BJ's Restaurants Inc (BJRI) 2013 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, thank you for standing by. Welcome to the BJ's Restaurants, Inc. first quarter 2013 results conference call. (Operator Instructions) At this time I'd like to turn the conference over to Greg Trojan, President and CEO. Please go ahead, sir.

Thank you, Operator. Good afternoon, everybody. Welcome to BJ's Restaurants' first quarter 2013 Investor conference call, which we are also broadcasting live over the internet. I am Greg Trojan, BJ's Chief Executive Officer, and joining me on the call today is Greg Levin, our Chief Financial Officer, and Greg Lynds, our Chief Development Officer, and Wayne Jones, our Chief Restaurant Operations Officer.

After the market closed today we released our financial results for the first quarter of fiscal 2013 that ended on Tuesday, April 2nd, 2013. You can also view the full text of our earnings release on our website at www.bjsrestaurants.com.

Our agenda today will start with me providing an overview of the first quarter, followed by a brief discussion of our key initiatives through the remainder of the year. I will then turn the call over to Greg Lynds, who will provide a summary of our development progress. Greg Levin will then provide a financial review of the quarter and some commentary on the rest of 2013. After that, we will open it up to questions.

But before we begin with our prepared remarks, Dianne Scott, our Director of Corporate Relations, will provide our standard cautionary disclosure with respect to forward-looking statements. Dianne, go ahead, please?

Thank you, Greg. 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 25th, 2013. 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, Dianne.

As I noted in our press release today I am proud of how our team navigated maybe the most turbulent sales period casual dining has seen since the early days of the Great Recession in late '08 and '09. Our total revenues were up 13% to $188.6 million, driven primarily by a continued strong execution of our new restaurant development pipeline. Our comparable restaurant sales were up 0.4% for the quarter, successfully lapping a 3.3% increase a year ago and a 7.8% increase in 2011.

While not at the level we have come to expect from BJ's, once again we outperformed the industry average as reported by both Navtrak and BlackBox, continuing our track record of taking share from a large number of vulnerable tired concepts in our space.

Now reported diluted net income per share for the quarter was $0.29 compared to $0.30 in last year's first quarter. Included in this year's first quarter is approximately $600,000 in expense related to our expanded television testing. Excluding the cost of the television test, which only impacted sales for 56 operating weeks out of a total of 1,690, or 3% of the total weeks in the first quarter, our net income per diluted share on a non-GAAP adjusted basis would have been approximately $0.02 higher. Despite the challenging top line environment our operating team did an excellent job driving overall productivity, while at the same time improving most every guest tasting metric, as well.

One of our key initiatives for the first half of this year is to minimize disruption in our restaurants and let our operators digest the various initiatives we introduced in the latter part of 2012. Our new labor management system, our unprecedented number of new menu introductions, including new pizza process and our hand tossed pizza product, and our new loyalty program, to name a few were a lot to digest. We wanted to give our teams a chance to focus on core operating excellence and guest satisfaction, and we feel like they made a great deal of progress.

Greg Levin will cover the financial results and margins in more detail, but our new hourly labor management system helped us drive a 40 BPS rate reduction in hourly labor year-over-year. Our purchasing and better recipe and food waste management controls in our restaurants helped drive a 10 basis point improvement in cost of sales versus the same quarter last year.

Our mature restaurants improved their four-wall controllable profit margin by over 40 basis points versus last year. The four-wall controllable profit margin consists of the key areas that our restaurant managers have direct control over, including food costs, labor, and certain operating costs, like linens, sanitorial chemicals, dining and kitchen supplies. Just as important our guest service, food, speed, and quality metrics showed similar levels of improvement.

In summary, sales were not what we would like them to be in Q1 despite outperforming our peers, however, I'm encouraged that we saw good progress, executing better from a guest perspective, while at the same time we did a better job managing our expenses at the restaurant level. This should enable us to better leverage future comp sales increases.

Obviously, we were not able to leverage our fixed expense structure the way we have been able to when we are in a higher comp sales environment, but we remain committed to making the right P&L and infrastructure investments we need to in order to fulfill the longer term growth potential of our concepts, even in times where sales are not what we would like them to be. Examples, like continuing to test media spend, add the right people to our team, et cetera, are things we must continue to do.

Before I hand it off to both Greg Lynds and Greg Levin for their commentary, I will spend a couple of minutes outlining what I see as our key initiatives for the remainder of the year. Clearly, our development pipeline is the biggest driver of our revenue growth and we need to make sure that it continues to provide great quality sites in both existing and new BJ's markets. As you will hear from Greg Lynds, we are confident that we will continue to have a successful 2013 class of BJ's Restaurants and, just as importantly, fill our pipeline for 2014 and '15.

In terms of our focus areas for the remainder of the year, our first priority is to drive sales. We are looking to leverage our growing loyalty membership and use the [prize and delight offers] to drive traffic where we have available restaurant capacity. We think these represent highly incremental visits and, as such, should be worthy of compelling offerings to our most loyal guests.

We are also exploring ways to leverage our in store technology to speed-up our service time to guests who are in more of a hurry, particularly at lunch. We are encouraged by the myriad of media testing we have been doing and think that has the ability to be a sales driver for us this year.

We are also excited about our summer LTO window, which will bring a new flavor, both literally and figuratively, to our BJ's specials, utilizing a cobrand partner to our marketing effort. Our end of April menu continues to build out [better for you offerings] and we'll unveil two new exciting new items which performed very, very well in tests.

Besides these shorter term sales building activities, our team is hard at work on four initiatives, which I think will have important implications to our continued success in both the short and the long term horizons.

The first is the brand positioning and awareness of our concept. Our research tells us time and again that we lag our bigger national competitors in awareness levels. The good news is that our retention and adoption rates once people try us are very, very high. We plan to continue to test our messaging and positioning, as well as our media strategies to drive top line growth. We are still evaluating our latest TV spend, but it is my expectation that we will do more testing in the second half of this year. We will also continue to test heavy-up campaigns in digital marketing, as well as good old-fashioned local marketing tactics to evolve our capabilities here.

We also think that leveraging brand building partnerships will help us tell more compelling stories regarding the quality of our food and even further differentiate us from the traditional casual dining restaurants. We will introduce our first cobranded LTO this summer, as I mentioned.

The second initiative is our food quality and uniqueness. While we are very proud of the breadth and the quality of our food execution at BJ's and believe it to be a big driver of our overall value advantage, that being said we think there is room to push our food quality and consistency to an even higher level. We are refining our kitchen processes and recipes to reduce unnecessary complexity in order to enhance the consistency of their execution, while absolutely not sacrificing flavor or quality. This will include evaluating the number of menu items in each of our important categories to optimize our menu breadth. We plan to begin some menu testing in a small number of restaurants in Q2 and are commencing a ground-up kitchen campaign to unearth the best complexity reduction ideas.

Our third initiative is to improve our operating productivity in order to fund incremental marketing spend. Given our relative use as a national concept, we have an opportunity to look at our operations and make sure we're taking advantage of scale and greater leverage that we have produced through our aggressive new unit growth. We are blessed to have an incredible group of team members who bring a results driven passion to their jobs every day, but the opportunity is not to drive them to work harder but look at how we can refine our operations to work smarter.

Given the brand awareness opportunity I just talked about, we want to find incremental marketing spend through operating efficiency, thereby driving sales and leveraging our fixed cost structure, which will lead to higher margin productivity for us.

Fourth, we are working on developing lower CapEx development alternatives. We continue to have many trade areas to build our 8,500 square foot BJ's restaurant prototype, however, we believe there's an opportunity to open up smaller footprint options in markets, like the northeast, where it may be physically problematic to find as many large parcels as we would like.

Secondly, we think we can drive return on capital efficiency in certain trade areas by building a smaller footprint version of our concept. In addition, given that our prototype build has evolved quite a lot, as we have pushed our concept up the food chain, it is a good time to evaluate the guest impact of these upgrades.

These efforts should lead to even more attractive unit economic returns and should expand our thinking around the ultimate number of BJ's we can build over time. By the way, this is not new to BJ's, today we have restaurants that average significantly less than our 8,500 square foot prototype restaurant, which gives us a good head start on understanding smaller footprints to times. In fact, we have a restaurant down the street from our Restaurant Support Center here in Huntington Beach that has our full bar statement, including the 103-inch plasma television in about 5,000 square feet. That restaurant will do over $100,000 a week in sales during the summer peak seasons.

We also have 7,000 to 7,500 square foot restaurants, both in southern California and Arizona, that generate sales volumes consistent with our larger prototype restaurant. Lastly, our BJ's Grill, R&D Restaurant in Anaheim Hills has inspired good ideas for us to incorporate in these new designs.

So speaking of CapEx and development, I'm going to turn the call over to Greg Lynds to provide an update on our real estate pipeline. Greg?

Okay, thank you, Greg. And, as Greg just mentioned, our 2013 and 2014 new restaurant development pipelines, they're in excellent shape, and we continue to be very pleased with the site opportunities that we're seeing and the overall retail development environment.

As we mentioned on our last call, we currently expect to open 17 new restaurants during 2013, which includes the relocation of our older small format legacy restaurant in Eugene, Oregon to a new location in Eugene and reopen this restaurant as a large format brewhouse restaurant.

As we stated before, it's difficult to precisely predict the actual timing of our 2013 new restaurant openings due to many factors that are outside of our control. So, with that in mind, as of this date we plan to open four new restaurants in the second quarter, which include the one we just opened in the second quarter in Oklahoma City, seven new restaurants in the third quarter, five new restaurants in the fourth quarter, and again, we'll keep everyone advised of future changes on our quarterly calls.

We continue to develop our new restaurants in a clustering strategy, which will allow us to continue leveraging our brand position, consumer awareness, supply chain infrastructure and our field supervision resources. In the first quarter just ended we opened our first restaurant of the year in Puyallup, Washington, which is a suburb of Seattle. This is the third restaurant in the State, joining our two very successful restaurants in Tukwila and Tacoma.

And this past Monday we just opened in Oklahoma City, Oklahoma on a freestanding pad at the main entrance of the recently opened new mall, the Outlet Shops of Oklahoma City. This is our third restaurant in the trade area, joining our successful restaurants in Norman, Oklahoma and up north in the Quail Springs Mall.

Later this year we plan on opening our first new restaurants in the Midatlantic and Virginia markets, Virginia and Maryland. We believe the Midatlantic region will give us another solid base to build out the BJ's concept in a clustering strategy and give us a launching ground to eventually begin opening restaurants in the northeast.

Our Development Team is already focusing on our 2014 and 2015 new restaurant development pipeline. As I mentioned on our last call, most of the new real estate opportunities that we are seeing today are primarily within existing shopping centers, being redeveloped as a result of big box vacancies or other retail or restaurant closures.

It's important to point out that even though today there are very few new major shopping centers under construction that we are starting to see and work on new large retail projects for our pipelines in late 2014 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 units. The approximate range of 11% to 12%. With only 132 restaurants opened in 15 states at present, BJ's has plenty of runway in front of us for longer term expansion. We continue to believe that there's conservatively room for at least 425 BJ's large format restaurants domestically that can perform at the current level or average unit economics.

Having said that, our team will always choose quality over quantity, and we will continue to ensure that we execute expansion plans that is geographically balanced, which helps drive additional leverage for the entire business. Our team is looking forward to the next several years and I am confident that BJ's should have many years of quality, solid new restaurant growth to come.

Back to you, Greg.

Thanks, Greg. I'm now going to turn over to the third Greg, that is Greg Levin, our Chief Financial Officer, for his financial commentary on the quarter.

Thanks, Greg. I'm going to take a couple minutes and I'll go through some of the highlights for the first quarter and provide some forward-looking commentary for the rest of fiscal 2013. 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 Greg Trojan mentioned, our revenues increased approximately 13% to $188.6 million from $167.6 million in the prior year's comparable quarter. This increase is due to an approximate 13% increase in operating weeks. Our weekly sales average was basically flat compared to the prior year's comparable quarter and our comparable restaurant sales were up 0.4%.

Although we would certainly like to have seen more robust comparable restaurant sales in the quarter, we once again outperformed both the BlackBox Index and the Navtrak Index for casual dining comparable restaurant sales.

Our patterns during the quarter pretty closely followed those reported by both Navtrak and BlackBox, that is January's comparable restaurant sales started off positive but turned negative towards the end of the month and remained negative through the first few weeks of February before in general turning positive again in March.

All of our core markets were positive except for California, which was slightly negative. There was no specific market or region in California that stood out. In general higher sales tax and the higher State income tax in California, coupled with higher gasoline prices earlier in the quarter, all of which exceeded what was experienced in other parts of the U.S. may have affected our comparable restaurant sales in that space.

Excluding the impact from the Easter weekend holiday shift, all of our day parts, that is lunch, dinner, mid-afternoon and late night, were all slightly positive. Both the middle of the week and the weekend were also slightly positive and pretty much in line with each other.

Our 0.4% comparable sales increase for the first quarter consisted primarily of an approximate 3% benefit from menu pricing, offset by an estimated decrease in guest traffic of around 3%, and a net favorable mix in incident rate.

In regards to the middle of our P&L, our cost of sales of 24.5% of sales was down about 10 basis points compared to last year's first quarter and sequentially was down about 50 basis points from our fourth quarter of 2012. The decrease from last year's first quarter was primarily due to menu pricing and improved kitchen productivity resulting in a lower theoretical actual food cost variance, offsetting about 1.5% increase in our commodities basket. The decrease sequentially from the fourth quarter of 2012 was primarily related to the menu pricing we took in February of this year to offset some expected inflationary pressure, as well as some favorable menu mix, primarily around some of our seafood offerings, as well as improved kitchen productivity.

Labor during the first quarter was 35% compared to 34.9% in last year's first quarter. Our operators did an outstanding job utilizing the new labor scheduling and productivity system that we implemented during the third quarter of fiscal 2012. As a result, we were able to improve our hourly labor productivity, resulting in a 40 basis point decrease in hourly labor. The improved hourly labor productivity helped offset increases in our management labor, workers compensation insurance, and Futa rate in California and Florida. Going forward I would continue to expect both workers compensation cost, as well as Futa or the unemployment tax rates to impact labor this year.

Our operating and occupancy cost increased by 80 basis points to 21.5% of sales compared to last year's first quarter. Approximately 50 basis points of this increase was related to the planned additional marketing including the expanded television testing and the remaining 30 basis points was due primarily to higher facilities costs and general liability insurance.

Our marketing costs in the first quarter were approximately 1.8% of sales compared to 1.3% of sales last year. As Greg Trojan mentioned, the television commercial ran the last two weeks of the quarter and covered 28 restaurants in six markets. In total we were on the air for only 56 weeks out of a total of 1,690 weeks during the quarter. The commercials, which are available on our YouTube channel, were focused on the introduction of our hand tossed pizza and our party for two for $19.95 promotion. The initial test results have been generally positive and helped drive comp sales in each of the markets, not surprisingly particularly those markets with lower awareness.

Although we need to understand the ongoing sales halo affects we are encouraged by our guest response to our TV advertising. Going forward we will focus our TV testing and on messaging and positioning options and add or buy alternatives which could make the media more viable for more markets in the future.

Our general and administrative expenses for the first quarter were approximately $12.7 million or 6.7% of sales and in line with our internal expectations, included in G&A is $839,000 and $772,000 of equity compensation for both 2013 and 2012, respectively, or 0.4% of sales and 0.5% of sales for each year.

Depreciation and amortization was approximately $11.5 million and averaged about $6,800 per restaurant week, which is in line with our most recent trends from the fourth quarter of 2012 regarding depreciation and amortization.

Restaurant opening expenses were approximately $700,000 during the first quarter of 2013, which was primarily related to one new restaurant that opened during the quarter and some opening expenses for restaurants that will open in the first half of 2013. On average our preopening costs continued to be around $500,000 per restaurant.

Our tax rate for the first quarter was approximately 26.2%. This is lower than our expected tax rate of around 29% due to the expiration of some FIN48 tax reserves due to statute limitations. As a result, we expect our tax rate going forward to be in the 29% range.

Before I turn the call back over to Greg Trojan, let me spend a couple of minutes providing some forward-looking commentary for the rest of 2013. All of this commentary is subject to the risks and uncertainties associated with forward-looking statements as discussed in our filings with the SEC.

It is still relatively difficult to get a handle on our current sales trends for casual dining. When looking at the first quarter it definitely appeared that the increase in the payroll tax and the delay in the tax refunds had a major impact on February's numbers. While we and the industry definitely saw improvement in comparable restaurant sales in March, it is still challenging to discern how much of that improvement was due to an earlier spring break than in the prior year as opposed to changes in the macro economy or the macro environment.

For the first few weeks of April our comparable restaurant sales are positive in the mid 2% range, however, this includes the favorable impact of the Easter holiday shift in which the Easter weekend was in the first quarter this year as opposed to the second quarter last year. If we exclude the benefit we received by the Easter holiday shift our comparable restaurant sales appear to be trending around a positive 1% or so. For those of you building your models I would, therefore, error on the side of conservatism and build your models based more on our current comparable restaurant sales trends excluding the Easter holiday shift.

We currently expect menu pricing to be in the low to mid 2% range for both the second quarter and the third quarter of this year. We are rolling out a new menu in a couple of weeks featuring a couple new and light entrees, and we will be introducing a cobranded LTO later this summer. However, given the current uncertain macro environment, coupled with the better than expected commodity environment, we are not planning any additional menu pricing in this new menu.

As 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, and a more contemporary facility, executed with superior 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 and sales building initiatives on our four-wall margins.

For the second quarter I would expect around 1,720 restaurant weeks as we plan to open four new restaurants in the quarter, as Greg Lynds mentioned. In the first quarter our commodity basket only increased about 1.5% from last year, however, we are expecting our commodities to increase in the low to mid to 2% range for the second quarter and the rest of this year based on our latest forecasts from our supply chain team. Therefore, I would expect cost of sales to be in the upper 24% range for the rest of this year.

I would expect total labor in the second quarter to be in the mid 34% range as higher workers compensation expense and Futa taxes will offset some of the benefits we are seeing from our new labor scheduling and productivity system. Obviously, this percentage is significantly influenced by comparable sales increases or decreases.

I am anticipating operating and occupancy costs as a percent of sales to be in the low to mid 21% range for the second quarter. This is based on our planned marketing spend of approximately 1.6% to 1.7% of sales for Q2.

Our absolute G&A dollars spent in Q2 should be around the $13 million range and that is inclusive of equity compensation. I do want to remind everyone our G&A can vary from quarter to quarter due to the number of managers in our advanced manager training program, travel, and other related costs due to the timing of openings of new restaurants and other factors.

As I've already mentioned, we currently expect restaurant opening costs to be around $500,000 per restaurant, however, we will incur preopening noncash rent as much as five or six months before our restaurant opens and, therefore, preopening costs for any quarter may not be indicative of the number of restaurants that open in that quarter. I anticipate opening four restaurants in the second quarter, plus we plan on opening three restaurants in early July, therefore, I would probably expect preopening to be somewhere in that $2.3 million to $2.7 million range for the second quarter.

We currently anticipate our income tax rate for the remainder of 2013 to be around 29% and our diluted shares outstanding to be around $29 million.

In regards to our overall liquidity, we ended the first quarter with a little over $48 million of cash and investments. Our line of credit is for $75 million and does not expire until January 2007. Our total gross capital expenditures for the first quarter of 2013 was approximately $22 million. We continue to expect our gross capital expenditures for this year to be around $117 million and we plan to receive TI allowances and proceeds from sale leasebacks in the $15 million range. Therefore, our planned net CapEx is currently expected to be in the $100 million range and will be roughly equivalent to our net CapEx spend last year. We currently expect to fund our expansion and capital expenditures from our cash and investments on our balance sheet, our cash flow from operations, and from the proceeds from our tenant improvement allowances and sales leaseback transactions.

Now I'm going to go ahead and turn the call over to Greg Trojan for some closing remarks. Greg?

Thanks, Greg.

As many of you know, I am closing in on my third month as CEO of BJ's and I am more excited today about the future of our Company as I was when I decided to join the team late last year. Many people often point to our ability to open hundreds of restaurants in the years ahead as the most exciting aspect of our growth potential, and rightfully so, but I can tell you that I'm equally excited about the up side as we develop the scale as an organization to drive our brand awareness, our restaurant operating expertise, and our prototype evolution to all-time new levels.

Thanks for your time today and, Operator, please open the line for questions.

Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. (Operator Instructions)

Our first question comes from the line of Jeffrey Bernstein with Barclays Capital. Please go ahead.

Great. Thank you. This is [Arun] on for Jeff. So I wanted to ask you a little bit more about your loyalty program and specifically any early learnings from that test and, more importantly, any ability that it has to maybe impact sales trends near term? Thanks.

Sure. Well, Jeff, this is Greg Trojan. We are pleased, it's still early but we're pleased with the early days. The signup increase has been steady and at a point where we have about half a million folks in our loyalty database. And in the kind of targeted promotions that we've done we've seen it move. People have reacted and the response rates have been quite high, and so that tells me that there's something there and people are engaged in the program and we've put something out there that's frankly worth responding to.

So I think that's where the value of this program really lies. The run of the mill game point and track points is a necessary foundation, and people are engaged by that to a certain amount, but really the opportunity is for us to do more targeted campaigns to certain regions and certain restaurants that we think need the most help from a sales perspective in day parts and in periods of time where we have the most capacity.

So we're working on developing that capability to the extent that we would like. It's a bit technologically and process wise more cumbersome than it needs to be and, but we expect to be able to do more of those kind of promotions and frankly with a lot less lead-time here in the second half of the year.

Did you have any further questions, sir?

Oh, no, that's it. Thank you.

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

Great, thanks, good afternoon. I think I heard you right, I think you said that you wanted to drive some cost cuts to help fund some increased advertising, so I guess I'm just curious where theoretically you would target those cost cuts and, again, I think you said that you're spending 1.6% of sales now, where would you be happy to have that number go, sort of what level are you targeting moving forward?

Jeff, this is -- we'll probably just be using last names on the call since I can say this is Greg and you might not know which Greg, so this is Greg Levin here. And there's a couple things there. As we've looked through our business and continue to look through our business, you know, as we mentioned on today's call, for instance, just looking at the labor productivity there's definitely opportunity for us as we get better to leverage some of that labor, and I think Wayne Jones, who is here with us in the room, has done a great job with his team in regards to some of that labor operations.

The other side of it is in the operating and occupancy line, which over the years has creeped up, even excluding the marketing line. As we've gotten more complex over the years and brought in different inventory items, different plate wares, different other items we haven't necessarily maybe taken as much look or as discerning a look as maybe we could, and now that we're getting more scale, as Greg Trojan mentioned, there's areas within that operating occupancy line that I believe we can go back to. It's not really about simplifying or going to cheaper products, it's really about using some of our scale for purchasing and getting a little bit more efficient in that area and then using those savings more for some of that additional marketing.

I'll take a stab at the marketing and then I'm sure Greg Trojan --

I'll help you with that, look, we don't have an absolute number in mind but it's just, you know, it doesn't -- it's pretty obvious given where we are on overall awareness and when we spike that awareness through TV or any other means it works really well and particularly given the stickiness of our concept.

So I don't have a number or predicting where we approach media efficiency on the spend side. Conceptually we come from a place where we don't see BJ's getting to the level of spend of mass casual guys or certainly even some of the fast casual guys in the 3% and 4% of sales and beyond, but it's pretty clear to us that the next step function forward of spend would be highly productive, but we're committed to figuring out how we can do that by funding it through the expense side of the P&L, driving the top line through greater demand spending, and that will in turn drive margins even higher as we scale a pretty high fixed cost concept at the end of the day, component, so all those work really well when we get that top line going and Jerry and this concept have a great history of making people understand that, first and foremost, we're sales builders, it's something I hear every single day at BJ's, so figuring out how we can do that has tremendous leverage, operating leverage in our system, and that's really the idea here.

Okay, and then just one real quick one on you had mentioned, I believe, that California had seen some I guess worse than [inaudible] sales performances. You've acknowledged in the past that you have seen some cannibalization in southern California, your home market, and you're willing to sort of tolerate that because the volumes are so high, but is that still the case? Are you getting to a point where you probably really have done about as much as you can from the development front in southern California and you guys are going to leave that market alone despite the fact that it does generate high volumes, are you guys ready to sort of walk away from that, not entirely but just focus a lot more development outside of southern California and hopefully you'll get a little bit of a smaller same store sales headwind drag as a result?

Jeff, this is Greg Levin in this case, and Greg Lynds will jump in here in a second, but there's a couple of things here. I think one is that you look at our development going forward and even the last couple of years, at one time we talked about kind of a third, a third, a third strategy, a third being in California more or less, and a third being in contiguous states and the third kind of new markets. California will continue to play lesser of a role there, you're not going to see a third, a third, a third strategy because of where we are, and it becomes a little bit more opportunistic at times.

I don't think we would sacrifice the volumes in California and not build new restaurants, even this year we're going to open up in Orange, California, and then one in San Jose, so some great areas there, but there's no doubt, though, as we open those restaurants they are having some cannibalization impact on our current California restaurants, but the return on investment which obviously leads to our return to shareholders is tremendous. So we're not going to leave California from that standpoint, it just will probably be a little bit smaller portion of our unit growth just based on the fact that we are pretty penetrated in the State.

Understood. All right. Thank you.

Well, I was just going to say in 2014, 2015, 2016 you'll definitely see development slow down compared to where it was earlier years in California, there's just not as many sites available, so that's our plan.

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

Hi, guys, thanks for taking my question. I just wanted to focus in a little bit on the cost items here. On the labor side you guys talked about some of the labor initiatives driving some benefits in the second half, can we expect that to result in some leverage year-over-year, assuming that the comps kind of stay where they are or will we still see some de-leverage even despite some of that labor initiatives being in place.

Yes, Nick, it's a great question. Think about BJ's this year and for 2013 versus 2012, and you look at 2012, the first two quarters of last year were solid quarters in regards to restaurant level margins, they were in the 19% plus range and I think even hit the 20% range in the second quarter of last year when we went up against a 4% comp.

Most of the commentary on today's call is spoke from the fact that we bit off a lot in the second half of last year, and as we took that big bite last year you saw our labor number really spike up in Q3 and was up a little bit I guess in Q4, based on where we would like it to be even though that margin is a decent margin in Q4 of 34% or 34.3%. But I do think in the beginning of Q3 and Q4 based on our new [IPOH] system and some of the other things we're working on, I think we have an absolutely great opportunity to continue to leverage that labor line going into the second half of this year.

Okay, basically, the same question on the operating and occupancy, can we see maybe you guys taking your foot off the pedal a little bit on the marketing in the second half so maybe that line comes down to maybe below 21%?

Getting below 21% I think really is going to be more determined based on comp sales and leveraging the fixed nature of those costs. When I look at the operating occupancy line in general over the last, let's just say this last year, it's probably averaging about $24,000 per week, per restaurant week. So if you kind of line that number up of $24,000 per restaurant, the first quarter it was $24,000 even, last year it was $23,700, so for all of last year. If you take a look at that number and you straight-line it for what you think restaurant weeks are, frankly, to some degree it's going to be how you drive comp sales above or below that to see some of those efficiencies.

For the short term we're still planning about 1.6% to 1.7% marketing spend this year, and I don't see anything changing on that. If the environment gets better maybe it changes a little bit, but right now we don't have any real major changes to address in regards to the marketing side, and I think that number of $24,000, that's kind of where it's going to be and I think based on your sales you'll see where that goes from a percent of sales perspective.

Got it. So, and then just on G&A, even when we ex the stock comp in G&A, I think it was 6.7%, this year it was 6.4%, again, that's ex dot com, and I think your guidance was $13 million in June, around -- you know, that still kind of calls for a little bit of de-leverage on the G&A line, so I mean what's driving that, what are some of the investments you guys are making, and how should we think about the second half of the year?

Well, I think there's a couple of things when you look at G&A. One is the fact that we've taken out some additional square footage here at the Restaurant Support Center, so that's some of that increase there. If you look at the G&A in the fourth quarter of last year I think we finished at $12.8 million, this first quarter here was $12.7 million. So it's kind of running fairly close at the most recent trends from that standpoint. The increase from this quarter to the next quarter really is the fact that we opened one restaurant this first quarter. As we go into the next quarter we plan on opening four and then even more in that going into the second half, so you're going to see more MITs, or we call advanced managers, coming into our program, that's going to take that up a little bit.

We also have in the first half of the year a little bit more in the payroll taxes, starts to subside through the second half, so you can see that number come down a little bit. This year just happens to be a little bit more of a step function as we transition to, obviously, Greg Trojan coming onboard, taking on additional square footage, some of those things have kind of come onboard this year, and frankly on top of the lower comp sales haven't given us quite the leverage we'd like. So we'll continue to evaluate G&A going forward, but I do think our overall plan continues to be an area that we want to leverage G&A, and we're going to continue to be mindful on it, but the rate it's running right now is fairly similar to Q4 of last year.

Got it. Thanks very much.

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

Hi, good afternoon, Grant Robinson on for David Tarantino. Wanted to take a step back maybe on all the initiatives that you guys were talking about, marketing, loyalty, service initiatives and maybe even driving value with lower pricing. As you kind of think about what the biggest opportunities within those buckets are for BJ's and how you might rank order them in the short term versus the long term, kind of how are you thinking about where the biggest opportunities are within those timeframes?

Grant, it's Greg. I think the biggest opportunity short and longer term is on the brand awareness and positioning work that we're doing and really understanding media mix and how do we drive awareness of the concept. I mean we're just at the stage in our development where that is a huge opportunity and we have this advantage that people fundamentally really like this concept when they try it.

So as we've been talking about from a number of different perspectives is there's nothing that makes the P&L work better than driving that top line, and we are in a position to look at ways to do that and now that we've reached this level of scale, a bit more effectively. We're still challenged by our scale versus our larger competitors, but I think that's the area which presents the biggest opportunity.

Great. And then maybe a question on the development pipeline, it sounds like 2013 is in pretty good shape and starting to build out to 2014 and beyond. I was wondering if you could maybe share some color on kind of what you're hearing from the development environment and kind of how that's progressed and maybe any thoughts on specifics and what it might entail? Thanks.

Yes, as I said in our comments we are starting to see new projects from the major developers, a lot of the REITs, the [Simon's], the [Westfield's] are starting some planning of projects, and we see the environment in late 2014 and 2015 pretty prosperous in terms of new developments, so large new retail projects of freestanding [pads] we typically do very, very well.

And as of today we're still seeing the high quality AAA sites are difficult to find, the pricing is expensive on it, and there's a lot of people after them, but longer term we see more product becoming available. And, as I mentioned earlier, I think 2014 and 2015 our pipelines are full and we'll continue to build out the Midatlantic, we're going to start this year in 2013 and we see a lot of opportunity there.

Great. Thank you.

Thank you. Our next question comes from the line of Matthew DeFrisco with Lazard Asset Management. Please go ahead.

Thank you. This is [Vaughn Lingi] in for Matt. I just had a question for you guys, at the beginning of the year I know you guys had mentioned or highlighted the competitive environment as one of the biggest challenges in the California and Texas markets, though more recently it looks more like the macro picture is becoming sort of the obstacle in terms of the payroll tax, the tax and gas prices. So would you say it's fair to say that the competitive environment or the promotional environment has eased a bit in light of this?

This is Greg. You raise a good point because I think that, you know, we definitely did get more promotional in the first quarter, our level of discounting was quite a bit higher than we saw a year ago, and we did that obviously consciously. And we still see a lot of spend out there and very aggressive offers competitively. So we're still spending a whole lot less than other folks out there, we're discounting a whole lot less, I think appropriately, but we did turn up the nozzle on the aggressiveness scale and that's something that we monitor obviously pretty closely. I don't see it easing or getting much worse than what we saw in the first quarter thus far.

It's definitely not easing up, Vaughn, I mean, hey, if you turn on your TV and you see what's out there for some of the big chains, everybody is talking about price promotions and other things related around that kind of messaging. So I don't think anything has changed from a promotional standpoint.

Great. And if I can I'd like to ask one more question just about the TV testing that you guys recently had done. In the past you had mentioned you had done some testing and there was a nice little halo affect even after the commercials went off air. Just wondering if you continue to see that in the newer markets that you tested, can you share any other learnings from the TV testing? And maybe, lastly, what would you like to see or what do you need to see to be comfortable with rolling out a consistent on-air message in any particular market?

Look, the -- it's still too early in this second round of testing, we're still looking at that halo affect, Vaughn, that you were referring to, and it's one of the reasons we're not -- we don't have a firm feel on the specifics of the test. We know that it moved the needle pretty well, as Greg said, particularly in newer markets where our awareness is lower than others, right? So we don't have a great feel on the till because it's not been very long since we stopped the actual advertising really at the end of the quarter.

So what we'd like to see is -- let me answer the question maybe a bit differently in what the next steps are in testing, as I see it. This first couple of rounds was how responsive will our guests be to a pretty fundamental message around what BJ's is? And essentially can it move the needle? And we've seen enough to declare victory on that front. What we need to do in this next round is try different kind of media mix even in the TV realm so that we can bring down the effective costs so that it makes more economic sense and our sales hurdles, including the halo affect, can be at levels where we can pull the trigger with more confidence than we can today.

So we didn't want to go into our first experiences with TV wondering if it worked or didn't work because of the media buy, if that makes sense to you, so we went and bought straight spot rates that were on the higher end of placement and, et cetera, so and reasonable [weights] that we were like, okay, let's make sure we bought at that level to understand how much that needle will move.

Given our scale and our density in these respective markets the next round is really to understand variations on that buy, that can have a pretty dramatic difference on the cost of acquisition of television advertising and that will eventually permit us to be on air to some degree of time in our more developed markets.

Thank you. Our next question comes from the line of Nicole Miller-Regan with Piper Jaffray. Please go ahead.

Great. Thanks for taking my questions. This is Josh on for Nicole. Wanted to revisit the commodities update that you provided. Greg, it looks like the range of the expected inflation ticked down a little bit, about 50 BPS, just wanted to see if you might be able to walk through what were the pushes and pulls were on the basket and then maybe provide an update on how much you have contracted, if you'd be willing to share that?

Josh, I don't have all that detail with me on the contract side, unfortunately, but we did see lower pricing on some of our seafood and also in the first quarter actually cheese price came in lower than our original expectation. While cheese is going up a little bit in the second half, we have contracts that come in in the second half, that's one of the reasons that we're expecting it to come up. But overall the commodity environment is a little bit more benign than what we're anticipating going into the year, and I can talk to you off air in regards to let you know what we have contracted, I just didn't bring that sheet in with me today.

No, that'd be helpful. Thank you.

Some of the -- you know, our team did a good job of proactively substituting and looking for alternatives that helped us from a commodity mix perspective, as well, there. So, but that's part of the cost reduction opportunities for us is to look at alternatives that in no way sacrifice quality in any way. In fact, I think the substitutions that we made in the first part of this year have improved the consistency and the quality of the product and at the same time saves us some money.

That's helpful. And so kind of on that same note, the cost saving opportunities, say, in the back of the house is that, just philosophically is that more around processes or is that on maybe testing new kitchen equipment that might be able to lower the labor cost per hour side of the equation?

Yes, Josh, this is Wayne Jones. I think that our kitchens as they're currently configured function pretty well. We clearly have, as Greg alluded to earlier, I think efficiency opportunities when it comes to labor productivity, and as we continue to gain traction with our IPOH program I think you'll see that come into play.

And as far as equipment, improving the speed of a particular item, I think with a line as complex as ours and a menu that's our size I don't know that there's any particular silver bullet that would allow us to do that. However, over the course of time we can spec and look at new equipment that could accelerate the cooking process or enhance quality. That's something we're looking at this year. We don't necessarily see major breakthroughs there, but it's something we always keep our eye on.

So I think a large part of what we will see and this a process in its early days that Wayne is leading, but it's just looking at the complexity of food prep and recipe execution but over time, you know, there's been quite a bit, as you probably know, of increasing both the quality and the breadth of the menu at BJ's. In a relatively short period of time, over the last several years, right? And all those incremental adds to the jobs in the kitchen, it's a great time now to step back and look at how they all work together.

And the example that we use a lot internally is every incremental recipe that has tomatoes in it we're asking people to cut the tomatoes slightly differently, right? And really the guest doesn't care for the most part whether the angle of the tomato cut or whether the width is a quarter inch or three-eighths inch, but as we develop those incremental recipes we were optimizing each of those individually without looking at the impact in total, right? And so that -- we think that there's quite a bit of execution up side and efficiency that will come out of taking that complexity that's there, that's not adding to the guest experience at the end of the day.

That's helpful. And so then on that same note would it be fair to differentiate the process or kind of the reflection you just offered up to say the difference between them saying, well, it might be cheaper if we were just to bring in pre-shredded cheese into the restaurant, which would obviously not speak to the core values or the quality nature of it, maybe that would be kind of -- juxtapose how you're thinking about --

The first thing that comes to mind is absolutely nonnegotiable. We're not going to make one step in the direction of endangering quality. In fact, we are convinced that the biggest driver of this, we call it Project Q for Project Quality, not Project Save Cost, right? It's Project Q because we think we'll end up delivering a more consistent higher quality product here, and we just won't flat out consider something that we don't think is as good if not better in terms of process, ingredients, et cetera.

Understood. Thank you so much for the clarity.

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

Great. Thank you. A question for Greg Levin, I'm not sure, did you talk about what you expect average weekly sales growth to be going forward here?

I did, Conrad, and what we've seen over the last, really over the last year is our average weekly sales has been probably about a half a percent less than our comp sales.

Okay.

It's kind of been the trend. Looking at our development going forward, knowing as we talked earlier that there's not as many California, let's call it, restaurants that tend to have a higher averaging volumes, I would probably say that's a reasonable trend. I do believe once we get into the Midatlantic later this year that we'll probably see some big booming restaurants that come up from that. And, again, I think where we are today with only 132 restaurants, it's much more about the geography of where we're opening restaurants that drive that average in volume versus the fact that we're out of great locations, so to speak. It's that clustering strategy that we take on at BJ's.

Yes, got you. And let me use that to segway into the next question, with wages being somewhat of an issue, I should say hikes in Obama care, is there any more of an effort to go towards credit states for development or is that still perhaps maybe something that's considered more of a thing lower on the totem pole, so to speak?

That's really a byproduct. What we do, we look at sites, obviously we look at densities and sales traffics from there, and we let Wayne Jones articulate in regards to how it is from a hiring and employment standpoint. Those are much more important. As we talked here about California, as expensive as it is to do in California or to operate a business in California, you end up having some of the highest averaging volumes in California. Your produce is grown in California. So there's other benefits that continue to help California where we end up getting great margins in this current state. So, again, [CHIP] credit decision is much more a byproduct of looking for great real estate.

Got you. A final question here, of all the promotional activity that occurred in the first quarter, call it bounce backs, inserts, even TV, what would you consider was your most effective?

We're all kind of looking at each other.

And let me qualify it this way, the reason why I ask is just I'm curious what you think is the most cost effective?

Most cost effective? Down the road loyalty probably can be in the sense that we're able to engage with the consumer one-on-one directly through electronic means. Well, we talked about it I think at an earlier conference and Greg Trojan didn't go into a lot of detail on it, but using the loyalty program more than a surprising delight and we did some testing of that the fourth quarter of last year with having to redeem those points in the first quarter of this year, showed some pretty good traction. And that's where I think the loyalty program, that's where I think we would like the loyalty program to go and what we were trying to discuss a little bit earlier, and I think that will have the best benefit for us going forward and probably the best cost, but it's something that we're still working on, and it's kind of a little bit of my assumption based on what I've seen. I don't know --

Listen, I think the tried and true direct mail vehicles have the most dollar impact because they're giving us the most ground. They're not the most efficient from a cost perspective, but they definitely are an arsenal in our tool set and in this economic environment worked quite well.

From an efficiency perspective, although they didn't have the impact because of the scale of direct mail, some of the heavy up spending that we did in just in the digital arena, and the loyalty work that Greg was alluding to, are definitely the highest impact for cost. We've just got to keep working on how to expand the scale then so that they can really move the needle across our chain.

Okay. Thanks.

Thank you. Our next question is from the line of Brian Bittner with Oppenheimer & Company. Please go ahead.

Thanks. Hey, Greg's, how are you doing? When you think about just the marketing, what you've implemented in six markets, what type of comp gap are you seeing in those markets? Are you able to talk about that?

It's Greg Levin. We haven't given out that information in regards to what type of lift we've seen and what type of return we want to get, and we're still to be perfectly honest, Brian, kind of keeping that close to the vest as we work through those things. I think, as we mentioned, generally we've seen a lift in comp sales in all of those markets. The low awareness markets tend to have a larger lift, that's what we saw both this time and the last time, but we haven't gone out yet specifically and said what that lift is and what type of return we'd expect from that.

Okay, how about where you're seeing the lift without quantifying it, are you seeing it most in the middle of the week, are you seeing it just pretty much across the seven days of the week, or are you seeing it more on the weekends?

I don't have the answer to that. I haven't really looked at it from that standpoint. I'm thinking about our daily comp sales and how they've come through, and it looks like it was, and again this is a little bit anecdotal, so I'm kind of going off the top of my memory here, it appears to be a little bit more in the middle of the week and going into that early weekend. And I've got Wayne Jones shaking his head, as well. And I think that's because most of the television advertising that we did a lot of it would be seen during that middle of the week and that top of mind awareness. So it's a little bit of the anecdotal, but I believe that's what we saw.

And also keeping in mind that our restaurants are obviously very busy on the weekend and we have greater capacity, so I think that's where it's likely we're seeing the greatest pickup.

Okay, and just lastly on this current comp trend that you're seeing, you know, you talk about the mid 2 range, but you think the underlying trend is more like 1, I mean is that simply because that's what the trend has been the last couple weeks?

Well, obviously, that's what my comment was in the sense that's why we saw the higher comp in the first week, if you kind of strip that out the trend is somewhere around that 1%. It's getting back to being a little bit more volatile than we've seen in the past. Frankly, there's been a couple surprisingly strong days in there and then all of a sudden it trends back down to the flattish number. Where I think in the first quarter it started a little bit more volatile, but it's starting to get a little bit more consistent as we get into the spring break timeframe.

Okay. Thanks.

You're welcome.

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

Yes, thanks a lot. Let me start there with the same store sales trends, just in a larger sense. Anything you've seen in the business that makes you more optimistic relative to where you were a quarter or two ago, for the rest of the year?

Yes, I would think so. If you said a couple of periods ago, you know, February was real interesting and we all saw the Navtrak numbers down in the negative five, we weren't there, while we didn't give specific monthly and we never do, I would tend to tell you that BJ's always has a much shorter band or smaller band I would say from month to month than maybe what we see in Navtrak. But the trends that have picked up in March have carried over a little bit to April, probably not quite as robust as you get back to more -- as you got out of spring break, but I think the trends look a little bit better currently than maybe what we saw earlier in the beginning of last quarter.

Okay, great. And then you had mentioned the stories to you guys is in two parts, right, unit growth and margin expansion. And so I think you've talked about longer term 8% to 10% sort of operating margin targets, and you're making a lot of investments, and this year it doesn't look like you're going to have operating margin growth. I'd like to know if you actually think you might? And then last year you didn't. So how do you think about some of the investments you're making, are they positive to that target, are they within that target, or are they actually impairing the target? There's obviously things that are going on there that are hurting, such as commodities and same store sales, but just from a higher level how do you think about that sort of target?

Well, I don't think that target changes, at all, Larry, in that regards. I think we have definite opportunity to get there. When you take a step back, really the third quarter last year kind of derailed 2012 and, frankly, we're starting to come out of that a little bit. Now the macro environment hasn't helped us much in regards to maybe getting a little bit more top line sales from a comp sales perspective, but I still look at the BJ's concept and look at where we know we can go and figure that that 8% to 9% to 10% operating margin is still out there, it's still very, very achievable. In fact, as we've talked about on these prior calls, Q1 and Q2 of last year we were running restaurant level margins in the mid 19% and 20% plus range. Then we came into Q3 and even in Q3 I think we did a 2% plus comp which, frankly, is not a bad comp number.

We just threw a lot of initiatives at our operators, and Q1 is always the most challenging in the sense that you have higher payroll taxes and other things that kind of rollout, new contracts for food cost, et cetera, but the operating and financial improvement that we made in Q1 [inaudible] is pretty impressive, meaning our cook times are better, theoretical food costs versus waste is better right now, the hourly labor system that I put in place has really produced some tremendous results there.

And I think as we continue to kind of work through this year and maybe the macro environment gets a little bit better I think, frankly, the ability to leverage this business is in a better position right now than it was six months ago. And when I say that that means it's not, hey, we need 3% or 4% to get back to margins, we might need less comp sales on that because of some of the things that we're doing. So I'm really opportunistic or feel really good about the future both from a margin standpoint and probably have never felt better in regards to development, especially looking at where our new restaurants are going and our existing restaurants and the markets they're in and the sales volumes. I mean I think it's an exciting time.

Great, great. Last thing for me, Wayne, when are you changing your name to Greg?

I'm just a token.

Okay, thanks, guys.

Thanks, Larry.

Our final question comes from the line of Will Slabaugh with Stephens. Please go ahead.

Thanks, guys. I just wanted to ask you quickly about consumer trends in general, and I think, Greg Levin, last call you talked about some softness you were seeing during the week as opposed to the weekends, and so I wanted to -- and then also some other things, so I just really wanted to contrast out as much as possible with what you're seeing now? I think I heard you correctly in that that trend has improved, but wanted to get comment on that if that is, indeed, the case, and any other guest trends or feedback that stand out?

The trend has improved and some of that could be due to the fact of the earlier spring break and how that played out because obviously you've got more availability during the middle of the week. When I looked through the first quarter, as I mentioned, all the day parts were more or less positive. I would say, though, that the mid-afternoon and late night date parts were a little bit more positive than maybe the lunch and the dinner, maybe that had to do with, again, the availability because of spring break.

Looking at this quarter, again, only a few weeks in, but it seems pretty consistent in regards to comp sales, whether it's a weekend or a middle of the week, they both are kind of come together, so to speak, we're not seeing one major difference between the middle of the week or the weekends.

Thanks. And just a quick follow-up to that, I wonder if you could talk about the impact from some of these initiatives that you have going on and how you would dissect that, and one being the more intentional marketing that you discussed either whether that be through the new reserve line of beers, et cetera, and then the value push being the other side of that as far as two for $14.95 at lunch and things like that, and where you're seeing maybe bigger impact with one versus the other?

Yes, I'm thinking about your question for a minute, Will, because you asked a lot of different things there. The first one is some of the operational initiatives, and I'm not sure there's as many four-wall operational initiatives here in this first half of the year or the first quarter than in the past. Most of it has been outside, which gets back to kind of the marketing question I was asked a little bit earlier, and we kind of talked about the different marketing initiatives that we've done. I don't think any of them had any major impact on the four-wall economics of the restaurant in regards to execution from that standpoint.

Looking forward, as Greg Trojan kind of listed four different areas to look at. One of those that he talked about being the complexities and other things within our restaurant, ultimately that's going to help our restaurant and we're kind of handling that right now internally and then we're going to be testing at a couple of other restaurants and that's made, actually improved the execution and improved the quality within the restaurant.

So I don't know if I directly answered your question, so if I didn't if you want to rephrase it maybe I can get the answer?

The only other side of that just being if you're seeing a nice improvement or at least seeing some impact there as you make a value push of the lunch, two for $14.95 or other offers that you make, either from a discounting perspective or just trying to get people in the doors?

It definitely is making an impact there. When we -- one of the things that we've done, and we never really talked about it because, frankly, it's not that overall material, but we do look at how many checks come in that they're using a two can dine for $19.99 or the lunch specials, two can dine for $14.00, so to speak. And in this first quarter I think about 3% of our checks were promotional related checks. Last year in the first quarter about 2% was, so you saw about a 100 basis point increase there.

It's still from a discount, from a gross PPA, down to a net PPA, from a gross check down to a net check it's still less than 1%, but that number has a cost to retail or cost from gross to net price, basically doubled in that regards from last year to this year, meaning if you're selling it for $10 and your gross price or your menu price and you sold it for $7, that's a $2 discount, that percentage there has doubled but it's still less than 1%, but it definitely is an increased area for this year.

So, Will, I mean that's an important way that we look at, at least I look at measuring not just the effectiveness but how much of an impact it's having overall, and we saw that kind of uptick, which isn't massive in the overall P&L but it's a significant difference. I mean looking at the level of promotion, a third, and the dollars of discounting of around 50%, we view that as a good thing because it's I think a fundamentally a good way to reinforce the value message and you can be so much more targeted with it, even more targeted than we are today. So I think that's a tool in the shed here that we can use, if we use surgically versus through mass means can really drive some of the areas of our business where we have capacity.

Will, this is Wayne Jones. Just one other point on the beer, you know, beer is central to our brand positioning and our new reserve line has been extremely well received by our guests, and while obviously we want to sell more beer in the short term it really is more of a long-term proposition. We have 10 beers on tap now that are there every single day, in additional to our seasonal lineup, which pretty much encompasses the entire year. So the reserve line I think speaks to our creativity, to our craft and our heritage and how we position the brand over the long run.

Got you. Thanks, guys.

Thank you. At this time I'd like to turn the conference back to Mr. Trojan for any closing remarks.

Thank you, Operator. Appreciate everybody's time, and we'll talk to you next quarter.

Thank you, sir. Ladies and gentlemen, that does conclude our conference for today. Thank you very much for your participation. You may now disconnect.