BJ's Restaurants Inc (BJRI) 2015 Q3 法說會逐字稿

Good day, and welcome to the BJ's Restaurants, Inc. third-quarter 2015 earnings release and conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Greg Trojan, President and Chief Executive Officer. Please go ahead, sir.

Thank you, operator.

Good afternoon, everyone, and welcome to BJ's Restaurants FY15 third-quarter investor conference call and webcast. 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, and Kevin Mayer, our Chief Marketing Officer, on hand for Q&A.

After the market closed today, we released our financial results for the third quarter of FY15, which ended Tuesday, September 29, 2015. You can view the full text of our earnings release on our website at www.BJsrestaurants.com.

Our agenda today will start with Rana Schirmer, our Director of SEC Reporting, providing our standard cautionary disclosure with respect to forward-looking statements. I will then provide an update on our Business and current initiatives. Then Greg Levin, our Chief Financial Officer, will provide a recap of the quarter, and some commentary regarding the remainder of FY15 and some of our initial thoughts on 2016. After that, we will open it up to questions. As usual, we will try to keep the call to around an hour, but as always, we will be around after the call for any additional follow-up.

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 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, October 22, 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 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, Rana.

Q3 was another very solid quarter for our Company. Excluding the one-time gain on our Century City restaurant, our net income increased 58% versus Q3 of last year, and by 70% on a per-share basis. Year-to-date net income is up 54%, and 67% on a per-share basis, when adjusting for Q3's one-time gain and the shareholder settlement charges incurred in the first nine months of last year. Our strong performance was driven by solid comparable-restaurant sales of plus 2.3%, which, combined with 10% growth in restaurant operating weeks, drove a healthy top-line sales increase of over 11%. This is our fifth consecutive quarter of positive same-store sales, and this trend reflects the benefits of our investments in better, more unique food, and in our core value proposition.

BJ's healthy revenue gains, combined with the continued excellent work by our restaurant operators, field support and home office support, continue to drive cost savings efficiencies, resulting in consistent and impressive margin gains. Our income from operations, again excluding the one-time gain related to the Century City restaurant lease termination, is up 70% for the quarter, far outpacing our 11% increase in revenues, and is a testament again to the significant leverage of our operating model.

Our comparable sales gains in Q3 was driven by an increase in our guest check from menu pricing in the upper 2% range, as well as favorable menu mix and food incident rates. This was offset by a slight traffic decline of a little over 1%. We were able to drive favorable item mix and food incidents in the quarter as we benefited from the popularity of our summer rollout of the EnLIGHTened quinoa bowls, barbacoa chicken, and North Beach mahi and shrimp, followed by our tremendous new lineup of loaded burgers in July.

In September, we promoted new appetizers, including dry rub chicken wing flavors, root-beer-glazed ribs, and some chips, dips and salsas, which led to growth in our appetizer incidents. We were also successful in making several strategic menu design changes, which drove incidents for a few of our best-tasting and higher-margin, more profitable items. All of these factors contributed to average check growth, either from a trade up to our new loaded burgers or an increase in items per check, or what we call incident rates, coming from the new appetizers. This contrasts to last year, where our net guest check remained essentially flat as we invested in lower-price menu items in our core middle of the menu.

With our investments last year, our everyday value platform is in good shape. We are now able to create new and exciting menu items that provide favorable menu mix or become guest-check-building add-ons. All of these new items offer great value to our guests, as our value scores have actually improved by a measurable margin year over year, as measured by our NPS metric. In fact, I'm very pleased to report that all of our key guest metrics, including overall recommend scores, have improved nicely.

In addition, we recently completed a thorough menu item survey in our restaurants with the help of a third-party agency. It showed meaningful improvements in the scores of our food quality and value versus two years ago, the last time we undertook this study. Although we saw improvements in nearly every menu category, the larger gains came from pizza, burgers and EnLIGHTened entrees, which, as you know, have been the focus of much of our culinary attention over the past two years.

Also of note is we just won two more gold medals at the Great American Beer Festival a few weeks back in early October. We were competing against some of the best brewers in the world there, again showcasing our commitment to quality, and it's making a difference.

Continually improving the uniqueness and the quality of our food and beverage offerings is core to our long-term strategy. These fabulous new menu items have given our marketing team a lot to talk about, and they have been effectively improving our brand messaging, leveraging our expanding loyalty data base, and refining our media mix over time. Our new craft matters marketing positioning has created an excellent messaging platform to accentuate our quality story, for our food, our beer, and for everything we do in our restaurants.

Our loyal guest database continues to grow impressively, with steady growth in the percent of transactions coming from our loyalty guests, as well as the growth in the number of transactions per loyalty guest. Our loyalty program is proving to be agile, very effective, and a powerful weapon to drive fun brand-building promotions like our free pizookie day, or to stimulate trial of pizza and other offerings in newer markets. In fact, during the third quarter we had a free pizookie day which was entirely launched and promoted using loyalty, social and digital assets. It proved to be a highly successful one-day promotion, as we served over four times our normal number of signature desserts than normal, driving a big double-digit comp sales day.

At the same time, we continue to be pleased with the performance of traditional media, TV in particular, in a number of our core markets, as we've driven efficiency in our buys and in our targeting. We're also seeing early but encouraging results from our expansion into more markets in the digital video space, which would enable us to target specific trade areas at levels of spend and TPMs far more affordable than traditional TV in our less-penetrated markets.

Looking forward to Q4 and into FY16, we expect the combination of compelling food, and continued improvement in our marketing and messaging, to continue to drive our top-line growth. In Q4, we will be introducing our new fall menu, which will include updates to our pasta lineup with some powerful innovation. It's been a while since we've brought new news to this profitable category, and we look forward to introducing our rendition of some classics like deep-dish ziti, along with our new Sriracha chicken and bacon mac & cheese. We will also be adding the most popular new appetizers from our September promotion to the menu, as well as our perennially successful holiday beer, Grand Cru, as well as some seasonal center-of-the-plate specials to drive check average.

We will also be rolling out a new beverage and dessert tabletop menu which we look forward to driving incremental add-on during the holidays. Last but not least, our marketing, culinary and operation teams have developed a new large-party catering and special event menu, which simplifies the sometimes difficult task of organizing large-party gatherings, both at home and in our restaurants.

Our menu pipeline is very robust, and the work we did last year under Project Q is allowing us to continue to create new menu items in a very efficient and productive manner. I am both excited and optimistic regarding the items we have in test that will be added to the menu in FY16. They include extensions of our pizookie desserts, center-of-the-plate entrees, as well as salads, sandwiches and more better-for-you items.

While this is an extensive list, we will continue to prudently balance new menu items under the lens of Project Q, so that we can execute with a quality fast mindset and that gold-standard level. In fact, even with all of the exciting new menu items that I've been talking about, and introduced this summer and beyond, our item count today remains steady at about135 items, compared to over 180 items almost two years ago.

While our menu innovation and the progress we have made in marketing are exciting in terms of the results they are achieving, I'm equally excited about our new restaurant opening momentum. We opened in four new states this year, and are planning several more in 2016. Our new restaurants in places like Huntsville, Alabama, and McCandless, Pennsylvania, in the Pittsburgh market, Murfreesboro, Tennessee, near Nashville, have opened up sales levels above our expectation, and guests in these new markets have quickly embraced the BJ's concept.

Our new 7,400-square-foot prototype is performing well. Its lower investment cost has been instrumental as we penetrate new markets outside of California and our Texas core; and as expected, the prototype is delivering very solid returns. Our overall operating results are demonstrating our ability to open new restaurants at double-digit rates while continue to leverage margins, a feat not often seen in our industry and, I believe, noteworthy for our investors and analysts.

As we head into the home stretch of 2015, I could not be more proud of the progress our team has made towards our goal of being the best casual dining concept ever. We clearly have a lot of work ahead of us, but in 2016 we will continue to focus on the playbook that we laid out almost two years ago. We will leverage our broad menu to continue to execute great, unique food at an extraordinary value. We will continue to pursue savings in our cost structure to enable us to price at a modest level, on average below our competition. And we will drive awareness through our brand messaging and improved ability to target our numerous customer segments.

We'll continue to open strong, contemporary-looking new restaurants, which will not only expand our physical footprint but grow our brand as well. The fundamental strength of our concept is appeal across such a wide range of guests, and the momentum our team has created makes me look forward to the next several hundred BJ's Restaurants to be built with great excitement. With 169 restaurants in 22 states, an estimated national capacity for at least 425 BJ's Restaurants, we are very excited that the majority of our growth remains ahead of us.

Greg Levin will now do a financial review of Q3, and offer some perspectives on the balance of 2015 and some initial expectations for 2016.

Thanks, Greg.

As Greg mentioned, revenues for the 2015 third quarter increased approximately 11% year over year to $229.4 million, while net income and diluted net income per share increased to $12.4 million and $0.48, respectively. As we noted in today's press release, the third quarter included a pre-tax gain of $2.9 million related to a lease termination fee that will be paid to us by the landlord of our Century City, California, restaurant, as a result of the major mall renovation occurring at the Westfield Century City Mall. As a result of this mall redevelopment, we will have to close this restaurant because we were not able to agree on a suitable replacement location at the renovated mall; and as a result, we currently expect to close that restaurant in January of 2016.

Excluding this one-time item, our net income is $10.2 million, a 58% increase over last year's $6.5 million, and our diluted net income per share is $0.39, an increase of 70% over last year's $0.23. Both net income and diluted net income per share were third-quarter records for us, and the net income and diluted EPS, excluding the gain, as well as the third-quarter revenue, were well ahead of our internal projection at the time.

As Greg Trojan noted, our solid operating results were driven by positive comparable-restaurant sales, and our productivity and efficiency initiatives. This led to a 19.7% restaurant level cash flow margin, which is 210 basis points better than last year's third quarter. I will also remind you that included in our restaurant level cash flow is approximately 2.2% of marketing spend, which many peer companies include in their G&A. Therefore, excluding marketing spend, our four-wall restaurant level margin for Q3 was 21.9%, which we believe are among the highest in casual dining. The third-quarter revenue increase reflects an approximate 10.4% increase in total operating weeks, and a 0.7% increase in average weekly sales.

Comparable-restaurant sales rose 2.3% during the quarter compared with an increase of 0.3% in last year's third quarter. Quarterly revenues benefited from menu pricing in that mid- to upper-2% range, and positive menu mix and food incident rates, as Greg Trojan mentioned. That was offset by a traffic dip of a little over 1%, which is pretty consistent with the overall casual dining traffic trends for Q3. As we look at comps through the quarter, July, August and September were all positive. September was our strongest month, and benefited from a slight acceleration in comp sales over the last few weeks of the month.

Our Q3 cost of sales of 24.5% was a little lower than anticipated due to lower commodity costs, primarily in cheese, dairy and seafood, and continued benefit from our initiatives around menu mix and menu pricing. In fact, our commodity basket as a whole for the third quarter was down slightly year over year. Labor of 34.4% for the third quarter represented a 110-basis-point reduction from the year-ago period, and also came in better than we anticipated. This decrease resulted from improved hourly productivity, largely due to our Project Q initiative, as well as leverage from our better-than-anticipated comparable-restaurant sales increase.

Operating and occupancy costs were 21.3% of sales for the third quarter, a decrease of 40 basis points from last year. Included in operating and occupancy costs is approximately $5.1 million of marketing spend, which, as I noted earlier in my review of restaurant operating margins, equates to 2.2% of sales. By comparison, marketing spend in last year's third quarter was $4.5 million, which also amounted to 2.2% of sales. Excluding marketing, our operating and occupancy costs in the third quarter averaged approximately $20,400 per restaurant operating week, compared to $20,600 last year.

Remember, just to put this in context, at our February 2014 analyst day, we set out our strategy to reduce operating and occupancy costs, excluding marketing, by $1,000 a week, which we expected would allow us to pick up about 100 basis points in this line item. As a point of reference, when we began this initiative, we had just finished FY13, averaging $22,400 per week, and that again is excluding marketing costs. By comparison, for the first nine months of this year, we have averaged about $20,400 per operating week. As such, our overall operating and occupancy costs, including marketing spend, have gone from 22.4% of sales in FY13 to 20.9% for the first nine months of this year, through a combination of cost savings initiatives, and also leverage from positive comparable-restaurant sales and other top-line initiatives.

G&A was $13.6 million for the third quarter, representing 5.9% of sales. G&A was lower than expected due to a credit in our deferred compensation plan of about $300,000, and less-than-anticipated manager-in-training costs. Without getting into all of the technical accounting around a non-qualified deferred compensation plan, I would note that the credit in G&A gets offset with a like charge to other income and expense. If you look at our release today, you will note that our other income and expense line item shows an expense of $257,000. That is really the offset to the credit in G&A. As such, the net impact to BJ's is virtually zero from an earnings perspective. It is just that accounting rules make us record one portion of this charge to G&A and the other side of this charge to other income.

Depreciation and amortization was approximately $15.1 million, or 6.6% of sales, and averaged about $7,000 per restaurant week, which is in line with our recent D&A trend. More importantly, depreciation and amortization per restaurant operating week was down about 2% from last year's third quarter, and highlights the progress we are making with our new restaurants that cost us about $1 million less to build than our prior prototype restaurants, which we transitioned to about a year ago. Pre-opening expenses were $2.3 million. This primarily represents the cost of the six restaurants we opened during the quarter, plus opening costs for restaurants that we plan to open this quarter.

Our tax rate was 23%, or about 23%, for the quarter, and that was below our targeted rate of around 29% due to the additional utilization of FICA tax tip credits during the quarter. Our tax rate was slightly higher than the year-ago third quarter when our tax rate was 21%.

In terms of capital allocation, we continue to use our strong cash flow from operations to execute on our national expansion plans by opportunistically repurchasing shares. Total capital expenditures for the first nine months of this year were approximately $63 million, and we continue to budget gross capital expenditures for FY15 of approximately $100 million, which includes construction of 16 new restaurants this year, as well as maintenance CapEx and other sales-building initiatives. Included in this year's gross CapEx is approximately $2 million, and that's for the construction of our new brewery/brew pub location in Temple, Texas, which opened in late June and is supplying all of our Texas locations with BJ's proprietary award-winning craft beer.

We also continued our program of returning capital to shareholders, allocating approximately $19 million towards the purchase of 400,000 shares of our common stock in the third quarter. Since the authorization of our initial share repurchase program in April of 2014, we have repurchased and retired approximately 4.2 million shares of BJ's stock for approximately $165 million. This leaves us with approximately $35 million remaining under our current share repurchase authorization program.

With regard to liquidity, we ended the third quarter with approximately $27 million of cash and $68 million of funded debt on our line of credit. That is compared to $75 million at June 30, which is in effect -- or our line of credit is in effect until June -- until September 2019. That line of credit is for $150 million, and it really does provide us the flexibility to continue both our national expansion program while returning capital to shareholders through our share repurchase program.

Before we open the call up to questions, let me spend a couple of minutes providing some commentary on our outlook for the remainder of 2015 and some very preliminary thoughts on FY16. 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 I mentioned, the last few weeks of September were strong for us. But as we've heard already from other restaurant companies, as well as recent industry trends from both Black Box and Knapp Track, October has started out choppier and softer than expected. Our sales for the first few weeks of October are slightly positive, with the first 10 days of the month being the softest.

More recently, we have seen our comparable-restaurant sales begin to pick up, but the day-to-day choppiness still persists. Much of the weakness continues to be in the Texas markets, which have been soft for us this year. And with the San Francisco Giants baseball team not making the playoffs this year, we have had some softer days in Northern California, primarily on the days the Giants weren't making -- weren't playing, as compared to last year when they were making their run to the World Series.

Menu pricing in this Q4 should be, again, in the mid- to upper-2% range. While we remain optimistic about our advantages we have created for BJ's and our shareholders through our operating costs and management disciplines, we remain guarded on comp growth until we see clear evidence that the consumer is back on a consistent basis. Even though comp sales seem to have picked up slightly in the last 1.5 weeks, the Q4 calendar shifts of Halloween moving to a Saturday night, and Christmas Eve and Christmas Day moving to Thursday and Friday, respectively, could impact Q4 comp sales by a total of 50 basis points or more. Therefore, from a modeling perspective, I would continue to lean toward conservatism in building comp forecasts.

Moving past comp sales, for the fourth quarter I would expect approximately 2,210 restaurant operating weeks, and that marks an approximate 9.7% increase from the 2,105 weeks in last year's Q4. Also, as we continue to move into new markets, I would expect us to continue to see a negative 150 basis points or so spread between comp sales and AUVs. This has been pretty consistent over the last couple of years, as most of our restaurants are being opened outside of California.

Investors should keep in mind that our lower-cost prototype, along with lower operating costs from our operating initiative, and the fact that most of our newer restaurants are in states that are significantly less expensive to operate in than California, is leading to returns on these new restaurants that are meeting or exceeding our internal targets and the prior returns on investment on our older prototypes. I think this is pretty evident in our operating results, in that our newer restaurants have not had an abnormal drag on our margins, which you tend to see as companies embark on their national expansion programs and begin building restaurants away from their home-court advantage.

Moving on to the rest of the P&L, I would expect cost of sales to be in the upper 24% range, as we tend to see a shift in the menu mix in Q4 towards higher-cost, center-of-the-plate protein dishes, especially around the holidays. I would expect labor to be in the mid-34% range in the fourth quarter, and probably fairly consistent with Q3's numbers. Operating and occupancy cost should also be pretty consistent with Q3, in the low- to mid-21% range, which includes 2.2% to 2.5% of marketing spend. This marketing spend will be slightly higher than last year's 2.1% of sales.

Our G&A expenses for the fourth quarter should be in the $14 million to $14.5 million range, which is slightly higher than Q3, as we will not have the deferred compensation credit in Q4, and I am anticipating higher G&A related to additional managers in training as we build our manager pipeline for anticipated openings of 18 to 19 new restaurants next year. Pre-opening costs should be in the $1.5 million range for the fourth quarter based on three restaurant openings. I'm expecting our tax rate in the fourth quarter to be in the 29% range, and this assumes that the WOTC credits for 2015 are still not reinstated, and that in this case we would get normal quarterly receipt of our FICA tax tip credits.

As the weighting and benefit of our recent repurchases begin to be reflected in our share count, I anticipate our diluted shares outstanding will be around 26 million, fairly consistent with Q3 for the fourth quarter, versus just under 29 million when we embarked on our repurchase program. Again, I would remind you that we still have $33 million available under our current share repurchase authorization. I think we can all agree that the share repurchases are benefiting our shareholders from the standpoint that while net income grew a robust 90.7% in Q3, our share repurchase activity has leveraged that to a 108.7% rise in diluted net income per share.

Looking ahead to 2016, and we are currently putting together our financial plan which will be presented to our Board for approval in December. Therefore, while we do not have an approved plan to review today, let me provide you with some of management's preliminary expectations for next year. As we mentioned in today's press release, we are targeting 18 to 19 new restaurant openings. We currently anticipate two to three new restaurants in the first quarter, and as many as five restaurants in the second quarter, with the remaining restaurants scheduled to open in the back half of next year.

As many of you know, opening new restaurants is not an exact science, and things such as weather, delays in permitting or other construction-related issues may cause our openings to move from one quarter to another. As in the past, we will keep investors apprised of any movement of new restaurant openings. We also note on today's call and in our press release that our Century City restaurant is expected to close by the end of January 2016, impacting our overall sales weeks for next year.

While we have not finalized menu pricing for 2016, based on our current thinking I would expect it to be similar to this year, which is for menu pricing in the 2% to 3% range to offset any inflationary pressures. Please note that this is as of today, and is based on anticipated commodity pressures, labor and other inflationary factors. Since we tend to roll out new menus in the winter, spring and fall, menu pricing could change at these times. Also, our forecast does not take into consideration any discounting, mix shifts or promotional activity which could offset some of our menu pricing.

With regard to our very preliminary commodity basket for 2016, we currently anticipate the cost of our aggregate basket to increase around 1% next year. We tend to lock in most of our commodities for next year over the next couple of months, and we will, therefore, have a better idea of our commodity pressures when we report our Q4 results in February of 2016.

With regard to labor, we will absorb an increase in California minimum wage, as well as additional minimum wage pressures in other states. Separate of state minimum wages, we have seen an increase in wage pressures in the restaurant business for hourly positions and managers. While we have been able to manage some of these pressures with good results, I am expecting this to become more challenging next year.

Low-cost capital for restaurant expansion has allowed for significant new restaurant openings around the country, a trend we expect to continue. Therefore, I expect to see additional upward pressure on both hourly and management wages. That said, based on preliminary planning, we believe we can manage labor expenses through prudent menu pricing, menu design and cost savings initiatives currently under way. We also believe there is some potential for additional labor savings and improved productivity as we continue implementing new ideas through our Project Q initiative.

With regard to operating and occupancy costs for next year, our cost savings initiatives significantly reduced this cost in 2015. Our goal is to hold the line on these savings, and use additional savings to offset some of the normal inflationary pressures we face each year. While we have not finalized our marketing plans for FY16, I expect marketing to be similar to the last several years in the 2% to 2.5% of sales range. Again, this is very preliminary, and I note that we do not target marketing from a top-down perspective. We build our marketing plans with a bottoms-up approach and, therefore, marketing may ultimately be lower or higher than our expectations at this time.

On the G&A line for 2016, our continued goal is to gain leverage as we grow. As such, we will strive to ensure that our G&A for 2016 costs grow at a rate that is less than our expected revenue growth, which will benefit from an expected 10% increase in total restaurant operating weeks, plus expected modest comparable-restaurant sales increases for next year.

Our income tax rate for 2016 should be in the 29% range. We expect that diluted shares outstanding for 2016 will likely be in the mid-25 million range. Also, we are assuming debt levels that are fairly consistent with where we are today, and anticipate around $1.5 million in interest expense for next year.

Our CapEx plan for 2016 has not yet been finalized or approved by our Board of Directors, but at this time I would anticipate our gross capital expenditures for next year to be in the range of $110 million to $120 million for the development of 18 to 19 new restaurants, maintenance capital expenditures, and other sales and growth initiatives, before any tenant improvement allowances or sale lease-back proceeds we may receive. As with 2015, we anticipate funding our 2016 capital expenditure plan from cash in our balance sheet, cash flow from operations, our line of credit, landlord allowances, and sale lease-back proceeds. One last note: FY16 will be a 53-week year. As a result, we tend to get some additional leverage in operating and occupancy costs for that 53rd week in quarter four.

Finally, while we are pleased with the quarterly sequential improvement in comparable-restaurant sales and restaurant level margins, we are equally excited about our Company-wide commitment to building the best brand and best Company in casual dining, and our substantial progress against this goal is establishing a tremendous platform for continued near- and long-term growth. As Greg mentioned a moment ago, our menu is resonating well with our guests, and we continue to be excited about our sales-driving initiatives around value, hospitality, and menu creativity.

At the same time, our approach to strengthening our productivity is well established in driving improved operating efficiencies and financial results. With 169 restaurants in 22 states, an estimated national capacity for at least 425 BJ's Restaurants, we are excited that the majority of our growth remains ahead of us. And we remain confident that our initiatives to drive sales, productivity and efficiency, combined with prudent management of our capital structure, is a proven formula for sustained long-term growth and appreciation of shareholder value.

That concludes our formal remarks. Operator, let's go ahead and open the line up to questions. Thank you.

Thank you, ladies and gentlemen.

(Operator Instructions)

Matthew DiFrisco, Guggenheim Securities.

Thank you so much. Gentlemen, I just wondered if you could sort of comment on the new stores. I know you were saying how it is impressive you're opening up more stores yet they are not weighing on the margins. How about looking at that as far as a comp contributor, when the next couple of quarters you're going to start get some of those newer openings as you return to more substantial double-digit growth.

As they roll into the comp base, what's the ceiling like as far as what's the sophomore year of these stores looking like as far as growing and starting to come off of those lower opening volumes? How do they sort of progress as a sales contributor?

And then, would it be aggressive to think that even though they open up at good margins with those comps, presumably they are getting comps in the sophomore year, they'd also get better margins?

Matt, this is Greg Levin. We mentioned this on the Q2 conference call and it's the same trend into Q3. That is our new restaurants, as they drop into the comp base at 18 months are negative to us from a comp sales perspective. We mentioned at in Q2 time in July that our comp sales then would've been 50 basis points higher taking out basically the class of 2013 which, after 18 months, is kind of dropping in as well as some of the early class of 2014. And that 50 basis points to our overall comp its consistent even in this quarter, meaning we would have been closer to 3% comp this quarter, frankly, if we did a 24-month comp perspective.

Not at this time are we contemplating changing comp sales metric or anything, but generally as I said, for I think the last couple of years have been pretty consistent on this, that at 18 months as our restaurants go into the comp base, they did go in negative. After about six months or so in the base, so as you start to hit month 24 and greater, they start to comp positive.

In fact, I would say that over the last two quarters of this year, every single class of our restaurants have been positive. Meaning the class of 2006 and prior class 2007, class of 2008, 2009, 2010, 2011 and 2012 were all positive here in Q3, and the class of 2013, as they go into the comp base, has been negative. I think we will continue to see that drag on our business.

The second part of your question, though, even though they might be negative from a comp sales perspective and it seems we have longer honeymoon, our margins to get better in that second year. The fact of the matter is your restaurant team is just more seasoned, they've got their sea legs under them and we see nice acceleration in margin.

I would tell you specifically that our restaurant like Oviedo, which is now basically 12 months old, it is not in our comp sales base yet but it's the first proto 7400 that we ran -- that we opened last year. It finished with margin in the 19%-plus range. We are seeing that nice improvement and that includes the 2.2% or 2.3% marketing on there as well. We feel confident that we're going to continue to be able to move margins on those newer restaurants, but there will be that drag from comp sales from new restaurants.

That's great color. I greatly appreciate that. I guess if you could just -- should we understand, then, when you, let say, 2017 or late 2016, is there going to be an inflection point where your 10% on top of 10% or 11% growth on top of 11% growth rather than 11% growth on top of 7%, which you seem to be at now?

When the new stores coming in the comp base, I recognize there will be a drag that maybe they become less of a drag as you are lapping comparable years in openings or even -- well, yes, comparable years in openings like -- I'm trying to open up the model here and thing of when that actually -- when you dropped to the high-single digits and now you're coming back to the double digits.

I don't know the exact date that we're double-digit over double-digit and it starts to normalize. I think you bring up a valid point that since that last year we did not open as many restaurants. We don't have quite, let's say, the drag. Now as we start to build more restaurants again, you've got more coming into the newer comp base. I understand what you are saying there, I just don't know the exact timing.

And then just a follow-up question as far as when you are giving the commentary on the guidance there, it sounds like you have definitely a very good tailwind on the commodity front, yet you're still taking a decent amount price, plan to 2016. I'd assume, then, you're sort of looking at your prime cost in a basket as far as potentially what you might get hit on the labor pressures, it sounds like it's going to be a complete offset on the commodity cost environment or at least manage to keep sort of this 58% to 59% prime cost total rather than losing that leverage?

Matt, when we look at it, and really over the last, I would say, 18 months or so, we become much more selective in how we take menu pricing and have many more tiers than we had a few years back. When we think about taking menu pricing, you might see greater menu pricing in California, that's taking an increase in minimum wage. Net, it will be somewhere in that percentage range or so and we will continue to evaluate that based on some of the other prime cost. But as we go in knowing that we are going to have inflationary impact here in California specifically, we know that, that's going to result in a little bit higher of menu pricing per se in select markets. That's kind of how we look at it and that's where we come up with that range of 2% to 3%.

Our range is, of course, given our concentration here in California, Matt, it's going to look higher then folks out there that are more geographically distributed, right?

Of course. Last question. With respect to the prior years, you actually maybe, even five or six years ago, was you used to break up the same-store sales when the inland empire 13 stores or so, were going through some significantly regional tough comps. If -- how should we look at Texas as far as on a level playing field versus the rest of the country for you? Is it at the point where maybe we start extrapolating our those stores and what the comp would be versus what it is in Texas or is it too close still and you just want to call it out as yes, it is weaker than the rest?

I think it's the latter there. We will continue to evaluate it. There are some pockets in Texas that tend to do a little bit better. I think when you look at it, Texas overall, and we've talked about it this year, that's been softer for us.

We are not necessarily at that point where I do think as we look back four or five -- I guess more like six or seven years ago, there were some very specific restaurants that were dragging us down. Frankly, that time 13 restaurants on our base had a different impact maybe than Texas.

Excellent. Much appreciated. Thank you.

Brian Bittner, Oppenheimer & Company.

Hi, Greg. Thanks. This is Mike Tamis on for Brian. Just a question. If you do sort of a 1% to 2% type comp, what sort of leverage do you think you can get in the business as we think about it going forward?

Mike, I think short term, meaning this next quarter, I think we still have the ability to continue leveraging our business. Going forward, I think if we can get into that upper 2% range or close to 2%, I think there's continued leverage with some of the initiatives and things we're doing going forward.

Your 1% becomes a little bit more challenging. I would say this, though. It depends on how you get that 1%. 1% coming from pricing should allow maybe a little bit more leverage versus 1% coming from traffic.

Obviously, pricing allows you to leverage cost of sales, labor, et cetera, a little bit better versus traffic from that standpoint. We will have a better idea on some of that as we finalize our plan for 2016. But generally, one of the things that we've talked about in our business really over the last two years is if we can consistently put up summers around 2% or so, we think we have the ability to manage our margins and improve our margins.

Got you. Thanks. On the labor, you sort of touched on it a bit, but outside of your productivity initiatives, what sort of labor inflation rate are you seeing, either today or what you expect to see going into 2016?

I don't have a specific number for you right now. I would tell you, though, in general we been able to manage that over the last year, year and a half. I think you see it in our numbers in the sense that our labor cost for operating week have been flat if not down over that.

But as we experience Q3, and it's one of the reasons they got a little bit higher burst in G&A in Q4, we are seeing pressure in regards to managers and line cooks that we really had not seen over the last 18 months. I don't have in front of me when I think that labor inflationary pressure is, but it is seeming to get more intense as were seeing a lot more new restaurants open up in some of our markets that we currently exist. You are seeing -- I would not necessarily call it the bidding wars that you saw in the early part of 2000s, but you do see pressure in regards to holding onto managers and also our hourly team members.

Particularly on the kitchen side.

Great. Thanks, guys.

Jeff Farmer, Wells Fargo.

Thanks. Just following up on Matt's earlier Texas question, I'm curious about same-store sales under-performance gap for this state. Has it stabilized or is it still growing at this point?

You know what, Jeff, it's been -- I'm kind of looking at it now. It's been choppy this year. If anything, coming out of September it started to grow a little bit. So I would tell you looking at it from a trend standpoint, it seems like it's been going up little bit, definitely moving into September and into October.

Okay. Then again going back to the October same-stores sales trends and curious looking at that across transaction. You saw a nice mix benefit in Q3. Is the makeup -- I'm understanding that it's a little bit softer in October but is the makeup similar, meaning you have negative transactions and a little bit of mix tailwind working for you?

I think the general dynamic is still the same, Jeff, it's just softer traffic.

We still got a little bit of mix there. We always say (inaudible) we never want to be a force-dependent concept. It's about the creativity of unique food, great social place to come, great beer and so on.

Looking specifically, getting into October, some of the softer days in Northern California are definitely days that the San Francisco Giants were playing last year, and this year they are not. They are not in the playoffs and are not going to go to the World Series. I think it's something like 16 games they were in last year that we are not going to see this year. When we look in our numbers across beside Texas beings soft, that's where we see some of this volatility in our business.

(Technical difficulty) very consistent about losing.

Unfortunately, the Dodgers lose the first round of playoffs for the last three years, so that hasn't helped us.

Understood. The final question, and Greg, you might've touched on this in your prepared remarks, but just looking at the relationship between same-store sales growth and average weekly sales growth, is there potential for that to maybe get to two points in 2016, meaning that same-store sales outpaced average weekly sales growth by a full two points?

I don't know the answer to that, Jeff. We are happy with our new restaurant opening. It's just, and I think you kind of can see it in that 18 month comp, so to speak, in the sense that as they come into the comp base, they come in negative so what you're seeing is that honeymoon or that decrease in new restaurant sales. It lasts a little bit longer and that gives you that little bit of a different spread per se than maybe five or six years ago. It's just kind of a steeper decline.

I would tell you that while we don't go into specifics, but things like Huntsville, Alabama, or Murphysboro -- what was the other, McCandless that Greg Trojan all talked about, those restaurants are all opening up in the mid-$100,000-plus, but they will settle down closer to our average unit volume of $100,000-plus a week. We are very happy with where a lot of our new restaurants have opened up.

I think as any business, we open up 17 or 18, you've got some that perform better than others, but we are excited. We like where they're opening up. We like the returns that we're getting out of them. We're just seeing a little bit longer honeymoon then what we've seen before. As I mentioned earlier, every class of our new restaurant, meaning taking out the class of 2013, has comped positive. It just seems like it takes a little bit longer to get to that comp-positive state.

Okay. Thank you.

John Glass, Morgan Stanley.

Thanks very much. I had two questions. First, Greg, just on your traffic this quarter. Traffic this year's been better than last year, but at least the way I look at it's been a little bit lower than industry and last year you were above the industry. Maybe what you think your gap was to however you look at the industry this quarter, Black Box or Knapp. How do you understand why that is the case when you've made so many improvements, your traffic now seems to be lagging more than it did a year ago, let's say.

Actually, John, our -- my take on it would be this quarter we are pretty much in line. The Knapp and Black Box numbers were more different than typical. We beat Black Box by a reasonable margin and we are just behind on Knapp. We think of that in a margin of error being about where the industry is. You have to remember, we were beating traffic starting particularly in the last part of last year. Really, I think we (technical difficulty) three-quarters of last year pretty handily. Our two-year traffic growth rate is handily -- I think our average is over 100 basis points of traffic premiums in the market, even this year.

So that's really more the dynamic. That's been incredibly consistent, even through this year. My argument is, or the way we think about it is, we always want more traffic and we want to be positive traffic, which we weren't this quarter. But versus the industry and the dynamics of the industry, we are faring pretty well.

John, without getting into -- well, I guess I am getting into specific, but when I look at our numbers here, I've got us beating gap -- beating Knapp Track and Black Box and maybe I'm off on different things, every quarter of 2014. We were up in 2013 and we made some changes in here. I have us beating really Black Box and Knapp in Q1 of this year. We were off a little bit in Q2 and then as Greg Trojan said, we are kind of better than Black Box, a little bit behind Knapp in Q3. Maybe I've got different data then what I've reported. I doubt it, in that regards, but I don't see quite the comment that you just made.

Well, you did say you used to be beating it and now you're, let's say, tied. My only question was why weren't you accumulating greater momentum given the changes. That was the comment. Can you maybe -- go ahead.

I was going to say maybe that has to do with the restaurants in our Texas market. While we still have opened up some pretty good comps this year with some of the movement in regards to mix and so on. We do have 32 restaurants, about 20% of our base, in Texas and it's been a kind of a tougher market. I don't have the breakout regionally between Black Box and Knapp in front of me here, but maybe that's driving it down a little bit.

That is helpful. That was the kind of insight that I was looking for.

On your margins, right, you're now cycling all the improvements, the big step up improvements you made last year. You're still seeing improvement at the restaurant level? Do you -- and you're ahead of kind of what your target was. I think you set out a year and half ago where you should be or wanted to be. So are you now at a point where you can think you can forecast a new, let's say, run rate of restaurant margins or is this going be sort of the smaller increase just depending on comps. In other words, do think you can target 20% restaurant margins or do you think you have a new goal or will be able to have a new goal soon on overall operating margin?

We're going to go after a new target. That's part of our mindset from there. I didn't exactly know where it is. It obviously gets more challenging as we continue to move up that ladder in that regard.

I think one of the things that we've mentioned specifically at our Analyst Day was our plans kind of centered on a 2% comp. Here we just put up a 2.3% comp and it shows the type of leverage that we can get in our business. I still think we have that opportunity and we've got other things that we are continuing to work on to frankly, hopefully, move us above the 20% range in that regard. I think it becomes more challenging as we go into Q4 and into next year.

Got it. Okay. Thank you.

Jeffrey Bernstein, Barclays.

Great. Thank you very much. A couple questions. The new units you're talking about for 2016, I'm just wondering -- you gave us kind of a quarterly progression. I'm just wondering new markets versus existing markets. I think you said there's a couple of new states. As we try to assess how many of these stores are, like you said, had a different dynamic from a comp and a margin perspective. I'm just wondering what that breakout might be.

Jeff, I'm kind of looking at this as we speak here. Were going to jump into the Carolinas next year. That will be a new market for us.

I think in general, I think the big part of the story is in terms of California and Texas openings, if I'm remembering correctly, Greg, I think we have got two in California and I'm not sure we have one in Texas.

Virginia, Maryland we have a few. We've got some continued Pennsylvania, Indianapolis, Indiana area.

Those were all states we were already in. It's really, as we mentioned before, we try to build out that mid-Atlantic hub and then start to build from there. We are going to continue to go after that -- those areas. Frankly, our Akron, Ohio, restaurants have done really well the last couple of year, so we're excited to get back into the Ohio Valley markets. Really, as I think I mentioned, the Carolinas tend to be the only two new markets.

Got it. A follow-up on the last questions with regards to the [cost saves]. As you said now, it's going to be a little bit harder going forward to -- once you've effectively lapped that. I'm just wondering, are there still big buckets of opportunity where -- other than the leverage you will get from the 2% plus comp? What other big opportunities might there be from a pure cost reduction standpoint?

Jeff, the general comment I would make is, our level of effort in the process we put in place was really, you've heard me say this before, was ground-up in nature. They were driven by ideas coming from our restaurants and field operators in large part.

In terms of the process and the importance and level of effort going against it, we're not treating this as like we're done and we're going to stop looking. In fact, if anything it just get more and more important as the level of competitive intensity and labor pressures and all of that continue to weigh on our business.

But just the fundamental law of diminishing returns is we are not going to get the same level of dollars that we had when we were 18 months or 24 months ago. We still think there's -- we still continue to find some good buckets and some good ideas out there that we have in place that will help us next year. You guys have been following us long enough to know it's not going to be the same yield but it will still be important and will still help us in particular as we continue to try to take less pricing then competitors out there.

Got it. Just lastly, Greg Levin, you gave tremendous detail in terms of the outlook for 2016. I know you said something about the modest comps in the units. Otherwise, you give a lot of those line items. Just to avoid confusion as everyone models this out, nothing was really missing from that. Ballpark restaurant margin and/or earnings, is there any directional color you can provide on that to keep us all on the same page?

Not yet. As I started off the commentary in general, we haven't built up our plan in that regard. We are right now middle of building that plan and we get the information from our operators, what we're looking at in those initiatives. That determines sometimes if we have to take pricing, what that marketing strategy might be, et cetera, to kind of manage the margin in that regard and see what we can do.

Unfortunately, I don't have that. As much as I say modest comps, I really couldn't tell you if modest comps meant 1% or 3% next year in that regard. We'll tend to look at how the trends are going and what comes back from our operators and what we decide to be the right target that we are going to go after and build the plan accordingly.

Understood. Thank you for all the detail.

My pleasure.

David Tarantino, Robert W Baird.

Good afternoon and congratulations on great results. My question -- really, I got a couple questions about the unit growth. First, maybe you mentioned that your very pleased with the return metric for some of the new locations with the prototype. I was wondering if you would be willing to share what type of volume and margins you are getting on average in those recent classes and maybe what the cash-on-cash return profile is shaping up to look like for that prototype.

A couple things. First of all, David, the restaurants are so new that it's hard to talk about them and where they're shaping up from that standpoint. And as you know, as we just talked about, we've got this 18 month timeframe for them to go into comp sales and they go into comp sales negative.

When we talk about a restaurant, I think we mentioned it last year, like Oviedo, we talked about how it's our first new prototype and I think it did up to $150,000 it's first couple weeks coming out of the gate, which not only proved we can do that in 7,400 square feet, which we knew we could, because of our existing restaurants, we also made the comment that, that's at honeymoon sales volume and it is going to come down.

It's hard to sit here and say, well if it's -- where it can exactly come down to because we know they come down. I would tend to say that all of them come up of honeymoon in that regards. Our operating margins in the ramp up of our restaurants has been better than historically what we've seen. It might've taken in the past taken about 90 to 120 days to hit food cost, because you had 180 menu items in there and more complexity in regards to how we managed it, the kitchen, per se. That 90 to 120 days has been shrunk down to 60 days or so. Labor used to take basically, in this case, 240 days or six months. We've seen labor come a little bit more in line, maybe somewhere in 150 days or so.

We're seeing much better improvement all around in regards to our internal productivity measurements. Trying to understand where the sales volume has really been a challenge as they go through from honeymoon perspective.

The one thing I would tell you, though, as we look at our numbers and why we don't have them in all the new states, I would say that our restaurants that we open in a place like Florida and compare them to our existing prototype restaurants in Florida, are opening at the same level of volume in that regard and are doing the same sales level.

Our Avon restaurant, Avon, Indiana, is opening up at the same as our Greenwood, Indiana, restaurant. So we're not seen any real changes in regards to top-line sales volume, we're just seeing improved productivity out of those restaurants.

I guess maybe we get into next year, we've now got restaurant more under our belts closer to the 18 month to 24 month and we can see kind of that mature run rate. Maybe we can give a little bit more color but frankly, right now we just don't know except we like where they're going.

Great. And I guess as a follow up, the sales volume are tracking similarly and the box is smaller and more efficient. Is it reasonable to think that the margins will settle into a level that higher than what you've averaged previously?

Yes. We believe that will be the case.

Great. Thank you. Last question on unit development outlook. As you push up the number of openings, 18 to 19 will be your highest ever in the history of the Company. I guess bigger picture, how are you feeling about the infrastructure to handle that pace of growth? Secondly, how long do you think you can keep pushing that number up and delivering on that 10% type unit growth?

We made the comment on the outside, both Greg and I in different forms, and I think one of the things that is, I would say unique, we are, through our operating expertise and our development team have proven we can do, is throw this number, have this kind of growth in our model and still not take big hits from a margin perspective and actually expand margins. We're not growing. You don't hear us talking about growing our expansion plans and opening 25 or 30 restaurants next year for that reason, because we would start to out run, outstrip the runway, so to speak, if we were to do that.

Within the ranges we are talking about low double-digit restaurant week growth, we are very comfortable that we are able to both do a good job of operating our existing restaurants and open what we have. It doesn't -- we've been doing this as a company for quite some time now at this level of growth. We've gotten pretty good at it. We're very comfortable we can continue at that level growth without sacrificing quality and margins in our existing restaurants. It doesn't require a step function from a G&A or other infrastructure point of view, if that's your question.

That makes sense. I guess the nature my question was, as you approach 20 a year or more, that's a pretty -- given the complexity of your operation, that's a pretty big number and just wondering how you're feeling about your ability to keep pushing that number up as you look at 2017, 2018, 2019. It wasn't more a comment about this year or next year, more so for the out years as you think about --

That's a good question. I hear you. The biggest limitation, we've often said, is really at the restaurant management level, is making sure we can attract and develop because we just don't put a general manager from another concept to run a BJ's and open a new restaurant, so that is the biggest limitation, is people. We have capital and great returns to build more restaurants than we are today. We think Greg Lynds and his team could even find more real estate, but that is the limiter.

So you're right. On an absolute basis, that is true. You got to keep in mind the number of restaurants as a base to promote people into those jobs increases as well. The percentages actually do make some sense, even those absolute numbers obviously are going to get bigger.

David, one of our -- one of the things that we that always do is we try to continue with that cluster strategy. It does become challenging at times, but that does help us as we continue to try and grow our business to make sure we are not just sprinkling onsies or twosies in areas but have basis to promote from, as Greg just mentioned there at the end.

Great. Thank you very much.

Nicole Miller, Piper Jaffray.

Thanks. I just want to clarify a couple things and then I had a quick question, if I may. Greg, for 4Q G&A, are you saying higher in percent or dollar terms?

Dollar terms. I said specifically I think $14 million to $14.5 million. I think we just finished at $13.6 million.

Thank you. Couldn't write quite fast enough. And then, pre-opening, that one side, that's also a dollar amount, right?

That is correct.

And then big picture, I just wanted to come at the comp little bit a different way. The comp is good and the flow-through is unreal. I'm trying to think about, not even the context of 2016, but just long term because you structurally changed the business and improved operational efficiencies, what might be an achievable flow-through rate on incremental comp as the model moves over?

I think a different way say your question is what's your baseline comp, because once you get above your baseline comp, your flow-through should always be some where in the neighborhood of $0.50 on the dollar. Granted, that flow-through is going to be dependent on, is it traffic, is it pricing or is it mix? But the general rule of thumb that we tend to use here is around $0.50 on the dollar.

Taking a step back there, it really comes down to what is that normalize base comp that you need to manage your general inflationary pressure. If I look at our operating occupancy cost, and we talk about that line a lot, it's been pretty consistent this year at about $20,400, $20,500 per restaurant week. It's gone down a lot in the past, but I don't know how much more that's going to go down.

The question is, if you start seeing inflationary pressure there, what's your normalized comp? Are you going to need to offset that? I do think as we start to look into next year with some of the minimum wage increase increases and other things, we're probably going to need somewhere close to 2% to kind of manage around the comp sales numbers. So then as you start getting above that, I do think we have got the ability to have that flow through that you talked about, which should get back more to our normalized $0.50 on the dollar or so.

Okay. G&A for 2016, I can definitely understand growing less than revenue, the dollar amount. I just want to make sure that would include the extra week so that we model that appropriately. (Multiple speakers)

It should include the extra week. If you think about it, the big portion of G&A for next year is personal cost. You pay personal cost by the week. So you're going to have that entire cost for next year. It'll be one for one, so to speak.

All right. Thank you.

You're welcome.

Andy Barish, Jefferies.

Hey, guys. Just two quick ones on -- pre-opening actually looked good in the quarter with a bunch of new market openings. Have made some changes there?

Secondly on California development, we haven't heard that in probably one year and half or two or so. What sort of change to get you more comfortable with putting a couple new California stores in the pipeline for next year?

Andy, we haven't talked about it a lot, but we definitely have been able to reduce our pre-opening cost in our business. At times it ranges in the $500,000-plus range. We have seen that number come down into the low $400,000 range or so. Some of it depends on that pre-opening [phantom] rent.

Frankly, opening a little bit smaller restaurant and so on you're going to have less personal costs and other things. It's been a big benefit for us and it's sustainable. Whether in California or other markets, it is sustainable. You will have bumps and things like that when you go into certain markets that are little bit higher, but overall, we made some of those changes that I think are good for us.

As far as California goes, one of the new restaurants for next year is going to be in La Jolla, California, and it's a replacement of the La Jolla one we closed this year because in this case, again, it was the landlord redeveloping the property. In this case, we were able to get a site that we liked in that property in the landlord and us were able to make an agreement that works for us.

And we still have onsies and twosies in California. When it is the right spot, we will take it. That's really what's happening for next year.

We've been pretty consistent around. There are still trade areas that, frankly, some of them, we've been trying to get into for 10 years plus that when we find the right real estate we'll still do but as we've been consistent about the we're not looking at California to drive too much of the unit development going forward.

Thank you.

Thank you.

Chris O'Cull, KeyBanc.

Thanks. Good afternoon, guys. Greg, it seems like you're developing in areas like Murfreesboro, Tennessee, Huntsville, Alabama, smaller towns than maybe where many of the other growing casual diners are focused. What are guys seeing in those markets? What about the brand makes those markets good targets for you guys?

You know what. I'm glad you asked that question. It's one of my favorite things about our concept is I often use these words, the breadth of appeal, but if that flexibility, even here in California where we as well in Montebello as we do in Huntington Beach and Irvine. That's what really works in some of the markets you are just using as examples, Chris.

It's really that breadth of the menu enables us to do that. We do see regional differences in areas of the menu that are more popular by geography, but we still -- we have pretty much something on that menu that's going to appeal to somebody in a wide range of demographic and geographics. That helps us a great deal.

Our fundamental value just works in a lot of different places as well. It's one of the things we briefly mentioned in our comments, but it gives us a lot of optimism when we see some of these put in the brand-new market category like the Pittsburghs and Murfreesboros that we're off to good starts there because people think we are a wholesale club more than a restaurant in some of these markets. The fact that we are doing as well as we do says a lot about the strength of the concept.

I would think the investment in like a Murfreesboro or Huntsville or Pittsburg has got to be significantly lower than what you guys have been spending the past few years in some of these other markets. Is that true? Are you getting to $4.5 million, $4 million, $4.5 million in total investment in these markets? Are you still seeing sales --

Sorry, I thought you were done. Go ahead.

I was going to say, are you still seeing sales that are sales to investment ratios of 1.2 or more?

I think we will, frankly, I think we will do better than that. Our goal is to build these on average, and we been beating it, at $4 million. That's the $1 million that we have been saving here. And some of the market you are referencing, we're able to do it for even less than that.

I don't know what your definition of significantly is. The cost of materials isn't going to vary all that much so you look at the labor content and our construction, et cetera, we do save. There is more of a premium when we build in places in the Northeast, like our New York unit restaurants, and et cetera.

But to answer your question, we're building these restaurants closer to $4 million and achieving that $1 million savings goal and we are able to do a little bit better in those markets. The gap is probably not as big as you think.

Chris, it's an interesting comment you made about the 1.2 to 1 sales ratio. So if you think about what Greg Trojan just said that we can build these restaurants for $4 million. A one-to-one sales ratio is only an $80,000 a week, weekly sales average, because $80,000 times 52 gets you at your $4 million. We're doing better than $80,000 but it does get you to think about fact that everybody gets on the whole weekly sales average versus comp versus non-comp.

When we get it at $4 million or we get it at $3.5 million, we can generate a healthy one-plus to one return on that which is going to generate those margins by not having to do California weekly sales averages. That's been part of the strategy in regards to the right use of return on investment capital for us going forward and it's working out really well and we're pleased with where we're going.

That make sense. My last question is just, typically, Greg, when you reduce the number, or when restaurants reduce menu items, the number of items on the menu, it has a difficult time of improving comps. Do you have any consumer data that sheds light on how frequency or repeat usage has changed since you've reduce the number of menu items so dramatically?

That's a good question. We're actually refreshing that data. We have plans and are in the process of starting that process, Chris. It's a really good question.

We do know in our loyalty base, which is we have great visibility on frequency of those guests, right, so we are driving frequency among our most loyal folks. That is improving nicely. That gives us comfort.

We do see, I mentioned earlier, we are seeing significant increases and improvements in our food quality scores overall. We think that is a key driver in all of this and is paying dividends there.

The other thing, the dynamic that I think you know but I'd remind everybody is, the lion's share of the reductions occurred last year. We are still pruning as we are adding. This last menu, or this latest menu coming out next week, keeps a flat menu count in the 130 range. We are taking items off as we add them. I still -- we're still pushing the envelope and seeing if we can get lower overall net, but it's not been a be a 180 to 130 kind of change going forward. We are staying disciplined to make sure we don't leak our way back into 140, 150-plus land because that's a difficult restaurant to manage.

Great. Thanks, guys.

Thank you everybody for joining us today. We appreciate your time and like you said, if you have any follow-up questions, don't hesitate to grab us. Operator, thank you.

Thank you and again this does conclude today's conference call. Thank you all for your participation.