BJ's Restaurants Inc (BJRI) 2013 Q2 法說會逐字稿

Good day, ladies and gentlemen, thank you for standing by. Welcome to the BJ's Restaurants Inc second-quarter 2013 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.

(Operator instructions)

This conference is being recorded today, Wednesday July 31, 2013.

And I would now like to turn the conference over to Greg Trojan, President and Chief Executive Officer. Please go ahead, sir.

Thank you, operator.

Good afternoon, everyone, and welcome to BJ's Restaurants' second-quarter 2013 investor conference call which we are also broadcasting live over the Internet. I'm Greg Trojan, BJ's Chief Executive Officer, and joining me on the call today are Greg Levin, our Chief Financial Officer; Greg Lynds, our Chief Development Officer; and Wayne Jones, our Chief Restaurant Operations Officer. I am currently overseas on a family vacation that I committed to long before my decision to join the BJ's team back in December of last year. And, unfortunately, the telecommunication infrastructure is a bit iffy here and, as such, I will be -- I may be disrupted during our call. If that is the case, Greg Levin will deliver my prepared remarks for the call. Hopefully that won't happen but just in case.

After the market closed today we released our financial results for the second quarter of fiscal quarter 2013 that ended on Tuesday, July 2. You can also view the full text of our earning release on our website at www.BJsrestaurants.com. Our agenda today will start with me providing an overview of the second quarter, followed by a brief update on our key initiatives for 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. And then after that we will open it up to questions.

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, please go ahead.

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 statement 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 31, 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'm very proud of how our team continued to navigate the difficult sales environment we are currently experiencing in the restaurant industry, particularly in the full-service casual dining sector. Our total revenues were up 10% to $198.5 million, driven primarily by continued strong execution of our new restaurant development pipeline. Our comparable restaurant sales were actually up slightly at 0.03% for the quarter, lapping a 4.4% increase a year ago, our strongest quarter of last year and a 6.9% increase for the same quarter back in 2011. I believe our comparable restaurant sales held up well when compared with the industry, even in the face of extraordinary discount tactics being employed price several of our larger mass casual competitors. I will comment on some of our going forward sales building activities in a few moments.

Our reported diluted net income per share for the quarter was $0.30 compared to $0.31 in last year's second quarter. During the quarter we closed one of our small format legacy Pizza & Grill restaurants in Eugene, Oregon, and re-opened that restaurant in a new location that could support our prototypical larger format Brewhouse restaurant. As a result, we recorded a $326,000 charge related to the closure of this restaurant. Therefore, excluding this charge our non-GAAP adjusted net income and diluted net income per share is $8.8 million and $0.32 respectively.

Our restaurant operators did an excellent job continuing the productivity momentum over the last few quarters. Our continued disciplined in carefully managing the number of operating initiatives we are pushing down to our restaurant teams is paying dividends. In fact, despite the flattish comp sales, our mature restaurants reduced their food waste, increased their hourly labor productivity, and also reduced what we internally call their controllable cost during the second quarter compared to last year.

Just as important, our guest service, food cook and run times and other quality metrics also showed improvement over the same quarter of the prior year. While we are not able to match last year's restaurant level cash flow margins on essentially flat comp sales, we are encouraged that we have taken the level of comp growth we need to leverage our four wall restaurant margins down quite a bit over the last couple of quarters. Historically we have thought we needed at least 3.5% of comparable restaurant sales growth to maintain four wall margins and offset the operating cost burden of opening new restaurants. Given our recent performance, we now think we can maintain our margins at somewhere close to half the rate. This is a big foundation for us and will help us deliver long-term ROI and value creation.

Greg Levin will cover the financial results and margins in more detail during his financial commentary on the quarter, but in general, our new IPLH, or items per labor hours system, helps us achieve another 40 basis points improvement in hourly labor and our purchasing and better recipe and food waste management controls in our restaurants helped drive a 50 basis point improvement in cost of sales versus the same quarter last year. Our performance versus theoretical improved by 10% from the quarter -- second quarter of last year.

In summary, while our work is never done a driving better efficiency to our enterprise, I am pleased with the progress we have made and continue to make in terms of our core execution in our restaurants and work our support center teams are executing to drive scale efficiencies throughout our business. Our biggest challenge is clearly to drive more traffic and sales into our restaurants.

In the interest of better understanding our comp sales trends, let me provide some thoughts and data relative to our past comp sales drivers. I do so in order that you will come away with a better understanding of the historical drivers of our comp performance and why we are focusing on the areas that we are to drive future sales gains. Greg Levin will also provide you with some more detail on comp sales for the quarter and current trends later in the call.

First of all, over the last several years we have consistently outperformed the industry in casual dining comp sales. In fact from 2008 through '11, we averaged almost 500 basis points better than Navtrak. Last year, so fiscal 2012, our comparable restaurant sales increased 3.2% compared to the Navtrak data of a 0.5% increase. That's 270 basis points better than Navtrak.

This out-performance was driven through a series of four wall initiatives focused on capacity increases, eliminating service and production [biomix], applying technology to increase guest throughput and table turns and more thoughtfully deploying our labor in our dining rooms, increasing the overall quality of our management talent and driving menu innovation to increase both the number of items ordered per guest and to offer opportunities for our guests to spend more per visit, as well as building brand awareness through our new restaurants cluster strategy. The four wall initiative starting back in 2005 and '06 as we identified several bottlenecks in our speed of service, resulting in our implementing a series of technology enhancements including kitchen display systems and an automated of front desk system.

In 2010, we worked extensively to drive incidents rates, or items ordered per guest. This initiative was led by our snacks and small bite offerings in 2010 and also by extending our guests draft beers in our restaurant which began in earnest in 2009. In 2010 and '11 we began another round of capacity expansion by implementing our new seating program which was substantially completed in 2011. This allowed us to help drive a 2% increase in guest counts for fiscal 2011, and we finished fiscal 2011 with comp sales of 6.6%. We also began introducing more specialty entrees to drive a favorable mix in 2010, which included items like our pork chops and lightened entrees and later our steaks and seafood items.

As I mentioned, in addition to these four wall base initiatives, we also benefited from our opening strategy, allowed us to build out Texas and California and thereby providing brand awareness to drive comparable restaurant sales growth. From 2009 through '11 we almost doubled the amount of restaurants we had in Texas, resulting in comp sales that were about 300 basis points greater than our system average and 700 basis points better than the Navtrak data projected. As Texas has matured and our adolescent growth spurt in Texas is behind us, our Texas restaurant comp sales are still outperforming Navtrak data, but the spread has narrowed. At the same time, we continue to build new restaurants in California where many other companies slowed their growth in California and even shut down restaurants due to the severe housing recession in our state. As a result, we not only benefited from less competition, but as those markets began stabilizing and growing, we were able to generate excess comparable restaurant sales.

So what are the future drivers of large comp sales gap to the market? There are four areas that we are focused on -- driving awareness and trial through efficient media mix and strong brand message; number two, leveraging our loyalty program to drive more frequency from our best guests; three is creating product news and cravable items on our menus, and improving our speed of service. In regards to driving awareness through efficient media mix and strong brand messaging, we just concluded a round of awareness, trial and usage research, similar to that we engaged in 2011. So it's a good comparable gauge of how we are doing versus our competitive set in the eyes of our casual dining customers. The good news is that we actually improved our performance in most key attributes and maintained our substantive lead in those that we did not see improvement.

Again the data continues to show that we have a tremendous propensity to convert first-time triers to loyal fans of BJ's at a significantly higher rate than most of our competitors. That's why we're so interested in finding an efficient media mix and brand messaging that can help us drive trial and frequency. Toward that end, we are expanding our TV testing in the later part of Q2 and early Q4. Given the success we have had driving top line in our markets of previous two rounds of testing, our goal is to drive similar increases at much lower effective cost per point rates.

As I have mentioned in the past, we wanted to buy premium placement media in our initial TV test so that we could know that any possible lack of efficacy was not attributable to the quality of our buy. In order to drive our sales [acted] ROIs in some of our larger more expensive media markets, where we have to approach our media buying differently. We are planning on doing that later this quarter at media costs around 20% to 25% less than our first initial tests.

Importantly, we have also been working on the messaging and our overall brand positioning which would drive our future creative. I'm encouraged by the progress we are making on this front and look forward to launching new creative messaging in the future. Even though we are doing this additional testing, I do want people to understand that BJ's is not yet TV media efficient on a Company-wide basis, however. Secondly, we continue to be pleased by the engagement of our guests as shown with our loyalty program and the response we have been getting from our loyalty-based offers. We lost several in the past few months and have seen impressive redemption rates in the double-digit range in virtually every case.

We have been careful not to induce fatigue amongst our guests so we are anxious to use a greater targeting capability we anticipate to be ready later this quarter. We believe by delivering personalized, highly relevant offers to our roster of nearly 800,000 loyalty members now, we can make this an important sales driving tool and in a way that grows the brand loyalty but does not erode our brand equity through mass advertised discounting.

Our next sales building opportunity is to use innovative product development to drive sales and longer-term brand engagement. Our recent barbecue summer LTO is a good example. At the end of the second quarter we launched our new blue ribbon barbecue cross-promotion with championship Pitmaster's Big Poppa Smokers. As I referenced on the last quarter's call, this new partnership is a model for how BJ's can continue to build our brand through innovative partnerships with other brands. Our new barbecue items have been extremely well received by our guests and have helped provide new menu news with bold flavors and the credibility of Big Poppa Smokers' award-winning recipes. We also recently introduced Moroccan salmon and bison burger Enlightened entrees, and they have been hits with our guest as well. In fact, they are the number two and three ordered items in that category.

Our barbecue promotion will continue throughout the summer, and we will be supporting it through a combination of digital, print, social and broadcast media. The execution of some of these media vehicles will be system wide while others will be focused on selected markets. And, based upon the results we saw in tests, we anticipate the new barbecue LTO will drive new guess trial and increase frequency among existing guests.

Later in the quarter we are also introducing one of our most unique and popular seasonal beers, our Field Day Fresh-Hop IPA. This is a beer that our brewers pick the hops in the field during the morning and brew the beer later that same day. It is a testament to our commitment to craft beer innovation, and we anticipate the beer will sell out in record time. You can view videos of our barbecue promotion and the making of Field Day on our YouTube channel at www.YouTube.com/BJ'srestaurants.

In addition to the release of Field Day, we are re-launching our entire signature beer line up with new contemporary logos, new sales and merchandising materials, and updated beer education for our team members. The early feedback from team members and guests has been very positive and has increased BJ's beer incidents and overall beer incidents in our test restaurants. As you all know, our handcrafted beer has been a cornerstone and key differentiator for the BJ's brand since 1996. And in fact over the years, our beers have won over 100 medals at different beer festivals including the prestigious Great American Beer Festival and the World Beer Cup. As craft beer has gotten more and more popular, we have an opportunity to reinforce the story of BJ's award-winning craft beer in our leadership position. Therefore we believe this re-launch will help re-engage many guests to BJ's beer.

So you can see that we have been busy creating new reasons for guests to try and frequent our restaurants more often, as well as more effectively telling the stories behind existing elements of our concept. We will continue to innovate and partner in that effort when there is an opportunity to do so.

Our last sales building area focuses to improve our speed of service. Our research tells us we are about even with our competitors on this front, but my own view is that we are too slow, particularly at lunch and even during the dinner date part, especially if you have to be somewhere in a short window. We are treading a bit carefully here as it would be easy to improve this metric at the expense of food quality, which is not as easily measured.

That being said, our project Q initiative, which stands for quality, is where we are working at reducing the unnecessary complexity in our kitchens, will be a key driver of our improvement here. We have five restaurants in early tests where we have marginally reduced the number of menu items and improved our procedures based on some of the areas we have worked on under project Q. While the test is very preliminary, we are seeing some very positive signs. As such we may expand this test to some other restaurants and continue laying in some other improvements that will drive quality and speed in our restaurants going forward. This is a very exciting initiative for us, and I believe over time will be extremely beneficial in expanding our capacity like the kitchen display system was or seating was back in 2010 and '11.

Clearly looking at new ways to drive our awareness and top line is a top priority. However, at the same time we will continue to work on some of our other major initiatives I laid out on our last call. These initiatives include food quality and uniqueness, improving operating productivity, and lowering the cost on our new units. As I mentioned, we will continue to work on raising the bar in casual dining on food quality and uniqueness. This includes items that are new barbecue LTO and Field Day IPA. We also have an impressive new menu pipeline as we get ready for our regular menu update this fall. Our goal will be to continually balance new product innovation with our ability to execute it in a quality fast manner.

In regards to our operating productivity, we are currently working with our vendors to make sure that we are leveraging our supply chain and getting economies of scale we should be getting. This includes everything from analyzing our energy cost to transporting kegs across the US. When we go into 2014 we should have a pretty strong road map in place I can execute against and give us leverage as we grow.

And finally, Greg Lynds and his construction team are working on bringing down the cost of building our restaurants, as well as developing a smaller footprint to be used in certain markets. As I said last time, we continue to have many trade areas to build our 8500 square foot BJ's restaurant prototype. However, we believe there is 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. Keep in mind this is not new to BJ's. Today we have restaurants that average significantly less than our 8500 square foot prototype restaurant which gives us a good head start in our understanding of the smaller footprint design.

Our Huntington Beach restaurant is right down the road from our RFC, has our full bar statement including 103 inch plasma television in about 5000 square feet and just did $120,000 in sales last week during one of its peak summer months. While this is an unusual example, it shows that we have the capability to generate strong top line sales in slightly smaller restaurants.

With that let me turn it over to Greg Lynds to give an update on our restaurant pipeline. Greg?

Thank you, Greg, and good afternoon, everybody.

Our 2013 development pipelines remain in excellent shape, and our real estate team is working hard to acquire great sites for 2014 and 2015 new restaurant openings. Our new restaurant development strategy has always been centered on securing AAA quality sites within strong retail projects in densely populated more mature trade areas. And we will continue to maintain this discipline as we analyze and build our future real estate pipeline. To date in 2013 we have opened seven successful new restaurants. In the first quarter we opened one restaurant at the Southhill regional mall in Pyallup, Washington. In the second quarter just ended we opened for restaurants. Oklahoma City opened on April 22, then Redmond, Washington on May 6. Fort Collins opened on June 3 and then on June 24 we opened in Eugene, Oregon which was a relocation of our smaller format restaurant. So far in the third quarter we have already opened two restaurants. Jacksonville, Florida opened on July 15, and just two days ago we opened our seventh restaurant of the year at that Simon owned Outlets at Orange right here in our backyard of Southern California.

As we have said before, it is 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, we plan on opening seven new restaurants in the third quarter. That includes the two we already opened, and we have five planned openings in the fourth quarter. As a result, we expect to achieve our previously stated 2013 target of opening 17 new restaurants this year, which includes the relocation of our smaller Eugene restaurant to our larger Brewhouse format. All of our planned openings for the remainder of 2013 are currently under construction, and again, our quarterly opening schedule can fluctuate, and we will keep everyone advised of all future changes on our quarterly calls.

Looking forward into 2014 and 2015, 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 weeks in the approximate range of 11% to 13%. We have not yet announced the absolute number of new restaurant openings targeted for 2014, as we are still putting the final touches on our development pipeline for next year. We should be able to provide more insight on our 2014 capacity growth target on our next two conference calls.

As Greg Trojan mentioned, we are also working hard on the design and the next evolution of our BJ's restaurant footprint. This new design is a smaller footprint with a more efficient kitchen and will be engineered with the latest in technology and automation, which should contribute to the reduced utility costs, simplified maintenance requirements, better productivity, and an overall improved restaurant experience. These efforts should lead to even more attractive unit economic returns and will enhance our flexibility as we continue our national expansion. The smaller footprint design is not new to BJ's. We currently operate many custom footprint restaurants that average significantly less than our 8500 square foot prototype restaurant.

In addition, we are able to build upon the learnings from the BJ's Grill that we opened up a few years ago right here in Southern California. This has allowed us to fast-track this design, and we plan to build this new prototype beginning in 2014. With our solid new restaurant growth over the last few years, we now have a stronger restaurant 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 BJ's restaurants domestically that can perform at the current level of our unit economics. With only 136 restaurants open in 15 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.

Greg Trojan back to.

How about Greg Levin back to you, Greg? Go ahead.

All right, I will take it from here. Thanks, Greg, and thanks to the other Greg.

Let me take a couple minutes. I am going to go through some of the highlights for the second quarter and provide some forward-looking commentary for the rest of 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 10% to $198.5 million from $180.7 million in the prior year's comparable quarter. This increase is due to an approximate 11% increase in operating weeks, offset by a decrease in our weekly sales average by about 1%. Our comparable restaurant sales were basically flat as we mentioned at a positive 0.03%. As you may recall we started the quarter relatively strong primarily due to the Easter holiday flip-flop in which Easter Sunday fell on the last week of the first-quarter of this year. However, after a solid overall April, so April held up relatively well during the quarter, our comparable restaurant sales turned slightly negative in May and continued that trend into June. As we have mentioned over the last year, we continue to see softer comparable restaurant sales during the Monday through Thursday time period as opposed to the weekends. Additionally, lunch in general is softer than dinner. We continue to see strong comparable restaurant sales in both the mid-afternoon and late night part of our business, so in those off peak business hours.

And analyzing our comparable restaurant sales this quarter, and adding on a little to what Greg Trojan was talking about, we are experiencing a longer honeymoon periods than in the past come resulting in pressure from our newer restaurants as they come in to the comparable restaurant sales base. Restaurants currently come into the comp sales base after 18 months of operations and therefore we are comparing month 19 of operations to month 7 of operations for newer restaurants. This longer honeymoon period I believe is due to the increased brand awareness of the concept as we build out certain markets. As a result, our class of 2011 restaurants impacted our comparable restaurant sales by about 60 basis points for the quarter.

Said differently, if we pulled out the class of 2011 restaurants from our comparable restaurant sales calculation, our comp sales would have been a positive 0.6% for the quarter. Overall we are -- we continue to be pleased with the sales volume from the class of 2011, which are achieving our internal targets, and we believe as they get further away from their honeymoon comparisons should have the ability to produce some nice comp sales for us. Just to give you an idea of the impact from our new restaurants, for example, our Pembroke Pines restaurant in the South Florida area. It opened in September of 2011. So it just went into the comp sales base during the second quarter of 2013, and it averaged $122,000 per week during this quarter. At the same time last year, so months seven through nine after its original opening, the restaurant was averaging about $132,000 a week in sales. That is a decrease of about 8%, but as you can see very strong top line sales for that restaurant.

And without getting into every single restaurant or every single class here, I would note that our class of 2010 restaurants, which is now technically in their second year of comp sales, comped positive for the quarter and is also positive year to date. We also continue to experience softer comparable restaurant sales in California as I mentioned. I believe there are a few things that are impacting California. First, as we've said before, we have built out California so most of our newer restaurants, while generating strong top line sales, and therefore solid returns on shareholder capital, tend to slightly cannibalize nearby BJ's restaurants. Secondly the second quarter, we experienced a move in the graduation time frame for many of the California state colleges. This resulted in college graduations during the same week as many high school graduations. This shortened our graduation period and limited the amount of large parties that we could serve data capacity constraints during the important -- during this important season for our business.

Also in California, we are seeing greater competitive intrusion then in the past. In fact I would probably say that this is true throughout the entire United States. I think what most people forget about BJ's is during the recession years and really until recently, we were one of just a few casual dining restaurants growing. As a result, we continued building in California and many other states as others were shutting restaurants down and softening growth. Now as the economy has stabilized and has been growing albeit at a very slow rate, we are seeing many more new restaurants coming into our trade areas. In fact if you had paid attention to the jobs report, restaurants have added about 52,000 new jobs in the last month, so in the month of June which was approximately 26% of the growth in employment.

While at the same time, according to the Commerce Department, food service sales declined 1.2% in June and have been growing at a rate less than traditional retail sales over this last year. What this tells me is there is a greater supply of new restaurants, yet demand is not growing at the same rate that supply is coming on board. In fact, based on some of the information that we put together, we estimate that at a minimum, approximately 20 of our restaurants were impacted by new restaurants that have recently opened.

Generally this impact to our sales is transitory. And after the initial honeymoon from the new restaurants, our sales typically come back, especially considering the higher quality, more differentiated dining experience, we are providing a price point that is either generally the same or less than many of our peer restaurants in casual dining. Our flat comparable sales increase for the second quarter consisted primarily of a low 2% benefit from menu pricing, offset by an estimated decrease in guest traffic in the 3% range with the net favorable mix in incident rate.

In regards to middle of our P&L, our cost of sales was 24.4% of sales, and that was down about 50 basis points compared to last year's second quarter. And sequentially it was down about 10 basis points from our first quarter. This decrease from last year's second quarter was primarily due to menu pricing and reduced waste, offsetting a pretty benign commodity cost environment and cost increases due to menu mix. The decrease sequentially from the first quarter of 2013 is primarily related to a full quarter's worth of menu pricing that went into effect in February of this year. Labor during the second quarter was 34.2%, which was flat with last year's second quarter. We continue to see improvements in hourly labor from the new labor scheduling and productivity system that we implemented during the third quarter of fiscal 2012.

Additionally, based on top line performance our restaurant level incentive compensation is about 40 basis points less in this year's second quarter compared to the same period last year when we achieved a 4.4% increase in comparable restaurant sales. The improved hourly labor productivity and lower restaurant level incentive compensation helped offset increases in our management labor, workers compensation insurance, and FUTA rates in California and Florida. Our operating and occupancy cost increased by 110 basis points to 21.6% of sales compared to last year's second quarter. Approximately 50 basis points of this increase related to the planned additional marketing spend.

As such we spent about $3.8 million on marketing related cost during the second quarter, which approximated 1.9% of sales as compared to 1.4% last year. The other 60 basis points is primarily due to higher general liability insurance and facilities costs for our restaurants. Our general and administrative expenses for the second quarter were approximately $12.6 million or 6.4% of sales. G&A came in about $600,000 lighter than what I had anticipated as we reduced incentive compensation based on performance to date. Included in G&A is $918,000 and $789,000 of equity compensation for both 2013 and 2012 respectively or 0.5% of sales and 0.4% of sales for each year. Depreciation and amortization was $11.9 million, and it averaged about $6900 per restaurant week, which is in line with our most recent trends regarding depreciation and amortization.

Restaurant opening expenses were approximately $2.3 million during the second quarter, which was primarily related to the four new restaurants that opened during this quarter, plus some opening costs related to our restaurants that opened at the end of the first quarter and opening costs related to restaurants that are expected to open in the third and fourth quarters of this year. On average, our pre-opening costs continue to be around $500,000 per restaurant. Our tax rate for the second quarter was approximately 28.1%, and I would expect our tax rate going forward to be around 29%.

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 and discussed in our filings with the SEC. Based on the industry data that we have seen to date and heard from many other public restaurant companies, July sales have been much softer than anyone anticipated. Our comp sales through the first three weeks of July are in the negative 1% to 2% range. However, as I mentioned, it is very choppy and very difficult to discern a specific pattern. Looking specifically at the first three weeks of July, we continue to experience the drag on comp sales from our class of 2011 restaurants as a comp against their honeymoon periods for the prior year. Geographically in July, California continues to be soft pretty much consistent with its prior trends, and we have seen some increased volatility in many other locations.

Based on the macro data we have seen, the economy of the consumer is still very challenged with sluggish growth and stagnant wages. The consumer appears to be allocating what disposable income they have towards bigger ticket items that they may have deferred over the years such as cars, trucks, homes and other big-ticket items such as furniture at the expense of eating out. Additionally, we do know that sequestration is now just starting to take place in July, and this may also be having an effect on some of our locations where we have large numbers of federal government employees in our guest base.

While we continue to see is when there is a reason to celebrate restaurants, and in particular BJ's does very well. We saw this in quarter one with Valentine's Day and in quarter two with Mother's Day and Father's Day. In fact over the Father's Day week we had eight new restaurant records and all of those were in California. However, absent a reason to dine out, it has made it very challenging to drive sales in the restaurant space. Even though we will be going over some eager comparisons in the second half of this year including lapping the opening and closing ceremonies of the Summer Olympics, the political party conventions as well as the Presidential debate and election day, not to mention the increase in our own marketing spend, we still believe for those of you building your models to err on the side of conservatism and build your models based more on our current comparable restaurant sales trends.

Our menu pricing for the third quarter will be around 2%. We do have approximately 1% of menu pricing that will be rolling off towards the end of September thus dropping our pricing to around 1% for the fourth quarter, absent any new pricing. Our next pricing opportunity will be at the beginning of November when we roll out our new fall menu. At the current time and based on the uncertain macro environment coupled with better than expected commodity environment, we have not yet decided how much pricing if any we may take when we introduce our November 2013 menu.

As we said before, pricing is the last lever we pull to drive sales. Our goal is to drive sales by offering a higher quality, more differentiated dining experience in a more contemporary facility, executed with sincere hospitality and gold standard service. We will not try and price our way to success. Our pricing strategy is about preserving our unit economics, and any pricing we take is considered only after contemplating the success of our productivity and sales building initiatives on our four wall margins.

For the third quarter I would expect around 1775 or so restaurant weeks. In the past second quarter -- in this past second quarter our commodity basket increased less than 1% from last year. However, we are expecting our commodities to increase in the low 2% range for the rest of this year based on our latest forecasts from our supply chain team. Additionally we are currently promoting our barbecue specials the end of August, and these proteins centric LTOs tend to have higher overall food costs. Therefore, based on this forecast and the success of the barbecue, I am expecting our cost of sales to increase into the middle, upper 24% range for the rest of 2013. As I mentioned before, labor is significantly influenced by comparable sales increases or decreases. While our teams have done a solid job of executing in the current environment, and adjusting their daily labor based on our new productivity system, it is difficult to gauge labor productivity in this soft but volatile environment.

Therefore, based on current comparable restaurant sales trends, as well as the increases we are expensing in workers compensation and higher FUTA taxes, labor the third quarter may be in the upper 34% to low 35% range. Again this is based on current sales trends. We want to make sure our labor is set up to take care of our guests, because the bottom line is great food and great service and hospitality will ultimately result in improved top line sales. We have said this many times, the guest sees our brand through our team members that take care of them every day. Therefore, we must and will hold our line in labor so that we continue to provide great service to our guests and not make rash decisions on labor that could tarnish our brand going forward. At the same time, I do believe based on the improvement we have made this year from our labor system, that with some improvement in the casual dining sales environment, we are poised to show great labor leverage.

In the second quarter, our total operating and occupancy costs were approximately $24,900 per week including marketing costs. Marketing was about $2200 per restaurant week in the second quarter which equates to about 1.9% of sales in the second quarter. Therefore as Greg Trojan mentioned, we intend to increase our marketing in the third quarter to drive top line sales. As such I am expecting total operating occupancy costs to be in the low to mid $25,000 range per restaurant operating weeks for the third quarter. This is based on total marketing spend of the $4 million range for the quarter.

Obviously operating and occupancy costs will vary as a percent of sales based on top line comparable sales and, based on the results of our marketing tactics, it may increase or decrease during the quarter. Therefore I think it is better to think about operating occupancy costs on a cost per week basis versus trying to model it is a percent of sales. Our absolute G&A dollars spent in Q2, actually in Q3, should be around $13 million to $13.5 million 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 management training program, travel and other related costs due to the timing of opening up new restaurants and other factors.

As I've already mentioned, we currently expect restaurant opening costs be about $500,000 per restaurant. We will incur pre-opening non-cash rent as much as five or six months before a restaurant opens and therefore pre-opening costs for any quarter may not be indicative of the number of restaurants that open in that quarter. I therefore would expect pre-opening to be around $3.7 million to $4.2 million in the third quarter. We currently anticipate our income tax rate, as I mentioned earlier, to be around 29% and our diluted shares outstanding to be around 29 million.

In regards to our liquidity, we ended the first quarter with a little over $43 million of cash and -- we ended the second quarter with a little over $43 million of cash and investments. Our line of credit for $75 million that does not expire until January of 2017. Our total gross capital expenditures to date is approximately $60 million. We continue to expect our gross capital expenditures for 2013 to be between $115 million and $120 million, and we plan to receive TI allowances and proceeds from the sale lease backs in the $15 million range.

Therefore our planned net CapEx is currently expect to be the $100 million to $105 million range. We anticipate funding our expansion and capital expenditure from our cash and investments on our balance sheet, our cash flow from operations, and from the proceeds from our tentative improvement allowances and sales lease back transactions.

With that I'm going to come back over to Greg Trojan. Greg?

Thanks, Greg. While the overall operating environment is challenging for restaurants currently, I am very excited about the future of BJ's. The work we're doing right now is laying down the foundation for driving comp sales and expanding the brand nationally. Our brand research shows that we actually improved our performance gap in most key attributes and that we have a tremendous propensity to convert first-time triers to loyal fans of BJ's at a significantly higher rate than competitive concepts. Therefore we are excited to work on the messaging and media mix to tell our consumers about BJ's. At the same time, we continue to makes solid strides in our cost structure and are poised to leverage future comp sales increases.

Projects Q is going really well in the eyes of our team members and guests, and this project will not only enhance our competitive advantage against our peers, it will allow us to improve our speed within our restaurants and therefore increase throughput within our restaurants. Our new menu pipeline looks solid as we continue to create new cravable menu items for guests. And finally, the work on our new prototype should enhance return for investors and give us more flexibility as we continue our national expansion. As we have mentioned before, BJ's is still just an adolescent. We have 136 restaurants, and we believe there is room for at least 425 restaurants domestically. The best days are still to come for our concept.

So thanks for your time today, and, operator, please open the lines for any questions.

Thank you, sir.

(Operator instructions)

Brian Bittner, Oppenheimer & Company

I guess just talk about sales here. I respect the tough top line environment out there and how it is obviously impacting you. But the performance against the industry seems to be moving little bit in the wrong direction versus history. The torque in your model is really relying upon getting those comps in better shape from here.

So I just want to address a couple of things. I think number one, why keep adding stores in California at this point? I just think the returns might be good on the new unit but it seems to arguably be pulling comps out of existing ones, pulling some returns out of existing ones when you have got a lot of white space ahead of you. So I guess if you could just answer that first, and then I have a follow-up.

Sure. I'll answer that Brian. Fundamentally, we are going to be spending more of our development capital outside of California proportionally than we have in the past. But that being said, even in light of some of the cannibalization that we are seeing, some of these trade areas still represent great ROI opportunities for us.

So you are right we could manage our comp number if you will and be less challenge there, from a comp perspective. But we would be missing opportunities which are driving very sound financial returns overall. So we will still look for in trade areas that are particularly difficult to develop in that we still think are great opportunities. But more and more of our development capital will be spent outside of California.

Okay. And on the new units entering the comp base it seems like they're entering the comp base in the downs in the down high single digits. Is that something that is going to be sustainable and we should expect with forward?

Brian this is Greg Levin. Looking at the current trends, I do think that number is kind of the current trend. I would expect, much like the class of 2010, that the class of 2011 will then start to hit its stride comp up. That does not mean then that obviously the class of 2012 is going to have that same impact, which tends frankly to be what we're seeing right now.

I don't see them turning in a different direction, meaning we are only three weeks into July. But the trends have not necessarily changed on the class of 2011. In fact I would probably say that some of them are stunning to improve because you just get further away from the honeymoon.

Okay. And then lastly, it seems as though the majority of the weakness is in the middle of the week. And it seems as though what -- to address that most effectively would simply be marketing, and you mentioned marketing.

Can you just give us a little better idea of what exactly is going on with marketing from here on? How many test markets are you now going into? What exactly are you going to be doing?

Well, Brian, this is Greg. We will be using an array of all the tactics that I mentioned which range from digital and local store marketing and the expanding test particularly on TV. We are utilizing some radio as well in selected markets. I will not get into finite detail for competitive reasons.

But the other opportunity that I talked about that we did see the effect particularly in that softer mid-week area that you mentioned in some of our loyalty promotions. And that allows us to be a lot more targeted. A few of those promotions we actually made effective to say Monday through Thursday kind of basis with a short window to redeem. And we saw some very encouraging results from that kind of offer. So that is the kind of stuff that we will continue to implement going forward here.

Okay, thank you guys.

Will Slabaugh, Stephens Inc.

I wanted to follow-up on some of the geographic commentary that you mentioned, Greg. You talked about some of the softness in California, and I wonder if you could talk about of any the trends that you saw across your geography during that period? And if there were any other standouts that were either positive or negative?

One is California has put up flat comps. California in general does not mean that it is doing a negative 6% comp in the rest of the industry, and the rest of the BJ's restaurants are doing a positive 6%.

In fact, California was a slightly comped. It was actually believe it or not it did better in Q2 overall basis in regards to comp than it did in Q1. Moved it a little bit, but it was not enough to really call out from that standpoint.

When I look at California, there is no real specific area that would probably maybe say the inland Empire area, an area that was I guess hit a little bit harder but the housing market and now housing recovery coming back is actually probably a more favorable area than some other parts of California overall.

What we can do those when we go through California, I can look and see the amount of competitive intrusion that is hitting our California restaurants outside of maybe new BJ's restaurants. So that's an area that has probably impacted us the most in California that we are seeing. Where we had an area to ourselves maybe or there were a few existing older restaurants. Then all of a sudden, because the economy is starting to pick up in California, two or three or four new restaurants come into that market. And as a result there is no specific area, but it is very much more isolated on an individual restaurant basis.

Got it. And as far as Texas, Florida the other regions, fairly similar?

It comes back and forth from them. Texas has more restaurants -- I think a few more restaurants that have are just hitting its honeymoon that have dragged it down, but it's existing restaurants in Texas -- I'm sorry in Florida continue to be well. In fact, the Orlando market again may be an area that with tourists, people wanting to drive there is doing actually well for us. The Scottsdale/Phoenix market is doing a little bit better from that standpoint.

So there's nothing that is coming out specifically market-to-market. It seems much more to be restaurant to restaurant, and we're still able to identify restaurant to restaurant because frankly, we are only at 136 restaurants.

Got you. And then just a quick clarification. You mentioned there is a positive mix in the quarter. I wonder if you could talk a little bit about where that is coming from and how you expect that to trend going forward?

Yes, the positive mix in the quarter primarily has to do with our LTO's, the limited time offerings. We did a seafood celebration, I think that's what it was called, Wayne, right? During the second quarter, that had scallops and shrimp and some other items. And that moved people towards that favorable mix.

Frankly the mix while it was favorable this quarter was not as favorable as it was last quarter when we did a steak celebration and average check on steaks was a little bit higher than the seafood celebration. But the incident rates our seafood celebration were very, very good and that is where we get that positive mix from. I would tend to think that we're going to continue to see that the barbecue that we've got here in the second -- the third quarter that is doing very well. And Wayne and the culinary team are working on other kinds of limited time offerings to go into both the third and the fourth quarter, the holiday season.

Great thank you.

David Tarantino, Robert W Baird and Company.

I wanted to come back to the question on your traffic turns relative to the industry. At least according to our data it looks like you have under performed the last two quarters and after an extended period of out-performance. So I'm just wondering if you could just maybe parse through why you think you flipped from the out-performance to the under-performance more recently? And I know you have looked at a lot of factors, but what has been more recent in that trend line?

David, this is Greg Levin, and I'll see if Greg Trojan has anything afterwards or maybe even Wayne. But what I think I look at is that we talked about on a couple things here, one is the impact from the newer restaurants, coming into the comp base. We are seeing restaurants that are opening up a pretty high volumes and are having a longer honeymoon period to come down from that.

So that impact there when you are down 7% or 8% in Pembrooke Pines, Florida that we talked about still pretty good top line sales. That's a pretty big decrease from a guest traffic standpoint especially with only 2% or so of menu on there.

As we mentioned, the competitive intrusion by new concepts in there when they come on board, they're going to take their nick over a short little period. I think our restaurants will come back. They traditionally have but that is going to impact it as well.

And I think as Greg Trojan mentioned, we are not as fast as we used to be. We have added a lot of things to our menu. It has grown a lot. They have given us tremendous movement, mix in incident rate perspective. But it is time to take a look at how we do some of these things to speed up the process.

And that speed is very, very important because a lot of times when guests leave our restaurants or you leave a dining expense, you rate that overall dining experience, not only on the check average, but how quickly were able to get in and out of that restaurant. As we have got a little bit slower in that regards with everything that has come on board, over time you start to say to yourself, maybe I can't hit BJ's for lunch right now. Or I want to go to a movie this evening, and I know BJ's is going to have a long line so I'm not going to go to them.

So I think some of those things are playing into it. I like what we are addressing. I'm actually really excited about Project Q for what -- how we are looking at our business to get ourselves a little bit faster where we were maybe a couple years back.

Okay.

Greg Trojan, go ahead?

Yes, I think that is the right thing in the only thing I would add is the issue around Texas and the maturation of markets and how those cycles are working. So Texas was driving a good amount of growth for us and still is a very healthy market and comping well. But as that market matures a bit from where it was, we are going to look to success of markets like Florida as we have scaled there as hopefully the new Texas.

And as we plant the flag in the middle Atlantic later this year, we will be starting sort of the embryo for that next market to be growing as well. So some of that you have got to recognize that it is the cyclical nature of a business according to the way that we are, and it is going to have those ebbs and flows as markets mature and we reach scale. And I think Texas is an example of that.

Got it. And I guess maybe a follow-up. One thing that you have not mentioned is value proposition. And at least according to our data, it looks like your average check growth has outpaced the industry in every quarter since 2007.

So the gap between your checks versus the industry has narrowed or widened depending on how you want to look at it. I'm just wondering what your data is showing in terms of value proposition and relative value that BJ's offers today especially in light of some of the competitive activity that is going on out there?

David --

Greg let me start and then --

Go ahead.

Sorry remote is causing some timing issue there. Greg, I'm sure you have more detailed data, but a couple things I'd like to respond to there. One is that you've got to recognize the menu changes that have occurred over the last couple of years at BJ's where we have introduced some center of the plate protein items that have been very, very successful and have impacted our guest check through mix.

So I think the issue that we do pay a lot of attention to is how we are comparably priced item to item. And I think we -- our research has affirmed that in fact our value quarters have gotten better.

Great, that's helpful, thank you.

I was going to mention the same thing. We just finished our, as Greg Trojan mentioned, our awareness trial and usage and research literally just finished it, and our value scores from 2011 and 2013 were actually up.

So I think we feel good about the value scores from that standpoint, our overall average check. A lot of it has been moved because of mix as we mentioned on the call we did introduce steak, seafood, center of the plate entrees like pork chops beginning in 2010. And that helped drive comp sales in addition to guest counts and incident rates. So, those were played out there just as much as kind of true menu pricing David.

Great, that's helpful, Greg. Thanks a lot.

Jeffrey Bernstein, Barclays Capital.

A couple of questions. First on the unit pipeline discussion, relative to 13 --I'm sorry the 17 that you are expecting2013, which includes that relocation. I know you have not finalized the 2014 number yet, but would you expect that number to be higher than the 17 in 2013?

I only ask because obviously in the short term with the weak comps, and you mentioned the competition for sites and that supply demand analysis that you guys put together. I didn't know it all of you ever contemplate whether or not is the time to slow or make any kind of directional change to unit growth pipeline over the next couple of years?

This is Greg Lynds. Our team is prepared -- and our whole team is prepared not only our development team to continue building at the same pace that we have been building not only this year. But really when you think about we have doubled the size of BJ's over the last seven, eight years probably. And our team is ready, and our pipelines are strong and we plan to continue our operating fleet growth which really translates to at least 17 restaurants for 2014.

Yes and, Jeff, as I think about this, our new restaurants continue to drive strong top line sales and have a great return on investment in that regards. And I think as we continue to look at the prototype and the setup of it and maybe drive down those costs, the return on invested capital and frankly the cash and cash returns whichever way you want to look at it, only are going to improve.

We are right now continue to move forward in regards to our continued expansion. We will continue to always watch comp sales from that standpoint and make sure we're doing everything we need a necessary. But frankly there's too much white space for this concept that has worked anywhere from El Paso, Texas, Gainesville, Florida, Irvine California and Century City California to continue to stop right now.

Understood. And then just from an earnings growth standpoint, and I know you don't give formal guidance but obviously you give a lot of color most of the line items. So knowing what we know today in terms of the slightly negative comps and then on the unit growth which is weighted more towards the back half of the year and the cost outlook which you gave us some of the pieces but not all.

Just to avoid misinterpretation, I'm wondering directionally, it would seem fair to assume that in the back half of the year we should not be expecting earnings-per-share growth? Is that fair to say? I know right now kind of consensus is still for some meaningful growth, but it does not seem to add up based on the numbers you're talking about at this point

Well again we don't get into specifics from an earnings standpoint. I think as you worked it through Jeff, the different things are give commentary on, that is kind of what I see right now and how that falls in your model is going to be how it falls so to speak. Other people might have it differently in their model.

But as far as earnings from that standpoint, again without giving specific earnings guidance, we're giving what we see out there currently. And if you want to take the assumption that we are going over Olympic for marketing out there in comp sales go to X or comp sales go to Y than that will make a difference in regards to how you ultimately come out from an earnings standpoint.

Understood. And lastly on the television advertising that you talked about. I'm just wondering it seems like as you ramp that up now, how do you measure the return on spend or maybe what type of sales lift are you seeing?

I don't know if we should be assuming closer to that 2% range going forward as a push into new markets? I am wondering how you measure the return and/or what kind of sales have you seen that has been encouraging?

I think what we have mentioned first about taking a step back here is when we did our television testing that ended at the end of the first quarter, and we looked at kind of the lag period on it as well. So I think we are on for three weeks in this other one and then off for three weeks so we kind of measured a six-week tail period. We will compare that to other control restaurants.

So we were doing it in the San Antonio market, which is one of our test markets at the end of Q1 and Q2 we will compare that to Dallas and our other Texas markets. And we will also compare frankly to the industry data, coming from whether it is a Navtrak or Blackbox, to see what type of lift we got during that period. And then from that lift we can easily determine what the incremental profitability was from that sales lift compared to the cost to buy media.

And frankly to say it's a 2% lift or a 5% lift and that is not what we need for return, that does not make sense because the cost of media different markets is just that. It is very different. So Dallas/Ft Worth is much more expensive than buying San Antonio. So the Dallas market might need an 8% comp, just throwing out a number, where San Antonio might only need a 2% increase in sales.

But that is the process that we go through. And what we said about our last TV testing is that it absolutely increase top line sales. In fact we were very pleased with how it drove top line sales. The issue was the fact that as Greg Trojan mentioned earlier we bought the media at the most expensive way possible.

Some of the markets that we bought media in the first quarter did not have a return on investment that we would like to see based on the cost of media. This go around, as we mentioned on the call in the formal remarks, we will be able to buyer media 20% to 25% cheaper than what we bought in the past. And we think based on that it obviously lowers that hurdle rates and gives us good opportunity to see with that next level of television can do for us at a lower media cost.

Got it, thank you.

Jeff Farmer, Wells Fargo.

It's getting late so I will try to keep this pretty brief. So you guys did point this out, but I think it is fair to assume that at least part of the blame for decelerating industry traffic and same-store sales is from what feels like a pretty material acceleration in both chain and independent restaurant development over the last whatever it is 12 months, 18 months, or 24 months. But specifically from fast casual, casual, polished casual and some of the concepts you guys go up against.

So assuming that, is there any reason to believe that the same store sales headwind would diminish in 2014 and 2015. Isn't it fair to assume that it is just going to continue? Not only for you guys but for a lot of other restaurant companies into 2014 and 2015?

That's an interesting question and unfortunately, I can't give you a direct answer. What I would tend to say is a couple of things. One, is if the industry data that is coming out of both Blackbox and Navtrak continues the way it is, I think you are going to see concepts across the board start of pull back like they did in 2006, 2007 and 2008. So, again, concepts that are differentiated have a better mass appeal to the guests, have good price value, and frankly have strong balance sheet will be able to whether another storm is that happens.

But I don't think of the industry data continues the way it is, that you would continue to see new concepts wanting to grow at the rate they're growing. So I think there is that benefit out there. At the end of the day we are going to obviously -- we want to increase comp sales, increase guest traffic. But we still at least in Bar and Grill have probably one of the highest unit volumes out there in the $5.5 million to $10 million range. So our restaurants are extremely packed, and they get a great return on investment when they are doing $110,000 plus in sales a week.

All right thank you.

Thank you. Tony Brenner, Roth Capital Partners.

I had a question on two topics. One is if the objective is to and increase awareness and create initial trial, I presume that the advertising effort will be directed to your newer markets and not towards your more mature markets? Is that fair?

This is Greg. Sorry I dropped before. Can you hear me okay, Greg?

Yes.

All right. The answer is it will be both. We feel and we know from the awareness data that there is still room to drive awareness even in our mature markets.

So that is something we are understanding through the testing process. But it is not a correct assumption to say that it will only be in new markets where it will make sense from an ROI perspective.

Okay, and Greg Levin, you gave a figure of cost per operating week per operating and occupancy expense. Could you just repeat that number?

Yes. Let me tell you exactly what I said on the call here. I'm expecting if I was looking at operating and occupancy from model standpoint, I'd be thinking about $25,000 per restaurant operating week. And I think I said for somewhere in the neighborhood of 1775 or so operating weeks is what I'm thinking of.

Okay. And my other question has to do with the smaller footprint you are talking about. I presume you're not reducing occupancy. So the reduction is in the kitchen. I wonder if you could talk about what changes are enabling you to reduce that in the way of equipment and whether those changes can be retrofitted into your existing restaurants?

We are looking at a fair amount of changes both in the front and the back. So that the overall footprint size we're talking about reducing is about 1500 square feet and about half of it is in the kitchen, and half of it is in the front. So there will be a little bit of both of what we call productive sales space as well as kitchen space.

That being said, the number of tables of the same, and I think as we pointed out many times some of our custom footprints in some of our smaller footprint restaurant are just as productive in terms of top line sales. So even though we are a smaller footprint, we feel, and based on the facts of our current restaurants, we feel we can generate the same top line sales.

In fact, Tony, yourself being out are down the street from us, if you went out actually into the inland Empire and looked at our the San Bernardino restaurant, our restaurant in Menifee, I think those restaurants --

Corona.

Corona -- those are all 7200, 7300 square feet. In fact, if you went up the road to Torrance, to the Del Amo restaurant,

About the same -- 7200 square feet, too.

About 7200 square feet, 7300 square feet. So this is actually believe it or not something that we built a lot of back in I want to say 2005, 2006 and 2007. And then we expanded the restaurants, and then we made some changes up into that 8500 square foot range.

It's not that dramatic, and I think most of our guests won't notice the difference. And frankly based on the sales coming out of Corona, San Bernardino, Del Amo top line sales should be relatively the same.

Okay, you did talk about more efficiency in the kitchen. What --?

Well we (multiple speakers) we have moved some pieces of equipment in the line. We change them around and I don't want to get into detail just for competitive reasons.

But we change some of our -- the line positions and equipment within the line. We've reduced some of the storage in our dish area, we have reduced that area and taken some shelving away. The walk-ins are about the same but overall, it's just been a shrinking the footprint overall.

Fair enough. Thank you very much.

Matthew DiFrisco, Lazard Capital Markets.

This is Farney in for Matt, actually. I just wanted to talk about loyalty.

You guys had mentioned that loyalty is going to be one of the levers that you are going to use the drive the comp there. Just wondering if you could provide a little more color. Does that mean you plan to spend a little more to recruit people to join the program? Or maybe you are going to push out deals to members like buy a meal and get 20% off a weekday lunch meal where you guys are a little soft?

In addition to that I think in the past you guys mentioned that the program -- the loyalty program, drove increased frequency and higher spending. I wonder if you guys are still seeing that as well?

Yes this is Greg Trojan. We are in the range of over 800,000 loyalty members, and we are going to continue to work. Wayne's team have done a really nice job of inviting guests to join the program. I think we are providing value to those guest through the offers and the points programs.

So going forward the focus will be more on the surprise and delight features of the program and giving people attractive offers that they are not expecting from the points accumulation. And we are using it in a way to drive traffic where we have more capacity than not. So that means more mid-week than weekend for instance.

The key next step is to be able to slice and dice that database so that we can tailor the offers by restaurant, certainly by market and even eventually by individual. Using some software that we are adding on to our existing loyalty arsenal from an IT perspective. So we expect to be able to do that later in this quarter to target those offers even more than we have been doing to date

Okay.

The short answer is that we are seeing -- continuing to see the increase in spend from loyalty members versus our system averages.

Great. That's good to hear.

And then in terms of TV testing, you mentioned you going to do more testing in Q4 and then in Q3? Correct me if I'm wrong. And if that is the case when you guys start testing in the back half of the year? Do have any idea how many markets you guys plan to target? Would there be any more than you have done in the past?

And any intention to maybe play with the duration? I think you guys have been running it for couple of weeks. And would there be any value to running the programs longer to see if there's a bigger impact?

Really the answer is all of the above. The timing is late Q3 into early Q4 as it is slated now.

We are not going to get into the specific markets. But we also are looking at testing different versions of variations than we have in the first productive testing. So you're right about that as well.

Andy Barish, Jefferies and Company.

I will try to throw out a new one or quick one, hopefully a last one. Anyway I think that you are working on some new restaurant openings margin ramp-up plans, and we appreciate the color you gave us on new units entering the comp base in the drag. Are you seeing some abnormal margin drag on new restaurant openings as well? Or is this something more kind of preventative than just an update to make sure that doesn't happen going forward?

Great question, Andy The new restaurant ramp-up plan as we call, it is just preventative more than anything else. When you think about the drag on overall margin taking comp sales out for a minute. You have always got those freshman restaurants coming on board and that was tend to have more margins.

And it is amazing how long they can get to mature margins, and what we notice in our business and Wayne can probably talk to after I finish here but once they get to efficiency, kind of like flying a plane, once it's up in the air, it's amazing how easy it is to stay up there. But getting it up there is the tough part. And that something that Wayne and his team have been working on. Wayne, you want to make any comments to that.

No, Greg is exactly right. The only think I would add is that we have -- we have added some incentives for our management teams to get there just a little bit quicker focusing really on the big rock, the big chunks that will get us to that ramp up quicker. The other thing is obviously it is market by market and restaurant by restaurant depending on how long that honeymoon lasts. So in our more mature dense markets we have a tendency to be a little bit quicker, and restaurants where we may not open as strong as we have in some other restaurants, it actually takes a little bit longer. But we are very keenly focused on it, and we want to keep the business that is being offered to us, but at the same time ramp as quickly as we possibly can.

Andy does that work for you?

That's perfect. Thanks for your help.

Conrad Lyon, B Riley and Company.

Two quickies here probably for Greg Levin. Average weekly sales trending below same store sales more meaningfully than historically. Should we expect that dynamic going forward into Q3 maybe Q4, or is that more of an anomaly in Q2?

Looking at the opening schedule and just thinking about that in particular, we just opened up here yourself being in that it's a block at orange. And that will be up take opening from that standpoint thinking about how it lines up. Yes, I would tend, just looking through this, I would tend to think that that is going to be the case until we reach in the fourth quarter as I would expect maybe Tyson's Corner moving into the Mid atlantic to maybe even that out.

In general, though, I don't think that we are going to tend to see weekly sales average about the comp sales for this business. I think will be more flat to always down a little bit, especially now that we have gone through California representing a big portion of new restaurant openings.

Got you.

Except California opens big and that's the one that will always take it above the total Company average.

Okay. I appreciate that comment about the kind of comp you need to leverage the P&L, so call it 1.8%-ish. What kind of check growth is embedded in that assumption?

I'm sorry I missed that.

The earlier comment about the fact that you no longer need a 3.5% type comp to leverage your business. It's more like 1.8-ish% or half that. Just curious what kind of check growth is in that assumption?

From a check growth standpoint, really not much. When we take a look at that assumption, and we run it through, we look at a both on an incident and a guest comp perspective, and then we also look at it on a check average. The check average would probably be less from a flow-through necessary. That number is somewhere in that 2% or 2.5%. I know you threw out a 1.8%.

But I would think 2% to 2.5% can be achieved with the leverage on both mix and incident rates. And then frankly, if you grew your average check by lower pricing, and the pricing below that 2%, 2.5% if we saw that come through, I think we can get some leverage there as well based on some the things we have put in place.

That's just what I'm driving at because I think historically you said you want to grow check -- well just call it 2%, and who knows where the mix is going to be. But basically it sounds like you could leverage your P&L even with flat traffic.

I think so based on where we are today and the things that Wayne and his team have worked on, I think getting back to flat traffic. And then we've got that 2% of pricing it's called then based on what we have in place and how we are operating right now there's some leverage there.

All right good, thanks.

Thank you. Ladies and gentlemen, that's all the time we have for today. That does conclude the BJ's Restaurants Inc second quarter 2013 results conference call. We thank you for your participation today, and you may now disconnect.