BJ's Restaurants Inc (BJRI) 2017 Q4 法說會逐字稿

Good day, and welcome to the BJ's Restaurants, Inc.

Fourth Quarter 2017 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, Chief Executive Officer.

Please go ahead.

Thank you, operator.

Good afternoon, everyone, and welcome to the BJ's Restaurants Fiscal 2017 Fourth 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 President and Chief Financial Officer.

We also have Greg Lynds, our Chief Development Officer; and Kevin Mayer, our Chief Marketing Officer, at the end for Q&A.

After the market close today, we released our financial results for the fourth quarter of fiscal 2017, which ended Tuesday, January 2. 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 will provide a recap of the quarter and some commentary regarding fiscal 2018.

And after that, we'll open it up to questions.

So 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 the actual results, performance or achievements of the company to be materially different from any future results, performance or achievements expressed or implied by forward-looking statements.

Investors are cautioned that forward-looking statements are not guarantees of future performance and that undue reliance should not be placed on such statements.

Our forward-looking statements speak only as of today's date, February 22, 2018.

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 the forward-looking statements contained in the company's filings with the Securities and Exchange Commission.

Thanks, Rana.

I'm encouraged with our sales and traffic momentum, which first started to show improvement in September and then carried over into October and through Q4.

With positive fourth quarter traffic of 0.7% and comparable sales of 1.6%, we outperformed industry traffic and sales trends for the quarter and 2017 full year once again.

The outperformance, together with the success of our 10 new restaurants, led to another year of BJ's gaining meaningful share in our category.

These results highlight our position as one of the leading brands in the casual dining arena, and they point to the growing success of our sales building initiatives that our teams worked so hard to implement over the course of the last year.

At BJ's, we have a mantra where we challenge ourselves to be sales builders first and foremost because we know that ultimately delivering unique, great guest experiences will drive sales and solid margins.

This past year, we undertook a series of challenging initiatives to continue our quest to be the best casual dining concept ever.

Our team members embrace this challenge and they learned and mastered new cooking methods, became proficient with taking orders on handheld devices and reorganized their processes to bring efficiencies to our growing off-premise revenue stream.

As our team members worked through these learning curves and our guest experienced BJ's differentiated higher quality dining experience, our sales strengthened, and I am pleased to report that this momentum has carried over into fiscal 2018 today.

Looking at Q4, our positive comparable sales of 1.6% surpassed the Knapp-Track and Black Box indices 90 and 130 basis points, respectively.

More importantly, our positive 0.7% traffic for the quarter significantly outdistanced the same industry metric as measured by Knapp-Track and Black Box by 270 and 230 basis points.

And for the fourth consecutive year, we outpaced the industry in overall traffic performance.

Those of you who have followed BJ's over time know that we have been on a multiyear journey to continuously improve upon our already strong value proposition.

We started by adding value-oriented items in key categories like burgers, salads and lunch specials and even in our EnLIGHTened better-for-you lineup.

All in, this effort has allowed us to keep our check growth over 250 bps below our competition over the last 4 years, which actually understates the gap we built versus peers given our disproportionate representation of California restaurants in our portfolio where labor cost inflation has prompted higher menu price increases than found elsewhere.

That said, we know that improving our everyday value proposition has been and will continue to be an important part of our top line growth strategy.

BJ's is focused on providing our guests with menu options that take into consideration the fact that they have evolving meal preferences during their visits.

On one side of the value and quality spectrum, our slow roast menu items, such as our prime rib, provide our guests with a premium meal and experience at a compelling price point.

At the same time, our daily Brewhouse Specials, such as our Half Off Large Pizza Mondays and $3 Pizookie Tuesdays, provide our guests with the unique value.

We believe this menu and check mix helps differentiate BJ's from any other mass casual concepts, broadens our appeal to a wider range of customers and provides a great reason to visit a BJ's restaurant for a variety of dining occasions no matter what menu preference or guests have at any time.

In Q4, we generated net check growth of about 1%, which in normal input inflation times would be sufficient to maintain our profit margins.

However, as we indicated in our Q3 2017 call, wage pressure, together with the cost impact of our investments in our traffic-driving initiatives, including off-premise growth, combined to reduce our margins on a comparable year basis.

While we're not satisfied with our margin performance, fighting the difficult industry conditions and driving guests into our restaurants was and remains our first priority.

Looking forward, our goal in 2018 is to take advantage of the traffic momentum we have created and leverage the investments of 2017 to create both traffic and check growth where we can begin to reestablish operating margins to levels more in line with where they've been in the past.

Let me be a bit more specific.

Last year, we made a number of key investments in what we described as everyday value initiatives, ultimately to drive traffic but also in search of a more brand-positive alternative to outright promotional discount offers.

We augmented and rolled out new daily specials, which we branded as Brewhouse Specials, which are available Monday through Thursday in our restaurants.

We also took learnings from our Texas and Florida restaurants and improved the value of our happy hour offerings throughout our company.

At the same time, while our new daily offerings were building an awareness and industry sales headwinds stiffened, we increased the use of our more traditional promotional offers, albeit we believe at a lower overall rate than our mass casual competitors.

However, balancing these investments in average check was our slow-roast menu initiative, which features protein-centric offerings headlined by our prime rib dinner, our double-cut pork chops and ribs.

All of these are great values but also drive higher check average.

In addition, the rollout of our handheld point-of-sale devices have helped drive the sales of add-on beverages, appetizers and desserts, thus boosting average check as well.

So 2 quarters into the rollout of most of these programs, our restaurant team members are more comfortable and executing more proficiently while our guests are growing more aware of their benefits as well.

This is resulting in better traffic, which is complemented by improving trends overall for retail and restaurants.

This has allowed us to temper the frequency and depth of our promotions, which has helped generate the kind of check growth we need to offset the cost pressures we're all facing.

Our result in the latter part of Q4 and early results so far this year are providing encouraging signs in that regard.

Greg will give an update on the quarter-to-date sales in just a moment.

However, we believe that fundamental positive trend of the business continues to be driven by our sales initiatives, including slow-roast, Brewhouse Specials and our off-premise sales.

These initiatives are generating both better traffic than we saw for the whole of 2017 as well as solid check growth.

These top line dynamics drove sequentially better margin performance in the latter part of Q4 and should help us offset the cost pressures, primarily labor, that the entire industry is experiencing.

Additionally, we continue to drive important cost savings and efficiency initiatives in order to return to our ultimate margin goals.

However, we will not do so at the expense of traffic and ongoing market share gains.

We continue to press forward on our Project Q-initiated cost-savings efforts.

Last year, we identified an additional $5 million of efficiency savings in the middle of our P&L in areas such as sourcing, distribution, supplies and maintenance, for example.

Obviously our biggest cost challenge has been and continues to be labor, specifically the increase in labor rates driven by both significant minimum wage hikes but also the increase in demand, particularly for our kitchen back-of-house positions.

We see this pressure continuing in this overall tight labor market, but there are clear signs that the level of wage pressure is easing somewhat.

Most importantly, we are seeing our turnover percentages actually improve year-over-year.

And even though minimum wage rates increases continue to be substantial, we expect the wage compression in positions already above minimum wage levels to be less than last year.

Clearly the contraction in unit growth rates across all restaurant categories, including casual dining, are part of the improving sales story we are seeing, but also beginning to ease the demand pressure on kitchen labor.

That said, it's still a really difficult labor market out there, especially in some of our high-density, higher-wage rate markets.

We know there's still room in our model to improve process and efficiency of our labor, particularly as we navigate the higher growth and off-premise sales relative to our in-restaurant dining.

We're working hard with training and technology to improve our labor scheduling balance in that regard, but I think it's important to mention that we're not considering any wholesale changes to our service model.

We know that the service experience at our restaurant is a big part of what keeps our guests coming back and it would be a mistake to compromise that experience in the face of today's labor pressures, as I'm convinced that doing so would come at the expense of traffic and continued market share gains.

Although we're encouraged by the sales and traffic momentum of our business, we are steadfastly investing in refining and improving our existing platforms and developing new ones.

For instance, we continue to invest in the growth of our off-premise business and are pleased with the rapid progress we are making in growing this part of our business.

We currently have some form of delivery available in about 149 of our restaurants, with another 23 scheduled to be added by the end of Q1 of this year.

Last quarter, we grew our off-premise to about 7% of our sales, an increase from 5.6% a year ago.

As I've mentioned before, we still see no evidence that growth and delivery is having a significant impact on dine-in frequency and, as such, are comfortable in the incremental profitability of these sales.

We continue to look at additions and subtractions to our value Brewhouse offerings and continue to test the separate $10 entree menu in the more value-conscious trade areas that we serve.

Our menu innovation pipeline's in great shape and we'll continue to selectively upgrade and innovate with products, which will further add to our unique combinations of flavor and value.

We know that our physical space is a crucial part of our guests' overall experience, and I have challenged our design team to push our new restaurant design to ensure we remain as current and appealing to current and future guests.

Our new 2020 design includes a circular bar element with outdoor patio access, for example.

It also celebrates our craft beer heritage and core competence without intruding on our classic family-friendly positioning.

Those of you that find yourselves in North Olmsted, Ohio, which is in the Cleveland market, Fredericksburg, Virginia or our new restaurant in Taylor, Michigan, not far from the Detroit Airport, I'd encourage you to take a look for yourselves.

As I mentioned on our Q3 call, we are planning on opening 4 to 6 restaurants in 2018.

We continue to believe that the external environment, despite the recent sales trends improvements, calls for maintaining operating focus on our existing restaurant base.

The advantages of more tenured manager bench strength, along with our most seasoned field support, working on improving execution in our existing locations is significant.

We also believe slowing down expansion in the face of a tighter and more expensive construction environment in the midst of an incredibly tight restaurant labor markets continues to make a lot of sense.

That said, we remain encouraged by the performance of our new 2017 restaurant openings and look forward to opening many more BJ's when the external environment improves.

Our slower pace of development, coupled with the ongoing progress and financial benefits from the sales-driving initiatives and the recurring free cash flow benefit related to the enactment of the Tax Cuts and Jobs Act, will significantly grow BJ's free cash flow.

We are frequently asked how we plan to allocate this additional capital.

My answer to that really hasn't changed.

Our first priority is to widely invest our capital in ways which will improve and grow our existing business in a manner that delivers a return on investment beneficial to our shareholders and owners, including initiatives which benefit our most valued asset of all, our team members.

Beyond that, we will continue to evaluate expanded capital returns to our shareholders through a combination of share repurchase, dividends and reducing our outstanding debt.

BJ's has been fortunate to operate in its modern form with a healthy balance sheet, which has permitted us to grow organically and invest in opportunities to improve and grow our company.

And, as such, the new tax legislation does not represent a significant change to our capital deployment thinking.

In summary, our strategy for the last 4-plus years and continuing into 2018 has been predicated on a platform of improving our already strong value proposition as a brand, enhancing the hospitality, speed and ambience of our restaurant experience and adding more unique and craveable menu items while improving our execution through complexity reduction, and finally, driving greater awareness of our brand through a more directed marketing message and a more potent media mix.

I'm confident that the plans and initiatives we have in place will permit us to successfully execute our sound fundamental strategy and keep gaining share in the casual dining space.

Lastly, I'd like to thank our over 21,000 team members who make all our plans and vision for a great guest experience a reality each and every day.

I'm as optimistic as ever about the growing strength of our brand and our ability to convert our brand strength, learnings and the loyal commitment of our team members from coast-to-coast to building new value for our shareholders.

So with that, let me turn the call over to our President and CFO, Greg Levin.

All right.

Thanks, Greg.

First, as we noted in today's press release, because of the new tax law, we revalued our deferred taxes based on the new federal tax rates, and this resulted in a $15.7 million reduction of our net deferred tax liability.

The reduction of deferred taxes runs through our current year provision, resulting in tax benefits for the fourth quarter of $13.3 million, which led to a GAAP net income and GAAP diluted net income per share of $23.5 million and $1.12, respectively.

Excluding the change in the value of our deferred tax balances, we estimate that our tax rate for the 2017 fourth quarter would have been 23.5%, thus resulting in a non-GAAP pro forma net income and non-GAAP pro forma net income per diluted share of $7.8 million and $0.37, respectively.

Also, as we noted in today's release, last year's fourth quarter includes one additional operating week.

This additional week contributed $21.3 million in sales, which, based on our estimates, amounted to approximately $0.10 to $0.11 in net income per diluted share in the year ago quarter.

Our fixed and semi-fixed occupancy and operating costs as well as depreciation expense benefited most from this extra sales week and its impact on our margins last year.

Looking at our revenues for the fourth quarter of 2017, they were approximately $261.1 million compared to $265.6 million in last year's fourth quarter.

Excluding the extra week of sales of $21.3 million from last year, our revenues on a comparable 13-week quarter grew approximately 6.9% as a result of an approximate 5.5% increase in operating weeks due to our new restaurants and an increase in our weekly sales average of approximately 1.2%.

Comparable restaurant sales and traffic for the quarter increased 1.6% and 0.7%, respectively.

As we mentioned on our last conference call, we began to see an improvement in comparable restaurant sales in September of 2017 with that momentum continuing throughout the fourth quarter.

In fact, every week at Q4 was positive for us, except for the 1 week in which we lapped a BOGO promotion run last year.

Geographically, each of the 3 states where we have the largest concentration of restaurants, namely California, Texas and Florida, were positive for the fourth quarter of 2017.

Looking at margins.

Our cost of sales of 26.1% was up about 40 basis points compared to the last year's fourth quarter.

However, cost of sales declined sequentially from the third quarter of 2017 by 40 basis points.

The increase from last year's fourth quarter was primarily due to higher commodity costs and menu mix related to our new slow-roasted items and daily Brewhouse Specials.

The quarterly sequential cost of sales decline largely reflects our team members becoming more proficient with our new cooking technology, in addition to slightly lower commodity costs and additional menu pricing.

Labor of 35.8% for the fourth quarter rose 90 basis points from a year ago.

The increase was due primarily to higher hourly labor, both in the kitchen and in the dining room.

The hourly labor increase was due to higher hourly wages, which were up about 5% quarter-over-quarter and our continued investment in labor to support our take-out business as we continue to grow off-premise sales.

Our operating occupancy costs increased 70 basis points to 21.4% from last year's fourth quarter.

This increase is largely due to 2016's fourth quarter having 1 extra week of sales.

In fact, I mentioned on last year's fourth quarter call that due to the fixed and semi-fixed nature of these operating occupancy costs, the extra sales week benefited this line item by approximately 60 basis points in the quarter last year.

Therefore, when adjusting for the effect of last year's extra week, our 2017 fourth quarter operating and occupancy costs increased only about 10 basis points year-over-year.

Included in operating occupancy costs is approximately $5.9 million of marketing spend, which equates to 2.2% of sales.

Excluding marketing, our operating occupancy costs in the fourth quarter averaged approximately $19,600 per restaurant operating opening week.

Our general and administrative expenses of $13.8 million decreased by 10 basis points to 5.3% of sales compared to the same quarter last year and were in line with our expectations.

In terms of capital allocation, we remain committed to a balanced approach to total shareholder returns as our cash flows and balance sheet strength afford us the financial flexibility to open new BJ's Restaurants while simultaneously returning capital to shareholders.

For fiscal year 2017, cash flow from operations was approximately $107 million and gross total capital expenditures was around $71 million, which included the construction of our 10 new restaurants as well as the maintenance CapEx and other sales-building initiative CapEx.

As a result, we generated almost $37 million of excess free cash flow.

Our solid cash flow has enabled us to return a total of $69 million to shareholders in fiscal 2017 through our share repurchase program, including $9.6 million share repurchases during the fourth quarter and our first quarterly cash dividend of $0.11 per share or roughly $2.3 million, which was paid last December.

As of the end of the fourth quarter, we had approximately $42.5 million available under our current authorized share repurchase program.

With regard to liquidity, we ended the fourth quarter with approximately $24.3 million of cash and $163.5 million of funded debt on our $250 million line of credit, which is in effect until November 2021.

Before we open the call up to questions, let me spend a couple of minutes providing some commentary on the outlook for fiscal 2018.

All of this commentary is subject to the risks and uncertainties associated with forward-looking statements as discussed in our filings with the SEC.

With respect to sales, as we noted in today's release and as Greg Trojan noted in his comments, the sales initiatives we implemented in 2017 are taking hold with our guests.

Our slow-roast menu items and our daily Brewhouse Specials are building a loyal guest following and our off-premise efforts continue to contribute to sales growth.

As a result through the first 7 weeks of Q1 of 2018, our comparable restaurant sales trends are in the mid-3% range.

While we are optimistic about our sales trends given the investments we have made in the business, I want to remind investors to be cautious with modeling.

Last year at this time, we were experiencing historic rains in California that impacted our comp sales by approximately 50 basis points.

Additionally, as many of you may recall, sales for BJ's last year flattened out in March and were positive in April before softening in May.

Also specifically for Q1, Easter this year moved to Sunday, April 1, which is the last Sunday of Q1.

Last year, Easter Sunday was in Q2.

In general, Easter weekend is a soft weekend for us and I would expect that to impact the tail end of Q1 sales by 30 to 50 basis points.

With regard to restaurant operating weeks, I'd expect approximately 2,562 weeks in Q1.

Moving on to the rest of the P&L.

I would expect cost of sales to be in the upper 25% to 26% range this year based on an overall commodity basket to increase of around 1%.

Right now, we have locked in about 60% of our commodities for fiscal 2018.

With regard to labor, we will absorb an increase in California minimum wage as well as additional minimum wage pressures in other states.

Aside from the state minimum wages, we continue to expect wage pressure across the restaurant business for both hourly positions and managers.

Therefore, I am anticipating upward pressure on hourly and management wages in the 4% range, which is slightly less than the wage increases we saw in 2017.

That said, we can believe -- we can -- we believe we can mitigate some of this labor pressure through some prudent menu pricing, menu design and cost-saving initiatives currently underway.

That includes better scheduling, particularly as it relates to our going off-premise revenue stream.

As such, for the full year, we are targeting labor of around 36%.

Specifically for the first quarter, and based on where sales are today, I'm expecting labor to be around the low 36% range.

Please remember that as in the past, we see some of the highest labor costs as a percent of sales in the first quarter of each year, primarily due to higher payroll taxes and benefits that occur at the beginning of each year and last until we reach many of the state caps or limits later in the year.

Of course, as always, labor as a percent of sales is highly correlated to weekly sales averages and comparable restaurant sales growth.

So labor as a percent of sales will be impacted by these factors.

With regard to occupancy and operating cost for the year, our expense management and margin enhancement initiatives have significantly reduced these expenses, and our goal is to hold the line on these savings while we use additional savings to offset some of the normal inflationary pressure we get each year.

As such, we are targeting total occupancy and operating costs to be around 21%.

Included in total occupancy and operating costs will be approximately 2% to 2.3% of marketing spend, which is pretty consistent with the level of marketing spend in 2017.

And like labor, operating occupancy cost as a percent of sales is highly correlated to weekly sales averages and comparable restaurant sales growth.

With -- in regards to G&A, we're expecting it to be around $61 million in 2018, including equity compensation and incentive compensation.

The year-over-year growth in G&A for fiscal 2018 is due entirely to the current assumption right now of a full incentive compensation.

First quarter preopening costs should be in the $600,000 range, based on 1 restaurant opening and expenses for 2 more restaurant openings in the first half of this year.

Overall, we are targeting opening cost per restaurant to be around $425,000 per opening.

As a result of the new tax law, we are expecting our tax rate to be in the 15% range for fiscal 2018.

This compares with our historic normalized rate of around 27%.

The 12 percentage point reduction in our tax rate represents an estimated savings -- cash savings in somewhere in the neighborhood of about $5 million or so.

As our recent repurchase activity and the weighting continue to positively benefit the share count, I anticipate our diluted shares outstanding will be in the high 20 million range for the first quarter versus 22.3 million at the end of Q1 2017 and just under 29 million when we embark on our share repurchase program.

Our CapEx for 2018 should be in the range of $50 million to $55 million for the development of 4 to 6 new restaurants, maintenance capital expenditures and other sales and productivity initiatives, before any tenant improvement allowances or sale leaseback proceeds we may receive.

We anticipate funding our 2018 capital expenditure plan from our balance sheet, cash flow from operations, our line of credit and landlord allowances and sale-leaseback proceeds.

In conclusion, I think it's evident from our Q4 sales results and our sales momentum to start 2018 that BJ's continues to demonstrate its ability to leverage a broad array of sales-building strategies to drive positive comparable restaurant sales.

These sales-building initiatives, coupled with our talented restaurant operators, continue to move BJ's forward as a highly differentiated casual dining brand.

Our investments in the sales-building initiatives highlight our strong cash flow from operations and the strength of our balance sheet as well as the moderation of our pace of expansion, all of which contribute to our balanced approach to total shareholder return.

As we look to 2018, we began taking a thoughtful and analytical approach to our business, brand, concept and the current environment, just as we did coming off of 2013 when the business was also challenging.

We remain highly focused on our innovative food offerings, productivity, restaurant efficiency and guest service, mainly the core strengths, which have been fundamental to our measured expansion and long-term bottom line growth.

These core strengths have allowed BJ's to gain market share and outperform the industry in terms of traffic and sales trends.

Therefore in closing, we remain confident that our initiatives to drive sales, productivity and efficiency, combined with a balanced approach to new restaurant growth and prudent management of our capital structure, is a proven formula for a sustained long-term financial growth and the appreciation of shareholder value.

That concludes our formal remarks.

Operator, please open the line up for questions.

(Operator Instructions) And we'll go first to Matthew DiFrisco with Guggenheim Securities.

Greg and Greg, I always appreciate your details.

Sorry, I apologize for the first bookkeeping question.

I couldn't keep up with you there.

Did you say what the CapEx would be in 2018?

I'm just trying to calculate sort of how that -- how the free cash flow was going to grow in the environment with the lower tax now.

Right.

We did.

We said the CapEx pre any tenant improvement allowance or anything would be somewhere in the neighborhood of about $50 million to $55 million.

Okay.

And did you -- I mean, I guess, is this the new state of growth, 4 to 6 openings?

Or should we start -- are you embedded in that?

Or are there some openings potentially to start in the first half of '19, a little bit faster perhaps, maybe closer to 10?

Or are you happy with the pace right now of around 6 or lower?

Matt, this is Greg Trojan.

The -- it's our intention to return in the medium to long and closer to our double-digit restaurant week growth.

So the short answer to your question is we think we're satisfied with it in terms of we think it's the right place to be given the environment today.

But we're anxious to be opening more restaurants when we think the -- it's the right time and place to be doing that.

Specifically next year, we don't make that decision until certainly the back half, towards the end of this year.

But we are -- our real estate team is out there and still negotiating and looking at new properties and in a way -- with an eye towards of that expanding.

And so it's easy to scale back from the current base than ramp up.

So we're behaving in a way that gives us the option to increase that rate next year and beyond.

But whether we do that or not, it's going to depend on how the year unfolds.

Excellent.

Okay.

And then just last question, with respect to delivery.

Is this -- how does that flow through?

If I were to look at that sort as the incremental -- let's say, it was all incremental and you moved a little over 5%, up to 7% now of delivery.

How does that compare to, I guess, the historic sort of 40%-or-so flow-through when you get a 1% comp in the store?

What type of comp flow-through are you seeing in that relative to the comp in the store?

Yes.

It's always hard to dissect every individual piece there.

I would tend to tell you that we're going to see cost in the operating occupancy line, because that's where you pay some of that third-party commission that comes through in that side of it.

Generally speaking, Matt, we've always talked about in our business, trying to get somewhere in the neighborhood of about a 50% flow-through about kind of a fixed point, so to speak.

Generally, you would think that third-party delivery is going to be a little bit lower than that 50%.

Not that much lower though because you can only put so many people at your takeout desk and other areas, so you get a little bit of limit there.

That gets offset to some degree by the commission that you're paying some of the third-party delivery companies.

We'll go next to Brian Bittner with Oppenheimer.

A couple questions.

Greg, thanks for all the margin details, particularly on the labor and the other op line.

And as you said, these lines are pretty sensitive to comps, so can you tell us what your comp outlook is when you gave us those margin percentage details for 2018?

Yes.

Brian, it's a great question.

And as you know, we don't give specifics on comp sales.

We tend to obviously give you where we see comp sales currently.

I'd like to think that the initiatives and things that we put in place will allow us to stay on the positive side in regards to those comp sales.

Okay.

And you are unlocking much better off-premise growth recently.

Particularly this quarter, we saw really good off-premise growth.

Is delivery like the main thing that's going to kind of unlocking this?

Or are you guys doing something to drive more people to your stores for takeout?

Well, it's a combination of things.

One is, as Greg Trojan mentioned, he'll probably comment here shortly, we've added third-party delivery to numerous restaurants.

I think we said right around 149.

And we didn't have that at the beginning of this year.

We started it really in the August time frame.

So that generally is going to be your more incremental growth there because it's a new channel within our business, and that's what's doing that.

That being said, we've been able to partner up with the third-party delivery companies we use as well is the fact that in many of our own cases at BJ's, and many of our restaurants, we developed our own online platform that comes right to us.

So we keep all the data and all the information.

And that allows us to e-mail those guests and maybe give them special offers, even though it's being delivered by a third-party delivery company.

So it's been a combination of those 2 things.

But I would tend to say that incremental growth in off-premise has been primarily all third-party delivery or all delivery.

We'll go next to John Glass with Morgan Stanley.

This is Chris, on for John.

So I wanted to ask about the quarter-to-date.

If there was anything else that you would call out there, I know you mentioned the lapping of the rains in California that being -- I think that was a 50 bps impact last year.

But it didn't seem like the industry have gotten better, at least in January.

So was there any additional color you could provide to us?

Is there a more delivery momentum building there?

That will be helpful.

Yes, Chris, one comment that I've made generally is, in line with that, is we're seeing the healthy growth, if you will, continue.

It has been very balanced geographically.

So look, we know the rains in -- particularly in California and the West Coast were pretty much specific to those geographies a year ago.

But we're seeing healthy, both outperformance and general trends throughout the country in that regard.

So that's a good thing, I'd say.

And I wish we could point to in some ways, for explanation purposes, 1 or 2 things.

It's been fairly balanced.

Obviously off-premise is helping, but it's not more of the story into this year than it was in what we saw trending in Q4 there.

So the, I'd say, additional element is too early to really truly diagnose, but we did roll out nationally our -- the change to our loyalty program.

And the early indicators are certainly positive there, but literally, what are we, 3 weeks into the rollout of that program.

But -- so we think that's benefiting, but to what extent, we have to give it both more time and more data to analyze in that respect.

But fundamentally, we think it's sort of a combination of these initiatives that we've worked hard on last year.

We'll go next to Will Slabaugh with Stephens.

Yes.

I want to ask you about trends throughout the quarter and then into the quarter-to-date period that you mentioned, Greg, earlier.

So even with the initiatives taking hold that you mentioned, the quarter-to-date trends are pretty impressive.

So I'm curious if behind the scenes this makes sense to you given maybe the improvement you saw throughout the quarter or if you actually saw a marked bump in sales as the year began for some reason or the other.

And is there anything to say about the sales, either in 4Q or 1Q quarter-to-date geographically?

It sounds like that was somewhat spread out fairly evenly.

Well.

Yes, I mean, the trend that we indicated is certainly higher than what we saw in Q4 in total and even that we were trending later in the quarter, although we were sequentially -- saw a good progress in the business.

Really, as we said, well, starting from -- we really started to see a difference in September, October, November and December where we are all strong.

So relative to the trends before that.

So I -- so they continue to get and accelerate in that regard.

It's just, we do caution everyone that it's choppy this time of the year, not just with the rains of a year ago but also just generally weather has a big impact this time of year, as you know.

So I think the -- as we indicated, we -- maybe we're conservative a year ago at 50 basis points of lapping the specific rain impact, but weather may be helping us a little bit more there.

But look, even if you make that number bigger than that, we're pleased on a sequential trending basis to see how the business is going along there.

Yes, great to hear.

And a question on pricing, if I could as well.

Did you give the pricing in the quarter, and apologies if I missed that, and what your plans are for 2018?

And then also, just given, obviously California taking another dollar up this year, curious if you expect pricing to change a lot market-to-market.

Yes.

Well, this is Greg Levin on that one.

A couple of things here.

One is we have, over the years, I think I want to say we're up to like 10 or 11 pricing tiers.

So something like California and the minimum wage going up to $11 and still going up in out years.

We'll have different pricing than other areas.

What we've come to notice over the last really, I would say, 5 months as our Brewhouse Specials and slow-roast have taken hold with our guests, it's really about where that average check is going.

And as Greg Trojan mentioned here in the fourth quarter, despite somewhere in the neighborhood, I want to say, 2.5% or 3% pricing in the fourth quarter, we all saw that average check go up about 1%.

And I think what we're thinking -- or looking at this year in trying to understand our business, it's not so much the absolute pricing, but where we're trying to get that average check to go or to grow, for lack of a better term, and think we're looking at our business right now and trying to have an average check somewhere in the neighborhood of probably in the 2% to 2.5% range going into 2018.

So while our absolute pricing is in there, we're still seeing this huge shift to Brewhouse Specials and then we're seeing a huge shift to slow-roast.

And that's played more into our business.

And the way I kind of think about it and think about like the comp sales that we're seeing right now, it's about trying to get an average check 2.5% range there and trying to get that traffic to be flattish or positive.

So well, what I'd add to that is, in terms of mix, is given what we're seeing as somewhat of a stronger environment and the fact that we're coming into a year of lapping some of these investments in check, but also has enabled us to pull back on the level of discounting somewhat, and that's having a beneficial effect on check as well.

And that's a meaningful opportunity for us if we're able to maintain our traffic momentum and dial back a little bit on the frequency but also on the depth of discounting is going to help our check as well.

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

Two quick questions, please.

The first is, there's a lot of brief conversation around value, which can mean many things.

But I'm wondering, how does pizza specifically fit into the value equation?

What is it as a percentage of sales?

How do margins compare?

And is that something you would put more emphasis behind?

A couple of things here, Nicole.

One is, we think value is extremely important, just on your general topic there.

And that was the whole set-up of the Daily Brewhouse Specials.

And the Daily Brewhouse Specials have done really, really well for us.

And one of those key things of our Daily Brewhouse Specials is our 50% off large pizzas Monday.

And as a result, we generate some of our best guest traffic on that Monday with people taking that pizza offer for us.

We also look at pizza as a way to drive the off-premise business and put emphasis on that us because it travels well.

We can do bundled packages around it and drive that part of our business.

So we're excited about pizza.

We keep it obviously the top of mind and continue to work it, even though we talk about all these other menu products.

One of the things that I think sometimes people forget that no BJ's for a long time is they think of us still somewhat as just a pizza and beer joint.

And whenever we do consumer research, consumer feedback it always comes to us as one of the main reasons or the #1 reason they come to BJ's is the variety of menu items we have out there.

So we're always going to emphasize pizza.

It's always important to us.

But at the same time, we can't let it be, the sole thing that we talk about only.

But it is part of our value equation.

And it continues to be kind of a low double digits as a percent of sales for us.

And it's always going to probably be that way.

We're like, California, it's stronger because that's where we started versus other areas.

But it's important part of us, it's very profitable, as you know.

It also drives a great value equation for us that we use for both our Daily Brewhouse Specials and other incentives.

Great.

And then the other question I wanted to ask about, there's a lot of discussion around labor inflation, which we know the pressure for the industry.

And I think maybe at the beginning of the prepared commentary, something also around unit supply.

Could you just give us some context on how you view growth within casual dining or the industry overall?

And what is it going to take -- what will it take to get that to slow down?

And would that be one indicator you're looking at for then also for you to step up growth?

Well, Nicole, I -- what I was referencing there is -- in the latest unit count numbers, I'm pretty sure it was an NPD number that we saw showed that unit count was down, I believe, 2% overall and casual dining was -- in the restaurant space and casual dining was down about the same.

And it's just -- we have a sense of that.

And the fact that our turnover is not just only stabilized but has improved, right?

The combination of -- we just think there's a bit less -- certainly a slowdown in the acceleration of labor rates.

We're still going to see labor rate inflation obviously, not just because of the minimum wage, but because of continued high levels of employment.

So I don't mean to be enthusiastic about it, but I do think it's better.

I do think the prospect for this year in terms of overall acceleration will be a little bit better.

So I think those are the dynamics contributing to that.

And if I heard the second part of your question of, even though we are starting to see some contraction out there, what it would take, we don't have a specific formula, quantitative goal in terms of that criteria.

But if we continue to see an improvement in the fundamental top line environment and particularly traffic and we think -- the other part of the equation is this labor shortage is impacting the world of construction and trades in a very significant way where we've been able -- our teams had done a great job of avoiding that through both deal structure and other things that we do around construction.

But the fundamental inflation rates on buildout cost and availability of labor in some of these trade areas is another consideration.

So -- but I'd say the most important one is that we see continued momentum on -- from a traffic and top line perspective.

And to me, it's around deploying our own internal assets and human resources more outwardly as a balance and we are today where we're certainly inwardly focused and making sure as we always will be, but we're operating our restaurants to the best of our ability.

Then that will be assigned to me that it will start increasing the pace of development.

And as I said earlier to Matt, we're anxious to do that.

I mean, we're -- I mean, we had a very solid year last year in our development strategy, so we're anxious to be building more restaurants.

We'll go next to Mary McNellis with Baird.

Just -- you touched a little bit on starting to pull back on the discounting in 2018 now that you're seeing the traffic move in the direction that you wanted to.

And so I was curious whether you've already started to temper that discounting a little bit in early Q1 so that would be reflected in that 3% you're seeing quarter-to-date.

And then just also any perspective you'd be willing to provide on what the value strategy's going to look like in 2018.

For instance, if you're planning to just temper the advertising of the Brewhouse Specials or just any color on the strategy there would be helpful.

Yes.

Actually it's a good question, Mary.

Actually we started tempering our discounting with the thought of that opportunity even in Q4, more so on the back part of the quarter.

But we saw some help to our check, like I said in the back half of the quarter and we've continued to be -- to follow along those lines in the early part of this year.

So yes, that is part of what's helping us from a check growth perspective early on in the year.

And sorry, I think you were asking about Brewhouse Specials...

I think, Mary, the idea, even going into 2017, was to drive a little bit more of everyday value versus trying to drive purely from a discounting standpoint.

So as we started 2017, the idea of the Brewhouse Specials was to talk about that as the main strategy there versus trying to get somebody in from a pure discount standpoint.

And the Brewhouse Specials really didn't get rolled out until late February, March, and starting to get some marketing around them.

So a little bit to your point on Q1, we've got less discounting in there.

And ultimately, our goal is to continue to drive people in, in regards to items that are more of an everyday value strategy from that standpoint versus trying to drive people in purely on some type of discounted promotion.

That being said, we know there's a certain amount of people that love to collect coupons and coupon clips and come in specifically for them, so we will always address some of that.

But generally speaking, we want to bring them in for the things that we have on our menu on an everyday perspective.

That makes sense.

And then just one quick follow-up to that.

So the check is a little bit higher in the quarter-to-date period than it was in Q4, but is it still right to think that your traffic in the quarter-to-date period is trending above that 70 basis points you reported for Q4?

Our traffic is a little bit below that after that standpoint.

And when we look at the -- when we look at Q4, we talked about this before.

Q4 we started off the year -- or started off the quarter with $3 Pizookie October Month.

So every one of our Pizookie desserts was sold for $3 in the month of October and that had ended up having a lower average check.

And then we went into November, which had Veterans Day.

So we had some discounting around Veterans Day.

As we move into December, the slow-roast on the weekend and more of a celebratory time.

We saw -- we started to see that average check grow a little bit.

So as we come into Q1 of this year, not having really kind of a $3 Pizookie month that we're going over and some other things, we're seeing a higher average check on a relative basis to maybe where we were in Q4.

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

Greg, the labor guidance, I thought that was pretty encouraging.

I guess, my question is, if comps were to be flat though for the year, would you -- what would you expect labor cost to look like?

And what I'm trying to get is, what's the benefit you're expecting from sales leverage?

So I don't know on that one, Chris.

It probably wouldn't be a 36%.

How's that?

I mean, it's -- I think we've got an opportunity to go after labor, I don't know if go after is the right word.

We've got opportunity to schedule a better end labor in the sense that we're growing some of our business from off-premise.

We need to make sure how that plays into our business to make sure that the dining room adjust accordingly from that side of things.

But if comp sales were to flat -- go to flat and the fact that you got the minimum wage and you still got labor pressures out there, I think it becomes a challenge to hold it closer to the 36% number that we are currently targeting right now.

And frankly, the 36% number that we're going after right now is not going to be easy either.

We've got lots of initiatives and things that we've got to put in place to get that to work.

And when people come to BJ's, as much as we're very excited and everybody talks about off-premise, 93% of our business today, and maybe at the end of next year it's 90%, but it's still the lion's share of our business is going to be done within the 4 walls of our restaurant.

And if that's going to happen and that's going to continue to happen, we've got to make sure we're taking care of our guests every single day.

So labor is critical to us.

We want to make sure to deploy it correctly and that we're taking care of our guests and that we're not in a business of cutting labor, but we're in a business of optimizing labor.

Okay.

Fair enough.

And then, Greg, you mentioned 2 days in a week that were benefiting from the Brewhouse Specials.

Is there any opportunity to change the offers on the other days to make them more compelling?

Yes.

I mean, that's something where we've been looking at, Chris, to augment there.

They're actually not -- I mean, we think of those as being 2 of the better, but the other days, so Wednesdays, the $10 burger has done well, and our rib specials on Thursday.

I mean, we drive great rib incidents, not the level of traffic incrementality as the other days but we see decent check on that day.

So they're not, not working.

They're just not working to the extent of the 2 days that come more quickly to mind, the Monday and Tuesday offer.

So we're looking at some -- and it may be regional differences.

We're still pondering some of those alternatives and begin -- we'll begin testing some of those changes.

Okay.

And then, Greg, did you say what G&A guidance was for the first quarter?

I did.

I mean, I think I said overall it's around $61 million or so.

You can probably, for lack of a better term, divide that by 4. It's probably a little bit less in the first quarter.

Does that make sense?

I'm sorry.

I'm just looking here.

Yes, $61 million is what I said for the full year, right?

Right, right.

And did you say the weather impact on comps for the 7 -- the 50 basis point impact from the weather last year, did you say that was for the 7-week period or for the entire quarter?

No, that was for the 7-week period at the time.

We'll go next to Jeffrey Bernstein with Barclays.

This is actually Jeff Priester for Jeff Bernstein.

I hate to hit this point again, but you talked about how California, Florida and Texas were all positive.

Obviously BJ's has outsized exposure to those 3 states, and all 3 of those states outperformed the rest of the country when it comes to casual dining in the fourth quarter.

So I'm just wondering if you can give us an update on how some of your newer markets are doing and how some of those unit economics are doing relative to the core.

And then they have one follow-up.

Actually, the -- from a traffic and sales perspective into Q1, that's a true statement for all of our markets.

Meaning, they all did well in regards to positive comp sales and traffic versus the industry.

Okay, great.

And then with all the macro factors you talked about with regards to the slowing unit growth, is 425 still the correct potential to think about as BJ's ultimate potential for the U.S.?

Or is that a lower number now?

Yes.

No, we felt very, very good about 425.

And I think as we talk about the 4 to 6 this year, we wanted the 18-plus months out in regards to developing real estate.

We've got a really deep pipeline, as Greg Trojan mentioned.

Our goal is to increase it for next year.

That's what we'd like to do.

But as he imagined, we're going to continue to look at the bigger picture and we see where everything goes from a trend standpoint.

But we felt 425 is a great number.

We're really happy with a lot of our new restaurants that opened really well.

We like to see the continued slowdown I think in casual dining overall because if you look at all the data out there, people are not necessarily eating out more.

The -- they're kind of eating out the same.

They're not going away, but it's just the fact that there's a lot of competition and a lot of variety for that, and as a result, we need to see a little bit of a slowdown on some of that as we continue to take market share in the industry space.

So Jeff, I think, just to summarize, it's been a long time since we've done an official analytic view of the 425.

But my guess, if we did that today with the same modeling technique, we'd end up with a bigger number, not a smaller one.

Because we have a lot more history in our concept, building in less populated, less dense trade areas than we did when that study was done.

And as a result, it was modeled that we'd be successful in more trade areas resulting in, if anything, more potential, not less.

So that's not the only thing we have to worry about sitting here at 197.

But we are as optimistic about the pipeline of unit growth as we've ever been in that regard.

And we will take our last question from Nick Setyan with Wedbush Securities.

I really wanted to just dive in on the G&A guidance for next year, Greg.

$61 million implies a pretty big jump even -- I guess, maybe you could just give us a little bit more color on the stock comp portion of it, to what extent there's some variable debt embedded in your guidance that may prove conservative?

Nick, the best way to describe it is the entire difference.

Right now, as we go into this year, is we're expecting to get incentive compensation.

That's your difference.

So when you pull that out and you just take what total G&A was for 2017, the difference between '17 and '18 is primarily incentive compensation.

We're holding G&A in what I would consider to be the controllable part of G&A flat.

It's actually down a little bit, to be perfectly honest -- it's not like I wasn't being honest before, but G&A on a controllable, take incentive compensation out, year-over-year is actually flat.

So that's just the difference there.

And that's kind of how we built the budget.

We go through the year just like we did last year, depending on how our results are going.

That number could go down.

I doubt it would go up much, because we've already got the incentive compensation built in there.

Got it.

And then just on the menu price, is that the safe assumption, mid-2s going forward in 2018?

Is that what it was in Q4, 2.5%?

Again, our mix has shifted so much over the last quarter.

These incentives -- or I should say, these initiatives have taken off that, overall, if I'm thinking about this business, if I'm trying to think about the business in a sense of a 2.5% increase in average check.

That's it for today's call.

We thank you for your participation.

You may now disconnect.

Thank you.

Thank you, everyone.