BJ's Restaurants Inc (BJRI) 2015 Q2 法說會逐字稿

Good day and welcome to the BJ's Restaurants, Incorporated second quarter 2015 earnings release conference call. Today's conference is being recorded. At this time, I'll 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 fiscal 2015 second quarter investor conference call and web cast. I'm Greg Trojan, BJ's Chief Executive Officer, and joining me on the call today is Greg Levin, our Chief Financial Officer. We also have Greg Lynds our Chief Development Officer on hand for Q and A.

After the market closed today, we released our financial results for the second quarter of fiscal 2015, which ended on Tuesday, June 30th. You can view the full text of our earnings release on our website at www.BJsrestaurants.com. For our agenda today, we'll start with Rana Schirmer, our Director of SEC Reporting, providing our standard cautionary disclosure with respect to forward-looking statements. I'll 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 regarding the remainder of fiscal 2015. After that, we'll open it up to questions. Rana, go ahead, please.

Thanks, 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 guaranteed the 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 23, 2015. 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 secures law. Investors are referred to the full discussion of risks and uncertainties associated with the forward-looking statements contained in the Company's filings with the Securities and Exchange Commission.

Thanks, Rana. Q2 of 2015 was the most profitable quarter in our Company's history. Our net income increased 55% versus last year to $12.4 million, driven by operating income growth of 65% versus last year's Q2. Restaurant level cash flow margins of 20.9% also set a new record. Year-to-date, our net income has grown an impressive 74%. Our ability to generate record financial results based on a combination of modest comparable restaurant sales growth, margin improvements, and the ongoing expansion of the concept, highlights the opportunity to continue to grow earnings and cash flow well into the future.

Comparable restaurant sales were positive 0.5% for the quarter, marking the fourth consecutive quarter of comp restaurant sales and reflect an increase of average guest check, offset by lower guest traffic of around 2%. Greg Levin will provide additional detail on comps for the quarter, but overall the quarter was somewhat impacted by calendar shifts, such as Easter being earlier in the quarter compared to last year, as well as the calendar for high profile sporting events. As most of you know, although our restaurant appeal is far broader than that of a sports bar, we're a great place for fans to meet and watch their favorite sporting event, and as such, our sales and traffic can be influenced by shifts in the sporting world's calendar.

The Pacquaino/Mayweather fight on Saturday May 2nd, along with the month-long world cup events in June of last year, both impacted sales in traffic versus year ago. That said, from a traffic perspective we continue to outperform the industry as measured by both Navtrak and Black Box for April and May, but fell behind the industry in June as we lapped last year's world cup benefit. The industry as a whole, although still running negative traffic, saw a marked improvement in June versus recent trends, as world cup hurt sales a year ago for many mainstream casual diners. We, on the other hand, benefited from world cup driven traffic last year, and as such, saw a dip in our year-over-year traffic in the month.

That said, we have out paced the industry in traffic as measured by both of these industry tracking services in 10 out of the past 12 months. As we move past the world cup dates, our early July sales results are tracking positive in the 1.5% range, which we believe is reflective of where the business has been trending on a non-impacted basis. Taking a step back from the quarter. Those of you who have followed our Company over the past year or two are aware that our strategy has been it drive traffic by improving the overall value proposition by our menu, by offering lower priced point menu items, while improving our food quality and uniqueness with some emphasis on the healthy better for you, or what we call our EnLIGHTened category.

These lower price points resulted in a trade down in guest check, which roughly offset menu pricing we took in 2014. We have now lapped those significant investments in guest check and are seeing a healthy rebound in our check as the majority of our pricing are sticking and we are now seeing positive trends in guest check mix based on encouraging customer responses to some of our latest new menu innovations and introductions.

Of equal importance, we continue to make good progress on adding more unique crave-able, differentiated items to our menu. In June, we added salmon and chicken quinoa bowls to our menu along with enlightened fire roasted barbacoa chicken and a Northeast Mahi and shrimp entree. The result, our incidents of our EnLIGHTened category grew about 25% in the month of June, and is at its highest level since it's inception as over one of every three guests are ordering an item in the better for you category. The key to our success here is our guests are ordering items because they taste great, with no compromise in flavor boldness and with the satisfaction of knowing they're eating healthier. At the same time we continue to balance our menu with new items on the more indulgent side.

In July we introduced a summer assortment of loaded burgers, led by our top selling hickory brisket and bacon burger along with a limited time peanut butter and jelly pazooki. We continue to innovate and this fall, we intend to showcase some great new flavors in our appetizer category, as well as interesting and delectable new offerings in our pasta lineup. We have accomplished this menu innovation while at the same time significantly decreasing the overall number of menu offerings from a peak of 184 items when we started this process to about 139 in our current menu.

These results highlight continued success with our overall mission to reduce kitchen complexity and improve food quality through our Project Q initiative. With the results we're generating operationally and financially, there's no doubt in my mind that BJ's growth trajectory is both highly visible and achievable as the fundamental health and appeal of our menu is in really great shape with more to come. And keep in mind, our process changes primarily in the back of house in our kitchen, along with our cost savings initiatives in the middle of the P and L are fueling tremendous margin improvement, despite some large inflationary pressures in wages, particularly in California, and the introduction of additional benefit costs emanating from the implementation of the Affordable Care Act.

While comp results are important to our overall growth strategy, the larger opportunity for us continues to be new restaurant growth. This is very different than mature casual dining concept whose growth opportunities are behind them. We are now in the prime of our new restaurant opening season, opening five new restaurants this quarter with nine more coming on over the remainder of the year. We are excited to have made our debuts in several great new markets in Pittsburgh in the McCandless community, Huntsville, Alabama, and we open next week in Nashville, TN market in Mufreesboro. We continue to be very pleased with returns from our new 7,400 square foot prototype and have seen consistently better operating efficiency and food quality metrics from this new foot print.

With our positive momentum on the development front, I am pleased to report that we're announcing an increase in our total 2015 openings from 15 to 16. As you can see, the plan we laid out and began implementing almost two years ago is delivering strong results, growth for our shareholders, and a sense of pride and accomplishment among our team members. We believe that focusing on fundamentals in terms of value for your money, food quality and innovation, combined with our initiatives to aggressively manage our cost structure, and drive further investment in new restaurant growth is serving us well, and will create new value for our shareholders.

Our objective is to build the best brand and the best company in casual dining, and I believe that if you review our stated strategies, initiatives, and results and visit and eat at our restaurants, that we are making tremendous progress on this front, while establishing a tremendous platform for a continued near and long-term growth. I'll hand it over to Greg Levin to take you through the quarter in some greater detail and review our outlook for the remainder of the year. Greg?

Thanks, Greg. Revenues for the 2015 second quarter increased approximately 5.8% year-over-year to $232 million, while net income and diluted net income per share increased to $12.4 million, and $0.47 cents respectively, both of which are record results for BJ's and marked year-over-year gains of 55% and 68% respectively for these metrics. As reflect by our Q2-EPS out performance, and as Greg Trojan noted, we continue to make solid progress on our well-defined strategic initiatives.

Specifically, we're succeed inning creating a more efficient organization, while leveraging our industry leading guest traffic levels. At the same time we are executing on our long-term expansion program and driving comp sales gains. As a result, we ended the second quarter with (inaudible) margins with 20.9%, which are the strongest in the Company's history. Included in the restaurant level margins is 2.3% of marketing spend, which many other companies include in G&A. Therefore, excluding marketing spend, our (inaudible) restaurant level margins for Q2 were 23.2%, which we believe are among the highest across the entire casual dining sector.

Consistent with Q1 and the strategic plan for growth that we communicated over 18 months ago, our emphasis on improving return on invested capitol resulted in continued leverage in G&A, as well as in depreciation and amortization, leading to 64.5% rise in income from operations to $17.6 million, or 7.6% of revenue, an impressive increase compared to 4.9% last year. The increase in second quarter revenues reflects an approximate 6.5% increase in total operating weeks an a 0.8% decline in average weekly sales. Comparable restaurant sales rose 0.5% during the quarter, and that's compared with a decline of 1.7% in last year's second quarter.

As indicated on our first quarter conference call, sales started out slightly positive in early April and then improved into a more consistent pattern of positive 1% to 2%.

This positive 1% to 2% pattern was pretty consistent for most of the quarter, though as Greg noted we were negatively impacted by a few soft sales days, related to the Pacquaio/Mayweather Saturday night fight during that first week of May, and then in June, we lapped the US and Mexico men's world cup soccer games which added some lift to last years Q2 sales. Excluding these and nine specific impacted days related to those events, our second quarter comparable restaurant sales would have been plus 1%, so those nine days impacted our sales by about 50 basis days during the quarter.

Furthermore, those nine days had an impacted of reducing our second quarter guest counts by approximately 100 basis points as well. Q2 cost of sales of 24.6% was about 30 basis lower than anticipated due to lower commodity costs and continued benefit from our menu mix. In fact, our commodity basket in the second quarter was down slightly year-over-year, primarily due to lower cheese and seafood costs. Labor during the second quarter was 34%, that's a reduction of a hundred basis points from last year's second quarter.

The decrease is the result of improved hourly labor productivity, largely due to our project human initiatives along with leverage from our comparable restaurant sales increases, as well as lower workers compensation and some benefit costs. Operating and occupancy costs were 20.5% of sales in the second quarter. That's a decrease of 80 basis points from last year. Included in operating occupancy costs is approximately $5.3 million of marketing spend, which, as I noted earlier in my review of operating margins, equates to 2.3% of sales.

By comparison, marketing spend in last year's second quarter was $4.8 million or 2.2% of sales. Excluding marketing, our weekly operating an occupancy cost in the second quarter averaged approximately $20,500 compared to $21,500 for the same quarter last year. Over the last four quarters, our operating occupancy cost averaged somewhere in the neighborhood of about $20,500, excluding these marketing costs. To put this in context, at our February 2014 analysts day, we defined our strategy to define separating occupancy costs excluding marketing by $1,000 a week.

Our goal is to pick up about 100 basis points in this line item. When we began this initiative, we had just finished fiscal 2013 averaging $22,400 per week, excluding marketing. In fiscal 2014, we averaged $20,800 and for the first six months of this year, we have averaged about $20,500 per week. As such, our overall operating occupancy costs have gone from 22.4% of sales in fiscal 2013, to 20.6% for the first six months of this year, through a combination of cost savings initiatives and leverage from positive comparable restaurant sales. Our G&A was $13.6 million in the second quarter, representing 5.9% of sales and was a tad lighter than expectations and that's primarily due to lower than anticipated personnel expenses. Depreciation and amortization was approximately $14.5 million or 6.3% of sales and average a little over $7,000 per restaurant week, which is inline with our most recent D&A trends.

More importantly, depreciation and amortization per restaurant operating week of $7,000 was down slightly compared to last year's second quarter and highlights our progress against our goal to increase return on invested capital by working the numerator through margin expansion, while more efficiently deploying capital. Pre opening was $2.1 million, which represents costs for the five restaurants we opened during the quarter, plus opening costs for restaurants opening later this year. Our tax rate was about 28.8% for the quarter, slightly above our targeted rate of about 28.5% for the year and that delta really is due to (inaudible) credits during the quarter. In terms of capital allocation, we continue to use our cash flow from operations to execute on our national expansion plans, while opportunistically repurchasing shares.

Total capital expenditures for the first six months this year were approximately $40 million and we continue to budget gross capital expenditures for fiscal 2015 of approximately $100 million, which now includes construction of 16 new restaurants this year, as well as maintenance, CapEx and other sales building initiatives. As we said before, also included in this gross cost is approximately $2 million for the construction of our new Brew Pub location in Temple, Texas, which opened in late June and is now supplying all of our Texas locations with BJ's proprietary award winning hand crafted beer.

We also continued our program of returning capital to shareholders, allocating approximately $40 million towards the purchase of 831,000 shares of our common stock in the second quarter. Since the authorization of our initial share repurchase program in April of 2014, we have repurchased and retired approximately 3.8 million shares of BJ's stock for approximately $147 million. Based on our strong cash flow from operations, our EBITDA is just North of $60 million in the first half of 2015, which puts us on track for fiscal 2015 EBITDA in the $120 million range. As a result, our Board of Directors authorized an additional $50 million increase to our share repurchase plan.

This leaves us with approximately $53 million remaining under our authorized share repurchase plan. With regard to liquidity, we ended the second quarter with $25 million of cash, and $75 million of funded debt on our line of credit which is in effect until September 2019. Our line of credit is for $150 million and provides us the flexibility to continue our national expansion program, while returning capital to shareholders through our share repurchase plan. Before we open the call up to questions, let me spend a couple of minute providing some commentary on our outlook for the remainder of 2015.

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 Greg Trojan mentioned, July comp restaurant sales are pacing in the 1.5% range, which is consistent with our normal trend outside of some of the larger, macro events that we experienced in Q2 related to the Pacquaio/Mayweather fight and comp'ing against last years men's world cup schedule. We currently have in Q3 menu pricing in the mid 2% range and I would expect that same amount of pricing in Q4 as well. While overall we remain optimistic about the advantages we have created for BJ's and our shareholders through our operating costs and management disciplines, we remain guardedly optimistic on comp growth until we see clear evidence with clean comparisons that the consumer is truly back.

However, as reflected by our record Q2 results off of a modest half percent comp, we have built tremendous leverage in the BJ's business model which really positions us for even stronger bottom line growth should we see sustainable upside in consumer spending. Additionally, as we head into the second half of this year, we'll be comp'ing against positive guest traffic through both Q3 and Q4 and specifically in Q4 we will have some calendar shifts that will negatively impact comp sales.

In Q4, Halloween moves to a Saturday night and Christmas eve and Christmas day move to Friday and Saturday respectively. Both of these events may impact our comp sales in Q4 50 basis points or more. Therefore, from a modeling perspective, I would continue to lead towards conservatism in building top line forecast. Moving past comps for the third quarter, I would expect approximately 2,165 restaurant operating weeks, marking an proximate 10.5% increase from the 1,961 weeks in last year's Q3. Also, we continue to move into new markets and I would expect us to continue to see a negative 100 to 150 basis points spread between our comp sales and AUVs.

This has been consistent over the last couple of years as most of our restaurants are being opened outside of California where we tend to have some of our largest and biggest sales restaurants. Moving on to the rest of the P&L, I would expect us to incur some minor efficiency offsets related to continued restaurant growth. As I mentioned, we'll be increasing our restaurant weeks by over 10% for the second half of this year and this will put some pressure on margins. However, because of the progress we have made both in Project Q and the new prototype, the expected drag in our business from our new restaurants should be significantly less than it might have been a couple of years back, as such, I would expect our cost of sales to be in the upper 24% range in Q3 and as of today we have about 75% of our commodities locked for the second half of the year and we expect our overall commodity basket will increase less than 1% in the back half of the year.

While we've made tremendous progress in labor, I would expect labor to be around 35% in the third quarter, as a result of seasonally lower weekly sales averages and inefficiencies from the five restaurants we just opened in June and the six restaurants we expect to open in the third quarter. We didn't expect labor to come down into the upper 34% range in the fourth quarter, as our weekly sales average increase, allowing for better overall labor leverage.

While our overall progress in labor has been impressive, we have some work to achieve our goal of labor being in the mid to upper 34% range on a full year basis assuming a reasonable comp sales. As such, we continue to work through our labor productivity initiatives which we believe over time will help us achieve this target. We are also targeting total operating occupancy costs to be in the low to mid 21% range in the third quarter.

Again, this will be higher than the second quarter, primarily due to seasonality with summer utility rates and less leverage due to lower weekly sales averages compared to the second quarter, and included in this total will be approximately 2.2% to 2.5% of marketing spend which is consistent with the levels of marketing spend last year.

Our G&A expenses for the third quarter should be in the $14.2 million to $14.5 million range as we still expect total G&A for fiscal 2015 in absolute dollar terms to be around $55 million.

I'm anticipating higher G&A primarily related to additional managers in training as the majority of our new restaurant development is in newer markets, and newer markets generally have higher recruiting and supervisor costs and then get leveraged over time as we add additional restaurants into those markets. Along with the higher management training costs, I would expect increased travel related to the increased number of new restaurants as well. Pre opening costs should be in the range of $2.7 million to $3.2 million in the third quarter, based on six restaurant openings. And as we noted in today's press release, we have increased our restaurant openings from 15 to 16 this year. Therefore, for those of you building models, please remember to add approximately $450,000 or so of additional pre-opening in Q4 as we now expect three restaurants to be opened in the fourth quarter as opposed to two. I'm expecting our tax rate in the third quarter to be in the 29% range as I'm currently expecting the full year effective tax rate to be in the mid 28% tax range for fiscal 2015.

This assumes the (inaudible) credits for 2015 are not reinstated.

I know there's been a lot of debate on that right now, but currently they're not reinstated. As I mentioned on the first quarter call, the (inaudible) credits we're realizing right now are related to fiscal 2014 and absent the (inaudible) credit going forward, I would expect an increase in our tax rate of about 100 basis points. As a weighting of our recent repurchases begins to be reflected, I anticipate our diluted shares outstanding, will be around 26.5 million, or so, for the year, which compares to just under 29 million when we embarked our on share repurchase program and again, we still have 53 million available under our current share repurchase authorization. Before I open up to questions, I want to reiterate our recent accomplishments which we believe positions us well for continued growth. For those that have followed BJ's, we shared our 3-year plan at our February 2014 analyst day, which we predicated on three major initiatives.

Reignite sales, improve operating margins, and elevate the investment returns from our new restaurants.

With another quarter of strong results, it's evident we continue to make tangible progress on every one of these initiatives. We just finished our fourth consecutive quarters of positive comparable restaurant sales, in July have started with positive comparable restaurant sales in the plus 1.5% range.

We have successfully eliminated complexity in the kitchen, while improving the quality and consistency of our menu items and while these changes have helped to improve labor, they have more importantly opened our kitchens to come up with new innovative and exciting menu items like our quinoa bowls North Beach Mahi Mahi entrees, and most recently, a line of new burgers to compliment the highly successful Brew House Burger's launched over 18 months ago.

We also laid out a plan to eliminate $1,000 a week from our operating occupancy costs and succeeded in achieving that target.

As importantly, we believe there's additional opportunities for us to pursue in this area of our business going forward.

And we rolled out our new restaurant prototype and that cost approximately $1 million less than our prior prototype. Again, this restaurant not only cost less, but requires less staffing, is more efficient, and collectively is elevating our returns on invested capital. With our enormous growth run rate expectations for up to 425 BJ's Restaurants over time, this is a very significant accomplishment and one which will pay dividends over the near, medium and long term. Our new restaurant prototype is also lowering depreciation and amortization costs, which coupled with our improvement in restaurant margins and G&A leverage, should set BJ's up for many years of margin expansion. The bottom line is that we set out a very specific plan and quarter after quarter we're making measured, tangible progress toward achieving this plan. As I mentioned earlier, we have significantly improved our margins, which is driving unprecedented EBITDA and earnings growth in our business. Today, BJ's is a brand and concept that benefits from its maturity and well known process and procedures, and at the same time, we're a high growth vehicle as over time we believe we can almost triple the restaurant base from here. While we are not yet where we want to be and believe there's still a lot of work to be done, the fact is we're well on our way and expect additional success will be reflected in our financial results over the balance of fiscal 2015 and beyond.

This concludes our formal remarks. Operator, let's open up the line for questions.

Thank you. (Operator Instructions). We'll go first to Jeff Farmer with Wells Fargo.

Thanks and good afternoon. You did touch on it Greg, but over the trailing four quarters it looks like you reduced labor, a cost of percent of sales by something close to 90 basis points. What's the opportunity over the next four quarters, essentially what inning are you in on the labor side in terms of reducing costs?

Yes, Jeff, this is Greg Levin. We get asked about innings at that standpoint. I don't know the answer to that. We're not in the first, one, two or three innings, we're further along. We have a couple of initiatives that we're working toward right now, which I think can provide upside going forward. We don't have a magic basis points we're going after. When we think about our margins and keeping our margins in that 19% to 20% range, we ultimately have to get labor back down into that mid to low 34% range. You line that up with the 25% food costs in that 34% range, labor inconsistently and then operating occupancy cost starting to be in that 21% overall, that starts to be very consistent into that 19% to 20% range. That ultimately I think is the target we're going after. And you know, there's going to be pushes and pulls.

I'm sure one of the questions out there will be around minimum wage and like I think our peers out there, we'll continue to look at what's going on from a macro standpoint and accordingly, adjust pricing, efficiency and so on to handle that. And even today we have locations that are in higher cost areas from a minimum wage standpoint, and we have menus to take care of that. And like our peers, we'll continue with more localized pricing and other things to offset that to continue to work on labor from a right percent of sales perspective to make sure we're taking care of our guests.

Just one more. You gave us a lot of color on same store sales, you called outed July, you pointed to Halloween and Christmas calendar day shifts. You also mentioned this, ultimately your comparisons are 300 basis points more challenging in the back half of 2015 than they were in the front half of 2015, so even with that little bit of color you gave us on July, and Halloween and Christmas, how should we be thinking about same store sales trends on a two year basis as you move into the back half of the year?

You know, it's always hard for us to predict where comparable restaurant sales go and I think we've always talked about the fact that shooting par in the course is more or less holding on to guest traffic and if you do math, I guess traffic is a little bit on the negative side in getting through your pricing.

I think as we go into the back half of this year, we won't have the menu mix drag on our business and I think that helps provide a bit of air cover, for lack of a better term, in regards to generating some positive comp sales, but I think going up against some of the higher numbers in regards to positive guest traffic from last year might make it more challenging to keep guest traffic at flat. Maybe it's slightly down like we're seeing right now which would put comp sales in a lower, lower position than maybe the mid 2% pricing that we have right now.

Okay, thank you.

We'll go next to Matt DiFrisco with Guggenheim

Pricing. Can you be more specific and then I have questions about the detail in the comp you've given it historically so I'm just curious on what you had for pricing and what was mix in Q2?

Pricing was somewheres around upper twos or so in Q2 overall. Right now, it's right in the middle of the two. I think it's at 2.4, 2.5. That menu you saw in May, it had about .8 of food on there, and 1.1 of pricing from last year dropped off. That's a net 20-30 basis points in there, so I think we went from kind of 2.7, 2.8 to 2.5'ish.

And mix was pretty neutral in the quarter. We're see something early, you know, positive moves on mix early on with the newer menu items in July.

So then was I guess the rest was all traffic then, was negative 1.2? I'm sorry 2.2?

Yes, somewhere in the negative range. We pulled out those nine specific days helped us out a lot last year as we were rolling out our new menu and taking deflation from a pricing stand point. You pull out those nine days, the hundred basis points, you get a negative 1-1.2 or so from the quarter standpoint.

And you've obviously improved. You're still better than, you're probably between negative 1 and zero right now to get to that 1.5 which is what is embedded in there?

Some where in that range, yes.

Is it correct to assume from your comments, could mix turn positive with this menu in the second half of the year?

Mix can. As we start to think about the items we mentioned on the call, appetizers coming onboard with other pasta dishes we're still testing some of those things. Your appetizers, if you get more people buying appetizers, that increases your incident rate, which if you put that as part of mix, that would be beneficial for us. If they're trading around on appetizers, the new ones coming on aren't higher priced appetizers but they're not designed to be lower priced appetizers. Pastas in general tend to be medium price for us. They're not necessarily center of the plate signature entrees.

Burgers are going to help as well.

Yes. Burgers could help a little bit. Ultimately where I'm thinking about this is we shouldn't have a drag from mix. If anything, I think the mix should be neutral to positive.

Excellent. Last question. The fourth quarter, how should we think about pricing progressing into the fourth quarter and through into 2016? Obviously, you've had a lot of peers get questioned about this also as far as the inflationary pressures, certainly with California, some people are taking specific city-based price increases. If you're sitting around 2.4 in the third quarter are we beginning at 2.4 and going up, or with pricing and whatever rolls off in the fourth quarter is going to bring you down to the lower two's?

We'll have another menu out in the fall. We haven't made any final pricing decisions, so you know, we're not going to give you any specific numbers at this point, but we're going to look at where all of the labor pressures are falling out. And as Greg mentioned I think in his remarks, we do have an opportunity and have started and we've talked about in the past a little bit more of regional pricing ability. We were fairly flat across all of our markets in terms of pricing and we started with differentiating our pricing, based on obvious demographics and most importantly our cost structure. So we plan to continue that. That only makes sense to take pricing where we have more competitive pricing move and cost structure dictates it. It's ongoing work as we look at next year and where labor ends up really falling out is going to be a big influence on that.

The only other thing I would add to it is, I think relative to our peers or some of our peers in the category, our fundamental strong value proposition and our absolute lower price points for casual, we think gives us room over the medium an long-term to make the right pricing decisions, hopefully with less impact than others. It could end up being, look, nobody is a fan of increased labor costs, but on a relative basis, it could end up benefiting us, given where we are on the pricing curve relative to competition.

Excellent. I think we're all waiting to see what happens when you guys start getting back to mid single digit or even low single digit same store sales in the environment where you've all ready done the margin improvement. Congratulations on the margin turnaround.

Thank you.

Thank you.

Thanks.

We'll go next to Brian Bittner with Oppenheimer.

Thanks. This is Mike Tamas on for Brian. I have a quick clarification on a question. Did you say you're targeting $120 million of EBITDA for this year?

I don't know if I necessarily said that was a target, but for the first six months of this year, we're at $60 million of EBITDA. So if you doubled, it you get to $120 million from that standpoint.

It's more of a run rate than a target.

Thanks. The real question was on labor margins overall. Your per unit labor costs were down nearly 4%, which is pretty impressive. Was there anything sort of one-timer in there or can we expect those type of numbers going forward in the next couple of quarters?

Well, Mike, as I mentioned an I think this is important, in a sense that the second quarter for us generally is our best margin quarter. BJ's is a place that gets a lot of people coming for Father's Day, graduation, Mother's Day in there, it's a celebratory quarter so to speak. And at a result, our weekly sales average goes up into the $111,000, $112,000, $113,000 range, we get some restaurants that do $160,000 even $200,000 sales weeks and you'll leverage your business from that standpoint. So, the 34% I think to some degree is going to be the high watermark for fiscal 2015.

I do think as I look at our business quarter-over-quarter, meaning comparing Q3 to Q3 of last year and Q4 2015 of Q4 of 2014 of last year, we'll get some margin improvement. Assuming we can maintain relatively modest comps in the 1.5% range we're seeing right now, I think we still have some opportunity for improvement there. So, there wasn't anything that was that specific in Q2 that drove down those labor percentage to 34%, but I want to make sure that you're clear that the 34% is based on our weekly sales average in Q2 was some of our highest weekly sales averages.

Thanks so much, guys.

We'll go next to Will Slabaugh with Stephens.

Thanks, guys. I wanted to ask geographically. We've heard a number of companies mentioned weather in Texas, et cetera, which may have weighed on patio sales and guest counts in general. I'm wondering if that or other impacted your sales along with those events that you mentioned.

Will, I think our results would be consistent with what you're hearing elsewhere. We think weather is certainly a factor. Texas was softer, we've mentioned that before. California is both Northern and Southern California have been strong markets and continue to perform the best of all of our markets.

Texas has been a bit soft and Florida has been soft relative to California as well, which I think is more of a function of just the newness in the markets in Florida and some of our relatively newer restaurants coming into the comp base, which our restaurants typically come into the comp base a little bit negative, so that gives you a little color of the dynamics of the major markets.

Just adding on to Greg's comment there. As a Company with the growth that we have in the amount of new restaurants we have coming into comp base, we've talked about this before because we get a lot of questions in regards to new unit productivity. Our new restaurants coming into comp base negative, and that's a drag on us. It's probably a drag somewhere in the neighborhood of 50 to 75 basis points per quarter.

We saw this as we moved outside of California a few years back and it impacted us first when we talked about 2011 or 2013 in a class of 2011, came in as a comp base negative and we used to break that out. The class of 2011 has performed in a positive comp sales perspective from that standpoint. The class of 2012, came into the comp base last year, it came in negative. It's comping positive, and now we've got all of the 2013 restaurants coming in and those 2013 restaurants, you know, ultimately right now are about 50 basis points drag in our comp sales and while I don't like to get so specific that we're always looking for excuses or trying to carve things out, but I start to look at our trend basis and you start to think about the nine days in the quarter that we're at 50 basis points.

Got the class of 2013, that's in there worth about 50 basis points. If I was comparing our sales maybe to more mature restaurant companies I would probably think of our comp sales being closer to the mid 1.5% range which we're seeing now even with the drag from the class of 2013 into July. And you know, that's going to be with us.

As I mentioned, class of 2011, as they cycle through it and get to about I would say 20, about 30 months out of their opening time frame, they comp positive and we're seeing that with the class of 2012 and as the 2013 class matures, I expect them to start to comp positive as the other classes have done as well.

Got it. That's helpful. Then an update if we could on the mobile app. You didn't mention that this quarter. You've given stat's in the past. I'm curious if you had any numbers around, the customer acceptance, guys that have signed up for, it and also any benefits that you may be able to see or speak to at this point such as frequency, check average, table turn improvements, et cetera?

We continue to be bullish on what the app's going to do and mean for the business. It's still at a very low level. It's been pretty consistent on a percent of sales basis. It's still sub 5% in terms of overall app usage. And by the way, we're big proponents of seeing other concepts spread similar kind of app adoption. We love that Starbucks is doing an order ahead app because that's such a new concept that people aren't used to ordering ahead and actually dining in or carrying out with the app, so we look forward to more adoption there because as we said before, we think we have more to gain from a capacity utilization perspective than most other concepts given the kinds of volumes we're doing, right.

So we're continuing to add features to the app and working on that, and think it will grow, but it's at a lower acceptance rate than we would like to see because we're just impatient about it, but we continue to get very really positive feedback an the folks that are using it, use it quite often. It's just spreading that word and getting people more comfortable with its use on the phone.

Got it. Thanks, Greg.

You're welcome.

We'll go next to Nicole Miller with Piper Jaffray.

Good afternoon. What are the alcohol sales as a percent of sales, please? What kind of trends are you seeing with beer, wine and spirits, and what is the real long-term opportunity?

Alcohol for us, Nicole, has been very consistent since I've been with BJ's, somewheres in that 22% range of which about 15, I think I want to say 15% is beer, the rest is wine and sprits from that standpoint. In regards to incident rates and things like, that they've been I would say overall fairly consistent. We've seen wine grow a little bit. Seen a little bit less of beer at times. I think some might have to do with the strengths of the beers out there now. You think of the craft beer industry ended up with craft beer in the 8, 9 alcohol by volume, where 15 years ago beer basically was 3.2 to 5% beer so to speak. You tend to see a little less than that, but nothing that is so significant when I look at our trends that anything has changed.

So what we'll continue to work on that I think there's opportunity for us to continue to build the BJ's brand around the beer and now with Texas brewery opening, or Texas Brew Pub opening, there's maybe some opportunity down the line maybe with retail, whether it's canning bottles et cetera because we might have some capacity for some of that, but that's a few years off and we talk about that's and opportunity for the brand, but not necessarily in our plan in the next 12 to 24 months per se that would make a significant change in our business.

Thank you. Can we also please get an update about off premise sales and where that's tracking and how you see the long-term opportunity?

Off premise sales for us is somewheres in the 4% to 5% range. Fairly consistent. It was in the 3% to 3.5% range and maybe five years ago, we put some emphasis behind it, moved it up into the 4% to 5% range. One of the areas we think we have opportunities with the off premise sales is frankly is the mobile app. It's amazing to be able to place your order on the mobile app, pay on the mobile app and pick it up. The people we see in our direct connect result, our daily surveys that do it this way, love the off-premise side of our business in that regard.

We think there's an opportunity to continue to increase that. In fact, we're working on catering and other things that we're changing up the menu, making it a little bit easier that we expect to have rolled out in the second half of 2015.

Nicole, I think personally given the amount of carry out, take out business that the world of fast casual is doing is making it even more common place and is an opportunity for us in casual dining, and given like Greg said the app and the variety of menu food on our menu, we're a great option for family and large group feeding. So I'm actually pretty bullish about the opportunity for that aspect of our business to grow.

Thank you very much.

We'll go next to Sam Beres with Robert W. Baird.

Good afternoon, thanks for taking the question. First, Greg Levin, in terms of the restaurant level margin for this year, I think you had previously mentioned kind of thinking of a mid to high 18% range assuming a specific level of comps. Just wondering if you can provide a little more perspective on where your head may be at in terms of where you think you'll end up for the year there and kind of what level of comps you're assuming in the back half of the perspective?

Couple of things. One, we don't comment on comps. We tell where we're seeing comps right now, some menu pricing and mixed terms that we've talked about from that standpoint. I do think that we talked about getting this year into the 18s and next year being our bogey year to get back into the 19s. I would expect Q3 and Q4 just restaurant level margins in general to probably be back in the 18% ranges or so and that's more predicated with the weekly sales averages coming down. You look historically at BJ's, Q3 and Q4 are the lowest weekly sales average quarters of the year and as a result, the margins come down a little bit. But because we started this year pretty strong where we started with an 18.9 in Q1 and a 20.9 in Q2, I would tend to think that generally speaking we'll probably be close to that 19% range or better than that when you aggregate the full year of 2015. However, I think our goal is to be consistently over 19% each and every quarter, and I'm not sure we're there yet. That's where you'll see other operational improvements we have lined up going into next year.

That's great perspective. Thanks. You guys didn't mention anything in terms of where you've seen guest metrics trending lately, given continued menu innovation, some of the other drivers and offerings such as the mobile app. So maybe you could talk about what you've seen lately in the guest metrics and your confidence to be able to continue the margin expansion without impacting any of the guest experience. Thanks.

I'm not sure, Sam, what you mean by guest metrics. We've given a fair amount of details in the comps on traffic side. We do track feedback from our guests through our loyalty program and you know, we're looking at those every single day. It tracks the fundamental components of the guest experience in our restaurants, including food quality and speed and friendliness of the server, et cetera, cleanliness. We continue to perform very, very well.

We keep obviously a very, very close eye on those metric because we want to make sure particularly as we're pursuing the more efficient restaurant operations, that we're not doing that at the expense of the guest experience, you know, quite the contrary. We want to see that moving towards the improvement side of things. You know, we are very, very happy as I said that the new food and improvements we've made in the menu are resonating by what we see selling throughout each of our restaurants, and our overall guest experience is improving as well.

Great, that's what I was looking for. Thank you.

Thank you.

We'll go next to Chris O'Cull with KeyBanc.

Thank you. Greg, in the past you've talked about shifting marketing dollars. Would you talk a little bit about how the allocation of marketing has changed and maybe what impact you're seeing from it?

We've continued to emphasize in general a shift away from traditional trend most notably and into digital and our loyalty marketing, Chris, so a lot of that continues to be test and learn, but I can say that we continue to be very pleased with kind of the activity levels we're able to generate when we talk to folks in our loyalty program. So that's become an increasingly valuable weapon, if you will, both from a surprise and delight perspective and to get more targeted and promote promotional activity. That's clearly becoming a bigger part of what we do.

And then we are emphasizing just general digital, we're out there both socially, but also through taking video content and using digital distribution to spread our brand word. As you know, we don't have the kind of density for TV to work consistently much outside certainly our California markets, so we're pushing hard on both sort of traditional SCO, SCM side of digital, but also some of the new channels in terms of video and video content in particular.

Okay. Then can you talk a little bit about the opportunity to improve through put other than the app or capacity utilization during peak periods? I would think given the performance in California that would be one of your biggest opportunities to grow traffic, is to just reduce the wait times strengthening period? California must be killer.

Yes, we're with you. It's not just California by the way. We run lots in Texas and all of our markets. In general, it's one of the biggest opportunities that we have.

Outside of the app, what are you doing to improve it?

We're continuing through Project Q and the work that we're doing on the kitchen side is looking at literally every recipe and sub recipe to see how we can attack that speed to the guest without sacrificing quality. A lot of Project Q, we talk about the quality and efficiency side of it, but speed is apart of it. In fairness, we've made more progress on fundamental quality and innovation and the efficiency side., but speed is a part of it and there still lies an opportunity.

I'll give you an example that we have not cracked the code on, but if we could take our deep-dish pizza from two passes in the oven to one, it would be life changing, right. So it's things like that and looking at our kitchen times with these recipes to see how we can work on that. Then just the fundamental front of house getting better at tackling server deployment and making sure we're turning tables as quickly. We can always get better at that kind of stuff. We're looking at all of the science of that deployment and seeing if there's things we can do, even with technology, to improve speed in the front of the house and that's in the server times.

Pay at the tabletop tablets, why isn't that something you guys and considering? The adoption rates are really high when you have tablets at the table. Why not consider that a way to speed up the meal duration period?

What we've said before is, you know, we haven't ruled it out. We haven't pursued that aggressively or we haven't pursued it because of the concerns around, first of all, space on the tabletop and we have real, honestly have brand concerns about it, but that said, we are not saying never, and we're looking at it closely. The only other thing I would add there is we do believe we have great functionality in our app and eventually the market's going to go to tablet and phones, right. So our concern there is to be honest is from a cost structure perspective as well is are we taking on technology that's not going to be two or three years from now or name your time frame, the way that these transactions are conducted. So we may be a little ahead of our time here, but it may be worth being patient in return for not being committed to technology that's going to be obsolete sooner rather than later. Look, I'm not a forecaster, I'm not saying that's the case, I'm telling you how we're thinking about the pros an cons.

Thanks, guys.

We'll go next to Nick Setyan with Wedbush Securities.

Thanks for taking my question. If I'm not mistaken, last year Q3 transactions were positive 70 basis points and given the color you gave on the core to date kind of mix and average check, and pricing breakdown, that kind of implies more or less a flat transaction on a two-year basis. Is that kind of a correct assumption?

Actually, that's somewhat reasonable, yes.

I mean, the goal has always been to stabilize the business on a two-year basis, and are we kind of there yet all ready? And going forward, given some of the driver there's, even with the mixed shift on the calendar and so on, but on a two-year basis, is it a correct assumption that you guys are pretty much flat, you guys have all ready gone to business there?

I think there's always opportunity for to us improve the business, Nick, but we do look at that two-year guest traffic metric and other incidents being as well as comp sales and top line and so on. And I think underlying some of those metrics on a two-year basis we are pretty consistent in that regards and what makes us feel good about that is we have a stabilized app, but we've been able to get great leverage out of our business based on other things we've put into place. That being said, we continue to work on one, the branding and marketing of our business to drive more awareness because at BJ's what we have seen over the years is better awareness of BJ's does drive traffic or drives trial, which ultimately drives traffic into our restaurants.

We continue to work on menu mix and coming up with creative new menu items that I think can get us maybe above the incident rates and other things to drive comp sales, maybe above where they are currently, but when I do look at some of the things you're talking about there which we do look at, your assumption analysis is not that far off.

Nick, the other way we look at it, like everyone, we pay close attention to what the industry is doing, right, and we want to be beating the industry on traffic and that's why we call out we've done that 10 out of the last 12 periods and June was one of the misses, we think more driven by the calendar and sporting events.

Aside from, there's a certain element of what's going on in the industry in macro economy that we control or can't control so we want to be taking share at the end of the day and so we do look at it at an absolute basis, but that relative metric is important to us.

Can you guys talk I mean, it's great to see, you guy were down, you know, mid single digits, then a low single jump, and now you're flat. Maybe you guys could talk about some specific examples of drivers where we can at least see, and I get the whole calendar shift and so on, but are we poised here in your opinion to get the two-year transaction trend to positive, even starting in Q4 maybe or early 2016?

We wish we had that crystal ball. I can say there's no one thing we do to drive traffic. It's a combination of the fundamentals in the restaurant business are serve great food. You know, we've made really good progress and we're very proud of what we've done from menu perspective and the distinctness of those items.

We think we're getting better and the data would suggest from a hospitality perspective. Marketing better is an important part of what we're doing. You know, our teams are getting more experienced. We're in a people business here and we've continued to get better at helping them do their jobs better, and execute in our restaurants. So you know, we wish we had the formula that could tell you exactly what's been driving the improvement one versus the other because we would focus on that item even more, but it's a culmination in all of that that results in a guest experience which makes people say, "look, I want to go back there", and we continue to think we're headed in the right directions on that front.

Great, thank you.

Ladies and gentlemen, we have time for one last question.

Our final question will come from Paul Westra with Stifel.

Thank you, good afternoon. Just clarification and maybe one more quest. On the menu management efforts as far as the quantity of menu items down to 139. Is it me, or do I recall your brand new stores are opening with menu's a little lower in the 120 and you have some legacy stores with higher? Is there decent distribution there?

Thank you for asking that Paul. In this latest menu go around, we sort of equalized everyone, so we're managing a number of permeations of menus and we have permeations for different reasons, but everyone is just about on the same menu now and we are looking and working on the next test iteration to bring that down on a net basis. We'll add items like we have in the past, but take out more than we've added and test that before we roll that out nationally, but thanks for that clarification. Everyone is on that same items on a food basis.

And the trajectory is still down from here?

Yes. Look, my perspective is we still have room, but we've got to be careful. We're not going to build sales by taking items off of our menu, right?The trick here is, like I just mentioned, we are going to add a few more, then take off slightly more than what we're adding to get there because you know, there's fans out there of everything that's on our menu right now. We hear that everyday in our direct connect surveys and people are still asking for the pot roast we took off before I even joined BJ's, and so we're very conscious of that, but I do think the optimal guest experience that we can provide, there's still room that we can get that number down.

And I want to follow-up on that regional pricing, it sounds like the recent initiative you've been implementing, the regional pricing end is it safe to say you're preparing perhaps to get much more regional pricing perhaps in 2016 and beyond and give a variety of changes throughout the different states and regions?

Yes, I think that's fair. We can't get the kind of, again, we don't have a magic number there, but conceptually, we're not going to get to the kind of spreads that we think are appropriate all at once because for obvious reasons. So we're getting a bit at a time and that will be emphasized somewhat by what's happening in the differentials and the labor markets.

Maybe the last question on the labor market. Your overall turnover, incremental wage rate inflation, but is the turnover being impacted as well?

My summary there would be that we've actually held the line of wage rates pretty well, and this started in an effort last year as we've given our operators more guidance around what competitive wage rates are at the market level and that's something we've been working on to help us offset some of the pressures where we've had to increase wage rates. So year-to-date our wage rate number has not grown much at all, but we don't expect that to continue, frankly. There's increasing wage pressure for all of the reasons you guys know and heard about, the general economy, plus the number of restaurant openings out there put pressures particularly on the back of house, right. So we don't think that's a sustainable condition in and of itself for sure.

And in terms of turnover, you know, you've heard us talk about this consistently through the year, you've followed BJ's a long time, is we have maintained turnover rates at the manager level and at the hourly team member level that have been pretty significantly below the industry, and from latest data that we see we continue to do that, but we have seen an uptick in turnover at both levels and it's something we're obviously keeping a close watch on. But we review turnover at the manager level by person, and it's a combination of certainly competition and new openings and new concepts that are on the scene, but a surprising number of them I think would surprise you guys how many are people that are leaving the industry, as more opportunities as the economy improves and people are like, I want to try something different in my career and I'm going to go do something, you know, very, very different is probably, I don't know, I'm not saying this empirically but it won't surprise me if it's 40% or 50% of the turnover we're seeing.

That's helpful. (inaudible).

Thanks, Paul.

All right, Operator, we thank everyone for attending the call. We're around if anybody has questions, feel free to call the office. Thanks.

Thank you.

Ladies and gentlemen, once again, that does conclude today's call. We appreciate everyone's participation.