BJ's Restaurants Inc (BJRI) 2016 Q1 法說會逐字稿

Good day and welcome to the BJ's Restaurants first-quarter 2016 earnings release and conference call.

Today's conference is being recorded.

And at this time, I'd like to turn the conference over to Mr. Greg Trojan, President and Chief Executive Officer. Please go ahead, sir.

Thank you, operator. Good afternoon, everyone, and welcome to BJ's FY16 first-quarter investor conference call and webcast.

I am 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 first quarter of FY16, which ended on Tuesday, March 29. 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, and then Greg Levin, our Chief Financial Officer, will provide a recap of the quarter and some commentary regarding the remainder of FY16. After that, we will open it up to questions.

Rana, please go ahead.

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 state only as of today's date, April 21, 2016.

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 risk and uncertainties associated with forward-looking statements contained in the Company's filing with the Securities and Exchange Commission.

Thanks, Rana.

FY16 is off to a very solid start, with record Q1 financial results extending our concepts momentum following our record setting 2015. We again generated positive comparable restaurant sales while improving efficiencies throughout the organization, and executing our long-term new restaurant opening strategy.

BJ's positive 0.6% comp restaurant sales marked our 7th consecutive quarter of positive comp sales, and lapped our most difficult quarter of last year at a 3.2% comp gain. Once again, BJ's sales and traffic outpaced both NavTrak and Black Box by a solid margin during the quarter, an average of about 170 basis points in both sales and guest traffic respectively.

Our $0.47 of EPS was a 32% improvement over last year's Q1. And our restaurant level operating margin of 20.1% was our highest Q1 restaurant level operating margin since 2011.

We are demonstrating every day that our focus on quality and differentiated menu items, along with efforts to streamline our menu and back-of-house processes, is a powerful combination driving impressive top line and bottom-line growth. In addition to our record results, the great news for BJ's is that the majority of our menu and promotional initiatives are working pretty well for us, which is an affirmation that our ability to influence guest behavior through marketing is improving.

As I mentioned on our call in February, one of our key traffic initiatives is to energize our lunch offerings with our priority on improving our value in this day part. Last year, we were very successful in driving guest check growth during the second half of the year with our burger launches and other menu changes, but likely lost some of our more value sensitive lunch guest check traffic in the process.

As a result, in the first quarter, we rolled out a new menu focusing on some great new lunch items at compelling price points, including both Piadina wraps and grilled cheese sandwiches starting at $6.95. These new menu items were also featured in a lunch combo starting at $9.95.

We backed this launch with focused promotional firepower on this day part, and I'm pleased to report that it resulted in a nice bump in our lunch sales with positive guest traffic. Importantly, these new menu items and our ability to promote them serve to remind guests of our great lunch offerings and the quality and value that BJ's delivers. Despite this emphasis on our lunch value offerings, we still grew our lunch guest check, however.

We also executed our plan to be more promotionally aggressive in our most competitive battle grounds of Texas, and to a lesser extent, Florida. We carried mid 2% nominal menu pricing in the quarter overall, but consciously dealt a portion of that back in increased incentives, mostly through our valuable loyalty program and digital marketing. We were still able to drive healthy guest check growth of approximately 1.8%, due to the continued success of our check building menu items in the back half of last year, burgers and our new pasta lineup leading the way.

It's also important to note that in a number of our promotions, we are able to maintain or even slightly grow our check average by offering attractive incentives to spend up through bundled offerings. We think this promotional cadence will continue and makes sense for our business, particularly given the wide swath of guests who frequent our concept on a regular basis.

Just as we serve a wide spectrum of culinary preferences, we also serve a wide range of guests with varying degrees of sensitivity to deals and promotional offers. We know there are guests who would like to dine at BJ's more often, but who base their decisions on where to go in large part by which restaurant has a competitive compelling deal at any given time. We are seeking to offer price points, menu items and promotional offers that attract every guest along that value spectrum and tailor their BJ's experience appropriately.

In addition to our more traditional marketing efforts, BJ's loyalty program, app and digital platforms are allowing us to more effectively and efficiently offer promotions than ever before. So the formula of taking moderate nominal pricing, selectively spending a part of that back promotionally, and offsetting that through continued positive menu mix and check-building promotional activity is the right answer for our business given the current competitive environment.

Our team's incredible focus on continuous improvement through our project Q initiative has also enabled us to increase these investments in traffic driving, marketing and promotion while generating the profit margins we believe are warranted by our business model. We have leading guest traffic, beverage mix and wonderful base of high-margin pizza sales that collectively fuel our top-tier profitability.

I could not be more proud of how our restaurant and restaurant support center team members continue to drive more commonsense ways to improve our cost structure and the guest experience and make BJ's great. We've made a lot of progress on this front over the last eight or so quarters, and I've shared numerous examples of the way we've introduced new efficiency, value and flavor into our process.

And our people continue to come up with additional ways to make BJ's great. For example, in Q2, after much testing I might add, we are changing the sequence of when we add sauce to our deep dish pizza. The new method simplifies our prep process, gives our culinary team more flexibility in terms of pizza flavor combinations, and produces a fresher and more robust tomato flavor for our pizzas. A suggestion, again, born from our restaurant team members.

As I have said before, our cost structure gains don't come from one, two or three big ideas. They are a result of literally scores of ideas implemented carefully one at a time, and it's just the nature of our business.

All of this good work enabled us to achieve a 20.1% restaurant level margin, an improvement of 120 basis points over last year. Despite incurring the significant increase in minimum wage in our California restaurants, we were able to keep our labor costs as a percent of sales below last year for the quarter. And we continue to leverage our scale in other areas of our business and scour our operations for further incremental savings opportunities to deflect labor and other inherent cost increases.

In addition, competition for our restaurant-level talent is intensifying, particularly for back-of-house kitchen talent, putting pressure on the markets wage rates for qualified team members. Given all of that, I am pleased with our team's ability to improve our efficiency, and operate with significantly lower levels of team member turnover compared to the industry in both the hourly and management ranks.

Looking ahead to the remainder of the year, our menu and marketing emphasis will be focused on guest check building opportunities. With center-of-the-plate entrees, new combinations and flavors for the May/June celebration season coming up, and new better-for-you options.

Additionally, we continue to introduce unique exciting beers that you can only get at BJ's. In fact, this year marks our 20th anniversary of brewing award-winning craft beer, for which we have won over 150 medals at various beer competitions. We won two gold medals alone this past year at the Great American Beer Festival, for example.

To celebrate this 20-year milestone, we just rolled out one of those gold medal winners, Magnolia's Peach, earlier this month. And later in the year, we'll be introducing a new ginger IPA and a rye IPA, for which we are once again collaborating with one of the industry's leading craft brewing brands. We will also be posting some new and exciting Pizookie flavors, extending that powerful franchise and keeping our pizza flavors fresh, as well.

So looking at our development and expansion, we remain very excited about the performance of our new 7,400 square foot prototype and have opened five very impressive new restaurants this year. We are exceeding our internal plan in terms of restaurant operating week growth, and surpassed our internal expectation of opening sales levels at these new restaurants.

Importantly, our early restaurant openings have spanned a broad geographic swath, ranging from Winston-Salem, North Carolina to our first new prototype in California in Victorville. Where we set a new prototype weekly sales record of $184,000. Our concept also received strong perceptions in new markets from Canton and Akron, Ohio to Lafayette, Louisiana.

We are encouraged by the top line and bottom-line advantages of our new prototype. And note that an average net cost of approximately $3.5 million, this new prototype provides even more flexibility to build new restaurants in a wide variety of demographic areas.

All in all, it is fair to say that with record operating results we are navigating extremely well in what can still be described as choppy waters in the restaurant space. The combination of our focus on improving food and service quality, while driving attention to the value we are known for, coupled with our tremendous opportunity to expand the BJ's concept is a solid foundation for continued growth. But the passion of our team members who consistently deliver that wow experience is a valuable intangible, and I'm proud to say it's unique to BJ's.

I'll now turn over the call to Greg Levin for his remarks.

Thanks, Greg.

As noted, our strong first-quarter bottom-line results reflect the continuation of the trends established over the last seven quarters, and were driven by positive comparable restaurant sales, our ongoing success of productivity and efficiency initiatives, and the continued execution of our return-focused new restaurant development plans.

Revenues for the 2016 first quarter increased approximately 8.1% year over year to $243.4 million, while net income grew 21.1% to $11.6 million, and diluted net income per share grew 32% to $0.47. Reported first-quarter net income and diluted EPS were impacted by approximately $370,000, or $0.01 per diluted share, due to a California employment practices lawsuit settlement. Excluding this one-time settlement charge, on a non-GAAP basis, our net income and diluted net income per share increased 23.8% and 33% respectively.

Our comparable restaurant sales rose 0.6% during the quarter, as an increase in our average check of approximately 1.8% more than offset an approximate 1.2% decline in guest count. As noted, when we reported Q4 in February, we continue to see softness in our Texas restaurants, which were offset by solid comps in California and other areas. In general, the Western part of the US continues to demonstrate some of the strongest comp sales for us.

As Greg Trojan mentioned, we had nominal menu pricing in the mid 2% range during the quarter, though our average check was up about 1.8% as we focused our new menu and marketing promotions on the lunch day part and value. Overall, this drove positive lunch traffic for us during the quarter and a reconfirmed value message with our guests.

Our weekly sales average for Q1 was a little over $109,000, which was down about 0.9% from last year's first quarter. Our Q1 cost of sales at 24.9% was 10 basis points better than a year-ago quarter. Overall, our cost of sales was higher than planned due to a change in the way we internally allocate promotional costs between cost of sales and marketing.

Previously, we recorded to marketing a food cost charge related to promotional activity. This resulted in lower cost of sales and higher marketing expenses. However, with the increases in promotional activity, especially due to activity in our loyalty program, it was prudent to change this practice.

This change in the allocation of promotional costs between cost of sales and marketing resulted in about a 50-basis point net increase in cost of sales, and a subsequent 50-basis point net decrease in marketing when compared to the prior year. On an overall basis, our commodity basket was slightly down for the quarter.

Labor of 34.8% for the first quarter represented a 60-basis point reduction from the year-ago period, and came in under the expected mid-to high 35% level. This year-over-year decrease resulted primarily from some leverage in restaurant level manager costs, primarily due to lower incentive compensation and worker's compensation expense offset by higher hourly labor as anticipated due to higher minimum wages, primarily in California.

Operating and occupancy costs were 20.2% of sales for the first quarter, which is 50 basis points better than the prior-year quarter. Included in operating occupancy costs is approximately $4.4 million of marketing spend, which is about 1.8% of sales.

As I noted a moment ago, we changed the way we allocated certain cost-related promotions and discounts which have been charged directly to marketing in previous quarters. This resulted in marketing being about 50 basis points less than anticipated. In last year's first quarter, marketing spend was approximately 2.1% of sales.

Excluding marketing, operating occupancy costs in the first quarter averaged approximately $20,000 per restaurant operating week. And that equates to about 18.4% of revenue, compared to $20,500 last year or 18.6% of sales. G&A was $14.4 million in the first quarter, representing 5.9% of sales and that's down about 10 basis points from 6% in the year-ago period.

Our depreciation and amortization of $15.6 million was 6.4% of sales, and again averaged about $7,000 per restaurant week, which is in line with our recent D&A trends. Pre-opening expenses were $1.4 million, which is primarily for the four restaurants that we opened in the quarter. Our quarterly tax rate of 29% was slightly below our targeted rate of 29.5% to 30% for the year, and that's due to some additional [WAFsE] credits.

In terms of capital allocation, we continue to use our strong cash flow from operations to execute on our national expansion plans, while opportunistically repurchasing shares. Total capital expenditures for the first quarter were approximately $25 million, and we still anticipate gross capital expenditures for FY16 to be in the $110 million to $120 million range, covering the construction of 18 to 19 new restaurants, as well as maintenance CapEx and other sales building initiatives before any tenant improvement allowances.

We also continued our program of returning capital to shareholders, allocating approximately $24.5 million towards the purchase of approximately 587,000 shares of our common stock in the quarter. Since the authorization of our initial share repurchase program began in April of 2014, we have repurchased and retired approximately 5.5 million shares of BJ's stock for approximately $220 million. This leaves us with approximately $30 million remaining on our current authorized share repurchase plans.

The weighting and benefit of the repurchases in our share count is becoming more evident in our financial results. Specifically while Q1 net income rose a healthy 21.1%, diluted EPS increased 32%. With regards to liquidity, we ended the first quarter with approximately $27 million in cash and $95.5 million of funded debt on our line of credit, which in effect till September 2019.

Before we open the call to questions, let me spend a couple of minutes providing some updated commentary on expectations for the rest of FY16. All of this commentary is subject to risks and uncertainties associated with forward-looking statements discussed in our filings with the SEC, and is based on the information we have as of today.

As we begin Q2 sales, the weather and some shifts in the holiday calendar have made it difficult to ascertain a consistent read or trend in comp sales. To date, our comp sales are in line with what we saw in Q1, with comp sales around positive 0.5%.

We continue to see the strength in the West being somewhat offset by Texas, which has also been impacted by recent rainstorms and flooding, and we lost around three days of sales in the Colorado area due to the recent snowstorm last weekend. Notably, given our continued success with the new lunch offerings and other promotional cadence primarily around the lunch day part, we're seeing guest traffic improvement, and our traffic is down around 0.5% through the first three weeks into the new quarter.

As Greg Trojan mentioned, our comparable restaurant sales appear to be outpacing the industry to start 2016. However, based on recent trends and choppiness, we remain guarded on comp growth until we see clear evidence that casual dining consumers are back on a consistent basis and the Texas market becomes more stable. Therefore, we continue to lean toward conservatism in building comp sales forecasts, taking into consideration the menu pricing in Q2 should be in the mid to upper 2% range, which is fairly consistent with what we saw in Q1.

Moving past comps, for the second quarter, I would expect approximately 2,275 restaurant operating weeks, marking an approximate 9.5% increase from the 2,076 weeks in last year's Q2. Also, as we move into new markets, I expect to continue to see a negative 100 to 150 basis point spread between comp sales and weekly sales average. 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 and lower operating costs from our operating initiatives, along with the fact that most of our newer restaurants are in states that are significantly less expensive to operate in than California, are leading to returns on these new restaurants that are meeting or exceeding our internal targets.

Moving on to the rest of the P&L, I would expect cost of sales to be in the mid-to upper 24% range in the second quarter. This is a little higher than our original estimate, because as I mentioned, will no longer be allocating a food cost charge to marketing.

Again, I want to remind everyone that this change has no impact on our overall financial performance or restaurant level margins. It is purely an internal allocation between cost of sales and marketing. As such, cost of sales will be higher than originally estimated, and marketing will be lower than originally estimated as a percent of sales.

Right now, we have locked in about 60% of our commodities for FY16 and I'm still expecting our commodity basket to be around 1% or less. I would expect labor to be in the low 34% range in the second quarter, as the benefits of project Q help offset some of the costs related to California minimum wage and other employee related costs.

While we did leverage labor in Q1 over Q1 of last year, that was primarily due to lower incentive compensation and worker's compensation benefit. Going forward, I would expect our labor to be up slightly due to minimum wage increases.

We are targeting total operating and occupancy costs to be around in the low 20% range. Included in this total will be approximately 2% of marketing spend.

Our G&A expenses for the second quarter should be in the $14.7 million to $15.2 million range, as we still expect total G&A for FY16 in absolute dollar terms to be approximately $60 million. Preopening costs should be in the range of $1.2 million to $1.7 million for the second quarter, based on three restaurant openings plus some preopening costs for restaurants that are expected to open in the third and fourth quarters of this year.

I'm expecting our tax rate in the second quarter to be in the 30% range, as we're likely to realize fewer WAFsE credits this quarter than we did in Q1. I anticipate our diluted shares outstanding will be in the $24 million to $25 million range for the year, and again, we will have $30 million remaining under our current share repurchase authorization.

Before I open the call up for questions, I want to reiterate Greg's message regarding the strategic plan we have been following for the last couple of years. That plan focuses on building top-line sales, improving our efficiencies and productivity throughout our entire organization, and continuing our steady double-digit capacity growth.

As a result, we now have seven completed quarters of positive comparable restaurant sales. Our margins have consistently expanded over the last year and a half, with restaurant level margins of 20.1% this past quarter, our highest first quarter margins since FY11.

Our 2016 restaurant pipeline is solid, with 18 to 19 units planned for this year. And with 175 restaurants open today, an estimated national capacity for at least 425 restaurants, the majority of growth remains ahead of us.

In addition, our balance sheet is strong and leverage is modest. Providing us flexibility to achieve continued growth, while opportunistically returning capital to shareholders in the form of share repurchases. In closing, we remain confident that our initiatives to continue BJ's expansion, drive sales, productivity and efficiency combined with prudent management of our capital structure is a proven formula for sustained long-term financial growth and the appreciation of shareholder value.

That concludes our formal remarks. Operator, please open the line up for questions.

Thank you, sir.

(Operator Instructions)

Matthew DiFrisco, Guggenheim Securities.

This is Matt Chrishner on for Matt DiFrisco. I was wondering if you could go into the quarter trend in the cadence of last year. I see that at this time it was 1.5%.

The quarter to date -- I said our quarter-to-date comps right now are about 0.5%, positive 0.5%. Last year at this time I think they were also about 0.5%. Based from the earnings call a year ago, is that what you are asking, Matt?

Yes, that is correct.

Okay.

Is there a cadence through the quarter?

We don't give specific on the quarter. I would tell you last year on the call, we said that our comp sales were about 0.5% as we went into this call, and we finished Q2 at 0.5%.

Okay. And then just on the loyalty program. Do you guys break out or can you just offer anything on the number of users that have downloaded the app along with the percent of transactions?

Go ahead, Kevin.

We have -- as a percent of transactions?

Yes.

Let me think here.

The percent of transactions in the mid teens, is and I think consistent on the loyalty front. and we've seen good acceleration on that in both spent per user, and that number has been heading in the right direction as we have been using that database and rewarding our guests.

And, Matt, on the app which you mentioned as well, we've always mentioned that's in the low single digits. We continue to push that forward, I think that's great opportunity to drive business and make BJ's faster which is something that we've always talked about.

Speed is a -- it's not one of our competitive advantages, and we believe the mobile app give us that advantage as we get more guests to use that. But as we are today, that's still in the low single-digits with a huge opportunity for increases over time.

The only thing I would add there, Matt, is we're seeing growth on the app actually given some of the features that we keep improving. And we have combined some of our lunch marketing into the app, so we are seeing nice growth but admittedly off a low base. So we like the direction it's headed, we'd like it to be -- to happen more quickly there, but are pleased that it is growing.

Okay. Thank you, guys.

Joshua Long, Piper Jaffrey.

Great, thank you for the time. My first question was regarding your read on the consumer environment right now just from an industry perspective. And then secondarily, as you get some more time working with marketing the BJ's brand, I was curious if you would be able to share any takeaways that you've learned.

Is there an emotional connection with the brand you had not been able to tap into previously that now is showing up? Is it overwhelmingly price point driven? Just any read you can -- talk about it as you try to work with the guest in driving awareness and trial of the BJ's brand.

Okay. I will give that a shot. In terms of the overall consumer, I think we're continuing to see better economic news, particularly or maybe solely, sometimes it seems like from a US perspective and around the world in terms of employment growth, et cetera. But there's no question, the consumer is still nervous about what's in front of them.

So therefore, I think we're still not seeing the level of retail spending you might expect otherwise with similar economic news and employment and et cetera. That results in still a pretty choppy environment in restaurants and in retail and in general, more so than you might suspect. So I don't have any other forecasts or crystal balls in terms of that on that front.

But I do in terms of our marketing and our opportunity, and I think what we're really starting to tap into, and Kevin and his team have been working furiously on, is the core of our brand is this amazing quality at the value price points that we offer. If there is something -- we've coined this term, mostly more internally than externally around craft matters. That really gets to the essence of the quality of our food and the experience, and it's an unexpected quality given the price points we operate in.

That's been the focus is to do that in a fun way, it sounds like a pretty serious mathematical equation. But we're trying to do that in a way that's conveys that value quotient in a way with some personality, and I think it's starting to have -- having an impact.

And we're trying to make that transition happen more quickly in some of our newer markets. And we're pleased that we're headed in the in the right direction in the essence of the brand. But like most things, we are impatient to make that happen more quickly.

Kevin, do you have any other --?

Yes. I think to Greg's point, we're seeing strength in the emotional section of the brand as well as responsiveness and discounting. And within the data, as Greg mentioned, we are seeing some growth in terms of the engagement with the app. We're seeing of our active loyalty guests some growth in regards to the average frequency over a month time period.

I know that when we're on with our media, we're seeing an improved responsiveness to our media and we've expanded some of those markets. I think the last thing is, we've got initiatives such as lapsed users where we actually through our loyalty program try to activate those folks who haven't been to our restaurants in the last six months that and we see a very strong responsiveness to that. So I think there's both a responsiveness to our discounting as well as the brand engagement right now.

Great, I appreciate that color. As I shift gears into thinking about the restaurant little cost set up, curious on if there's either an opportunity or a willingness to maybe contract more? I think Greg Levin you had mentioned about 60% of your basket was locked. Just curious on the philosophy there in terms of maybe looking to lock more or if that's a good spot to be just given the overall food outlook?

Yes, Joshua, we always opportunistically look to lock when we can lock. At the end of the day, we want to run restaurants and not have to worry about commodity inflation. So if we knew the exact price we everything is going to go, we would go long all day long and get into pure focus within the business.

At the same time, there's just certain items that you can't necessarily lock except on those monthly basis from that standpoint. So it gets a little bit harder to lock in a significant amount above the 60%.

But when we have the opportunity for now let's say to even buy out into the first quarter of 2017 or further, we will. Again, it's a little bit of art with science there. But generally speaking, we don't want to be out there fluctuating with the environment we'd rather lock it because again it allows us to plan our promotions, and just worry about executing within the four walls of the restaurant.

That make sense. So a good way to think about it is 60% is fully locked for your brand on a regular ongoing basis.

As best we can.

Yes. Okay, that is helpful. And then my last question is on the labor side. I think previously, we had talked about labor on a margin basis being elevated, and then maybe slowly coming down over the course of the year.

Is that still the look? You had mentioned that it could be up slightly for the year, so just curious on what you're thinking about the cadence of that given the minimum wage pressures and just the overall labor pressures as we go through the course of the year.

Yes. I'm still expecting it to be up slightly over the next few quarters. As I mentioned earlier, just looking at how things are playing out, we do get a benefit here in this first quarter as I mentioned on lower incentive compensation. Last year, we came out and gave it a 3% plus comp that allowed for higher incentive compensation and we did get a benefit this quarter on our worker's comp that brought it down.

So you start shipping those things out, and you see the pressure from the minimum wage, as I mentioned on the call. And therefore, I'm assuming absent of that in those benefits in Q2, Q3 and Q4 I would see a slight uptick there.

And as I mentioned before, I don't think this changes that that would be offset with, in the case now, holding costs of sales in line because the way we are changing our internal allocation, but then seeing lower operating and occupancy costs. So ultimately, I still think there's ability to get margins above where they were last year.

Great, that is helpful. Thank you.

You are welcome.

Jeff Bernstein, Barclays.

Great, thanks. This is Pradak Bettel for Jeff. Just wanted to see if you could talk about unit performance in your newer markets. As you've mentioned before, the brand is a little bit less familiar to folks in these markets.

And just wondering if you could comment on the initial sales in margins relative to the rest of the system, and the trajectory you expect over time as you infill some of these markets. Thanks.

Yes. This is Greg Levin. Those restaurants are doing -- actually they are doing the sales levels we internally projected, and are frankly consistent with other restaurants in those markets that might have been some of the newer prototypes. And look, like any portfolio, you have restaurants that outperform you have restaurants that are a little bit lower in that regards and we tend to have that.

As we mentioned on the call today, our Victorville, California restaurant did $184,000 and continues to hold up with some strong sales. That's our home court of California but does prove one thing, and that is the smaller prototype, which is about 20% smaller than our existing 8,400 square foot prototype can do sales volumes at the level of some of our existing prototypes. So we don't think that there's any reduction in sales because we decided to build our newer prototypes a little bit smaller.

When we go into some of these newer markets such as the Northeast Ohio market, we're seeing some pretty strong sales coming out that are coming out that are in line with our sales, if not better than some of our other sales, in that Ohio Valley market. Same thing in the mid-Atlantic with our newer restaurants. When I look at our restaurants in Alabama and Murfreesboro, Tennessee, they're doing what you'd expect compared to restaurants in Florida, putting them in there, or restaurants in the mid Atlanta or even restaurants in Texas.

So overall, we feel very good. I do reiterate the point that with BJ's, and we've always said this, our restaurants in California do higher volumes. They have higher pricing, there's more density so we expect them to be higher.

As we move outside of California, again, to other markets, we expect those to be a little bit lower in volumes. And that's what we're seeing, and there's been no difference with this latest class versus restaurants we've built four or five years ago.

(Multiple speakers) what I'd say in general is, they're opening up and getting to steady-state margins more quickly literally on a very consistent basis. We are seeing the benefits of that new layout more and it is more efficient to open our restaurants, both in terms of preopening and are opening margins.

And are seeing them operate them at, compared to the larger restaurants at the same sales levels and more efficient labor and other operating costs, as you would expect. But that's actually happening in the real execution in these new restaurants.

Great. Thanks very much for the color, I appreciate it.

You are welcome.

Chris O'Cull, KeyBanc.

Thanks. Good afternoon, guys.

Hey, Chris.

Greg, you mentioned that you're pleased with the targeted promotions that you ran in Texas. Can you quantify how it impacted the traffic or comps in the markets that you ran that?

I don't really roll it up that way from a cumulative perspective. We do analyze the individual promotions for when they're running there, Chris. But I don't know, Greg, I don't think there's something from a cumulative perspective that we have that can answer that.

I'm just trying to figure out if you've noticed a difference in the same-store sales after you started running these targeted promotions?

Yes, we look at every single one of them, as I mentioned. So I couldn't tell you on a cumulative basis, but on an individual basis they are needle movers. I think the most important thing to understand of where we're trying to get to on this front, and I tried to cover this in my remarks, is what we don't want to do is on a consistent basis have it become an expectation of in order to come to BJ's I just have to wait for a deal so to speak.

But we do know that there are -- and we've just and some pretty recent, or actually very recent, market research where there are folks out there that because of their economic circumstances are making that decision on a Friday night based upon what deal is in effect where. So the idea is, let's target those guests whether the loyalty members or externally, as folks that we know are more deal sensitive.

And we're not obviously anxious to drive incentives towards people that were going to come anyway. So we're trying to do that, and understanding behavior from a loyalty perspective which is easier to do obviously because we know those folk's frequency and spend. But also think of other ways that we can target the more value conscious folks with some incentives that also change up over time and celebrate whether it's things going on in the market or things about BJ's that make it fun and more brand positive than here's just a discount.

We are not all away there on that, by the way. But we're making some good progress. We've done some things like institute some pretty frankly old-school basic franchise night ideas where we're doing half off family pizzas at certain day parts and that's really building over time, and it gives people a chance to come to BJ's who otherwise might not think that they can.

So it's not just offers, it's finding other ways through bundled combinations and some of these day part focused promotions that we think are brand positive, because at the end of the day that's the fine line here. Incrementally, frankly, given the marginal economics of our business, you almost always are in a place where you're driving enough traffic to make money per se. But over time, if you, just like anything, overdone it's going to erode the brand and that's not something we're going to let happen.

I've noticed that a lot of your competitors in Texas have used bar promotions or pretty aggressive value promotions at the bar to try to drive traffic. Have you guys invested type of alcohol value promotion?

We have added some value to our happy hour. And I won't go into excruciating detail, but we have done a bit of that. But given Texas alcohol incidents has always been on the higher side, which we love and respect, so there may be some more opportunity to go further in that direction frankly but we have done some of that.

I was little confused on your comments. It sounds like you're trying to target more check growth to drive same-store sales this year, but it also sounds like the recent trend the check growth has waned a little. Can you help me understand it, or what should we expect in terms same-store sales growth, more check driven?

Really when we set out and the way I described this year I think starting back in December was striking a balance. Because 2014 was more about given the investments we made in the price points, a more traffic oriented focus. Last year, we took advantage of some opportunities to grow check a bit more, and frankly, we're trying to do a bit of both here.

So the early part of this year with lunch and value was a bit more focused on the traffic side. Look, we're always going to try to drive traffic as a most important metric, let's not get confused, but we do think there's continued opportunities. What we are seeing time and again, Chris, in things that we're both testing and some of these new products, not -- I wouldn't put the lunch items in this category, is that we have the permission to stretch on price point and quality.

People trust us to do a bone-in New York State or we've done our Atlantic salmon. We do a good job with those products, and there are opportunities like that in future center of the plate and elsewhere in our menu to drive check, but still provide a great value and people leaving saying, that was an amazing whatever. Even though it was on the higher end of our range of check.

So let me try to make sure in terms of my comments that they're not confusing. We are going to use that guest check growth. The reason our guest check wasn't quite as high as is it was trending before is we were dealing more of that check back in incentives and in discounts.

But that's giving us some very important air cover to still -- relative over the last couple of years, 1.8% of check growth was pretty healthy. So again, we are trying to strike that balance between traffic and check.

But think of it as with mid 2% pricing, we had mix in our favor. We consciously dealt that pricing back through incentives where we needed it most, and ended up at a level that wasn't that far different from where we were pricing. Does that make sense?

It does. That was helpful. Then, just last one.

There has been a greater focus from chains on take-out sales, and you guys were really early with the digital ordering platform, not just the app but online and have a very good system. But yet if you look at your take-out business as a percentage of your food sales, it's pretty low relative to the rest of the segment. Is there an opportunity to drive growth there?

Yes. We are -- actually it is one of those things that we are growing it, and it is one of the faster growing elements of our business. But we agree with you, it is an opportunity to grow even higher. We are doing more with the app in terms of capabilities there and improving that, but also our website.

If you look at the percentage of our take-out sales that are coming from online orders, that's a healthier percentage than one might think as well. So we're also making an important investment in our website and mobile site to make it easier, and for a lot of things that translate a lot of the features, if you will, that are in the app to website as well.

If I could just jump in, this is Kevin. We are under way of building out a new web platform that will be a lot more contemporary to what you see that Google is looking for in regards to SEO, search engine optimization. So we think there is not only an opportunity to build out our website that's a little more custom to a personalized experience for the guest, meaning, the site will have the data it's having a log in state, it will know what you've ordered in the past, et cetera.

Which I think will hopefully create frequency, but also allow our site to be stronger in regards to guests looking for take-out on any given night. So we do think there's some upside here in the back half of early next year.

Great. Thanks, guys.

Jeff Farmer, Wells Fargo.

Thanks. I'm just following up on an earlier line of questioning. It looks like over the last three years, you guys have opened up something like more than 25 restaurants outside of California, Texas, Florida, so those core markets for you. As a group, are those units entering the comparable store base as a headwind or a tailwind assumed from sales?

There has been really no change in our discussion on that, Jeff, in the sense that when newer restaurants come into the comp base they come in negative. I will tell you right now, the class of 2014, it came in negative. I don't know what the exact hit was on a comp sales, in the past we've talked about it being around 50 basis points and looking at the trend it looks pretty consistent.

If you go back though, and I look at the class of 2011 and class of 2012, those classes, at least in the first quarter here, all were positive. Finally, we've got the class of 2013, the first half of 2013 restaurants, meaning restaurants that opened July and back, on aggregate were positive. The restaurants that opened in the second half of 2013 we're still negative, as they come out of their honeymoon.

They're less negative than they were in his first quarter than they were two or three quarters back. So we're seeing the same patterns that we've always seen and that is as a growth year company, we have probably a 50 basis points drag on our comp sales because of new restaurants.

Okay. That is helpful. And the, Greg, sticking with you on this one. Again, another question that was touched on, but over the last four quarters you've basically pretty handily outpaced your labor cost guidance looks like by about an average of 50 to 60 basis points.

I understand you guys made it clear project Q is an ongoing effort, there's multiple moving pieces to it. But if we are looking at the guidance today, is there any reason to think that we should not be viewing this as conservative? Is there anything you're about to lap or implement, any reason, again, that we shouldn't be thinking that this guidance you've outlined on the labor line still isn't conservative?

No. I think when I look at this and I've go to (inaudible) look at our costs per operating week and so on from that standpoint, which is one of the ways I look at it besides just where it lines up from a percentage standpoint. And that is as we start to head into the second half of this year, or actually let's just call it Q2 going forward, we've taken that next step down below 35%s. Meaning, beginning in Q2 of 2015, we are running labor all in in the 34% range, prior to that we were running labor in the 35% and 36% range.

So we are, which you guys have written about every time and I know we've tended to a little bit better from a performance standpoint, we're now coming up against really our toughest comparisons from a margin standpoint. Even if you look at restaurant level margin starting in Q2 of last year, they move up to 20.9%, 19.7% and 19.9%, and we'd always talk about getting our restaurant level margins back to 19% and I think we've shown that we can get above 19%. But prior to that, in 2014, we were running restaurant level margins in the 17% and 18% range.

So it really starts to get to the point that starting here in Q2, it becomes probably grabbing the fruit really at the top of the tree, so to speak. Or maybe the later innings and everybody tries to figure out the exact innings. We've got things that we'll work on, but I do think labor is going to start to flatten out year over year if not go the opposite way as I guided from that standpoint and that's what I'd be expecting.

Frankly, we saw it in hourly labor this first quarter. Again, Jeff, the only difference there would be work comp sales coming in. If we could drive stronger comp sales, I think we can get additional leverage there. But I do think based on what we're seeing and the choppiness of the market, labor is going to be more of a challenge for us and we'll start see more of a pick up I think through cost of sales and operating occupancy to manage the margins.

Okay. Very helpful. Thank you.

Will Slabaugh, Stephens.

Yes, thanks, guys. Just wonder if you could talk a little bit more about the trends you saw throughout the quarter just given that the weakening industry data we've been seeing. Has there been any notable distinction maybe for you from week versus weekends?

I know you talk a little bit about your focus on lunch versus dinner, I would love to hear that or any additional color you may be able to provide about what you think is happening. [Is the pizza] decelerating broad (inaudible) in the market?

I will start. I'd just start off by saying our trends were consistent with what you've seen in terms of timing from an industry perspective from NavTrak or Black Box from that perspective. And I'd say because of our focus on lunch and value, lunch was a bit stronger from a year-over-year perspective as we weren't promoting broader or much on the dinner front.

But in terms of weekends or weekdays or other than things that are explained promotionally or from a menu perspective, there weren't big shifts. The only other thing that we don't have an exact explanation for, but it just did seem like spring break timing was not as beneficial in those traditional high-value -- spring break is helpful for everyone, but we tend to see nice bumps during those weeks. And when the laps we're going against us, this seemed to hurt a little bit more than when they were back and helping us.

Overall, it's just our perspective that we just didn't see the benefit from the Easter and spring break season that we have had before. Some of that's probably weather. But in general, just the calendar just didn't seem to benefit as much seasonally as it has in the past is the only other color I could give.

I would say and jumping on to Greg's comments there, our weekdays are starting to weaken, but that's as expected because we were promoting lunch. Most of our lunch offers were through the weekdays, so we saw that stronger.

I still believe, Will, what you tend to see in casual dining is when there is a reason to celebrate, events, casual dining tends to be stronger. I think and that's because the way the competition might be with fast casual as well. So you start off January pretty strong because people are still in celebratory modes, some of the people still have vacations those first couple weeks, and then as you start to get back into the rest of the normalcy of your patterns it seems to have gotten softer.

I think we tend to see that through our business. When there's reasons to celebrate, whether it's Valentine's Day even days off of school whether it might be a Memorial Day, a Veterans Day, et cetera, those tend to be very big days for us. That's what we've seen frankly over the last two years or so.

We're looking forward to Mother's Day and Father's Day and graduation season just around the corner.

Got it. That's helpful. Also I just wanted ask about pricing a little bit, and I know you mentioned where you're going to be in mid to high 2%s this quarter. Just given all the talk about California and minimum wage continuing to increase, what your thoughts are there over the longer term.

Will, we're not going to make any longer-term forecasts, it's obviously somewhat dependent -- that's why we're working as hard as we are on the cost structure side. It is our point of view is the more progress we can make on that front, then we can take less price and even widen our value benefit and gap here. So that is our strategy around it.

How that works out is going to be somewhat dependent on how successful we are on that front, and whether what's happening competitively et cetera. But all the data that we are looking at is -- if you balance it regionally like when it's a little deceiving, not deceiving or you just have to keep in mind that when we say mid-2%s, we have a disproportionate amount of California pricing in that number.

More so than other concepts that aren't as California focused. So when we look at it regionally, we think we're doing a good job of sticking to that strategy where both our nominal pricing is in line but are effective pricing after our promotional spend is, if anything, widening the gap from a value perspective competitively.

Got it. Thanks, guys.

Sam Beres, Robert W Baird.

Hello. Good afternoon, then just one quick clarification and then I have a follow-up. Greg Levin, maybe first, I know trends have been volatile here in the last few weeks, but any sense of what the impact of the Easter shift on that quarter-to-date comp you provided was? Any thoughts on the quantification of that would be helpful.

I don't think it's that impactful. We pick up the Sunday, but as a result of the rest of the week's a little bit softer because that would have been a spring break week in that first quarter.

So you get a Sunday, but then you lose it during the middle of the week on the Monday, Tuesday, Wednesdays when everybody would've on a spring percent. So I think net-net, it's actually immaterial to where we are right now.

No, that makes sense. Thanks for the clarification. And then maybe just in terms of the Texas trends, it's obviously been a bit softer than the overall system here.

So I know you've talk previously, maybe not so much energy market related and more so just competitive environment in Texas. Any thoughts though on how you're thinking about how Texas trends moving forward, and maybe factors that you think could help alleviate the strain that maybe it's putting on the overall comps for the system?

Well, I'll try and take most of that question, I don't know if somebody wants add on at the end here. But we internally still believe that Texas is going to continue to be softer. If you've got a new restaurant still coming online from a competitive intrusion standpoint, as well as frankly construction in a lot of our or a few of our big restaurant areas is really impeding a acceleration of comp sales there.

So when I think about building models for BJ's and where comps are going to be this year, I take that into consideration even though we're seeing a little bit more pricing outside of California. And we're seeing stronger sales maybe in other markets, with Texas taking us down from that standpoint.

I do think, as Greg Trojan mentioned, part of our plan will be that the a little bit more incentive based some of those Texas markets. Because we do know, as Kevin also mentioned, that our guests, certain guests in those markets they are looking for deals. That's a market with a lot of restaurants out there, and sometimes they're making a decision based on what they would be the best value of that day and that best value tends to be a deal in front of them versus maybe everyday low pricing. It's really a combination of those two things,

There's no question that the energy may not directly impact family income, but it's a darker cloud in Texas than it's going to be elsewhere. So I do think for that reason people are a little more or less confident about their future than elsewhere, and that's clearly impacting it.

But look, the other thing I would add is, we're looking at this as an opportunity to make our concept even better. There's nothing we can do about oil prices, and frankly the number restaurants that are being built out there. And our attitude about it is, we run great restaurants, we run still, if not among the busiest restaurants in the state of Texas and we love Texas and we make a lot of money in Texas.

So it's how do we leverage that position and the volume we're already doing to offset these negative trends maybe a little differently. And it's a challenge that maybe we get better as a concept that we can take to other geographies as part of figuring out this challenge of how we get better as a concept in doing this. We all wish it were all smooth sailing and that's why we build restaurants all over the country is you are going have these ups and downs and counterbalances.

We look at it as a challenge to get better, but at the end of the day, to Greg's point, the reality of the math is Texas is going to in all likelihood continue to be growing at a lower rate and being a drag on comps for this year. But it's our goal to make that as little a drag as possible.

Great. That's helpful. Thanks guys.

Thank you.

Ladies and gentlemen, that does conclude today's conference. We appreciate your participation.

Thank you. Thanks, everyone.

Thanks.