BJ's Restaurants Inc (BJRI) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the BJ's Restaurants Incorporated fourth-quarter and FY13 results conference call.

(Operator Instructions)

This conference is being recorded today, Wednesday, February 19, 2014. 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. Welcome to BJ's Restaurants fourth-quarter 2013 investor conference call and webcast. I am Greg Trojan, BJ's Chief Executive Officer; and joining me on the call today are Greg Levin, our Chief Financial Officer; and Greg Lynds, our Chief Development Officer. After the market closed today, we released our financial results for the fourth quarter for FY13 that ended on Tuesday, December 31, 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 Dianne Scott, our Director of Corporate Relations, providing our standard cautionary disclosure with respect to forward-looking statements. I will then provide an update on our business and current initiatives, and then Greg Levin, our Chief Financial Officer will provide a recap of the quarter and some commentary for 2014. And then after that, we will open it up to questions. So 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 February 19, 2014.

We undertake no obligation to publicly update or revise any forward-looking statements, or to make any other forward-looking statement 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 we noted in our January 16, Q4 business update release, our fourth-quarter sales fell short of our expectations, with comparable restaurant sales coming in at a negative 2.7%. In general, our sales and traffic trends were in line with our expectations, leading up to Black Friday weekend. But from that point through the end of the year, we experienced a meaningful slowdown versus the prior year. As you know, there many other consumer and retail businesses that have reported similar experiences. And in the casual dining industry, our sales trends were generally in line with our peers, with better traffic performance offset by less pricing and negative mix, which I will address more fully in a few moments.

There has been a great deal of recent commentary from retail and restaurant companies recounting the impact of the shortened number of shopping days, accelerating internet sales, continued headwinds in middle-class American non-durable spending, severe weather, et cetera. Greg Levin, in his commentary will provide some additional color on this, and then we are happy to answer any questions regarding them. But most of these factors represent issues that are for the most part beyond our control. As such, I think it is more productive to focus my comments on what is in our control, primarily what initiatives we have implemented to set the stage for improved momentum, and what we plan on making happen in 2014.

As difficult as it is out there, we embrace the challenge, and look at it as an opportunity to further differentiate our concept from the competition, and I think we have some exciting things in store for our guests. All of which we look forward to sharing in detail, for those of you planning on joining us next week for our Analyst Day, and I will touch on briefly today in my remarks. Our team made important progress last year in a number of critical areas, all of which has laid the groundwork for a period of renewed positive momentum. Our sales building efforts have been concentrating on five key areas: food quality and innovation, affordability, hospitality and approachability, speed of service, and branding and awareness.

When you think of the biggest investment we made last year to grow our business, most of you quite logically would say, the approximately $80 million we spent to open 17 new BJ's Restaurants. But not as obvious, but equally important is the opportunity cost investment we made by slowing our new product pipeline, and focusing on our food quality and back of house capacity and efficiency, largely through our Project Q initiative. This effort to reduce complexity in our kitchen has made it possible to launch 15 new exciting menu items next week, without overwhelming our kitchen team. We have simplified and improved recipes in many areas of our menu. And I can tell you that our food, which let me remind you is already rated by our guests as being better than our competition, has gotten even better and the quality is even more consistent.

Our new menu items address core sales growth opportunity for us going forward, specifically to add new excitement, more on trend items, as well as strengthening our offerings in core menu categories at the low $10 price points. Whether it is our Kale and Brussels Sprouts Salad at $9.50, or Mediterranean Chicken Pita Tacos with [Brew] Greek Yogurt Crema for $8.95, we are introducing relevant bold-tasting, and in many cases, lower calorie simpler dishes. We have improved our already very popular Roast Beef Dip Sandwich for example, and made a very good item absolutely fabulous.

Our Brewhouse Burgers which we introduced late last year, and which have been very favorably received incorporate many of these principles, filling but smaller portions, with bold new taste and compelling price points below $10. Our Brewhouse burgers are one of the most successful launches ever, selling at almost half the rate of all of our pizzas combined. In the short term, they are putting pressure on our average check, but an investment worth making as we seek to drive traffic.

We launched another tool in our arsenal last week, as we rolled out the ability for our loyalty guests to pay for their dine-in or take-out orders using their smartphones. Soon to come and in-test, we will enable them to order ahead, again, for both dining and take-out using phone, tablets or desktop devices. Both of these new mobile options were designed to help our guests achieve their goal of faster service. We think it will take some time for people to change their behavior, but we know used together they can reduce an hour dine-in experience to a comfortable 35 to 40 minutes without even feeling rushed. I call it casual fast. It will clearly help us compete for occasions we have not traditionally been considered, or because simply of the time it takes to dine with us.

This menu launch also marks the beginning of our new brand positioning look and feel. Our messaging focuses on the power of our diverse menu, and inviting physical spaces to create an experience that satisfies an incredibly diverse universe of guests, which we celebrate with our one-for-all messaging. Secondly, we reinforce our quality indirectly through more a contemporary, bright and cleaner look, and very directly through our, at BJ's we are pursuing amazing, message. We are supporting this new menu and positioning with the combination of television, print, digital and social media which is set to begin next month.

While we are clearly focused on reinvigorating sales over the last year, Greg Lynds and our development team have worked on making our upcoming new restaurant builds more efficient from both an operating cost and a return on capital basis. All the new restaurants this year, which have not completed planning and permitting by mid last year will be constructed at our new prototype size of approximately 7,400 square feet, at an average build out cost of about $1 million less than our previous larger buy.

Perhaps the least headline grabbing, but a special part of the plan is to find significant cost efficiencies in the middle of our P&L. We are looking at every aspect of our cost structure, and are paying attention only to areas which do not impact the quality of our guest experience. We are achieving good, [visible] early results here, in areas like utility management, trash pickup, direct sourcing of smallwares overseas, and consolidating repair and maintenance contracts. These are only a few examples of our diligence to achieve further cost efficiencies, but even these initiatives I just reviewed, put us on track to save meaningful dollars going forward.

In summary, I am confident that we are working on exactly the right things to propel BJ's from already being the busiest restaurant in the industry, to its next era of sales and profit growth. We are tremendously focused on our food quality and variety along with our value proposition, two long-standing pillars of our concept success. Our core middle of the menu offerings had gotten stale, and there were not enough options for increasing number of calorie and health-conscious guests. In this economy, we had also drifted too high in price point in several key categories. We have made good progress, making room in our kitchens to allow for the menu innovation that we need to address these opportunities. We are looking to add a third competitive advantage, speed when you want it.

In addition, all the greatness and the quality of the BJ's experience is about to be told with a new look and new level of storytelling, supported by more media weight behind it, all of which we think leads to a more compelling consumer proposition, and ultimately better operating results and returns for our shareholders. The pace at which all of this work begins to change our topline momentum is difficult to predict. We will be watching our progress very closely, and continuing calling auditables along the way in order to achieve our objective as efficiently as possible. All throughout, we intend to balance our speed of development, with the health of core portfolio of restaurants in a way that creates the highest return for our shareholders.

That said, we are currently building our pipeline to open 15 new restaurants this year, representing an increase of approximately 12% of restaurant week. While we believe that there is at least room for 425-plus BJ's domestically, we -- the pace we pursue our expansion will depend on cultivating the help of our existing assets, and ensuring that the timing of our expansion is always measured against the lens of return on invested capital. If we do not see an improving sales environment, and real estate costs do not represent historical cost opportunities, we have the flexibility to slow down our pace of development in the current year, and explore potential alternative uses of capital to create value for our shareholders. We consider our balance sheet to be one of our strategic advantages.

I am proud of our team and all of the progress that we have made in these important areas. We continue to produce guest traffic, fundamental satisfaction ratings, and strong repeat business that is the envy of many in our industry. For that, and the great team that make it possible in our restaurants, I am grateful. Now I would like to introduce Greg Levin, our Chief Financial Officer to go through the quarter in more detail. Greg?

All right. Thanks, Greg. As we noted in our press release today, fourth-quarter revenues increased approximately 8.1% to $199.8 million, and net income and diluted net income per share were $500,000 and $0.02, respectively. During the fourth quarter, we incurred approximately $3.9 million in pretax charges as follows, a $3.1 million in a write-down of the net book value of our Mesquite, Texas restaurant. Now this restaurant was opened five years ago, in in-line location and with a lease, frankly that we signed back in 2008. While the restaurant has, and is continuing to actually comp positive, its sales levels are currently below our expectations. We incurred about $350,000 related to the separation with our Chief Marketing Officer, and about $460,000 in estimated settlement costs related to a California sales tax audit, and a settlement cost with the Texas Alcoholic Beverage Commission related to our beer model in that state.

In regards to the TABC, or that Texas Alcoholic Beverage Commission, we successfully utilized an independent third-party brewery and distributor to satisfy the vast majority of our proprietary beer requirements for our Texas restaurant operations since their inception in 2002. The Texas Alcoholic Beverage Commission took the position this past year that the method of supply was not in full compliance with the rules and regulations of the Texas Alcoholic Beverage code, and as such we entered into a settlement agreement and a waiver with the TABC pursuant to which we agreed to build -- to brew our proprietary beers for our Texas restaurants in two Texas-based beer pub facilities to be constructed and opened by us no later than June 2015. We don't expect this change to have a meaningful impact on our business, and frankly, if anything the cost of our beer in Texas could actually be less -- to be slightly less now that we will be brewing it ourselves.

If exclude these three items, our non-GAAP adjusted net income per share for the quarter would have been $0.13. However, our pretax income which includes these charges, was below our estimate for the year, and our tax rate for the full year came in at 16%. This resulted in a tax benefit in the fourth quarter. Therefore excluding this tax benefit and adding back the $3.9 million in charges, our non-GAAP adjusted net income for the fourth quarter is $1.7 million or $0.06 net income per diluted share. I refer everyone to our press release, in which we detail these changes in our GAAP to non-GAAP reconciliation -- or detail these charges in our GAAP to non-GAAP reconciliation.

Our 8.1% increase in fourth-quarter revenue reflects an approximate 12% increase in total operating weeks, partially offset by a decrease in our weekly sales average by about 3.6%. Our comparable restaurant sales decreased 2.7% during the quarter, as compared to a positive 3% in last year's fourth quarter. Therefore, on a two-year cumulative basis, our comparable restaurant sales were approximately 0.3%. Our 2.7% decrease in comparable sales for the quarter consisted primarily of a decrease in traffic of approximately 2.3%, and a decrease in the average check of approximately 0.4%.

In trying to analyze the quarter, weather had a large impact on our December performance as our restaurants in Texas, which represent about 20% of our total restaurant, and our restaurants in Ohio and Colorado also experienced severe cold weather conditions during the month. The extreme weather in the quarter appeared most prominently during the first two weeks of December, in which we experienced our softest comparable restaurant sales. In fact, if we pulled out those two weeks from the quarter across the entire Company, our comparable restaurant sales would have been about 100 basis points better or negative 1.7%.

During the quarter, we had approximately 1.3% of menu pricing, which was offset by mix and promotional activity resulting in an overall lower average check, which impacted our restaurant level margins. Our promotional activity in the quarter featured a Holiday For Two for $35 and half-off bottles of wine. In some markets, we also extended our Two Can Dine for $19.99 special featuring our deep dish pizza. This promotions resonated well with our guests, as we had solid instant rates on all of these promotional items. However, they did not generate the intended incremental guest visit or add-on purchases. Our promotional activity during the fourth quarter resulted in about 2.3% of sales being discounted, as a compared to about 1.1% last year.

In November, we also introduced, as Greg Trojan mentioned, our new Brewhouse Burgers. These burgers are lower-priced profit, full margin menu items designed to increase our middle of the menu affordability. And as Greg mentioned, the Brewhouse Burgers have been a hit with our guests, and have emerged as our number one selling item in the burgers and sandwich category. Because of the weather impact in the quarter, it is hard to have an accurate read on sales trends, both from a class year of restaurants, as well as by region. However, in analyzing the quarter, California's comp sales were slightly better than the Company average for the quarter, but again, this can be more weather-related than anything.

The comparable restaurant trends for the class of 2011 restaurants continue to improve as they get further away from their strong opening, honeymoon sales volumes. As we have noted before, our new restaurants tend to open a higher sales volumes, than where they will ultimately settle in. As a result, new restaurants generally go into the comparable sales base negative, and then the sales comparison flatten out as they get further away from their opening honeymoon. So we think it is important to have the patient and confidence to cycle through these impacts from our newer restaurants. In regards to the middle of our P&L, our restaurant level margins reflect the expected deleveraging impact that occurs with negative comparable restaurant sales, as well as some additional deleveraging related to the increased promotional activity.

While our restaurant operators did a good job of controlling everything that they can control, the fact is that in the restaurant business -- and probably more so at BJ's with our relatively large menu, kitchens and restaurant facilities in general, there are certain amount of fixed costs that just can't be leveraged. And unfortunately deleverage with negative comparable restaurant sales. And while we want to optimize our variable costs as much as possible, we do not want to do so at the expense of constricting potential sales growth. At BJ's, we always make a conscious decision to staff our restaurants to build sales first and foremost, and take care of our guest, as we believe this is the right approach to grow the business over the long-term, even as we sometimes sacrifice short-term results as happened in the December 2013 quarter.

Our cost of sales of 25.3% of sales was up about 30 basis points, compared to last year's fourth quarter, and sequentially up about 50 basis points from the third quarter. The sequential increase was primarily due to the effect of our promotional activity and discounting activity in the quarter. Labor during the fourth quarter was 36.2%, which was up 190 basis points from last year's fourth quarter. Our hourly labor productivity was impacted by the severe weather, especially in early December, as these are typically our busiest weeks of the year. Additionally, the lower than anticipated average check impacted our hourly labor as a percent of sales, since we staff our restaurants based on guest counts and kitchen items produced in our restaurants. And as expected, the lower sales deleveraged our fixed management wages, and taxes and benefits.

Our operating and occupancy costs were 23.4% of sales for the fourth quarter, an increase of 170 basis points from last year's fourth quarter. Out of 170 basis point increase from prior year, approximately 110 basis points are related to increased marketing spend, with the remaining 60 basis points due to deleveraging based on our sales results. In regards to marketing, we spent approximately $5.8 million, which came in about 2.9% of sales. This compares to approximately $3.3 million in marketing spend in the same quarter of last year, or 1.8% of sales. Included in our marketing costs for Q4 this year was approximately $675,000 related to additional TV testing back in October.

Excluding the marketing expense that I just mentioned, our operators continue to control all the operating costs in our business. In fact, if you exclude marketing expenses from the operating occupancy in both years, we averaged about $21,845 per operating week this quarter, compared to $22,000 zero 50 -- or $22,050 last year. That is a decrease of about 1% year-over-year. Our general and administrative expenses for the fourth quarter were approximately $12.4 million or 6.2% of sales. Depreciation and amortization was approximately $13.1 million or 6.6% of sales, and averaged about $7,000 per restaurant week, which is in line with our most recent trends regarding depreciation and amortization.

And as I mentioned earlier, as a result of our lower than anticipated pretax income, we recorded a tax benefit in the fourth quarter bringing our full-year effective tax rate to 16%. Again, this benefited us by about $0.07 in the quarter. Therefore, excluding this tax benefit and excluding the nonrecurring charges related to our asset impairment charge, and severance and legal settlements, 2013's fourth quarter diluted earnings per share on a non-GAAP adjusted basis was $0.06.

Before we open up the call to questions, let me spend a couple of minutes providing some commentary on our outlook for 2014. All of this commentary is subject to the risks and uncertainties associated with forward-looking statements as discussed in our filings with the SEC. As you have heard from many other restaurants, retailers and other consumer-relying companies, 2014 has started off slower than many expected, due to weather and a continued sluggish economy. Our comparable restaurant sales through February 16 are down approximately 4.2%. Included in this is approximately 80 to maybe 90 basis points that we estimate is due to weather. And looking at our sales trends to date, we are down about 3.5% of traffic, and the remainder is due to a lower average check.

Based on the industry data we have seen to date, our guest traffic metrics for the first six weeks of 2004 (sic -- see press release "2014") continue to outperform the casual dining industry which appears to be seeing a larger drop in guest traffic. However, the weather has really made it very difficult to ascertain the sales trend. For example, sales in Texas, where we have about 20% of our restaurants has been very choppy due to the severe cold weather. There are days in Texas where we can be up 4%, and then down 6% the very next day, based on weather patterns. The same choppy patterns appear in the Pacific Northwest, Colorado and in our restaurants in the Ohio Valley.

In regards to menu pricing, we started the year with about 1.3% of menu pricing that we lapped at the beginning of the first February. As such, we currently do not have any menu pricing as of today. However, beginning next week with our new menu will have about 1% of additional or new menu pricing coming on board. For the first quarter, I would expect around 1,905 or so restaurant operating weeks. I would expect our cost of sales to be around 25%. That is lower than what we experienced in the fourth quarter due to less discounting, but there will still be some impact related to the training of our new menu in this quarter.

As I mentioned before, labor is significantly influenced by comparable sales increases or decreases. While our team has done a solid job of executing in the current environment, it is difficult to provide an estimate of total labor as a percent of sales in this environment. Additionally, with the new menu rolling out next week, we will incur training costs to teach our team members how to prepare the new menu items. Therefore based on comparable restaurant sales trends, labor in the first quarter will probably be in the middle to high 36% range. Again, this is based on current sales trends, and some higher payroll taxes that we usually have at the first of each year.

We are going to make sure our labor is set up to take care of the guest, because the bottom line is great food and great service and hospitality will ultimately resolve -- will result in improved topline sales. We have said this many times, the guest is our brand to our team members that take care of them every day. Therefore we must and we will hold our line of labor, so that we continue to provide great service to our guests, and not make rash labor decisions that could tarnish our brand going forward.

Starting next week, our new menu will begin rolling out, as well as our new brand messaging. As Greg Trojan mentioned, we plan on supporting this new menu rollout and brand messaging with digital, print and television in the March time frame. As such, our marketing expense in the first quarter is estimated to be in the $5.5 million range. We view these costs, as well as the cost to roll out a new menu as investment. Unfortunately, the accounting rules require these to be [carrier] costs, even though they are an investment in the business with tangible benefit to come in the future. As such, our marketing in Q1 will be heavier than what we expect for the year. Therefore including the marketing costs, I am anticipating our total operating and occupancy cost to be around $24,000 per week, of which $2,800 is related to marketing.

Obviously, operating occupancy costs will vary as a percent of sales, based on topline comparable sales, much like what we saw this quarter. Therefore I think it is better to think about operating occupancy costs on a cost per week basis, versus trying to model it as a percent of sales. I am expecting our absolute G&A dollars spend this year to increase about 14%, to around $56 million in total. However, this currently assumes cash incentive compensation of approximately $5 million, compared to $1.6 million this past year. G&A cash incentive comps for compensation includes not only the corporate office, but a significant portion of this is field support, such as our director of operations and kitchen support team. Therefore, normalizing for the cash incentive compensation, our core G&A is only projected to increase by about 7% this year. I would anticipate G&A in Q1 to be around $13 million.

We currently expect restaurant opening costs to still be the range of $500,000 per restaurant. However, we will incur the pre-opening non-cash rent as much as five or six months before the restaurant opens, and therefore the pre-opening cost for any quarter may not be indicative of the number of restaurants that opened in the quarter. I anticipate opening costs to be the $1.5 million to $2 million range in its first quarter. We currently anticipate our income tax rate for 2014 to be around 28%, and our diluted shares outstanding to be around 29 million.

In regards to our liquidity, we ended the fourth quarter with a little over $32 million of cash and investment. Our line of credit for which we have no funded draws is for $75 million, and does not expire until January 2017. Our total of gross capital expenditures for 2013 was approximately $117 million, and we did receive approximately $10 million in TI allowances and sale leaseback proceeds during the year. Our gross CapEx budget for 2014, again before expected tenant improvement allowances and sale leaseback proceeds is expected to be around $105 million, and that is based on as many as 15 new restaurants and the purchase of the underlying land for 4 restaurants.

As we have mentioned in the past, our expansion strategy is predicated on leasing our restaurant locations. However, from time to time we may decide to purchase the underlying land for our new restaurant, if that is the only way to secure a highly desirable site. In these cases, we generally will sell the underlying land, once the restaurant is open. In 2014, we expect to receive proceeds from tenant allowances and sale leaseback transactions of approximately $10 million to $13 million.

In addition, we will continue to divest in our core restaurants to make sure our restaurants remain in a like-new and first-class manner and remain relevant with our guests. In today's challenging operating requirement, where casual dining is more of the part of the enjoyment of the evening, as opposed to just pop in dining is extremely important that we continue to raise the bar to provide a higher quality, more differentiated dining experience for our guests. So our planned net CapEx is currently expected to be in the $94 million range. We currently [expend] 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 sale leaseback transactions.

Finally over the last two quarters, as we have seen our comp sales decelerate, our consolidated restaurant level margins have compressed into the 15% to 16% range. Our goal is to get our consolidated four-wall operating cash flow margins back to the 19% to 20% range. In Q1 of this year, our restaurant level margins will still be in the 15% to 16% compressed range, as we invest for the future with our new menu and brand messaging. However if sales remain under pressure for this year, I would anticipate a restaurant level cash flow margin to continue to be in this compressed range of around 16%. And we do believe it is prudent to take a very conservative approach to modeling this year, as we begin to implement these initiatives in a clouded economic and consumer environment.

While we are not happy with our current sales, we do believe these initiatives discussed today provide BJ's with a solid foundation to grow comparable restaurant sales, and begin regaining restaurant level margin growth. Additionally, the initiatives around capital investments for new restaurants, and areas where we can improve the productivity and operating and occupancy costs we will be able to enhance our overall return on invested capital for the business. Now let me go ahead, and open it up for questions. Operator?

Thank you, sir.

(Operator Instructions)

Will Slabaugh, Stephens Inc.

Yes, thanks for taking my question. This is JR here on for Will. Greg Levin, the first one here for you.

I know you said geography -- it's tough to talk about performance. But in certain regions, I wonder if you could tell us an idea of what it was like in your Texas markets and your Midwest? And then, how much did California outperform those markets?

Yes, I will take that. The California one was slightly better in that regard. And we've said this before in general for the BJ's business: With the amount of restaurants we have in California, we are generally not going to see, for instance, California up 6%, and the rest of our restaurants down 6%, get to a flat number. It's usually been pretty close overall. So, if we come in at a 0% comp, California is going to be around that, in the 0% to 1% range.

So, when I think about California, in the fourth quarter, it was slightly better than the 2.7%, but it was still negative. Texas bounced around a lot, when I look at it from that standpoint, in the fourth quarter. And without getting into all of the specifics, Texas was probably slightly better, probably in the range of California, but it was still negative. And frankly, Texas has been an area for us that has been positive over the last many years. And really we saw that impact in Texas in the first two weeks of December, where just some really big days that impacted our Business.

Great. Thanks for the detail.

Switching gears here -- cost structure -- at the restaurant and corporate level, and I guess, more specifically, does it still take that 1.75% comp that you spoke to in previous quarters, to hold restaurant-level margin flat?

Well, JR, I don't know if I know the specifics on that. When we talk about holding restaurant-level margins flat -- and the reason I am hesitating -- if I said: To hold restaurant-level margins flat of where we just finished, at 15%, 16%, I don't think we need that type of comp there. I think we can hit those numbers, frankly, as I mentioned in my prepared remarks, at a negative comp sales number. I think ultimately our goal is to get our restaurant-level margins back to where they were a year ago, from that standpoint.

I think, to some degree, the things that we have made in place, especially around the operating occupancy, you see those lines kind of coming down, if you exclude out the marketing. I believe cost of sales start to come back in line here in the first quarter. They did definitely in January versus what we saw in the fourth quarter, bringing those things back to where we would expect them to be.

Labor will be a little bit more of a challenge -- getting it back into that 35% range with the negative comps. But I think there is an opportunity at lower comp sales, meaning the 0% to 1% to 2%, to start to get ourselves back around that 18%-plus margin. And the only reason I say the 18% is because we will have a little bit more marketing spend this year, as we are trying to introduce the new brand and the new menu to try to drive top-line sales.

Okay, thanks.

And last one for me on this: I know you spoke to promotions -- the two for $19.99, and some other items. I am just wondering: Of those -- if you could go through maybe the promotions you had, and which ones resonated more with the guests than, say, some other ones? And why you think that works, and how you are going to use that going forward?

Well, a couple of things there. They definitely resonated well with the guests, as we saw high incident rates on them. But the goal, as I mentioned in the prepared remarks, on those was to drive frequency or drive add-on purchases.

A couple of things that we changed in this fourth quarter is we promoted the Two Can Dine for $19.99 inside our restaurant. And we had not really done that before; that was more of an external message. And, therefore, the people that saw it externally, when they would come in, would use that, and that would drive that frequency. Instead, by promoting it within the restaurant, we ended up trading people down versus driving the frequency.

The thing that has been the most successful part for us, and will continue to grow for us, has really been the loyalty program. It's something that has a high redemption rate, and it drives our loyalty guests in there, which tend to spend more and have a higher frequency. And I think we will continue down that path more going forward.

The other thing, as we go into holiday or different seasonal areas, is it provides us a little bit more opportunity to trade our guests up. And this time around, we did not really trade our guests up. And when we look at some of the things that we promoted in the past, whether it has been the steak line, steak and seafood, and some of those other things, that has allowed us to drive that higher check average, especially at the holiday season. And this time, we didn't drive that higher check average at the holiday season when guests, frankly, come to our restaurant.

Okay, thanks. Great, guys.

Thank you. Matthew DiFrisco with Buckingham Research.

Thank you. Just one bookkeeping one, and then I have a question. Regarding the G&A guidance -- the $13 million -- that was all inclusive, including the $5 million -- the quarterly proportion of the $5 million of equity-based stock compensation?

That is. So, that is a full-year number from that standpoint. And obviously, we will always continue to evaluate that based on the performance of the Company.

And I read through the release relatively quickly, but where was the closure? Where was that embedded? Was that in the G&A side -- or, I'm sorry, the impairment?

The impairment is a separate line item on the press release.

Okay. (multiple speakers)

(inaudible) impairment.

So, your G&A looks like it is going to accelerate pretty heavily then, in the back half of the year. Is there anything going on aside from -- I guess, what is driving that G&A in the back half of the year to go up on a year-over-year basis?

The biggest thing on that is the incentive comp, Matt. So, if you look at our G&A from a quarterly perspective, I think in Q3 of last year, we reversed over -- I forget -- probably close to $2 million of incentive-compensation bonuses in Q3. And it brought down our Q3 G&A to about $11.4 million. If you look at Q1 and Q2 G&A of 2013, we were running closer to a $12.7-million, $12.6-million range.

Okay. And then, looking at the new menu items -- I guess, you have surprised me a little bit in that you are adding 15 new items. Yet it does not sound like you are meaningfully taking things off of the menu, which I thought there would be an opportunity maybe to reduce fixed costs in the back of the kitchen through removing things off the menu or simplifying things. Is there another step where, aside from getting better sales leverage from positive comps, that you could accelerate the path back to 19% restaurant margins, if you were to reduce some fixed-cost structures that this new menu might allow you to do?

I will take that one, and thank you for asking that question, because it is a good differentiation. Net-net from where we started on Project Q, we will still be down in the neighborhood of 12% to 15% on item count. So, we are taking items off the menu, and continuing to work that -- test that. And that is part of Project Q, along with the reduction of complexity through just process improvement. So, thanks for asking that question, and we -- on a net basis, we are ending up at a lower item-count level, even with these additions.

And Matt, we are going to show a little bit more on Project Q next week at the Analyst Day -- just where it allows us from -- if you think about it from ramping up new restaurants, where we are seeing some improved prep time as well as some cook times. So, when we started Project Q, I think we were somewheres around 160, 165 menu items. We're going to be closer to the 135 range right now as we continue to work that, even adding these new menu items coming on next week. And while they are coming on next week, there will be some menu items coming off.

So, if we were to get to 2012 average weekly sales volumes again of around $112,000 or so, would you be able to -- I guess, the assumption is then, with Project Q, you'd have a higher yield? You are more than offsetting the incremental inflationary pressures over the last two years?

I would think so.

Okay. Excellent, thank you.

Thank you. Our next question comes from the line of Nicole Miller with Piper Jaffray. Please go ahead. And, pardon me, your line is open at this time. Please check to see if your phone is on mute. Pardon me, Nicole, are you on the line?

Our next question comes from the line of Andy Barish with Jefferies & Company. Please go ahead.

Hello, guys. It is Alex Chan for Andy. A quick question on cost of sales. Any changes here in terms of inflation, given the drought in California?

No, Alex, it doesn't appear. We are thinking that our commodities for the full year of 2014 could be somewheres between the 1% and 2% range. We have not heard much on the drought there, and we are taking a look at probably avocados -- California avocados might be the thing hit the most. We are seeing a little bit higher cheese prices right now, but our supply-chain group assures me, as I put them on the spot here, that cheese prices will start to come down in the second half of this year. And we have been pretty good on our meats and poultries.

So, right now, we think the 1% to 2% is going to be a reasonable range there. And as we mentioned on the call, we will have 1.7% of menu pricing that should be able to offset that 1% to 2% inflation going forward.

Got you. And then, on the labor line, I guess, you have some training coming in for the new menu. And then in the back half of the year, I would assume -- would you have pickup on the minimum wage stuff and healthcare. When do you see the impact from the training of the new menu coming out, and how are you thinking about the line through the year?

Well, unfortunately, that line is dependent a lot on where sales go, and the leverage that you get on that sale. But if I had to look specifically and think about hourly labor, starting in Q3 is where we are going to see some pressure on hourly labor, in regards to the California minimum wage coming through. We are taking our menu pricing about 1.7% a little bit earlier, meaning we are taking it here in next week. And that pricing should be enough to offset the California minimum wage, based on what we put together from an analysis standpoint.

But I do think you would see -- tend to see a little bit of pressure on hourly wages going into Q3 and Q4. The real issue that comes down there is where you think top-line sales start to come through, and what type of leverage you get in that regard.

Got you. And then, if I could sneak one last one in. Back to the top line with the new branding campaign, are you going to be doing the TV across all markets, or is it going to be in the ones you have just tested? And if you could update us on the impact there on the test markets.

We are not going to go through, for competitive reasons, each of the markets, Alex. But I can tell you: It will be in markets that matter for us, and where we have restaurants that ultimately are going to move the needle. Ultimately, about half our system.

Got you. All right. Thanks, guys.

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

Great. Thank you very much. A couple of questions. Just one on the unit growth. It sounds like you took down 14 to 15 units, rather than maybe the initial 17. And Greg, it sounds like in your comments that you are not really married to the growth, and if things don't improve, it sounds like you said you could slow that down. So, just wondering your outlook on -- how slow we should assume you could take it, if sales don't improve?

And I think you mentioned that you would redeploy the capital elsewhere. I am just wondering -- it also seems like you echo that in the press release about a financial strategy to build value for shareholders. I am just wondering whether those two are tied together?

Well, sure they are -- they are tied together. And look, just to be clear here is: Right now, our plan, and we are building the pipeline, as I mentioned, towards an opening of 15 restaurants. But in this kind of environment, it has been incumbent upon us to make sure that we balance that, given the environment.

So, if we continue to see sales challenges at the level we are now, we are going to take a hard look at reducing that number. We don't have a magic number in mind. And look, we remain very optimistic about what we are doing, and this is the first real offense we are playing on the sales front, given the need for us to work on the Project Q initiatives. So, we -- but to be fair, we remain cautiously optimistic, given the state of the consumer out there at this point in time.

So, we are not trying to give you guys mixed signals here; our current plan calls for 15 restaurants. We are just trying to make sure everyone -- it's very clear that we realize it is rocky, and we are going to alter our plans and change our plans as we think we need to, to maximize shareholder value and look at alternatives for that capital, if we don't think the best place to put it is to open restaurants at any given point in time.

Got it. And of the 15 though, I think you had mentioned any ones that you could pull back, but you hadn't done yet. Like, how many of that 15 -- if sales just stayed at these levels, would the 15 turn into for 2014?

So, just to give you a range, the number of restaurants that we are committed to and under construction -- the number under construction now is about seven, I believe. Right, Greg?

Right, yes. (multiple speakers) And we have two or three ready to start construction in the next 30 to 60 days, so probably 10, 11.

Got it. And then just, hopefully the negative comps don't persist for you or everyone else. But if they were to, if that was the new norm, what operational adjustments can be made?

It sounds like you guys are staffing the restaurants as if sales get back to much stronger levels. And it seems like the deleverage this past quarter was a lot larger than at least we were anticipating. At what point do you start pulling back on some of those costs, assuming that the comp is going to be running flat to negative for the next number of quarters?

Well, when Greg makes those comments on labor, we do adjust -- literally, we talk about adjusting labor every week. And we are forecasting sales and trying to manage labor to sales levels. But when sales are as choppy as they are now, hitting those forecasts is just next to impossible, and that does lead to higher labor costs. But it is not like we make a budgeted decision and say we are investing labor to X level. I mean, we had a variable basis, have three sophisticated labor, scheduling systems and optimization systems. So, our operators try their best.

So, we are not scheduling labor today at anticipated sales levels that are unrealistic, just to be clear. But if we were to scale back on unit development, for example, there is a lot of cost embedded in our P&L, that goes beyond pre-opening, that are part of our infrastructure costs and fuel costs that we would take a look at obviously there. We will continue to look at every part of our cost structure, if we are continuing to see this kind of environment.

I appreciate that. I am much happier doing the modeling on this end; it is an unenviable task to balance all of these weather and choppiness. But thank you very much.

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

Thanks. Just keeping in line with the questions that you all were just talking about. Just curious about the most recent two weeks of February -- any better or worse than that down 4.2% quarter-to-date number? Any reason to believe that we are beginning to pull out of this a little bit?

Jeff, it has been pretty consistent, to be perfectly honest. You get hit with some weather, and there is some good days and bad days in there. The best thing that I can probably say is we've lost a percent of pricing in February, and frankly, the numbers have been -- held up pretty consistent in that regard. So, I have not seen any real changes looking at January versus February.

Okay. And then, again, following up on Jeff's question about -- really beyond weather. I mean, a lot of your peers are talking about the same things, just attributing the same-store sales volatility to a whole bunch of macro drivers. But it keeps getting to be a longer and longer period we have been talking about this -- going way back to last year.

Again, I hate to say that, that new normal, but from professional restaurant operators: A, have you ever seen anything like this before from an environment standpoint? And do you think there is a light at the end of the tunnel, or is this just going to be the way it is for the next several quarters, maybe even into 2015?

That's a big question there, Jeff. I think, when I look at BJ's specifically, I think the recession years, and I know we outperformed the recession years, meaning BJ's, from a comp sales versus the industry, back in 2008 and 2009. But I kind of felt that, felt personally like that came on much faster. I still come back to the point that, I think out of 2007, we were doing a 5% comp, and then instantly, right in 2008, comps went to flat, or might have even started off a little bit negative. So, any thoughts specifically in patches that were related to that housing build, at least for the BJ's concept.

What concerns me right now, and I think as we look out on the overall macro landscape is you continue to see, because of the, I think, easy credit, you see a lot of newer restaurants coming on board that we hadn't seen, maybe through the last four or five years. I know we have talked about the competitive intrusion that has come on board. And that is a little bit different there. And you are seeing more people see a slowdown in sales, yet you are still seeing the same amount of growth. I think there is going to have to be some adjustments that come on board there.

Ultimately, though, it still comes down to differentiation, and in quality and hospitality, and that is the ability to take service -- or take market share. I think, as Greg Trojan mentioned, as we go forward here, one of our big areas that has tenured us over the last year really has been speed. I mean, when we look at some of the stuff we are doing right now, is coming back just from our guest feedback, we are slower than where we want to be, for especially the quality that we have out there.

I think the mobile technology platform, as we continue to build on that, and use that with the handheld device, versus having something sitting on our table, which I don't know how you can sit it on your table and order a large pizza and a pitcher of beer. But I think the mobile technology that we are doing provides that speed. And that provides that walk-away individual the opportunity to maybe dine at BJ's and drive guest traffic.

All right. On then just on the question, sorry to belabor this, but on the development front, I would say, again, pick a number, three, four, five years ago, if BJ's was going up against two or three other concepts in a new retail center, I get the impression that you guys won that battle pretty much every time, based on sales volumes and just the productivity of the restaurant in general. But is that getting harder? Meaning that some of these sites that you might have wanted a couple of years ago, do you still have the same preference with these developers that you did in the past? Or, again, is it just a higher bar for everyone right now?

Yes, this is Greg Lynds. We are still a preferred tenant. Probably Cheesecake Factory is number one because they do the volume. But we are right up there, number two, when you talk about, from a sales volume, from rent paying, we are one of the top restaurant concepts in the country still.

Okay.

I will disagree with my colleague here for a moment, Jeff, is that what developers care the most about here is foot traffic. We are the number-one foot traffic concept in the industry by a lot; not by a little. And what -- you saw the retail numbers -- you wrote about them over the holiday period of the shopper track numbers being down 50% over the last three years.

Developers are dying for traffic, and nobody can bring traffic to development like we do in our space. So, I know Greg would say we still get the first and second phone calls on mall redo's and new developments. And we are on all of those project plans before they even talk to us; there is a little BJ's logo on those development plans. So, we feel like the least of our problems, frankly, is opportunity to develop in these new areas.

Okay.

You can't forget that we are still doing $5.7 million average unit volume. Those are big numbers on 8,500 square feet on $14 average check. So, there is a lot of opportunity for us to kind of leverage that, and to continue to move that number up.

All right. I appreciate it. Thanks, from all three of you. I appreciate it. Take care.

Thank you. Our next question comes from the line of Brian Bittner with Oppenheimer & Company.

Thank you, appreciate it. A question on the average check. The average check declines within the comp -- l know they are not intentional, but they are being driven by, I think, strategy in both promotions and discounting. There is two questions, I guess, here. Number one, (inaudible) think the average check decline will persist, given what the strategy is going to be going forward. Number two, is this something you think is effective, and something you should continue, just given the fact that it doesn't seem to be driving a traffic rejuvenation, and it is pressuring margins here?

So, Brian, it's Greg -- Greg Trojan. I would describe it in two parts. It is not all discounting and promotions. That was a heavy part of it in the fourth quarter. And the short answer is: We want to continue to be more targeted in those promotions, particularly using loyalty. And so, you won't see discounting and promotions at the level, on a recurring basis, that you saw in the fourth quarter, just to answer that part of your question.

The other part of the question that is driving guest check down a bit is the introductory price points or the new price points we are introducing in our everyday menu like the Brewhouse burgers that start at $6.95, sell for an average of just over $8 when people add what they want on them. You are going to see entree salads in this new menu at $9.50 kind of price point. Those will drive our guest check down a bit, but it is not significant numbers where they are concept-altering.

We think we need to be there in the middle of the menu, kind of items at these competitive price points, and we want that mix so that people reinforce the historical value equation of BJ's. But we are talking about guest check changes in -- 0.5% to 1% kind of range here -- not more than that.

Okay. Thank you.

Thank you. Our next question comes from the line of David Tarantino with Robert W. Baird & Company. Please go ahead.

Hello, good afternoon. A couple of questions -- first on the unit development commentary. I wanted to ask what you would need to see in order to pull the trigger on slowing down the unit growth? I know you cited that as a possibility, and I guess I am still not clear on what you need to see in order to make that decision?

David, I think if comp sales continued in this area, frankly, in the negative 4% after we rolled out the menu, let that strategy with the brand messaging run its course. Because of the size of BJ's, we are not going to be able to roll out a new menu next week, and be plastered on the TV over the two weeks there and drive sales. We need to see this menu, as guests come in, start to see the new items, start to go: You know what, I just went to BJ's; that was a really good item. And start to put it back into their dining rotation to increase the guest traffic.

I think if we don't see an improvement coming out of that, then we take a look at our overall development plans. We look at that versus kind of how we are doing from our balance sheet and everything. And we will look to determine what is an appropriate number as we continue to work the Business.

I feel pretty confident about the plan that we have got in place. I like the new items coming on board. I think they fit that center of the menu affordability, and fit kind of the BJ's Brewhouse mold there. I am real excited about our mobile pay and mobile ordering that is coming down the pike as well. So, we think those things are all great things to see in our Business.

Also, the new restaurants that we just opened up, out in the Virginia, Maryland, doing really well out in Gainesville and Frederick out there. So, real excited about that. So, we don't think there is an issue in regards to development and deploying capital that way. But at the same time, we want to make sure this new strategy makes sense, and starts to reinvigorate total comp line sales.

Great. That's helpful. And then, I guess a question about the conceptual approach on some of the things you are doing with the menu and promotion. And I guess, my history with BJ's is: The brand has been very well known for pizza and beer. Yet a lot of the things that you are talking about aren't related to pizza and beer, and are more about extending the concept or extending the menu to other categories.

And I realize you have had this broad menu all along. But I am wondering whether the lack of emphasis on some of the core competencies or core assets that you have, might have led to maybe some of the sales softness that you have. I am just wondering what your thoughts on that are?

That's a great question, David, and thank you for asking it because we do think there is an opportunity in some ways to go back to our roots, specifically as it pertains, as you mentioned, to both beer and our expertise and the quality of our products there, and our deep dish -- foundational deep dish product. When you see the introductory brand version of our FSI around this menu launch, you are going to see -- it is a foldout. The right side of it, once you fold it out, is going to feature the new items. But almost all of the left side of it will feature beer and pizza.

Because I think -- and just to be clear, that menu expansion, particularly instead of the protein entrees and lunch specials and appetizers and snacks and small bites were foundational in growing the sales level that we have attained. So, we don't regret any of that. But the fact of the matter is: When you are adding those categories, it is hard to pay the same amount of attention to those foundational parts of our menu, mainly beer and pizza that we need to. So, you will be seeing quite a bit of that in the branding and product messaging that you see from us going forward, because we think that is really important.

Okay. That's helpful.

And then last one, Greg Levin, I think you mentioned 16% restaurant margins or so, could be achieved on negative comps. Could you maybe get a little more granular with that comment? In the sense of, what type of negative comp, or what type of comp is needed to get to that kind of margin? That would help us with our models for this year.

I will try -- let me answer the question I think you asked, but I could be wrong. I think, what we are seeing the numbers where they are currently in the negative 4% range, as we just kind of went through here, at least through the first couple of weeks, or the first, I guess, six weeks of the new year. If comps stay somewhere in that range -- and frankly, I think they will get better with -- first of all, we're going to have additional menu pricing starting to come through, and new menu items that we can really market and sell [the rate around], which we didn't have as much last year as we took on Project Q. But I think if comp sales remain in that negative 2% to negative 4% range, I think your margins in that 16% range are probably [reasonable] margins.

Okay. And just so I understand, even in the second half, if you were to see the -- that kind of negative comp, you would be able to potentially -- the second half of 2013 was in that 15% to 16% range -- you would be able to hold margins flat in the second half with that kind of comp trend? I just want to make sure I understand that.

I think we would. Again, some of it is based on either 1.7% of menu pricings that offset some of the inflationary costs in that regard. When you look at Q3 and Q4 specifically, the big impact there was really the increase in marketing spend. And we have to contemplate marketing spend as we go into that second half.

I mean, in this third quarter, or in this fourth quarter, marketing turned out to be 2.9% of sales, or $5.8 million, versus 1.8% last year. There is 100 basis points right there that, if we ended up dialing down marketing a little bit because we didn't like the results that we were seeing, you get that right back into your operating and your occupancy cost line going up.

The other thing, as we mentioned, and you can -- you kind of can see it a little bit is you do see the operating occupancy on a cost-per-week basis pulling out marketing, where we are getting the efficiencies there. Greg Trojan talked about that a little bit, with the fact that our supply team -- supply chain team is going after utility spend. It is going after smallware spend by outsourcing it, and other things, where we are seeing some really good efficiencies for our Business.

It is challenging, I will say, to get your labor nailed when you do see declining comp sales. That is probably the biggest area that tends to have variability, even though, as Greg had mentioned earlier, each day and each week our restaurant operators submit what they think the sales are going to be for the week, how many items they think they are going to do, and they produce a labor based on that. So, it is not a fixed labor in that regard. But I think as we go into next year, with some of the things we are doing in regards to the middle of the P&L, I believe we can hold those numbers.

But look, I think, just to be clear, and Greg was mentioning this, if you just take weather and pricing, and have reasonable weather overlaps, and add the pricing that we have been naked on in the last several weeks, you end up with a trend that is a lot different than minus 4%. It is not where we want to be. But it would take a whole another step function change in the environment out there, in my mind anyway, for us to be averaging negative 4% for the year.

Makes sense. Thank you very much.

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

Thank you. Greg Levin -- I had a question for Greg Levin. Did you say that we are going to see an incremental 1.7% pricing next week? Or is it incremental 1% pricing?

It's incremental 1.7% pricing. I think the 1% pricing is what we needed to cover California minimum wage.

Got it. And then --

But I think Greg just accidentally misspoke during the front-end comments, and the gross pricing is 1.7% that is going into this [menu].

Got it. So, the total pricing, given that we are already coming in with a 1.3% is going to be above 2%; is that a correct assumption?

No, 1.3% of pricing rolled off our last -- about two weeks ago. So, right now, we have zero pricing.

Got it.

And starting next week, on basically 2/25, next Wednesday, we will have 1.7% pricing.

Okay. And then just answering the minimum wage question previously, it sounded like you guys aren't contemplating taking another round of price later in the year?

Well, we will analyze the business trends as we go through. We generally have a menu print somewheres in the kind of early Spring or Summer time. And depending on kind of current trends and what we are seeing, we may or may not take additional pricing.

Okay. And then, last period, you guys had commented that -- the way you guys have rolled out the loyalty program, as part of the marketing expense that we are seeing, as part of that headwind, it might evolve in such a way that it would become less of a headwind. But it sounds like, with the payment option now going through loyalty, it may actually be getting more entrenched. How should we think about the loyalty program going forward and the cost headwind that it has been so far?

Nick, in regards to the loyalty program, it -- frankly, it has given us some really good feedback because of the loyalty program. But it's definitely -- it's allowed us to now engage with our guests. We have put in something -- we haven't necessarily talked about it directly, but anybody on the loyalty program, after they have dined with us, can actually fill out an eight-question survey which we use to rank our restaurants and see how they are doing. And it is providing us kind of an additional level of engagement that we hadn't used prior.

So, at least for the current time, with the mobile pay, as well as the mobile ordering, as well as this ability to kind of do a net promoter score, I think we are pretty happy with some of the results we are seeing from the loyalty program. And frankly, as we mentioned earlier, the ability to target them in regards to coming back to our restaurants, driving frequency and spend, has actually been pretty successful on the loyalty group.

What we have got to do better is, frankly, just operate it better. Execution-wise, it is not where we want it to be. I think we would admit that: Some restaurants do it really well, some don't.

One of the big things that we always look at in the restaurants is the ability to feed somebody quickly. And all of a sudden, it is a little bit of a challenge when people are walking up with the loyalty ID at the front desk, because that is where we want it to be, and we want the host to recognize it, we get it to our server. That slows down the hospitality desk a little bit, and that is something that we are working through that to improve the consistency on it. But realistically, the things that we are getting out of the loyalty are actually working pretty well for us, especially the ability to have them rate the dining experience.

Got it. Got it. And just last question, again, around the marketing. It sounds like [$24,000] a week is already a little bit of a step down from Q4. And in your commentary, you have indicated that Q1 is probably going to be the highest marketing spend. So, can you maybe talk about the cadence of the marketing going forward? Is Q2 going to be -- should we think about Q2 as the second highest, and then just coming down from there as the year progresses?

I think Q2 would probably be the second, and yes, it would come down a little bit from there. We are targeting somewheres all in right now in the $20-million range, with Q1 being the highest. We have got a couple of other things that, as they roll out, you might see us march around, and we will also determine, based on the success of this marketing, where that number may go.

$20 million is probably a high range at this sales level. So, but it does -- gives you a range.

And just one last question -- sorry to be taking all this time. How do you guys measure the success of the marketing initiatives? We have seen, as marketing expenses have gone up, comps have decelerated further. So, when you guys look at, whether it's TV or loyalty or whatever else it is, what are some of the metrics you guys are looking at to justify the increased marketing spend, when comps continue to be lower and lower?

We use test and control, because a lot of these marketing initiatives we are doing different -- slightly different programs, or not doing TV versus TV. So, where we can, we are pretty scientific about it. We measure every single promotion, in terms of incident rates and measure break-even level of incremental traffic on each of those promotions.

So, the never-ending question on some general advertising is: What would it have been if you had not spent those marketing dollars? And the best way to do that is when we can utilize test and control in different markets to understand that, and we do that where we can.

Thank you.

Thank you. Our next question comes from the line of Tony Brenner with ROTH Capital Partners. Please go ahead.

Thank you. I have a question regarding your casual fast initiative. As you are getting ready to roll out that mobile option, what is your estimate for the proportion of diners that might utilize that?

Tony, we don't have a specific target. The adoption rate is one of the bigger -- is a bigger question. But we know that, given -- the disadvantage that we have of it is we are early out there. There is no one that we know of, of any scale anyway, that is utilizing this kind of functionality through mobile devices. As you know, there is a lot of tablet-based programs that people are embarking on. By tablet, I mean on the tabletop versions of this.

So, I think it is going to take a while for people to understand that even with mobile pay, what we are finding in the early, early days is people don't understand that they can pay at any time they want to basically. When they are done ordering, they can pay. Their initial reaction is: Well, I can do this instead of using a credit card, at the same point in the service cycle. Right? And the whole benefit of it is you don't have to wait for our server to give you anything. When you are done ordering, you can pay.

It is going to take a little while for us to communicate, and for people to understand those kind of benefits. But we think they are pretty compelling.

And we do pretty well with millennials. When some of the recent research that we have seen is, we have enough tech-savvy folks coming in and out of our restaurants, that we think people will get this. But we don't have an official target out there. We think it saves enough time here and convenience, that people are used to doing this in other applications, that people will use it. And we are seeing people use it.

The benefit, obviously, is it draws people with time restrictions; it potentially increases your turnover. But I am wondering, if a reasonable percentage of people actually take advantage of this? How it might affect your labor costs and staffing requirements?

We think of the table-turn dynamic, it will leverage our labor. Right?

Well, yes, but some portion of your waitstaff turns into servers rather than waiters, and the order takers and those servers and the like. I mean, they are less -- required -- their time is less required, isn't it?

Well, that is what I mean is that it will -- but not for that reason. It is just that the -- our sales per hour will increase (multiple speakers) as we have --

Sure.

Just by definition of turning tables more quickly. So, we will leverage front-of-house labor just through that alone. And it is an important differentiation because we are not considering this as replacing the traditional role of a server in this exchange. Now, look, if people order ahead and show up at the restaurant that is taken, that saves a step for sure.

But we do not want people using their phones to dictate their experience throughout the dine-in. Because that is why we don't want to go through the kiosk -- go down the kiosk route here. Because we want to increase the level of connection and hospitality in the BJ's experience here. We are not trying to automate the servers.

What we are trying to do is alleviate two of the biggest pain points if you are in a hurry when you dine in at a restaurant. And that is getting your order placed, and paying at the end of your experience. And if you are at a tight lunch period, or you are off to a movie and dinner, those two save a lot of time. But the rest of it should feel even more engaging and hospitable because it serves -- it frees up our servers to pay even more attention to what you need throughout your dining experience.

I get it, okay. Thank you.

Thank you. That is a good question.

Thank you. Our next question comes from the line Sharon Zackfia with William Blair & Company. Please go ahead.

Hello, guys. My questions were answered. Thanks.

Thanks, Sharon.

Thank you. And our next question comes from the line of Courtney O'Brien with Morgan Stanley. Please go ahead.

Hello, guys. Just quickly, you mentioned that you are still a preferred tenant for malls. I was just curious what percent of your restaurants are in malls and shopping centers, versus freestanding? And if you have seen any sales difference this quarter between the two?

I think we have got about 20 of our restaurants that are actually in line, in a mall.

Yes, I mean, we have really -- it breaks down to about 40% total that we consider in line, and in a freestanding mall. About 36% of them are in a power center, and the rest are in kind of shopping centers.

And did you see a difference in the sales trends?

No, we didn't. It was the first thing I looked at from that standpoint. I think weather played a bigger impact on it; I know Greg said about 40% are in line or in a mall. I think only 20% are actually in line, at pure regional malls in that regard. And then the other ones are like pad sites at malls, and other things, which, as a result, kind of act as a freestanding restaurant.

But even looking at the difference -- actually I got it right here. Even looking at the difference between the mall -- yes, 20% in line at a mall -- that number versus the rest of our restaurants, is not that materially different.

Okay. Got you. And then, I know -- you mentioned that you are pretty early in the testing for the mobile payment and the mobile ordering. But it sounds like most of your competitors that are using these tablets have focused more on the increase in check, and it sounds like you guys are focusing more on the decrease in time, and the table turns.

And so, I think, Greg, you had mentioned even something, moving it from an hour to closer to 40 minutes. Is that the goal? Or is that something you guys have seen in testing? And maybe if you can talk about any other learnings that you have had from your testing?

I think that is a fair statement is that we are focused on the time element. And it comes from a perspective of ours, and certainly of mine, that the greater competitive set that we are dealing with in our business is people are looking to eat out. And sometimes -- frankly, we consider the relevant competitors as much as fast casual, just as we do traditional casual dining. And the big advantage of fast casual, versus what we do is in the occasion at times of speed. And so that, and given the long waits that you can experience at a BJ's, we are particular sensitive to, and we have never been particularly fast. So, for all those reasons, I think speed is the right objective here, competitively.

And then, is there any ability for take-out or any -- pick up?

No, that is a great -- absolutely. And the applications are -- definitely include take-out, for order ahead and pay at the table. I did it the other day when we ordered from the office on Monday was -- I called our nearby restaurant and paid from my office using mobile pay.

And we had a -- just given the early days of our testing, we are looking at all of these transactions, and we saw a rather large one, close to a $1,000 transaction. And we wanted to make sure it wasn't an error. And it turns out, it was sales rep who used mobile pay, and thought it was the greatest thing since sliced bread because we could email him his receipt, he could get the order all organized. They used curbside take-out to pick up the order and bring it to a meeting. So, we think people will figure out lots of ways to use this.

Another one that you wouldn't think of off the top of your head is when we are running waits in our restaurants on a Friday night, and you have got kids, and you are in a bit of a hurry, but you are willing to wait 15 or 20 minutes, you can actually place your order in the lobby of our restaurant, using your phone. So, the minute you sit down, that order is placed, and it is fired to the kitchen, and your drinks and food are well on their way.

Great. Thanks, guys.

Thank you. Ladies and gentlemen, this is all the time we have for today's conference. This does conclude the BJ's Restaurants Inc. fourth-quarter and FY13 results conference call. We thank you for your participation today, and you may now disconnect.