BJ's Restaurants Inc (BJRI) 2019 Q4 法說會逐字稿

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

Fourth Quarter 2019 Earnings Release Conference Call.

Today's conference is being recorded.

At this time, I'd like to turn the conference over to Greg Trojan, Chief Executive Officer.

Please go ahead, sir.

Thank you, operator, and good afternoon, everyone, and welcome to BJ's Restaurants Fiscal 2019 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; and we also have Kevin Mayer, our Chief Marketing Officer, on hand for Q&A.

After the market closed today, we released our financial results for the fourth quarter of fiscal 2019, which ended December 31, 2019, and you can view the full text of our earnings and 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 preliminary views on fiscal 2020.

After that, we'll open it up to questions.

And we expect to face the call within about an hour and then usually get to most, if not all, of everyone on the -- in the queue.

But if not, we're around later today and tomorrow.

So Rana, go ahead, please?

Thanks, Greg.

Our comments on the conference call today will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the company to be materially different from any future results, performance or achievements expressed or implied by forward-looking statements.

Investors are cautioned that forward-looking statements are not 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 20, 2020.

We undertake no obligation to publicly update or revise any forward-looking statements or to make any other forward-looking statements whether as a result of new information, future events or otherwise, unless required to do so by the securities laws.

Investors are referred to the full discussion of risks and uncertainties associated with forward-looking statements contained in the company's filings with the Securities and Exchange Commission.

Thanks, Rana.

The strength and growing awareness of BJ's brand, combined with our successful sales driving and productivity initiatives and the daily commitment to excellence from our team members, resulted in positive comparable sales this quarter, even as we were up against a strong year ago same-restaurant results.

BJ's positive fourth quarter and full year comparable restaurant sales of 0.4% and 1.1%, respectively, extended our long-term record of growing our casual dining market share while marking another period of industry outperformance.

As measured by Black Box, BJ's has exceeded industry sales and traffic in 2019 by approximately 140 basis points and 70 basis points, respectively.

Our strong 2019 performance successfully lapped 2018s' 410 basis point industry sales beat and 270 basis point premium for industry traffic.

BJ's consistent market share gains are not a 1 quarter phenomenon or even a 1- or 2-year phenomenon.

In fact, for the past 5 years, we have on average outpaced industry sales and traffic by over 100 basis points each year.

In addition to our same-restaurant outperformance, we continue to expand and diversify our geographic presence as we opened 7 very successful new restaurants in 2019, bringing our system total to 208.

We have opened 55 restaurants in the last 5 years, which account for roughly $275 million of incremental sales or about 1/4 of our 2020 sales expectations.

Over the last 5 years, we've also expanded our brand to 10 new states.

We're excited that next week will mark BJ's entry into our 29th state, Massachusetts, as we continue to build out locations in the Northeast in a manner consistent with our cluster development strategy.

While we're encouraged by our concept's ability to drive consistent growth, 2019 also brought a continuation of wage rate pressures and higher-than-anticipated food cost inflation, which impacted full year restaurant level cash flow margins by approximately 140 basis points.

The strong economic backdrop helping build sales presents a double-edged sword as we expect wage rate inflation in the mid-single digits will continue this year.

As we have communicated in the past, the most sustainable way to improve our profitability is to couple top line growth with disciplined cost controls and restaurant level execution.

Our recently relaunched catering menu, our successful expansion of our slow roast items, daily Brewhouse specials and EnLIGHTened options, the introduction of our $6 take-home entrees and the rollout of our Gold Standard Kitchen Systems, all continue to improve the guest experience and customers' affinity towards our brand and collectively support our strategies to further build market share in the casual dining industry.

To that point, our restaurant operators continued to deliver on BJ's promise of Gold Standard hospitality and food quality every shift, every day.

Our MTS stores set an all-time record in both Q4 and for all of 2019.

The ability of our teams to execute is the bedrock of all that we do, and even the most robust growth strategies will matter if we're not consistently improving our guest experience.

Our 23,000 team members put guest service and hospitality at the center of everything they do, and their dedication continues to differentiate BJ's as we further elevate our dining experience, deliver on value promise of our brand, grow our check in traffic and expand our restaurant base.

To that end, we will remain at the forefront of technology that enhance the experiences with both our guests and team members.

It's clear that concept that can navigate today's cost pressure while maintaining their value proposition and relevance will be the ones which prevail and emerge stronger in the quarters and years to come.

As we've noted previously, our concept menu variety, combined with the physical design of our restaurants, drives a wonderful diversity in guest and occasion utilization.

This affords us the opportunity to balance check growth and traffic-driving value initiatives to maintain our critical value positioning.

Finding incremental revenue opportunities where we can be aggressive on pricing and value is fundamental to this strategy.

Whether it's offering $10 take-home bottles of wine, our new $6 take-home entrees or our recently expanded family feast and another combination catering packages, we're focused on initiatives that grow sales and provide noticeable value for our guests.

This past November, we started selling our pre-prepared chilled take-home entrees, and this new revenue stream is growing steadily to an incidence level comparable to our best-selling in-restaurant items.

Given these sales are nearly 100% incremental, it gives us a chance to providing incredible value to our guests while driving margins and profitability.

Another opportunity to do just that is our work to launch BJ's new beer subscription club.

Our award-winning Beer Masters are hard at work, creating unique beers that will only be available to guests that become members of the BJ's beer club.

Our goal is to drive incremental subscription revenue, but just as importantly, more traffic into our restaurants.

We're on track to begin testing this program, which we believe will offer BJ's another clear point of differentiation in the casual dining space in late Q2 of this year.

While investing in these new revenue streams is core to both our sales building and value strategies, we continue to innovate around our in-restaurant value and traffic opportunities as well.

In January, we launched to great success our new EnLIGHTened power bowl lineup, which includes a variety of healthy, delicious meal options such as cauliflower and quinoa power bowl with salmon, and other protein options.

We believe on-trend menu items like these power bowls keep our brand current and drive additional visits from our guests, ultimately leading to an improved P&L performance.

But at the same time, we continue to expand on the check building power of our center of the plate entrée business.

Our Tri Tip menu items continue to drive impressive growth in our slow roast business.

In fact, these items, which were introduced last year, have been even more incremental to this category than we expected as we have seen prime rib, pork chops all maintained solid popularity.

We are also focused on driving greater traffic during our lunch daypart in 2020.

Generational trends and competitive intensity have challenged lunch more profoundly than other areas of the industry's dine-in business.

And as such, we're seeking to improve both value and speed from our lunch guests.

We recently began testing a new $8, $10 and $12 lunch value menu, which also includes new EnLIGHTened healthier options, along with our traditional lunch favorites.

We know from our research that convenience, speed and value are most critical for lunch guests, and we believe these new options will improve our competitiveness in all of these areas.

In addition, the continued growth of our Brewhouse Special, our loyalty program, provide important everyday value pillars for our guests.

The organic growth of these 2 programs, even without the benefit of any incremental marketing spend for them, speaks to their importance in the value equation of our concept.

On delivery, we continue to grow and enhance this incremental and profitable part of our business in Q4.

First, we implemented targeted promotions that profitably drove both new trial of BJ's delivery as well as repeat orders.

We also streamlined execution and improved service fee by directly integrating all third-party delivery ordering into our point-of-sale system, removing the need for team members to reenter orders received on third-party tablets.

Lastly, we added a new delivery partner, which has proved incremental as we have also seen the continued expansion of our delivery sales with our legacy markets.

Looking at unit growth.

The success of our new restaurants, the vast majority of which are in markets outside our core footprint, gives us great confidence in our ability to double the number of BJ's in the U.S. We plan to open 8 to 10 restaurants this year with an eye towards increasing that number into the low double digits next year.

We continue to emphasize quality of openings over quantity, but we believe our restaurant manager tool and site selection pipeline enables us to gradually increase our opening pace to a level where we're generating consistent revenue growth of 5% from our NRO pipeline.

We believe this new restaurant growth, comparable restaurant sales in the 2% to 3% range, and our ongoing food and management of our restaurant level margins, the benefit of leveraging these fixed costs in our business, will enable BJ's to achieve high single to low double-digit earnings growth.

In addition, our disciplined approach to our capital structure provides us the ability to expand while deploying cash flow from operations to buy back shares and grow our dividend, further enhancing shareholder returns.

In closing, before turning the call over to Greg, I want to thank our 23,000 team members for all they do to make BJ's a great place to work and an increasingly more attractive destination for our guests.

We appreciate their engagement and support, just as we do to support of our shareholders and other stakeholders as we continue on our journey to make BJ's the best casual dining content ever.

And with that, I'll ask Greg to take us through the detailed financial performance of the quarter and year-end.

Greg?

Thanks, Greg.

Before we get to the quarterly details, let me remind everyone that beginning with Q1 of fiscal 2019, we adopted the Accounting Standards Update 2016-02, the Topic 842 for leases.

And as you know, that requires us to put the present value of our lease payments on our balance sheet as a right-to-use asset with a corresponding lease liability.

This new lease accounting standard also requires us to make a onetime noncash cumulative adjustment to retained earnings of approximately $29 million of sale-leaseback gains that we are amortizing and operating in occupancy costs over the term of the existing leases prior to this accounting update.

Overall, the new accounting standard increased our restaurant level expenses.

And again, this is primarily an operating occupancy costs by about $2.3 million annually.

So specifically, for the fourth quarter, the new accounting standard impacted our restaurant level margins by approximately $600,000 or 20 basis points and reduced earnings per share by $0.03 for the fourth quarter.

Additionally, during the fourth quarter, we completed 2 sale-leaseback transactions for restaurants that opened in 2019.

Under the new lease accounting rules, the gain on these transactions are now recorded in the period in which the gain occurred rather than amortized over the new lease terms.

As such, during the first quarter, we recognized a pretax gain of $4.7 million for the sale leaseback of these 2 recently opened BJ's restaurants.

This gain benefited our operating margin by 160 basis points and our earnings per share by approximately $0.24 for the quarter.

A full reconciliation of the impact of the new lease accounting standards for both the quarter and full year is included in today's press release.

In regards to our fourth quarter, our total revenues increased 3.8% to $291.1 million driven by a 3% increase in operating weeks and a 0.4% increase in average weekly sales.

Our comparable restaurant sales were also up 0.4%, which is in line with our average weekly sales.

Our California comparable restaurant sales, which began to soften last July, showed improvement in Q4 but still lag behind our total comps for the quarter.

Looking below the top line.

Our cost of sales was 25.2%, which was 20 basis points lower compared to last year's fourth quarter driven primarily by menu pricing and lower produce costs, and this was offset by higher meat and dairy costs.

Labor of 36.4% for the fourth quarter rose 100 basis points from a year ago due to higher hourly average wages and an increase in the state unemployment taxes, and this was partially offset by improved labor productivity.

Hourly wage growth in Q4 continued in the mid-single digits, which is consistent with what we've experienced throughout 2019.

Operating and occupancy costs increased 50 basis points to 22.5% from last year's fourth quarter.

20 basis points of the increase was related to the new lease accounting that I reviewed earlier, and the balance was primarily related to higher facilities costs.

It included an operating and occupancy costs of $7.6 million of marketing spend, and that equates to about 2.6% of sales, and is pretty consistent with last year's fourth quarter.

Our general and administrative expenses of $15.4 million was slightly below our expectations as we reduced our restaurant support center incentive compensation.

Our tax rate in the fourth quarter was approximately 6%, which was higher than expected and driven by the income from our sale-leaseback transactions.

In terms of capital allocation, we continue to use our strong cash flow from operations to execute our expansion plan and invest in our business while opportunistically repurchasing shares and paying dividends.

We generated nearly $130 million in adjusted EBITDA in fiscal 2019.

We used the solid cash flow to continue our national expansion with the opening of 7 successful restaurants and to invest in our existing restaurants and opportunistically repurchased 2.1 million shares of our common stock for a total of $82.8 million.

We also returned $10.2 million to our shareholders for our quarterly cash dividend, which we increased by 8% in October 2019.

We ended this last fiscal year with $22.4 million of cash and $143 million of funded debt on our $250 million line of credit.

With trailing 12-month adjusted EBITDA of $129 million, our funded net leverage remains modest at approximately 0.9x.

Now before we open the call up to questions, let me spend a couple of minutes providing some commentary for fiscal 2020.

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

Our comparable restaurant sales of 7 weeks in the fiscal 2020 are up 1.7%.

California remains a little softer, though, as I noted a moment ago, trends in California continued to improve from Q3 2019.

With regard to restaurant operating weeks, I would expect approximately 2,708 weeks into Q1 and expecting fiscal 2020 cost of sales to be in the low to mid-25% range.

We've locked in about [60%] of our commodities for this current year.

However, certain items such as produce and most of our meats are on monthly contracts.

So we'll have updates on those trends as the year progresses.

Specifically for Q1, I would expect cost of sales to be in the low 25% range.

With regard to labor, we absorbed another increase to the California minimum wage as well as minimum wage pressures from other states.

Aside from the state minimum wages, we also expect wage pressures across the restaurant business for the hourly positions and managers.

Based on the latest trends, I'm anticipating another year of upward pressure on hourly and management wages in the 5% range.

For the quarter, and based on where sales are to-date, I expect labor to be in the upper 36% and to 37% range.

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

Of course, 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.

We are targeting total 2020 occupancy and operating costs to be in the mid- to upper 21% to around 22%.

Additionally, included in total occupancy and operating costs will be approximately 2% to 2.5% of marketing spend, and that is pretty consistent with the level of marketing spend for fiscal 2019.

For Q1, I would expect operating occupancy costs to be in the mid-21% range.

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

We expect total G&A to be around $70 million in 2020.

This assumes 100% support center, or as we would call, corporate incentive compensation.

In 2019, our support center incentive compensation was approximately $2 million compared to a budgeted 100% support center incentive compensation of around $6 million.

Therefore, excluding support center incentive compensation, our controllable G&A will increase to approximately $64 million or 6.7% compared to approximately $60 million last year.

Again, that is taking out incentive compensation for both 2020 and 2019, to give an apples-to-apples comparison.

As we've said many times, our goal is to leverage our controllable G&A, that is the G&A, excluding the incentive compensation as we continue our national expansion.

For this coming year, we will be slightly behind that goal for 2 main reasons.

First, beginning with this fiscal year, we have to adopt Accounting Standards Update 2018-15, which deals with accounting for implementation costs incurred in a cloud computing arrangement.

Without boring everyone with the details, the Accounting Standards Update require us to amortize the implementation costs of our new human capital management system in G&A instead of and depreciation and amortization.

So this will be a new cost this year in G&A.

Second, we will incur costs related to our beer subscription club, including personnel and other costs.

For the first quarter, I would expect G&A to be in the mid- to upper $16 million range.

First quarter preopening costs should be in the $1 million range based on 2 restaurant openings at the end of Q1, and expenses for up to 3 more restaurant openings in the first half of this year.

We expect our tax rate to be in the 6% range for fiscal 2020, excluding any significant discrete items.

This compares with our 2019 rate of around 2.2%.

I anticipate our diluted shares outstanding will be in the $19 million range.

Our CapEx for 2020 should be in the range of $85 million to $90 million, and that's for the development of 8 to 10 new restaurants, maintenance capital expenditures, other sales and productivity initiatives and the new human capital management system to support our growth.

And this is before any tenant improvement allowances or sale-leaseback proceeds we may receive.

We anticipate funding our 2020 capital expenditure plan from the balance sheet cash, cash flow from operations, our line of credit and the landlord allowances and sale-leaseback proceeds.

In closing, BJ's remains a proven growth concept that generates strong free cash flow and maintains a solid and flexible balance sheet, enabling us to continue executing on our robust long-term new restaurant growth opportunity.

As we've discussed on the call, we are consistently outperforming our peer set and taking market share and are strategically positioned within the industry to continue to take share.

As we start 2020, we remain confident that our initiatives to drive sales, productivity and efficiency, combined with our balanced approach to new restaurant growth and disciplined management of our capital structure, continues to be a proven formula for extraordinary levels of guest satisfaction, sustained long-term financial growth and the appreciation of shareholder value.

That concludes our formal remarks.

Operator, please open the call up for questions.

(Operator Instructions) We'll take our first question from Mary Hodge [Mary Hodes] with Baird.

I just had a couple of questions on the comps outlook.

I think -- first, I think you mentioned last quarter that it would take roughly a 3% comp to hold the margin structure flat in 2020.

So I guess, first of all, has that relationship changed?

And then second, what would be your degree of confidence in getting to that level based on your planned average check and the initiatives that you have in the pipeline?

Mary, it's Greg Levin.

I don't think anything has changed that much.

I'd probably say to kind of hold margins, it's probably more in the 2.5% range maybe versus 3%.

I think it's -- I think the algorithm is somewhat straightforward in the business.

And that is, if we can manage commodity costs in kind of the 1% to 1.5% range, as I mentioned, we still expect our labor to be in the 5% range, and then I think we have the ability to continue to manage the operating occupancy costs, especially this year because we're not going to be going over the new accounting update.

So you start to look at that, it means we will leverage cost of sales, you've probably given back on labor, and then you're going to be able to manage operating occupancy costs to get the margins somewhat flattish, we think, are around that 2.5% or so.

I think we've got a really good set of initiatives at BJ's, varied line of things that allow us to grow comp sales.

And I think as Greg mentioned on the call, and I don't want to sort of speak from right here, but I do think the items like our $6 to-go entree, the value lunch items are testing well.

So I think we're lined up well to go after that 2.5% comp sales.

Great.

And then just as a quick follow-up, what level of average check are you planning for the business for 2020?

Well, I think as we look at our business and you think about things like the $6 to-go items, we look at where catering is and continue to grow some of the slow roast items as well as what the power bowls are doing for us.

We would like to see average check, frankly, in that 2.5% or greater level.

Things like the $6 to-go entrees, those are incremental to growing that average check in our business.

And same thing with catering, which we're seeing some great success at.

So I think ideally, we'd like to be above that number.

But again, we'd like to do it by mixing properly in our business, making sure we maintain that value portion around things like the lunch, the $8, $10, $12 and our daily Brewhouse Special as well.

We'll take our next question from Jeffrey Bernstein with Barclays.

This is actually Jeff Priester on for Jeff Bernstein.

Just on the unit growth, just one clarification.

Are you planning any additional closures this year in that 8 to 10, somewhere in the fourth quarter?

And then as we look forward and you aim to get to low double-digit unit growth number, how do you think about the distinction between new markets and existing markets?

And also in terms of the footprint of the unit, whether you're going to try a smaller or bigger units on some of these markets.

I can take a stab at those, Jeff.

First of all, we're not planning any closures in the year.

Our closure last year is one of our small original, we call our beach and college restaurants on the Balboa Peninsula as our lease expired there.

But we've been very fortunate as a concept not to experience any closures at all.

So that's the answer to that.

In terms of where the growth will be generated from, and from a market perspective, we'll continue to open the lion's share outside of our traditional core larger markets of California, Texas and Florida.

As we said before, there are a few opportunities, and we will open restaurants in those markets, but the lion's share will be leveraging the base that we've built in the Midwest corridor, in the Northeast where we've been opening with great, great success.

Great.

And then just on delivery, you guys mentioned previously that the productivity and economics of the promotional and delivery offers just hasn't kept up with the environment.

Some of your restaurant peers have mentioned that the delivery market may be plateauing a little bit.

I was just wondering if you've seen anything in terms of a slowdown in the growth of the promotional environment there.

Yes.

Thank you for asking that.

The -- we've pointed out, it's still growing, and we're still -- think that we have a lot of opportunity in both delivery and take out, but the rate of growth has slowed considerably.

And we have consciously dialed back on our level of promotions in that space.

And the depth of promotions, as we've seen the level of competition and a number of players in third-party delivery, just the incrementality of spending those promotional dollars just makes less sense than they did before.

So look, we still think it's a robust growth area.

As I've said often, consumers are voting and continuing to purchase from that distribution channel, for sure.

And we still think it's highly incremental.

But I think it's fair to -- what you said is that growth is plateauing for all those reasons.

We'll take our next question from Matt DiFrisco with Guggenheim Securities.

Just a couple of bookkeeping questions here.

First, did you guys disclose how much off-premise sales were or delivery within that?

We do not.

It's still -- I should say it's still -- it's about 10%, Matt.

It's up year-over-year.

Pretty evenly split between takeout and delivery.

We did mention -- I don't think I mentioned specifically here, but we've added a couple more delivery companies on board now that we can [seemly bring] in through our point-of-sale system, which is allowing us to continue to grow that channel or one of the reasons for growing that channel.

So you're inferring a 5% delivery, 5% pickup?

That's correct.

Okay.

And then also, I guess, if you were to look at the growth in the new markets and sort of your approach to advertising, I know you said it's sort of in that 2% to 2.5% as far as overall marketing, but is there -- are you getting to a tipping point in any markets, perhaps maybe some markets in Texas or some markets in Florida, that you could maybe use some more traditional advertising that maybe could drive a little bit more brand awareness?

Yes.

Jeff, I think it's -- Matt, sorry.

It was the -- it's more of a function around the mode of advertising and media flexibility, the world of cord-cutting that we're, this year, going to continue some spending, and Kevin can talk a little bit more about it without getting into too much competitive detail here.

But we do think there's an opportunity to advertise in markets in a more affordable targeted way that wasn't available even a year or 2 ago.

And our test and control around those programs has been promising.

So the short answer is yes.

That's so much that because we increased scale in that many markets to a significant degree, but a combination of having enough restaurants and being able to target, I think, affords us a real opportunity to get to some of these markets sooner than the traditional model of cable -- national cable buys, et cetera.

Does that make sense?

Yes.

And then I just wanted to have a follow up on the comp.

You said that California is getting stronger, but it's lagging the overall national average.

Is that more so the national comp is seeing a lift from just the weather benefit, a less -- a more mild winter in the Midwest and the Northeast rather than sort of -- the delta is not being experienced as much maybe in California?

And then, Greg Levin, I just want to also better understand the anatomy of the quarter-to-date comp trend versus what you did for the full quarter.

So if my math is right, it looks like you have a harder compare coming up in the back half of 1Q versus what you've already left in the first 7 weeks.

Yes.

First off, Matt, your math is correct.

And that would be the comps start to move up a little bit from that standpoint over the quarter versus a year ago.

And to your first comment, I do believe there's some truth to that.

When we look at it on an absolute basis, though, California's delta is improving year-over-year.

But there's definitely when I think BJ's specifically, being a more California-centric company, we don't get quite the benefit of rolling over the polar vortex and some of the other things from a year ago.

I would add -- echo that it is a general trend that we've talked about the last couple of quarters here from last year.

California, which is typically more of a help than not, has been lagging other markets weather aside.

If we had the rains of last year in California still be benefiting quite as much as the weather elsewhere.

But in general, taking away the weeks of weather.

Although we're happy to see it improving, but California is still lagging.

Pretty consistent positive outperformance in all the other markets.

We'll take our next question from Chris O'Cull with Stifel.

Just a follow up on that last line of questions.

Can you tell how your system is performing relative to the peers in your footprint?

I know you guys have stressed the importance of outperformance in terms of comps.

And are you seeing that relative performance in the footprint that you -- where you operate?

Chris, this is Greg Levin.

Yes.

We break down our restaurants, obviously, by state and geography and can compare it against Black Box by state and geography.

And in general, we are outperforming in just about every other market out there, except for California.

And when we look at California, we've said this before, it's specific to a couple of areas.

Primarily, Bay Area tend to have big restaurants up there.

And when they're down a little bit, they can wait heavier on other restaurants within California.

And they tend to be maybe a little bit more mall centric in that Northern California area.

As you know, we don't have a lot of in-line restaurants.

In total, we only have about 20 in-line restaurants.

We just happen to have a majority of that 20 more in the California market and I think a little bit more in the Bay Area.

Okay.

That's helpful.

And then, Greg, how many stores would the company be testing the new beer subscription program?

And in what metrics are you evaluating during that test?

In 2020, we're talking about California as the test market for a number of probably obvious reasons, brewing capacity, brand, et cetera, high among them, Chris.

And look, it's -- really, what we're looking for the program to do is: a, the metric of success if we want people to be engaged and sign up, obviously.

But really, the end goal here is to activate them in a way that generates more traffic in the restaurant.

I mean we're -- we think there's a great opportunity to have a subscription revenue stream here, but we are thinking of this as a ability to access very unique award-winning caliber beers as being a part of the club, but there will also be in-restaurant benefits that drive folks, not just to pick up the beer when it's available, but also drive traffic in between release dates, if that makes sense to you.

No.

That's good.

And then just lastly, it looks like the new unit volumes have been improving in the past few quarters.

And if that's the case, what are you guys doing differently, do you think, to cause the improvement?

I don't know if we have a complete answer for you from that standpoint.

I mean we take a lot of time diligently to make sure that we select what we consider to be the right spots for BJ's.

We've said a couple of times in the past couple of years that we really like going into some of these more secondary markets.

And probably, as I think about this, Chris, and we talk about it, it is a little bit of in-selling in those markets.

So you start to build a little bit of that brand awareness.

So as we -- at our second and third and fourth restaurants in the Michigan, we start to build up that brand awareness, same thing with Ohio.

As much as North Attleboro next week, our first one in Massachusetts, we're slowly starting to build that brand recognition into the Northeast with our restaurants in Connecticut and Rhode Island.

It's only 20 minutes from work.

Chris, I think one of the common denominators is we are opening, in many of these cases, in trade areas where the overall competitive intensity isn't quite the same as what it is in the core of the traditional Texas or California or some other markets.

Even though they bring high population densities, the Northeast is a good example, just the difficulty of development in the Northeast, just, again, using that as an example, you don't see the same level of seat density in our price point that you see elsewhere in some other trade areas.

And I think that's one of the biggest things that we're benefiting from.

We'll take our next question from Joshua Long, Piper Sandler.

Want to see we might be able to dive into the average check, price mix components of the quarter.

And then as we think about trends both in the quarter and then the year-to-date in the first part of the year, the geographic commentary was helpful.

Curious what you've been seeing on either a weekday, weekend or alternatively by daypart as well, noting that you got some initiatives around the lunch daypart.

Don't think we've seen any major changes from a daypart perspective than we've talked about.

I mean we talked in the remarks about lunch being generally more challenged for the industry, and that's true for us as well and why we're focused around this value speed and healthier alternatives at lunch.

So I don't think there's -- we haven't seen any shift or new news from the general daypart analysis, if you will.

We are seeing some nice check growth as a result of -- and I'd say we're -- in the past couple of years, we've seen average check below where we're pricing.

Right now, we're seeing a bit more mix benefit and overall check benefit from a few of the initiatives we've been working on.

And slow roast and Tri Tip and the entree popularity is probably an obvious one.

We're very pleased, even though it's still early on, but it's having a material impact, is our $6 entree take-home meals are very incremental to check and helping us build check through the great value we're offering on those to-go items.

So that with off-premise is all combining to provide some good check growth as we head into the new year.

Great.

And then thinking about the 8 to 10 units this year and then looking to extend that up a bit in the out years, can you talk a bit about your manager pipeline?

You alluded to that in some of your prepared comments, but curious on what you've -- what you're doing, what you've done about strengthening that and really preparing the brand for that disciplined growth that you talked about focusing on quality, not just quantity.

Yes.

That's a great question, [Matt].

We've often said in the past, the biggest determinant of how fast we can go is that bench strength.

And I just, without tooting our own horn too much here, is we've proven through the years to know how to open restaurants well and still operate solid restaurants.

And we've opened as many as 17 restaurants and done that pretty successfully in the past.

So we have a very, very disciplined training and NRO team and approach, and most importantly, a lot of experience within the BJ's concept that have been doing it for a long, long time.

So we just feel good about the training.

We've been at a slower growth mode for a couple of years now.

So that gives us an ability to restock that training pipeline and feel good about the bench strength, and that'll enable us to open successful restaurants.

Yes.

The other side of that, Josh, is we went through our Gold Standard Kitchen Systems this last year, which focused on as the main sound or says, on the kitchen side of things, that also take into account our EKMs, our executive kitchen management, kitchen manager duties, to make things a little bit easier for them to allow us to continue to bring in, not only the talent, but to get them acclimated to BJ's in a way that allows us to grow.

So we feel good about our manager pipeline.

We spend a lot of time on it.

Frankly, we have a call on it every week going through that pipeline and making sure that it's primed and ready to go as we continue our national expansion.

We'll take our next question from Sharon Zackfia with William Blair.

I may have missed this, but did you give traffic and ticket for the quarter?

I don't know if we gave or not.

So we look at it for the quarter, it's -- we were down about 4% in traffic, and our ticket was up whatever that difference is -- say, in the 5% range or so.

When we look at the numbers through the quarter -- and we mentioned this on the end of the Q3 call, we flipped our $3 Pizookie month from October last year in 2018 to September in 2019.

So as we look through the quarter, we had a pretty big average check gain in P 10 as we went up against $3 Pizookie from 2018.

And then our traffic came down in both, what I would call, November and December to where our traffic was in the negative 3% range, and then it's been improving here even in Q1 or so.

So as we think about it, it all lined up, but basically traffic down in the 4% range or so.

Ticket up in the 5% range, but it really got skewed a lot more by October.

Okay.

That's helpful.

And then I haven't heard you guys talk about rewards for a while, and I don't know kind of where you stand on that in the program or how the pickup has been there.

And also, if there's any opportunity or if you're thinking about tying in rewards with the beer club, that would be interesting to get any insight into.

And I guess, lastly, on your labor outlook after this year.

I mean is there any line of sight towards any kind of moderation on that hourly labor inflation?

I'll take the loyalty part of that question, Sharon.

And yes, I briefly touched on it as calling it one of our value pillars along with Brewhouse Special.

So thanks for asking the question because it really has continued since the relaunch, which is over 2 years ago now, we just see nice momentum around the growth in sales from -- and both members, but more importantly, growth in transactions, even proportionately from our loyalty program.

So we're very pleased with that.

It really is a big part of us balancing this whole check growth and maintaining value equation, a really important part of that.

So we're happy to see that momentum continue.

And we will use the infrastructure, sign up and points tracking, et cetera, communication infrastructure of our loyalty program to implement the beer subscription program.

And we'll also make it easy for beer subscription members to track where they are in the elements of their subscription through one app and a seamless experience between the 2 programs and from a rewards perspective.

So I think of it more as a super add-on to loyalty in terms of guest experience.

And then the question on labor inflation after we get through this next round in California?

We've said this before, and I still believe this.

When we look at the data and analyze the data, minimum wage is only 50% of the wage inflation that we're seeing out there.

Most of our kitchen is above, I should say, no -- well, I guess, most of our kitchen is above minimum wage from that perspective.

They're still seeing the same type of pressures that we see in the dining realm.

So when I look at it, I play it a little bit to the employment rate being sub 4%.

And as a result, I still think we've got at least another year of wage increases.

I do think it'll moderate over time, but I still kind of see 2021 being another year outside of 2020 that we'll probably see labor inflation.

(Operator Instructions) Our last question will be from Todd Brooks with CL King & Associates.

A couple of fronts.

One, we just went through a holiday period in Q4.

Can you talk to any sort of metrics or success around the recently relaunched catering efforts and what you saw across the holiday period?

Yes.

A couple of things here.

In big picture, basically losing the 1 week in between Thanksgiving and Christmas, I think, did impact our business.

We saw -- I think as we look at December, we saw it kind of kick in a little bit later in regards to the holiday parties.

We were up big on our gift cards, I want to say in the teens year-over-year, which did roll off or something it's kind of helping a little bit with the comp sales in Q1 because most of those gift cards and related rewards for them or other incentives get redeemed usually in the first 60 days or so in the next quarter.

Our catering actually has been doing really well.

I don't have the numbers in front of me, but I'm actually not only impressive of what we did in catering in Q4, but in Q1, the catering number continues to do really well for us.

We've seen some just great catering increases in sales, frankly, just about every day from our new packages.

And then I think, Todd, we talked about this a lot at BJ's because we don't have the marketing might that you might see in some of the larger cap restaurant companies.

A lot of our initiatives take time to grow.

We've even seen the $6 entree that started in November.

They're actually probably at an all-time -- I shouldn't say probably -- I know they are, at an all-time high incident here in the January and into the February time frame.

And our catering, actually, as I just mentioned, continues to grow into P1 or January and February at numbers above a year ago.

So I like where we are from those initiatives.

I would also say, and I have mentioned this before, that the New Year's Day flip -- flip-flop did kind of impact comp sales in Q4 probably by about 20 basis points.

It's probably helping in Q1 by about 20 basis points because January 1 is a big day, and getting that in Q1 kind of helps us a little bit in Q1, hurts us a little bit in Q4.

Okay.

And then just 2 quick follow-ups.

One, when you talked about 5% ticket in Q4, is catering -- was there enough activity that a chunk of that lift in ticket was catering related?

And can that be measured?

And then the other follow-up is just around the openings as we're a little further into the year now.

Do you have a cadence for kind of the schedule of openings throughout 2020?

Yes.

Let me take on the first one.

On catering, it's still a small number, so it didn't have much of an impact on average check.

Our average check, as I mentioned, was really impacted in October with the flip of the $3 Pizookie month.

I think as a move after that, the average check kind of came back down into kind of the 3% range or so, maybe a little bit higher.

And I think that's, as we mentioned, kind of $6 entree from that standpoint.

And frankly, even though we didn't mention it in detail on this call, the slow roast with the Tri Tip has been really beneficial for us and continues to help mixing positively in our business.

So that's really, I think, in the fourth quarter, not so much on the catering just because it's such a smaller amount of our sales.

In regards to the cadence of new restaurant opening, right now, it looks like we've got the one restaurant opening in Q1, which will be in North Attleboro out there in Massachusetts.

It's looking like 3 restaurants will open in Q2, and then somewhere in the neighborhood, probably 2 to 3 in Q3 -- probably 2 in Q3.

And the rest will come in Q4.

Ladies and gentlemen, this does conclude today's question-and-answer and conference call.

We appreciate your participation.

You may now disconnect.

Thank you, everyone.

Thank you, everyone.