted diluted net income per share for the quarter was $0.32. Greg Levin, our CFO, will provide some additional details on that later in the call today.

So in summary, when considering all of our key performance metrics, total revenue growth, capacity growth, average weekly sales growth, comparable restaurant sales growth, G&A expense leverage, and bottom line earnings, we believe BJ's achieved another quarter of solid performance in spite of a continuing unfavorable macro environment for consumer sentiment and discretionary spending.

As we look ahead to our key revenue drivers for the remainder of 2012, our most important driver, our new restaurant expansion program, remains in solid shape. We have opened eight new restaurants so far this year and we're solidly on track to open as many as eight more before the end of this year. Now, that includes the relocation of our smaller format pizza and grill restaurant in Boulder, Colorado to a more productive, larger format brewhouse restaurant in Boulder. As a result, we expect to fully achieve our targeted double-digit capacity growth rate this year in terms of total restaurant operating weeks.

Now, regarding our other revenue driver, comparable restaurant sales, we started off the third quarter of 2012 with continuing positive comparable sales comparisons and Greg Levin will comment on that in more detail a little later in our call today. Even though the operating environment remains weak, choppy, and uncertain, we remain very confident that, in light of our current sales building initiatives, we have a solid opportunity to either meet or exceed our longer term targeted annual growth rate for comparable restaurant sales, which is in the 3% range, during the rest of 2012 through a combination of menu pricing and favorable traffic mix impacts from our sales building initiatives -- again, everything else being equal.

In our past couple of quarterly conference calls, we outlined some of our planned key sales building initiatives for 2012. Some of these have now been launched and I'm going to take a few minutes now to briefly comment on five of them. First, we successfully completed our semiannual menu update this past May. We expanded our Enlightened Entree menu category by adding a couple of new entrees, all of which are less than 575 calories -- and they also taste great. We also added a few new choices to our Snacks & Small Bites menu offerings at the $2.95 entry price point.

Now, at the other end of our menu barbell, we also introduced a new addition to our USDA choice fresh angus steak line, an 8-ounce top sirloin at a $14.95 price point. We promoted our entire steak line during the last half of the second quarter and it was very well received by our guests. We also introduced our Hop Storm IPA, BJ's own proprietary India Pale Ale brew, during the second quarter, which has also been very well received by our guests. The IPA craft beer category has enjoyed solid growth during the past year or so and with Hop Storm, our brewing operations team has created one of our best tasting brews ever. And if you haven't had one yet, go get one today.

Our new main menu also included an approximate 1% menu price increase and we have not experienced any consumer resistance to that increase. Our next semiannual menu update will be this fall. We have not yet determined what additional menu pricing we will be taking at that time, but we will certainly take some new menu pricing in order to get a head start on offsetting potential commodity and other cost increases as we move into 2013.

BJ's is a higher quality, more differentiated casual dining concept with a relatively low average check per guest, in the $13.50 to $14.00 range. So we believe that BJ's has more pricing power than most of our mature mass-market chain competitors that have similar or even higher guest check averages.

Next, we rolled out our new catering program and our large party menu offerings during the second quarter. BJ's has long been known for our ability to serve large parties and take care of special events for our guests. Our new program includes expanded offerings, a repackaging of some of our more popular items, and we've simplified the entire ordering process for our guests. We do expect that our new full-service catering program will gradually build more momentum as time goes on, especially as we move into the holiday season in the fourth quarter.

Third, in light of current competitive conditions, we decided to slightly increase our overall marketing related spending during the second quarter from 1.1% of sales in last year's second quarter to about 1.4% of sales for the second quarter this year. Now, having said that, our marketing expenses as a percentage of revenues still remain much less than those of our major mass-market casual dining competitors. Now, we invested this incremental spend in additional digital and print media that promoted our new menu offerings during the quarter, as well as some carefully targeted promotional offers in certain trade areas. Based on our results to date and the continuing tough economic and competitive environment, we do plan to continue our marketing spending at that approximate level or possibly even slightly higher for the remainder of 2012, again, depending on competitive conditions.

Next, for the first time in BJ's history we produced a high-quality television commercial and ran a small test of television advertising in our six-restaurant Sacramento, California market for just three weeks during the second quarter. We know that we are very early in the life of BJ's with a TV test and having to absorb all of the related television production and media costs. But we do think it's very 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.

Our TV test was a direct result of our semiannual awareness trial and usage, 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, better-penetrated home-court markets in California, where we enjoy our strongest sales lines. 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 it's very important that we determine if television advertising can accelerate BJ's brand awareness and trial to a higher level, and thereby generate incremental sales and more than cover the investment cost of the media. In our Sacramento TV test, we did see a measurable sales lift during the media flight, which was only three weeks, and we also saw a continued tail after the media was over that kept sales above preflight levels. We'd like to get some more test results under our belt before we start commenting specifically on our return on investment expectations in this respect.

So what we're going to do is test the same television commercial in a couple of other markets during the rest of 2012 to get some additional learnings, and then I think we'll have more data points to evaluate. I do think that while our Sacramento test has encouraged us to move forward with additional testing of television advertising, we do not expect to be announcing any decision to shift a majority of marketing media dollars into television advertising in the near future.

Finally, we also completed the pilot phase of our BJ's Premier Rewards loyalty program during the second quarter and we launched the program companywide just about ten days ago on July 15. We're very early in the program, but so far, our guest participation levels in the program are nicely ramping up, and we do expect to see participation levels steadily increase during the next several months. We're 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 operation. But due to our small size, we cannot effectively compete with our large mass-market competitors in the mass media marketing arena right now.

However, we can effectively compete with them in the one-to-one guest marketing arena and that's exactly what we've intended our loyalty program to do. While it is way too early to comment on the impact of our loyalty program, we have said before that, in tests, the program generated incremental guest visits and spending per visit that exceeded our breakeven cost hurdle. So we remain confident that the benefits of the program should more than cover its ongoing related expenses.

I would also note that the startup and testing expenses associated with both our TV test and our loyalty program are only considered to be expenses from a financial accounting perspective. From a business perspective, these are investments in the long-term future of the BJ's brand. Now, frankly, in our view they are requisite investments that are necessary to help BJ's continue to effectively compete for increased market share over the longer run. At BJ's, we've never been reluctant to make prudent upfront investments to drive even more innovation and quality in the BJ's restaurant concept brand.

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

Thank you, Jerry, and good afternoon, everybody. As Jerry just noted, our 2012 and 2013 new restaurant development pipelines remain in excellent shape, and we continue to be very pleased with the quality of the new sites in our pipeline. Our new restaurant development strategy has always been centered on securing AAA quality sites within strong retail projects and densely populated, more mature trade areas, and we will continue to maintain this discipline as we analyze and build our future real estate pipeline.

Through the first half of this year, we have successfully opened seven new restaurants and increased our operating weeks by just over 13%. Just ten days ago, we opened our eighth new restaurant this year on July 16, and this was on a freestanding pad. It's [assignment owned,] 1 million square foot Towne East Square regional mall in Wichita, Kansas. This is our first restaurant in the state of Kansas and the location is consistent with our overall development strategy to increase brand awareness and presence along the Interstate 35 corridor from the Midwest through Oklahoma and south through Texas. Initial sales for all of our new restaurant openings this year have exceeded our expectations.

Jerry mentioned earlier, we have eight more planned openings for the remainder 2012 and this includes the relocation of our older, small format Boulder, Colorado restaurant. As we have said before, it's difficult to precisely predict the actual timing of our new restaurant openings due to many factors that are outside of our control. So with that in mind, as of today we currently expect to open four more restaurants in the current third quarter, and that's in addition to Wichita, Kansas that just opened earlier this month in Q3, and includes the Boulder relocation as well. We plan to open as many as four new restaurants in the fourth quarter. All of our planned openings for the remainder 2012 are currently under construction.

Looking forward into 2013 and 2014, our new growth goals remain the same, and that is to achieve a low double-digit capacity increase per year, as measured by total restaurant operating weeks. That's an approximate range of 11% to 13%. We have not yet announced the absolute number of new restaurant openings targeted for 2013, as we are still putting the final touches on our development pipeline for that year. However, we do expect to open more restaurants next year than we'll open this year and we should be able to provide more color and insight on our 2013 capacity growth target on our next two quarterly conference calls.

With our solid new restaurant growth over the last few years, we now have a stronger base of restaurants from coast to coast and we are well positioned to continue building and leveraging the BJ's brand nationally. We continue to believe that we have room to open at least 425 larger format BJ's brewhouse restaurants domestically and also have the opportunity to perform at the current level of our average unit economics. With only 123 restaurants opened in 14 states, we have plenty of runway in front of us for longer-term expansion. Having said that, our team will always choose quality over quantity, and we will continue to execute an expansion plan that is geographically balanced, which helps drive additional leverage for the entire business.

Our development team today at BJ's is more focused than ever on delivering a high-quality, efficient and cost effective restaurant, and at the same time provide the best atmosphere in casual dining. Additionally, our architectural and design teams are currently working on a long-term strategy to incorporate green technology and sustainability solutions to achieve higher-quality and higher-performing restaurant buildings, which should contribute to reduced energy and water costs, simplified maintenance requirements, better productivity, and an overall improved restaurant experience to our guests. Our new Boulder, Colorado restaurant that should open at the end of August will be our first LEED-certified restaurant and we look forward to incorporating what we have learned in Boulder into future new BJ's.

Our team has worked hard over the past six years to better position BJ's as a higher quality, more differentiated casual plus dining concept, and our new restaurant designs and site selection strategy continue to strengthen this positioning. All of our new restaurants today now feature large impressive entry statements, high ceilings with detailed contemporary decors. When we combine our contemporary, casual plus interiors with our broad menu, signature pizza and beer, we have a unique differentiated positioning that should give BJ's many years of solid new restaurant growth to come.

Jerry, back to you.

Thanks, Greg. 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. 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 that facilitates the achievement of three outcomes, quality, predictability, and leverage.

Now, I've been in this business for almost 40 years and I can tell you that that's the key difference between good restaurant companies that grow and restaurant growth companies.

And once again, we also 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 their annual growth and 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.

And we continue to believe that it makes sense to be careful and measured, as we steadily develop BJ's national geographical footprint, again, in order to advance the quality, predictability, and leveragability of our business model. 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.

Now I'm going to turn the call over to Wayne Jones, our Chief Restaurant Operations Officer, for his operational update.

Thanks, Jerry. Good afternoon, everyone. We continue to be pleased with our overall execution of our sales building initiatives by our restaurant operations team, and in particular 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 a result of the success of our CapEx related initiatives, particularly our increased seating Parties for Two, what we internally call our two-seating initiative, and our expanded guest beer tap initiative.

Regarding the expanded guest beer tap initiative, we have now completed those installations in all our brewhouse restaurants. Craft beer continues to gain in popularity, and with the completion of this initiative, we are situated nicely to leverage our infrastructure and to navigate the ever-changing landscape of craft beer. Our two-seating initiative is nearing full completion. We have just a handful of restaurants remaining and these restaurants will be complete in early Q3. We will continue to add seating capacity with the addition of new patios in established markets, where the sales patterns will justify the additional capacity.

As we all know, the most effective four-wall profit margin protection program is always anchored in an effective sales building program. At BJ's, we always focus on sales building first and foremost, and Jerry commented on some of our more significant sales building initiatives early in the call today. Our continuing challenge for restaurant operations is to successfully execute all these initiatives in a high-quality, productive, and efficient manner.

To that end, we successfully implemented our new labor scheduling and productivity measurement system late in the second quarter that is based on an (inaudible) count methodology that we believe will help our restaurant operators to more effectively allocate and balance labor hours on every shift. We also made some adjustments within our kitchen line execution, which resulted in meaningful improvement in our overall cook times and food run times. We are also continuing our evaluation of our line equipment package to add capacity where needed for more effective execution and to remove operational bottlenecks. We continue to aggressively work our cross training program in our kitchens, in order to gradually create greater labor efficiencies over time.

Last but not least, we're continuing to make prudent investments to steadily advance the overall quality, capabilities, and bench strength of our restaurant management and field supervision talent base. We have seven 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 at our restaurants.

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 that they're excited, as we are to have the opportunity to keep driving overall quality and our execution forward.

Now, I'm going to turn the call over to Greg Levin, our CFO, for his financial commentary on the second quarter. Greg, go ahead.

All right, thanks Jerry and good afternoon everyone. I'm going to take a couple minutes. I'll go through some of the highlights for the second quarter and provide some forward-looking commentary for the remainder of 2012. All such commentary is subject to risk 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 view of the business and that we believe will help provide insight into our ongoing operations.

As Jerry previously noted, total revenues for BJ's second quarter of 2012 increased approximately 18% to approximately $180.7 million from $152.9 million in the prior year's comparable quarter. This 18% increase was comprised of an approximate 14% increase in operating weeks and an increase in our average weekly sales of approximately 3.8%. During the quarter, our comparable restaurant sales increased 4.4%. While we do not report monthly comparable restaurant sales, each period was solidly positive. From a trend perspective, each period was better than the previous period, so that May was better than April and June was better than May.

One thing to note, our sales for June this year benefited from having July 4 move from a Monday last year to a Wednesday this year. Typically, July 4 weekend is a slower weekend for us as many people take to more outdoor activities. Since July 4 was on a Wednesday this year, sales for the preceding weekend were comparatively much stronger versus the same weekend last year. From an overall quarterly perspective, this holiday shift is estimated to have positively impacted our overall comparable restaurant sales for the second quarter by approximately 30 basis points. As a result, and to be expected, this holiday shift unfavorably impacted the sales comparisons for the first week of our current third quarter, which I will comment on later.

Our 4.4% comparable sales increase for the second quarter consisted of an approximate 3.2% benefit from menu pricing, and an approximate 1.2% increase due to positive guest traffic and favorable menu mix. In regards to comp sales for the quarter, all of our day parts and weekend and weekdays remain positive. Comp sales for our weekdays compared to our weekends were virtually identical, where in the past we had seen stronger weekends as compared to weekdays. Additionally, our comp sales in California were pretty much in line with our total comp sales.

As I mentioned, our weekly sales average increased about 3.8% for the quarter compared to our comparable restaurant sales increase of 4.4%. Due to fiscal 2011's 53rd week, this year's quarters begin and end one week later than last year's quarters. As such, Q2 of fiscal 2012's weekly sales average is derived from the sales and restaurant weeks from the period April 4, 2012 to July 3, 2012 as compared to last year's second quarter, which has derived its weekly sales average from the period March 30, 2011 to June 28, 2011. So if we were to match up the same calendar weeks, our weekly sales average for the second quarter would have increased approximately in line with our comparable restaurant sales.

In regards to the middle of our P&L, our cost of sales of 24.9% of sales was up about 10 basis points as compared to last year's second quarter, and on a sequential quarter basis increased about 30 basis points. The increase compared to last year and sequentially is due to higher overall commodity costs and a slight shift in our menu mix towards higher cost of sales items, particularly our new steak line and seafood entrees, partially offset by menu pricing. On average, while our steak and seafood items may have a higher cost of sales percentage, their average selling price is higher, and thus their net gross profit dollars are greater, which helps us leverage both labor and operating costs.

As a percent of sales, labor was basically flat with last year's second quarter at 34.2%. We continue to see some higher kitchen hour levels, as we expected, due to the intensiveness and complexity of our new menu offerings. And we are also seeing some slightly higher kitchen hourly wages.

As we discussed before, these new menu items continue to drive sales as evidenced by our tenth consecutive quarter of solid comparable restaurant sales, and are being offset, as we expected, by the leverage we are getting in our total management labor, and [added] fixed labor costs, by driving comparable restaurant sales.

That being said, we still have opportunities to improve our labor productivity in many of our restaurants. As Wayne mentioned, all of our restaurants are now on a new labor productivity analyzer, which helps identify opportunities based on the items being cooked and sold in the restaurant. And we are continuing to evaluate and implement new kitchen productivity toolsets that are improving our restaurant throughput.

Our operating and occupancy costs increased by about 20 basis points to 20.5% as compared to last year's second quarter. This increase was primarily due to higher marketing costs, as we expected. As Jerry mentioned, we did test our first television commercial in the second quarter in the Sacramento, California market. The media costs for this television commercial were included in the marketing costs for the quarter. However, the production costs for the television commercial, which were about $400,000, are included in G&A since this was only a test.

Our general and administrative expenses decreased by 20 basis points compared to the same quarter last year, to 6.2% of sales. Included in G&A is $790,000 or so and approximately $753,000 of equity compensation for 2012 and 2011, respectively, or 0.4% of sales for 2012 and 0.5% of sales for 2011. G&A came in lower than I was anticipating, primarily due to less incentive compensation and personnel costs, offset by increase in travel, training, recruiting, and initiative costs, including the cost to produce our test television commercial.

Our restaurant opening expenses were approximately $2.7 million during the second quarter of 2012, primarily related to the five restaurants that we opened this quarter and some preopening rent for restaurants expected to open in the third and fourth quarter. On average, we are still targeting our preopening of around $500,000 per restaurant. Our tax rate for the second quarter was approximately 29.5% and I would expect our tax rate for the year to be between 29% and 30%.

Before I turn the call back over to Jerry, let me spend a couple of minutes commenting on the three items that were incurred in the second quarter and that we separately identified in our press release today, as well as our liquidity position and also 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.

As we noted in our press release today, the second quarter of 2012 included pretax charges totaling approximately $700,000 or $0.02 per share to settle a trademark infringement lawsuit and to write-off the remaining net book value of the assets for our small format pizza and grill restaurants in Boulder, Colorado that will be relocated at the end of August. These charges were partially offset by a pretax gain of approximately $300,000 or $0.01 per share that we received under the terms of our settlement agreement with our former broker-dealer, related to the liquidation of our auction-rate securities portfolio back in December of 2009. Under the terms of that settlement agreement, we are entitled to potential future recoveries on that portfolio based on the performance of the securities through December of 2012.

During the second quarter of fiscal 2012, certain of those securities were redeemed at par, resulting in additional cash recoveries for the Company. These charges and gains resulted in a net $0.01 charge to our earnings per share for the second quarter of 2012.

In regards to our liquidity, we ended the quarter with about $46 million of cash and investments. Our current line of credit is for $75 million and does not expire until January 2017, of which $0 is outstanding today other than for our standby letters of credit that support our insurance program.

For the first half of fiscal 2012, our gross capital expenditures on a GAAP basis is approximately $56 million and we continue to expect that our capital expenditures planned for 2012 will be approximately $100 million to $105 million. We do expect to receive landlord construction allowances and land sale-leaseback proceeds in the range of approximately $12 million. 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 backstop.

From a revenue perspective, our comparable restaurant sales through the first three weeks of July are around 2%. However, as I mentioned earlier in my remarks, the comparison for our first weeks of fiscal July were soft due to the July 4th holiday moving from a Monday to a Wednesday. Taking out this first week of sales, our trends over the last two weeks have been in the mid-3% range and does not yet include the full benefits of our sales building initiatives, such as our loyalty program that we introduced about a week ago. As Jerry mentioned, we have a solid opportunity to either meet or exceeded our longer term targeted annual growth rate for comparable restaurant sales during the remainder of 2012 through a combination of menu pricing and impacts from our sales-driving initiatives, everything else being equal.

Now, that being said, as we've mentioned in the past, for a restaurant company 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. However, each year we will continue to work on additional sales building initiatives and productivity initiatives, as Jerry and Wayne discussed, and we believe over the long run there is still opportunity to drive additional guests to our restaurants and improve both the mix shift and incident rate.

Therefore, for those of you building your models, I would err on the side of conservatism and build your models based more on our menu pricing and yearly comparison. We currently expect to have approximately 3.4% of menu pricing for Q3. Our next regularly scheduled new menu is anticipated for early October, in which 2% will be currently rolling off. As Jerry mentioned, we have not yet determined exactly what additional pricing we may take at that time, but we will certainly be taking some in order to get a head start on offsetting potential input cost increases as we move into 2013.

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 to offset inflationary pressure on our input costs. Any pricing we take is considered only after contemplating the success of our productivity initiatives on our four-wall restaurant margin.

As Greg Lynds mentioned, we currently anticipate opening as many as five new restaurants in the third quarter and as many as four 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 and 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. Excluding 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 authority. For the third quarter, we are anticipating approximately 1,600 total restaurant operating weeks.

In regards to cost of sales for the remainder of this year, the majority of our commodity items are contracted, with the primary exception of our Angus ground beef and some of our steak items. As such, we continue to expect our cost of sales to be in the upper 24% range, which is pretty consistent with our second quarter results.

In regards to next year, I am sure everyone is following the drought conditions in our nation's grain producing states. We just recently started our preliminary discussions with our key suppliers for our 2013 requirements, and at this time, we do not have any specific data as to exactly what inflationary pressure we may see. That being said, based on the latest information, the restaurant industry is expecting another tough year on commodities during 2013.

As we go through our contracting for next year's requirements during the next several months, we will update our investors as to the potential increases we may see in our commodities on our third quarter conference call in late October. Despite the potential for higher commodity costs next year, our job at BJ's is to make sure we continue providing a higher quality, differentiated concept, and therefore we will continue to focus on sales, productivity, and hospitality initiatives. In our experience, strong differentiated brands are more important than ever during challenging economic times and have the right pricing power and the pricing power necessary. However, we will always be very cautious to make sure that the experience and value we are providing our guests exceeds their expectations.

In regards to labor for the third quarter, we will incur some additional costs for the one-time investments and training for our new loyalty program. As such, I would expect that our labor costs in Q3 will be in the mid-34% range. However, absent any of these one-time investments, the 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.

We also expect to incur some one time incremental investments in our operating costs related to the rollout of the loyalty program. These costs will include point of sales merchandising, the cost of the cards themselves, and other investments. Plus, we will begin accruing the cost of the points earned by our guests in the third quarter. As such, I am expecting our total marketing cost to be closer to 1.7% to 2% of sales range in Q3 as compared to about 1.4% of sales in Q2. This increase in marketing cost, plus our normal pressure on utilities in Q3, coupled with, in general, lower weekly sales averages compared to Q2 due to seasonality, would result in operating occupancy costs that I'm expecting to be in the low to mid 21% range for the third quarter, and then coming down to the lower 21% range in the fourth quarter, as we continue to build up our loyalty accrual based on points earned by our guests.

Based on our upcoming restaurant openings, as well as the rollout of some initiatives, I would anticipate our G&A costs to be in the $11.5 million range per quarter, including equity compensation. The majority of this increase is predicated on the expected increase in our training for new managers for our restaurant openings and increased travel. As I've already mentioned, we currently expect restaurant opening costs to be about $500,000 per restaurant. However, we will incur preopening noncash rent as much as five or six months before a restaurant opens, and therefore preopening costs for any quarter may not be indicative of the number of restaurants that open in that quarter. As such, I anticipate opening costs of approximately $2.5 million to $2.8 million in the third quarter related to the expected five new openings in the third quarter, plus preopening rent for restaurants expected to be open in later 2012.

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

Finally, as we 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 factors, 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 about 11% this year and we currently expect our full year menu pricing to be around 3% 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 over the long run, despite the inflationary pressures 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 change 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.

Jerry, back to you.

Thanks, Greg. As usual, a very thorough review. So to wrap up our prepared comments, we were very pleased with our very solid results for the second quarter of 2012. We're continuing our forward momentum so far in the third quarter, 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. As Greg Lynds mentioned, we believe the best years of growth are still well ahead of us here. We've only got 123 restaurants open in 14 states today. So in our view, we're just starting that third inning of the BJ's ballgame. We've got most of our game ahead of us to play.

We're going to do the best that we can to navigate through the current tough operating environment for both consumer discretionary spending for casual dining occasions and the higher commodity cost environment, using 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. 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 our brand.

We're still a relatively young Company compared to most of our mature mass-market chain competitors. We still have our fair share of the typical growing pains to overcome, but we're in this for 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.

So that concludes our prepared comments and, Operator, we're happy to take questions.

(Operator Instructions) Our first question comes from the line of Jonathan Komp with Robert W. Baird. Please go ahead.

Just wanted to ask a couple of questions related to the topline trends you're seeing. First, Greg, just a clarification question. I think you mentioned of the same store sales you saw in Q2, about 1.2% was traffic and mix combined. Would you mind splitting those out between the two components for us?

Yes, this is based on kind of an estimate in regards to how we look at it, but it looks to be right now about 80 basis points of that is guest traffic and about 40 of that is kind of mix.

Okay, thank you. And then maybe if you could just talk a little bit more about the trend line you saw as you progressed through the quarter. Obviously, I think you had mentioned that you started off in April, the first couple of weeks, closer to 3%. Then obviously, you said today that things improved in May and in June. So can you just give a little bit more color on the magnitude of the improvement you saw, maybe how much of that you think was traffic driven versus mix improvement behind the menu and the steak promotions?

Yes, when we look at it and look at the trends from that standpoint, it does appear really that as soon as we rolled out the new menu and we did some more marketing behind the new menu is when we started to see our increase in comp sales. In regards to that gap, that gap wasn't that big. I think we talked about it on the first quarter conference call that we were seeing comps in that 3% range. We finished up at 4.4%. So it didn't step up to 6%, 7% type comps in that regard. It was a pretty close trend from that standpoint, but we did see it nicely increase throughout the period.

And even absent of the July 4th holiday, which we got in that last week of June, which we didn't have last year, we still had a better June than the month of May. But it really is due to the fact that we rolled out our new menu and the fact of the matter -- and we've talked about this many times at BJ's -- Father's Day and graduation are our biggest month of year, or biggest events of the year. And we continue every year because of our great operators being able to drive more throughput in those busy times where we just become a preferred place to come to in the month of June and late May.

Okay, that's helpful color. And then Jerry, just maybe one more question related to a comment you had. I think you mentioned being confident for the rest of the year, the back half of this year, being able to drive same store sales at least 3%, which is your longer-term target, being at or above that for the rest of the year. So I'm just wondering, obviously some noise to start off here in July. But even the most recent two weeks not a lot of margin for error versus that range. So I guess as you look to the balance of the year, given the environment and everything that you're seeing with your consumer, I guess, what makes you confident that you can stay above that 3% mark?

Well, I think we have a couple of thing working in our favor. First of all, the menu price increases that we've taken most recently with the May menu, we have not seen any consumer resistance to that. So that gives us confidence that that will stick largely. And as we mentioned in our prepared remarks, we do have another regularly scheduled menu change coming up here probably in early October. We will consider taking some additional menu price at that time. We have a great deal of confidence that, given our current average guest check compared to those of our mass market chain competitors, we are a tremendous value with respect to the consumer, and we have significantly more pricing power than more of the highly commoditized businesses that we compete with in that particular environment. So in terms of our pricing power and the ability to retain that, I think at this point in time we do have confidence that we'll be able to achieve that in our comparable sales base.

The other factors to consider would be the potential favorable impacts of all of the sales building initiatives that I commented on earlier in this call. Our guest loyalty program will continue to build traction over the next three or four months. We have a few CapEx related programs that we still need to wrap up, as Wayne mentioned, particularly with respect to our Parties for Two seating, or what we call deuce seating. We still a handful of those to complete. We also continue to drive incidents with menu mix and we will be presenting and promoting on the barbell side of our menu, the higher barbell side of our menu, we'll be working our steaks and our seafood to generate a higher per person check average, and our frankly well received by our guests.

So when you take a look at the combined impact of all of our initiatives as well as what we believe to be our ability to take and retain a reasonable amount of price in this environment, we believe that we have a pretty good shot at achieving at least our longer term 3% increase in comparable sales over the next six months, again, everything else being equal. Now, if the overall macroeconomic environment continues to dramatically soften or if there's any material change in consumer sentiment lower than what it's currently running today, then obviously, those would be factors that aren't contemplated in what I've just said. But in terms of what we can control, and in the environment that we're living with today, we do have confidence that we can continue to achieve that level.

But having said that, it is not going to be easy. It is a struggle and even for the most larger consumer companies out there, and we see certainly all of the earnings releases and sales commentary of other restaurant companies that are much larger and much stronger than we are, and some of the softening trends that they're seeing, it certainly is a tough environment out there. But again, as it relates to things that we can control, I think we're in very good shape and we have a great opportunity to continue to achieve our longer-term goal. If we could ever get a little bit of tailwind here, it'll be -- it should have a remarkably favorable effect on our business, but we're all fighting the headwinds right now.

That makes sense. Thank you.

Thank you. Our next question is from the line of David Dorfman with Morgan Stanley. Please go ahead.

I wanted to ask about some of the margin initiatives you mentioned. I think there was labor scheduling and some kitchen execution, and line equipment, and talent management. Maybe you could just either together or for each of those things give just a sense of the scale of the benefit you might see from them and the timing of them. Is it a phased rollout or something that's just sort of used as needed when margin is -- when you have to protect margin? Just a little bit more color about how you plan on initiating those things.

Hey, David. This is Greg. There's a couple ways or a couple different things in regards to that. We've mentioned this before and this really holds true for BJ's and I think it holds true for a lot of other concepts out there unless things have dramatically shifted in other concepts' P&L structure. And that is we're pretty efficient and the things we're putting in place really just move the needle incrementally and they offset inflationary pressure, and they make us a little bit more efficient.

Meaning the new labor productivity and analyzer, we'd love to say there's 100 basis points of labor pickup that we're going to get out there. It's just not going to happen. We've already had a great system in place in the way we did labor. Our operators look at it daily with daily schedules on the old system. We just think this is an enhancement that's going to allow them to be a little bit more efficient in regards to understanding the items they produce and the different stations they come out of to give a little bit of, again, more productivity from that standpoint. And all of those things together usually generally are used to offset inflationary pressure more than really expanding the margin.

Some of the other things are actually a little bit more favorable in regards to the throughput in the restaurant. The things that Wayne talked about really goes back to the quality fast service on our restaurant, and our ability to cook a little bit quicker, maybe to run the food a little bit quicker, and really manage what we call the [guest-oration] metric in the areas that we have control over, which ultimately allows us to [drive] more throughput and therefore more sales in the restaurant to drive margin.

Other than that, though, the things that we're putting in place aren't going to pick up 100 or 200 basis points. With 20% plus restaurant level margins, we're already pretty efficient to begin with. Where they will help will be on some of our newer restaurants. It's going to give them better tools for them to assess their item counts, the productivity in their restaurants, how the guests are coming in there, and maybe allow them to get their sea legs a little bit earlier. So that's really what we continue to work on, and frankly, we're always going to have those productivity initiatives.

The one thing I can tell you about the gentleman sitting to my right here is once we put this new system in place, Wayne Jones will look at it and go, you know what, we need to tweak it here and make this better because we can get even more improvement by doing these little changes. So this is going to be an ongoing thing that we do at BJ's.

This is Jerry, and the only other thing that I would add to Greg's comments, which I think are spot on, is that we don't set up and work on these initiatives to kind of just stay status quo with respect to how we run our business. As Greg mentioned, we have a number of these initiatives under way that do help to offset the inflationary impact of other cost inputs through our business. And at the end of the day, everything that we can do to improve productivity and efficiency takes pressure off of our need to take menu pricing. And that is critical to our competitive strategy.

Not only do we compete as a quality differentiator in the casual dining business, but we also compete as a value concept. So everything that we can do from a productivity and efficiency perspective to offset other inflationary costs and to keep our menu price increases as low as we possibly can has a significant benefit on our continued ability to take market share in this segment. So that is strategically important and it's very difficult, as Greg said, to say, well this might get us a net 100 basis points or 50 basis points, because we have so many things underway simultaneously with the major objective of trying to keep our menu prices as low as we possibly can, and preserving our four-wall margins.

And I think that's probably just another way of saying what Greg said.

And I appreciate the importance of value, but when you think about bringing in price as a last resort to protect the margin, it's the restaurant level margin you're thinking about and not a sort of enterprise-level operating margin?

That's correct because as you look at the consolidated operating margin of our business, where we're going to see the major growth, where we expect to see the major expansion as we continue to execute our national growth plan, would be leveraging the fixed and semi-fixed cost. Not so much within the four walls of the restaurants, but in the overall infrastructure support costs, which we have in our G&A line today. Plus, we would expect, everything else being equal, to achieve continued purchasing economies of scale, although unfortunately the commodity cost environment is obscuring the purchasing economies of scale that we would normally expect to see in a steady-state commodity cost environment. Although we are getting that, but again they're more than offset by the absolute increases in the commodity costs.

So that's how we look at the consolidated operating margin. In all of the businesses that I've been in, in this industry, for many, many years as they execute their expansion plan, the net improvements in consolidated operating margin percentages have been in supply chain levering, purchasing leverage, and G&A infrastructure leverage. It is a constant battle to preserve the four-wall margins of your restaurants as you continue to execute an expansion plan across the country.

That is the most difficult thing that I have seen in my career for most restaurant opportunities to do as they execute an expansion plan and get further and further way from their initial home court operations, where they have their strongest brand identity, where they have their original and best talent and restaurant operators. And we've been able to do that. Over the past seven or eight years, we've been able to achieve and preserve our four-wall margins and now we're continuing to see gradual improvements in the consolidated operating margin of our business as a result of those factors.

Thank you. Our next question is from the line of Jeff Farmer with Wells Fargo. Please go ahead.

Just wanted to shift back to the topline for a little bit. I'm not sure how much color you're willing to provide, but what kind of traffic benefit have you seen from the loyalty program test? Is there anything that you can share with us there?

Jeff, we've seen an increase in traffic in our test restaurants, but we're not ready to get into the granularity of specific numbers because, number one, all of our competitors would love to know exactly what that's doing for us. And number two, we just started our national expansion and I think we've just let the horse out of the barn and onto the racetrack. So let's let this horse run a little bit and then we'll be happy to give some updates here as we get a little more experience with it. But in test, we saw not only an increase in guest traffic, but we also saw an increase in the spend per guest for the participants in our loyalty program. And when we conducted our return on investment analysis related to the cost of the program, those benefits far exceeded the cost of the program and that gave us confidence to go ahead and move forward with our companywide rollout, which we just did ten days ago.

Okay, and then to be clear, I think you've already commented on this in the past, but there is no incentive associated with this program? Meaning, you're not getting sort of an appetizer coupon or anything like that?

Our rewards structure is based on points and there is a certain amount of the rewards structure that is kind of a surprise and delight component. But the vast majority of our rewards structure is intended for our participants to accumulate points and then have the opportunity to bid on experiential trips, and prizes, and concerts, and very, very special events with our Company, with our culinary team, with our brewing team.

So it's not really intended to be something similar to what you might see at a -- for example, at Starbucks. I went there twice today and I used my gold card and every 15 drinks, I get a free one in the mail. That's really not what this is intended to do. This is intended to be more of a point accumulation that can be used for experiential awards. But there is a little what we would call surprise and delight component in the program.

Understood. I guess I phrased the question poorly in the sense that you made that clear over the last several quarters how it will operate. I just didn't know if there was an incentive for actually signing up, not the continued usage or gaining of points, but just the initial act of sort of signing up on the web, if there was some incentive to do that.

I believe we do have an incentive for signing up, but it's very small. I think it's a free Pizookie, if I'm not mistaken. So I'm sorry, I might have misunderstood.

That was my poorly worded question. And then a couple of quick follow-ups here. And I think, I might have missed this, but one of you guys said that California's same store sales are now essentially in line with the same store sales you're seeing in the rest of the country. And I might be off on this, but I think it's been a while since you've said that. So that's fairly significant in the sense as to how many restaurants there are in California and how theoretically large a drag that had been over the last couple -- several quarters, probably maybe even longer than that. Did I hear that right? And moving forward, do you think your California restaurants can comp in line or even better than the rest of the system?

Jeff, this is Greg. You did hear that right. Our California restaurants were more or less in line with our total comps for the second quarter. Going forward, I wish I had a crystal ball and I could tell you exactly where it's going to be. California is still a challenged state in regards to some of the local municipalities. I mean we've heard of some recent bankruptcies of some local municipalities, higher gas prices, et cetera. But the densities here in California still are very good. We're still continuing to open restaurants in California and have tremendous average unit volume sales from them.

Going forward, I don't know. I can't give you an answer of yes or no. I haven't seen anything in the macro environment that would make me think differently one way or the other in regards to California.

Okay, then one quick follow-up here and one last question. You talked a lot about the incident rate over the last several quarters, and I believe that grew to 2.0 from 1.7 over the course of 2011. Sounded like it held stable at 2.0 in the first quarter of '12. Has there been any movement on that incident rate metric in the 2Q '12?

Not materially. We might see a shift here or there, but it's still really right around the number that we've talked about in that 2 range.

Our next question comes from the line of Chris O'Cull with KeyBanc. Please go ahead.

My question relates to the loyalty program as well. Jerry, I would assume the greatest risk to the program is just effectively training the service staff to use the guest information. Could you talk about the training needed to make the loyalty program successful?

Sure, I'm going to let Wayne Jones, our Chief Restaurant Operations Officer, answer the question.

Chris, this is Wayne. We had a solid training program we put into place in each one of our restaurants. We had a field team go out and work with the respective markets, with the respective directors. And it was fairly comprehensive. We recognized that as an area that could be a potential weak point and we wanted to ensure that our teams were fully prepared because it really touches many aspects of the guest experience. So I think you'll find that the rollout was pretty smooth and the feedback we've gotten so far has been very, very positive. Our teams are excited about the program, which also is a nice benefit because the things they have a tendency to enjoy they have a tendency to do a little bit better.

So we've been pleased with our rollout strategy, and as always, when you're dealing with that many people we'll have to stay diligent and stay on top of it, especially as new team members come on board.

Do you all have a way of tracking guest satisfaction to see if there's any issues with the training or if you're having any impact with the loyalty program?

This is Jerry. The answer is yes. We have a very comprehensive, for lack of a better word, mystery shopper program, and we track all of the metrics and we survey every one of our restaurants six times a month, which is a very heavy frequency. So we do track all of those metrics. Plus, we have the ability to communicate directly with our loyalty guest database separately. So as we get that database up and running, we'll be able to survey them directly and get their inputs on every aspect of the dining experience at BJ's. Plus, as I mentioned earlier, we've always had here a comprehensive mystery shopper program that we watch on a monthly basis.

So yes, all of those metrics are in place and we'll be able to measure satisfaction to the very smallest detail, particularly with our loyalty participants going forward.

And just one last one. Greg, will any of the loyalty program rewards cause the spread between the gross and net sales to change?

It won' t because we, as I kind of mentioned in our prepared remarks, we are going to take what's called the deferred cost method. So we're putting a cost value towards those points and accruing that cost value against our marketing spend. So what you tend to see is (inaudible) the marketing spend, where there is another accounting method -- and both are permissible under generally accepted accounting principles -- where you could defer part of your revenue at the beginning, which would make a difference between your gross and net spread. We decided to take the cost method, what I think is easier -- in once sense it's easier for us to accrue, et cetera, from that standpoint. But I think it makes it much more transparent to the investment community as well.

Our next question is from the line of Matthew Difrisco with Lazard. Please go ahead.

This is Fong Lee in for Matt Difrisco and I was wondering if you guys could maybe comment on some of your TV advertising in Sacramento, possibly share some lessons that you've learned from there and if you're willing to, perhaps, quantify the lift or benefit you're seeing from those stores and potentially what next markets you're thinking about rolling out that TV advertising to. Thank you.

This is Jerry. As we mentioned in our prepared remarks, we did see a lift both during the three-week television flight and then the tail -- after the flight was over we did see a lift. And again, we've tried to triangulate and analyze that lift versus a control base of restaurants up in the Northern California area, as well as other restaurants here in California. At this point in time, I think it's a little too early to begin to talk specifically about the nature of that lift because this is a very small, limited duration test. But it gave us a lift that was quantifiable and that's given us more encouragement to go and move forward over the next six months and test it in a couple of additional restaurants and see if we get the same result.

One of the reasons why we chose Sacramento was because we'd been there for a while. We had one of our highest level of overall brand awareness and we wanted to see in that particular situation if it moved the needle at all, and it did move the needle. And now I think our intention is to try to select a couple of other restaurants that are not -- or a couple of markets that are not in our home state of California that have less brand awareness versus our ATU study that we did last year, and see how much the needle moves in that particular circumstance. Then I think once we get the data from that test, I think we'll have a much better base of data for which we can begin to evaluate whether or not television advertising makes any sense for us. And then I think we'll be in a better position to comment on some of the return on investment characteristics at that time.

But I think -- and again, as I mentioned earlier in our prepared comments, we are not expecting to make any major decisions regarding television advertising media commitments here at BJ's for the foreseeable future. But it is important for us to continue this testing and to get some good learning from this.

So I would ask everyone to be patient as we continue our testing, and as soon as we have something that we believe is very definitive and specifically measurable, then we'll be happy to comment on it.

Right. And just to clarify, the next test is going to be in a single market or multiple markets?

Well, we're in the process of making the final decisions on that. We're looking at the media buys in a couple of smaller markets that are not in California. I think we can share that with you. And that information is coming in here within the next few days, and then we'll make our decisions. And then it'll be on television and for those that are in those markets, I guess they'll see the television commercial.

Great. And one last question if I could about the loyalty program. I'm wondering if you could perhaps discuss how you're benchmarking the benefit or the lift that you're seeing or that you saw within the Las Vegas market. Are you comparing it to the Vegas market in the year prior or to the overall comp base?

Well, really in our test restaurants we looked at the performance of those restaurants kind of before and after, as well as compared to the prior year. So we always look at trend performance and then also look at results versus the same period in the prior year, specifically for those restaurants that had it. So that's how we measure the return and, again, our basic benchmark is, are the incremental benefits of the loyalty program in terms of guest traffic, and spend per guest, and the gross profit flow through from that incremental sales, is it enough to cover the incremental cost of running the program. And in test, it more than covered the incremental cost.

Plus, the other benefit of the loyalty program from the -- and, again, just setting aside the financial side of it, this is our ability to market one-to-one with consumers. As I mentioned earlier in our prepared remarks, we're so small and we just don't have the firepower to compete in the mass media markets with a lot of the mature mass-market competitors that we're up against out there. But we can compete one-on-one with our guests as well, if not better than they can.

And that's really the primary purpose of the loyalty program. It enables us to market one-to-one to the consumer and to provide a level of engagement and connection that you don't often get in casual dining anymore. This gives us that advantage and it also gives us a wealth of information that our loyalty program participants have given us, provided us voluntarily when they enroll in the program. It gives us, as I mentioned earlier in response to one of the questions, it gives us an ability to survey them directly, to get their opinions on every aspect of the dining experience.

So it's just a tremendous opportunity really to connect and become more closely engaged with our guests. And it also provides our team members, through training that Wayne addressed earlier, it gives an ability for our team members to also strengthen that connection and engagement with our guests, which is sorely missing in most restaurant concepts today. And in many casual dining concepts that level of personal attention and service I think over time in many concepts has deteriorated. We don't want that to happen here. We see that as a major competitive advantage for BJ's and we think the loyalty program will help us to achieve that.

Great. And so, if you're benchmarking it against Vegas last year, from what we're hearing from some competitors is that there was some weakness within Vegas. I don't know if you're seeing that or not. But would it be reasonable to assume then that if you were to roll it out to different markets that the lift would actually be better than what you're seeing in Vegas at the moment?

At this point in time, we have no way of being able to analyze what is ahead of us with respect to that. We're very optimistic that it will help us and we'll just have to see here, given the next few months as we begin to hit our full stride with the national companywide rollout, exactly what benefits it will give us in specific markets. But so far so good and let's give this program a chance to run a little bit here and then on our next conference call we'll be able to share a little bit more information.

Our next question is from the line of Nick Setyan with Wedbush Securities. Please go ahead.

Two questions. First, will the pizza refresh be timed to coincide with the early October menu update?

This is Jerry. For competitive reasons, we are a little reluctant to give a precise date as to when we're going to be relaunching our entire pizza program, but it will be coming soon. And so why don't we leave it at that. But you should see it sometime here within the next 90 days. But I'm reluctant to give you a specific date, because all of our competitors would probably like to know that as well.

Okay. And the other one, when we talk about the sales lift from the loyalty program in your test market, and that being more than the cost and the returns being above the cost, should we think about the cost as the accrual that you're expecting now? So, the lift that we're seeing in the sort of marketing expense that's attributed to the loyalty, should we expect the sales lift to be above that, is the question I'm asking.

I think Greg mentioned that his estimate of marketing expense for the third quarter included an estimate for the required expense accrual related to the award points. Is that correct, Greg?

That is correct. We talked about that number being somewhere in the 1.7% to 2% total marketing spend versus 1.4% included in the second quarter. That takes into account what we would call the accrual on the points begin earned by our guests.

Right, and I'm probably not asking the question as clearly as I should, but will the sales lift -- or should we assume that the sales lift that you expect from the loyalty program to more than offset that accrual?

Well, in tests it certainly did. So as we continue to get more experience with the companywide rollout here, we'll get a pretty good look at that here over the next couple of quarters.

Great. Thanks so much.

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

I was wondering if you guys wouldn't mind putting a little more color maybe just on July sales trends. I'm sure it's going to come up, but it sounds like June in the second quarter both was maybe running maybe in the mid 4% range after you adjust the June number. And you mentioned those last couple weeks were in the 3.5% range. Is that something that you would deem being sort of noticeable off-trend or is that within the sort of --

Paul, I'm sorry, can you speak up? You kind of dropped off there. I didn't hear your entire question.

Sorry. I was wondering if you could comment and give us a little more color on what your view of how recent July trends in the sales are doing. It seems like obviously the quarter came in about mid-4% and June looked to come in around mid-4% after adjusting for the July 4th shift. You obviously mentioned that July was sort of mid 3% range last couple of weeks. Would that be something in your viewpoint to be something of important notice that maybe the macro situation has changed? Or is that just typical -- it's safer to assume it's within the bounds of most recent or second quarter underlying momentum range?

Wow, I don't know if I have a direct answer for that. July tends to be a softer month for us in general. It comes out of the big honeymoon (inaudible) the big period of June for us, again with Father's Day and graduation. That's just such a big period for us. And that's that seasonal Jerry just mentioned here. When we look at it and you do pull out that first week, the trends seem to be fairly consistent with what we were seeing back in the second quarter, dropping from, again, let's say the mid 4's back into the mid 3's. That might be due, again, to that seasonality in regards to the fact that I think we are a favorite for many people in regards to graduation and Father's Day, and that's why we see that acceleration.

Frankly, we saw acceleration on those numbers in the prior two years as well. So it tends to be that July is a little bit slower for us in that regard. I'm not sure I can comment macro yet, especially only three weeks under our belt, and frankly, the first week was just a weird week with July 4th moving from that Monday to that Wednesday.

Yes, we're seeing a lot of weird numbers, but that's actually helpful. Second, Jerry, I was wondering if you wouldn't mind if you are able to maybe comment on -- for the plans I guess for next year. Obviously, notified the Street nine months ago about hiring an executive search firm and I was wondering if you have any comments on your plans for next year.

Sure, Paul. Our Board of Directors continues to evaluate potential CEO candidates and I continue to assist in that process. I personally remain very committed to ensuring a very smooth and seamless transition. And at the present time I think it's a good thing that I've got some flexibility here as to the timing of that transition, and I've conveyed that to our Board. So as it stands today, I expect that it's going to be business as usual for the foreseeable future until the Board completes its search and we sign up a highly qualified successor, and we facilitate a smooth transition. I think that's in everybody's best interest. So for better or for worse, you're going to be stuck with me until that happens.

Gladly see that happen. Well, congrats on a good quarter. Talk to you guys later.

Our next question comes from the line of Conrad Lyon with B. Riley and Company. Please go ahead.

Jerry, you were right. I did get my free Pizookie from signing up for the program. I like the reservation component too. Question about the loyalty program.

Okay, go ahead.

Hello?

He must have dropped off. We'll give him a second here to get back on.

Did everybody drop off? Operator?

Yes sir, I am here.

Okay, we'll have him queue back in. Is there anybody else on the line for a question?

(Operator Instructions)

Do we have any other questions?

At this time, we have no further questions.

Okay, well I don't know what happened to the last caller.

I guess, Conrad, if you are still on and you can hear us, I don't know if there's a connection issue, please give me a call in the office. I will be around as well as other people with management later this afternoon.

Thank you all for participating in our call today. We appreciate it very much.

Ladies and gentlemen, this does conclude BJ's Restaurant, Incorporated second-quarter 2012 results conference call. We thank you for your participation and you may now disconnect.