This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk07: Good day and welcome to the BJ's Restaurants Incorporated Fourth Quarter 2020 Earnings Release and Conference Call. Today's conference is being recorded, and at this time I would like to turn the conference over to Greg Trojan, Chief Executive Officer. Please go ahead, sir.
spk03: Thank you, Operator, and good afternoon, everybody, and welcome to BJ's Restaurants Fiscal 2020 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 Lins, our Chief Development Officer, and Kevin Mayer, our Chief Marketing Officer, on hand for Q&A. After the market closed today, we released our financial results for the fourth quarter of fiscal 2020, which ended on Tuesday, December 29, 2020. You can view the full text of our earnings release on our website at www.bjsrestaurants.com. Our agenda today will start with Ronna Shermer, 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 some commentary on the quarter and the current environment. After that, we'll open it up to questions. So, Ronna, go ahead.
spk05: Thanks, Greg. Our comments on the conference call today will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results, performance, or achievements of the company to be materially different from any future results, performance, or achievements expressed or implied by forward-looking statements. Investors are cautioned that forward-looking statements are not guaranteed for future performance and that undue reliance cannot be placed on such statements. Our forward-looking statements speak only as of today's date, February 11, 2021. 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 security clause. Investors are referred to the full discussion of risks and uncertainties associated with forward-looking statements and filings of risk through the Exchange Commission.
spk03: Thanks, Rana. And good afternoon, everyone, again. Given the broad increase in the dining restrictions that occurred in November and December, I'm very pleased with our team's accomplishments during the quarter. As we reported in last month's business update, the quarter began strongly in October, with weekly sales per restaurant averaging over $83,000, despite dining rooms in only 28 of our 62 California restaurants being open for the full month and significant dining room capacity limitations across our system. Beginning in November, as you know, numerous states rolled back dine-in reopenings, and California in early December closed all outdoor patio seating. which limited our sales in the state to delivery and takeout only. As such, sales in November and December dropped from October's 83,000 weekly average to 78,000 in November and 60,000 per week in December. In the face of these challenges, our team once again demonstrated their ability to maximize sales and tightly control our operating expenses, allowing us to generate positive EBITDA for the quarter. In 2021, we have returned to growing our top line, and the momentum has continued to build each week. Gradually easing of restrictions, first outside of California, followed by the opening of outdoor dining again in California at the end of January, along with government stimulus payments and the continued implementation of our sales initiatives, helped us increase our average weekly sales to $66,000 in January, and to more than $74,000 this past week. Although we are prepared for the pandemic recovery to continue to be uneven, we are optimistic that ongoing vaccination efforts and improved treatment protocols will continue to have a positive impact on sales. Our ability to take advantage of improvements in the sales environment will benefit from running the plays we have learned over the past year to maximize dine-in capacity through both indoor and outdoor seating. And in addition, we continue to double down our efforts to maintain and grow our off-premise business. Our ability to prioritize the near term while not neglecting the longer-term opportunities for our concept will pay dividends in the years ahead. Our first priority throughout all of this, though, has been to confront the daily challenges of operating our restaurants in this environment. The number of obstacles has been great, but the pace of change related to the operating restrictions, supply chain disruptions, PPE regulations, et cetera, has been truly unprecedented. And as we've navigated these challenges, we've also been very conscious to take advantage of the circumstances to improve our business for the long term. There's a great opportunity for us to build stronger relationships with our guests. And as we work harder than ever to serve them in more ways than ever, Our steadfast commitment to operating as safely as possible and not bending or breaking the rules, like many operators have chosen to do, we believe is building further confidence and trust in our brand. Building new muscles as an organization in virtually every functional aspect of our operations has been and continues to be our mindset. Key to operationalizing these improvements, however, is ensuring that we have a strong, flexible balance sheet to make the prudent investments that will enable us to be opportunistic in the months and quarters ahead. We adopted this mindset at the outset of the pandemic, which led us to execute an equity offering last May to raise $70 million. We recently raised an additional $30 million through an add-on at-the-market equity offering And along with our previous extension and recent negotiation of our credit agreement, we're in a strong position to invest in the right growth initiatives while ramping up our new restaurant opening pace when the time is right. As a result, we've already made investments in high-design quality partitions within our restaurants, experiential outdoor tents, heaters, and audiovisual upgrades, which are important head starts as we see restrictions easing and spring weather approaching. We have also made important physical improvements to our restaurants to better execute off-premise demand, such as kitchen system technology to improve order visibility and pacing, enabling our kitchens to sync both in-restaurant and off-premise demand with our restaurant capacity. Front-end order and pickup technology to drive convenience and order accuracy is also helping provide a better friction-reducing experience for our guests. We've been averaging approximately $28,000 per week in off-premise sales in the recent weeks, which is maintaining at more than double our pre-COVID levels, and we remain committed to growing this from its base. We're also pleased to see our guests increasingly engaging with our brand digitally. More than 25% of our diamond checks are now paid digitally via mobile pay, and over 80% of our off-premise orders are placed through digital channels. Additionally, more than 80% of curbside orders are now using our easy digital check-in functionality to alert us that the guest has arrived. Our innovations that increase convenience and reduce friction will surely remain popular with our guests well after the pandemic has passed. In the fourth quarter, we also made good strides on several of our longer-term sales building initiatives. First, our beer club membership program continued to show promise. Members were engaged with the program, enjoying both the special beer releases and taking advantage of the program's benefits. and they increase their visits to BJ's. We're very excited to build closer connections with our guests that love our beer and to further promote our world-class, award-winning brewing skills and creativity. Our pipeline includes some of the best beer from our R&D brewing team, including our Bourbon Barrel Chocolate Stout and our Coffee Blonde, which was awarded a bronze medal at the most recent Great American Beer Festival. We plan to launch our beer club in most of our California restaurants in the next couple of months and are evaluating the expansion into other states later this year. Next, we began testing our virtual brand called Slow Roast in the fourth quarter and expanded the test to 13 restaurants last month. This is a delivery-only concept with a focus menu featuring our Slow Roast and other protein-centric products. Sales continued to build week over week, and our guest ratings were averaging 4.8 out of 5 stars. We will continue to closely monitor this test to ensure we are building incremental sales and profit while maintaining our kitchen efficiency, but early results are promising. Finally, we continue to believe there is significant growth potential in our catering business. We added individually boxed meals to our catering menu in September and have seen impressive demand, including some very large orders from companies leading the fight against COVID. We're extraordinarily proud of this business for its small role in helping the frontline workers battle the pandemic. Our strong balance sheet also enables us to accelerate new restaurant growth. We remain committed to limiting our 2021 growth to opening the two restaurants located in Merrillville, Indiana, and Lansing, Michigan, which were already under construction at the outset of the pandemic. But we continue to believe it will take more time for the real estate landscape to reset in any meaningful way. But when it does, we are confident it will open up attractive new locations for our concepts. While our real estate team is hard at work assembling a robust pipeline for 2022 and beyond, we are being cautious about committing to new leases until there is more clarity in regard to a more predictable dine-in environment. When we do commence committing to new leases, we expect to build in flexibility regarding pandemic-related delays in regard to opening date commitments, rent commitment, etc., That said, we look forward to resuming an accelerated new restaurant opening cadence toward addressing and realizing the geographic potential of our concept. In summary, the point is clear. We're not standing still and playing defense only. We're spending time and making investments to improve our concept differentiation and competitive advantages as we emerge from this pandemic. Before I turn the call over to Greg, I wanted to take a moment to thank our team members for their ongoing commitment to serving our guests with gold standard service. I could not be prouder of their efforts. The pandemic has presented new challenges to all of us, and our teams have successfully navigated all of them. Our recent performance and future growth would not be possible without our dedicated team members that strive to deliver a great experience to every guest while supporting our business principles and goals. So now I'll turn it over to Greg to provide some commentary on our financial results.
spk01: All right, thanks, Greg. As detailed in our business update on January 21st, sales continue to be largely dictated by capacity restrictions. Therefore, my commentary on both Q4 and Q1 to date reflects where we are with the ever-changing national, state, and local restrictions and regulations regarding the dining room limitations. Please remember this commentary is subject to the risks and uncertainties associated with forward-looking statements as discussed in our filings with the Securities and Exchange Commission. As Greg Trojan mentioned, October started strong for BJ's with 88% of our dining rooms open and comparable restaurant sales rebounding to down just 20.6%. However, beginning in November, numerous states rolled back their dine-in reopenings. Then in December, California, where 62 of our 209 restaurants are located, closed all dining rooms and outdoor patio seating, limiting our sales and estate to only delivery and takeout. As such, comp sales in November and December decreased to negative 27% and negative 35.3% respectively, and we finished the quarter with comparable restaurant sales down 32.3%. Our total revenues for Q4 were $197 million, and we recorded a net loss of $18.1 million in the real net loss per share of $0.81 on a GAAP basis. Our fourth quarter results include a net charge of about $200,000 for a gain related to the sale in the back of our Orange Village, which is in Ohio, and that was offset by an impairment charge for one of our restaurants in the Seattle area. While the Q4 results reflect the November and December results in dining capacity, our dedicated team members protected and served our guests while managing the negative leverage in our business, allowing us to generate positive adjusted EBITDA of $2.4 million for the quarter. Given the number of dining rooms and paddlers that were shut down, the need to discard food because capacity was significantly reduced, and the constant and ongoing labor adjustments we made to address the changing rules and regulations, this is a meaningful accomplishment by the industry's best restaurant and field operations management team. In regards to our operating results, the resumption of dining room restrictions during the quarter impacted several metrics. Cost of sales came in at 25.8% for the quarter, a 60 basis point increase over the prior year, driven primarily by increases in cheese and meat costs. On a quarterly sequential basis, Q4 cost of sales were 120 basis points higher than Q3, which is primarily due to higher meat costs. The higher heat cost is related to both higher seasonal inflation and our conscious decision to promote and discount our prime rib specials throughout the holiday period to move what could have resulted in significant excess inventory of our fresh prime rib as a result of California deciding to shut down all on-premise and patio dining in late November. Our culinary team came up with creative Cane Cone Family prime rib bundles for the holidays that, along with our other prime rib promotions, helped us sell approximately one million of prime rib products in the last two weeks of December alone. The demand for our prime rib items by our guests rebalanced our inventory and, as such, we did not have to discard any excess inventory. Labor came in at 38.4%, which was 200 basis points higher than the prior year. From a year-over-year perspective, we continue to leverage hourly labor by driving sales in the off-premise channel while benefiting from our smaller menu. We're saving for offset by deleveraging from the lower sales volumes of fixed manager labor, benefits, and restaurant-level equity compensation. Operating in occupancy costs for 29.1% for the quarter, inclusive of 1.6% of sales for marketing. Operating and occupancy costs average about $21,100 per restaurant operating week, and that represents a decrease of about 13% compared to last year. Inclusion operating occupancy costs was over $1.4 million of operating expense for temporary paviers and approximately $150,000 for personal protective equipment, including supplies to ensure the safety of our team members and guests. Our temporary pad loads generated over $15 million in revenues for the quarter, making the $1.3 million incremental expense a very high ROI. G&A for the quarter came in at $13.3 million. On a trend basis, G&A was down approximately $2 million compared to the prior quarter, and that's primarily due to the reversal of incentive compensation in the first quarter. Turning to the balance sheet, during the quarter we paid down an additional $10 million of debt. As a result, we finished the year with approximately $54 million of cash on our balance sheet and funded debt of approximately $117 million. Even though we have been generating positive cash flow, paying down debt, and have a solid financial position, we felt it proven to raise an additional $30 million of equity capital last month. As Greg said, with vaccinations underway and as we look to the future, BJ's has the capital necessary to more aggressively pursue both new restaurant expansion and further invest in our sales-driving initiatives. Now, shifting to today, as I said at the beginning of my prepared remarks, our sales continue to be governed by the varying capacity limitations imposed by local and state regulators. We started January with all of our California restaurants limited to takeout or delivery only and also had dining rooms shut down in our restaurants in the Pacific Northwest, Michigan, and a few other states and locations. As such, we had approximately 64% of our dining rooms open in January and finished January with our weekly sales average of approximately 66,400 per restaurant week. In February to date, California dining rooms remained closed while Padres have reopened. Restrictions have also eased in Michigan, Washington, and Maryland. As such, our weekly sales average for the first two weeks of February has increased to around $74,000 per week. At our current weekly sales level of approximately $74,000 per week, we expect to be a modest use of cash of less than $500,000 a week. which is inclusive of restaurant-level manager bonuses, full rent, interest expense, and also full maintenance capex and some other investments in our business to drive sales. As we think about this year, it is very difficult to provide sales ranges due to the ever-changing capacity restrictions, curfews, and other regulations we face. At present, capacity restrictions are loosening, which will lead to higher sales. Like everyone, we are hopeful that increasing vaccinations should allow us to get back to 100% capacity sometime in the second half of this year and receive the opportunity for sales more fully recovering given our differentiation and value, as well as the broad health and safety measures we've implemented across our platform. With regard to the middle of the P&O, right now we anticipate commodity inflation between 1% and 2%. with cost of sales in the mid-25% range. However, the level of open dining rooms may result in different promotions or menu mix, and that could drive cost of sales somewhat higher or lower. We are targeting GMA of approximately $67 million for 2021, which includes more than $6 million for incentive compensation compared to less than $500,000 in books in 2020 due to the impact of COVID-19. The G&A budget also includes $7.8 million related to equity compensation compared to $7 million in 2020. Therefore, if you look at what I would call controllable G&A, or G&A excluding incentive and equity compensation, we expect G&A to increase by approximately $6 million from 2020. However, I think the right way to look at this would be to compare it to 2009, which takes into consideration more normalized operations. As such, compared to fiscal 2019, our controllable G&A would increase by approximately $500,000 or less. At the current time, we expect to open two restaurants in 2021, as Greg noted, one in Maribel, Indiana, in early May, and the other in Lansing, Michigan, in early June. We also anticipate reopening our Richmond, Virginia restaurant sometime during 2021, which has been temporarily closed. However, our goal is to open seven to ten restaurants in 2022 by taking advantage of some of the real estate opportunities to come to drive high ROI expansion. Therefore, our 2021 capital plan will include CapEx dollars for 2022 for restaurants that will open in fiscal 2022. Overall, I would expect our fiscal 2021 CapEx plans to be between $35 million and $50 million, depending on when we start construction for restaurants we plan to open in fiscal 2022. It is important to note that 2021 CapEx will also support our sales driving initiatives, including the beer club, catering, and off-premise. As in the past, we continue to have the flexibility to pull back on these cash expenditures based on the operating environment, as many of these efforts are discretionary and variable. As we reflect on 2020, we couldn't be more proud of the resiliency and determination of our team members. Though we endured unprecedented challenges to our business, they successfully created and implemented enhanced safety protocols for our team members and guests. We imagined our in-restaurant patio delivery and takeout functions modified our menus, engaged guests with unique marketing and loyalty offerings, and leveraged our technology investments to bring the best, easiest experience possible to our loyal guests. Our teams are battle-proven and have always been the core of our success and long-term growth. Throughout the pandemic, our customers have remained very loyal and attracted to the great food, drinks, service, hospitality, and fun times of family, friends, and coworkers teammates, and others that BGA delivers. Whenever we had reopenings or expanded capacity, guests responded enthusiastically with strong volumes, traffic, and check. So despite the challenges, we continue to execute on our long-term strategy by reevaluating and reimagining our operational protocols and menu offerings while building on our technology investments to position the company for its next significant growth phase. Trends in February are encouraging, and we believe the rollout of vaccinations will lead to loosened capacity restrictions and encourage even more guests to return to our restaurants over the coming quarter. Given the service enhancements and operational changes we have implemented, we stand to achieve meaningful growth as our volumes continue to approach previous levels. As such, we are highly confident that once the post-COVID normalization materializes, we will realize a sustained margin uplift and resume a more aggressive expansion phase complemented by a range of sales-ready initiatives. With that, I will go ahead and open it up for questions, operators.
spk07: Thank you. We'll now begin the question-and-answer session. We'll go to David Tarantino of Baird.
spk02: Hi. Good afternoon. I have two questions, first for Greg Levin. Greg, I'm wondering if you could give us a little bit of help in thinking about restaurant margin and how that might progress as the volumes rebuild. And specifically, as you get back to 100% capacity and the sales level you'd expect at that level, where would you expect restaurant margin to be in that scenario, given all the changes that have occurred since the start of the pandemic?
spk01: Yeah. David, I think we've got an opportunity as sales start to recover to get back to margins that we saw really much more in 2018 and so forth. From that standpoint, that gets us back into 18-plus percent. I think there's a good opportunity for that. It's not better. You continue to drive off-time sales, which have shown to be very profitable because of the labor benefit they are not having to put a server against that part of your sales, so you really leverage the kitchen. I think the investments we've made in digital have proven to be really good for us and for our guests, and that will save in regards to expenses around menu printing, other points of purchase materials. And then I think our cost of sales will continue to bounce around a little bit, but as we have less items out there, we get more efficient and we'll see some opportunity in that. And then we talked all along about just hourly labor, the fact that we continue to see less hourly labor being used in the back of the house, in our kitchen, just because of less menu items. I think all those give us a really good opportunity to drive margins to where they were previously, if not better, as sales continue to recover.
spk02: Great. And on that, Greg, would that assume average weekly sales back at that? I guess, 107, 110 type of range that you were in at that time, or would you be able to accomplish that margin profile on a lower sales volume?
spk01: I don't know if I know the answer to that quite yet, Dave. As we start to ramp up to see some nice leverage come through our business, I think we have the ability to actually get back to historical margins at maybe a lower weekly sales average. That's kind of based on the fact that, again, less menu items. We continue to drive the way to take out part of our business and that's a very highly leverageable part of our business. Certainly there's an opportunity to get there at a lower sales volume per se, You know, we really, to be perfectly honest, haven't gone through and tried to model out what the sale volume is going to look like in 2022 post-COVID as much as we continue to think about the things right in front of us right now in regards to the daily, you know, tackling and blocking, so to speak.
spk03: The only thing I'd add is, you know, as we're thinking about this margin opportunity is really in the context of, establishing weekly sales averages that are more than our historical levels because we continue to firmly believe the dine-in business is going to come back like this and and i think we will see pent-up demand and passion around you know dining with friends and family like we've never seen before for you know for some time um and then you know the reason we're so focused on keeping and growing this off-premise businesses, that becomes incremental to those historical sales averages. So, you know, we say this all the time, but the easiest way for us to drive higher percentage margins is to leverage a bigger number on the top line for the fixed cost elements of our business. So, you know, I do think Greg, you know, is accurate in saying given all the mix and advantages, it's – we see an opportunity to have margins return at maybe lower volumes or set differently a little higher margin at the same sales levels. But what we're really – the eye on the prize here is let's establish new levels of sales, weekly sales in our concept to, you know, to leverage everything. Like that's really the intention.
spk02: Yeah, makes sense. And then if I could slide one more in on the strategy, Greg – I guess, you know, why are you pursuing the concept of a virtual brand at this point? I guess it's not obvious that you have excess capacity in the kitchen, and I'm just wondering why you wouldn't be more focused on growing the core business.
spk03: Yeah, I think that's obviously a good and fair question, but the – Look, as busy as our restaurants are, we get that question a lot from a number of different perspectives of, like, well, you know, why wouldn't you prioritize? You know, I think your question is essentially higher margin business given how busy your restaurants are. But I always remind people that we flex capacity during the week and during the year all the time. And when we look at our P&Ls in May and June, when we're running some of our highest weekly sales volumes, or in traditional sense, November, December, we're flexing a lot of growth there. So essentially, the answer to your question is we do have, quote unquote, excess capacity. And we see this as, you know, a way to drive incremental dollars through our system and through, again, the fixed cost structure that we have. So, you know, as I alluded to in my remarks, we want to make sure these are truly incremental for the reasons you're asking. But if that ends up being the conclusion, and obviously we suspect it is or we wouldn't be doing this, then it's, you know, then it is, It is adding incremental value to our business and to our shareholders. The other element I'd add is, again, I alluded to this in the remarks, but just to accentuate, is we are pursuing this concept perhaps a little differently than others in that we're doing so and engineering it from the kitchen, starting with the kitchen more than almost starting with the guests. And by that I mean we're minimizing disruption in the kitchen first and seeing if that will sell versus what do we think is the optimal, you know, guest menu, et cetera, and protecting our kitchens first and foremost. Does that make sense? so that we don't end up impacting the productivity and efficiency of our kitchens and impacting capacity even more. So our point of view is, look, we're not going to do this if we start impacting kitchens in a way that's disproportionate to the volumes. and we'll see what kind of sales we drive with that constraint in place first.
spk02: Thank you for that detail. You're welcome.
spk07: And we'll go to our next question from Jeffrey Bernstein of Barclays.
spk11: Great. Thank you very much. Two questions as well. The first one is on the unit growth, which I know, comes up pretty regularly in discussion. I think you said doing two in 21, similar to 20, but encouragingly ramping that to 7 to 10, I guess, in 22. Just looking back at our models, I know you had done 15 to 20 a year just a few years ago, so I'm just wondering your thought process, especially when you talk about the contraction, the casual dining supply, it would just seem like a huge opportunity for whether or not you're able to turn it on that quickly and do it in 21, or why not maybe 22 wouldn't be a lot more than maybe achieving new highs relative to prior. I'm wondering whether there's any view from your perspective that there's just a quality of sight issue or a labor constraint issue, because, again, I know you did it successfully a few years ago, and now it would seem like more of an opportunity than even then.
spk03: No, it's a good question, Jeffrey. And really the bottom line is we say this all the time is the constraint isn't sites. It really is people and the pipeline timing, really, is another one specifically in the context of COVID. Because, you know, we have not turned on, we have not yet gotten to the point where, you know, we have, frankly, the level of confidence that, you know, you know, the COVID coast is clear enough where we want to, you know, commit to this level of sites. We're feeling better and better about that. But, you know, it takes at least, you know, typically 18 months of pipeline before we identify a site and it opens, right, and can be more, can be a little less at times here. So, First and foremost, it's around quality and having the people and the bench strength develop and ready to open that many restaurants. But there also is, like I said, a timing consideration here where given that it's 18 months, if we wanted to do more than that, we'd have to start yesterday or before to be opening more restaurants than we're describing here. we're just not quite at the point where we're ready to flip the switch and go, you know, we have a level of confidence from a COVID timing perspective. We're getting closer, but we're there. Now, one last thing, and I think we can finish this up here, is that is to say, though, that we are as confident as ever that we can get back to those kind of numbers. You know, it's a matter of ramping, and we are excited about, the environment and the opportunity clearly here. But for years and years, people have asked us, why can't you go faster? And we're going to err on opening with quality than quantity overall.
spk01: The only thing I was going to add to that, Jeff, is everybody thinks that the floodgates have opened in regards to site. And they just haven't quite opened yet. I mean, we continue to believe they will in that regard. And our real estate team has already put together a good pipeline. But we want to make sure that at the same time, we can be opportunistic when sites open. And when we think about really the good AAA sites, we're not quite seeing the softening that maybe people would expect in certain of those markets. If we want to go into B and C sites, we can go into those all day long and open 15 to 20 restaurants. As Greg said, we want to do it with quality. That's been a hallmark of EJ. We have not had to close a restaurant because of performance in that regard. And even now, even though we've taken some impairment on restaurants, we've had to do that mainly because around COVID and the accounting rules versus where those restaurants were operating a year ago. So, again, we've always been quality first, and we'll continue with that. But at the same time, we're going to be opportunistic. when those availability of new sites come about.
spk11: Understood. I guess it's encouraging to hear Greg Trillian say you can get back to that 15 to 20, so maybe it's not in 22, but that's on the radar and well within your capabilities.
spk03: Absolutely.
spk11: My follow-up was just on the labor side of things. I mean, clearly you faced a couple hundred base points of pressure this quarter. It seems like a lot of people are talking about these opposing forces, whether it's national minimum wage potentially going up, but on the flip side, unemployment high, which often implies ample labor. So I'm just wondering with that kind of context, love your outlook on the labor cost outlook and availability, maybe your confidence in offsetting the pressures, whether it's through cost savings or technology or whether you have to revert to menu pricing. Obviously, you operate a lot of restaurants in California, so you have a head start versus many others in how to deal with this, but just trying to get your sense for the labor outlook, maybe your mix of minimum wage versus tip credit workers. Any color would be great. Thank you.
spk01: I'll take the first part, and I'll see if Greg has anything to add to it. But because of our geographic status today, you can add minimum wage increases if it passes and moves through there. We have, I want to say less than 50% of our restaurants have been impacted in the first couple of years because of the minimum wage increase, the federal minimum wage increase. Obviously, it's big on California and some of the other ones from that standpoint. But we're already in a lot of our restaurants significantly above the federal minimum wage, so there's less impact maybe to BJ versus a more regional competitor in some of those lower cost states from that standpoint. So... I think that kind of puts us in a better footing maybe than some of the others. As we think about in general, we said this before, that prior to COVID, the real issue on wage rates was not minimum wage increases in California and other states. It would be, at that time, low unemployment. Unemployment, I think, was in the mid-3% range or so, and everybody was fighting for good line cooks. and good people in their restaurants overall. And that, as you've seen, Jeff, when you cover a lot of restaurant companies, we're seeing kind of 5%, 6%, 7% increases in wage rates across the board, both kitchen and also the dining room. As we went through this year, we've seen that obviously flatten out. We're not seeing quite the increases that you'd see in the kitchen right now that we saw earlier in the year. However, I would say at least currently, It's still somewhat challenging to get team members back into the restaurants. Some may have gone to new industries, but others are really just not necessarily comfortable coming back into the working environment yet, and I think that will ease over time as vaccinations get out there. And as a result, we're going to see, I think, a better labor market than we've seen over the last couple years, and that will help kind of manage some of the costs within the kitchen and some of the other areas. We will always invest in technology. We always have a BJ's. We've got handhelds out there. We're moving to tablets and other things for guests to use. But we're not going to sacrifice the service and hospitality that our guests demand. In fact, we're doing a lot of research right now on our guests, what they really respect and why they come to BJ's. And frankly, service and hospitality sit at the top of that. So I wouldn't be sitting here trying to build a model on your end and saying, OK, with wages going up, we take servers from three and four table stations to eight, nine, 10 table stations. They're going to cut their menu down to 50 items and have everything run through our . That's not how we're going to grow top line sales. This is ultimately the best way to manage labor. So we're going to take more of that offensive approach. But we'll always invest in technology. If we know what our sales are each week, we can drive or manage really good labor. The challenge that we've seen from COVID is those schedules go up and down each week. But when there's predictability in our business, we'll get leverage in that, and that's what we need to do, and we'll continue to invest on that aspect of it. Great.
spk00: Thank you.
spk01: You're welcome.
spk07: And we'll go to our next question from Nicole Miller of Piper Sandler.
spk06: Thank you. Good afternoon. Greg and Greg, thanks for the time. I thought since you offered up Kevin in marketing, I was also joining and I asked a question headed in his direction. So I was wondering about marketing from the perspective, number one, of positioning. You know, this is a local favorite brand, but also with the national opportunity to grow and scale. So kind of what's the messaging and what's the ideal channel for And then part two, the full service or cattle dining segment has been able to really pull back on discounting in the current environment. And do you see any, I guess, change in tactics to succumb to discount marketing again anytime soon? Thanks.
spk09: You want me to jump in on this?
spk03: No, I think Nicole is asking you.
spk09: Okay. I appreciate the question. So I guess first on the position area, as Greg was saying, a lot of what we do from a messaging perspective first starts at the experience and the relationship our guests have with our brand. So a lot of what we do there starts, but we also, of course, have, we'll call it use cases in the areas of dine-in and catering and delivery. So our message starts really first with that connection, and then secondarily we try to extend that into the areas of the need state or the use case. And so we have positioning, not at the brand level, but everything from catering to our beer messaging to what we do with delivery, et cetera. And Greg mentioned we're doing some research right now in what we call the concept essence, and so we're still learning a lot more from our guests, and we think there's still more to cultivate there nationally against the experience and the feeling that people have at BJ's. So that's your answer to number one. And then in this kind of space, we have done a lot less here for obvious reasons. But what we're actually leaning into more is tactically is in the value space. So things like our brew house specials have done so well for us and continue to get played back to us from our guests. What we do in some of the happy hour areas, some of the bundles we put together in the off-premise space have all been highly interesting to our guests and taken advantage of. And so what we're doing now is looking at more opportunities there, as well as we still leverage a lot of our digital to get that message out. We do a lot of programmatic targeting. We do a lot of social marketing, of course, our email for our loyalty. So those tend to be our strongest channels right now.
spk06: Okay, just to make sure I understand that. It's a lot about the value proposition, right? But the value proposition I was just going to say versus actual discounting. But I'm sorry, interrupted. Thank you.
spk04: Yes, the value proposition.
spk03: The other element that has grown and been, I think, intrinsic to the value proposition is the popularity of our loyalty program and the frequency that it drives and the engagement of our loyalty guests that will give us an ability to drive value. I think it's somewhat of a unique way. So I think all of the above is our mindset is around continuing to pull back on quote-unquote conventional discounting to the extent that the competitive environment permits us to. And I think we've got more weapons to keep it that way than we have in the past that are more productive but also more unique to BJ's.
spk06: That's a very good point, and thanks for taking my question as a very helpful update this afternoon. Thanks again.
spk03: Thank you.
spk07: We'll go next to John Glass of Morgan Stanley.
spk04: Thanks very much. Just first, we talked a lot about how sales have declined rapidly and everything you've done. How are you now preparing for that rebound in sales? As you mentioned, that may be just as unpredictable as the decline. I'm thinking specifically about how long it takes you to recapture, bring labor back, and is there a lag or a need to retrain folks, for example. Maybe there's other areas like supply chain that you need to make sure you've got visibility and good supply. I suspect everyone's going to be looking for the same supply and same labor at the same time. What are some of the steps you're now preparing for, as you said, to see the other side of this?
spk03: You know what, John? You know, the – We've seen such ups and downs in our business here and during the past year. It's, you know, that's not something I lose sleep over, honestly. It's like we are our operations ability to train and hire folks and adapt to hire volume. Like that's obviously a problem we look forward to having. Obviously, you know, COVID presented some challenge from a supply chain. You know, we've had disruptions here and there and have had to work around those. But in a normalized environment, I don't – you know, we have great vendors and a great distribution system. And so, you know, it's – that's what we do. And I don't envision – It's not going to happen overnight. You know, we're not going to be at 110,000 a week, you know, in three weeks. So I think, you know, we've demonstrated as we've opened up dining rooms, you know, you know this, but we'll get it. We've gotten notifications on a regular basis on a Thursday that we can open on a Friday. And, you know, sometimes we say, look, we want to make sure we can open well and we need to gather the troops and make sure we have some of our veteran servers ready so we'll wait a day or two. But we've been able to ramp up, you know, when you go from carrier, you know, to off-premise only in California to opening up, you know, sit-down dining and dining rooms, et cetera, that's a pretty big increase in a short period of time and and our operators have been able to do that. So I don't mean to be dismissive about it. It's a good question, but I can't wait to have that to think about some more.
spk01: John, it's a nice problem to have when sales start to come back to that, which they will. I think there are always going to be some of those issues. I mean, We go back to Q4, and I think it was in yesterday's Wall Street Journal, was the cost of propane gas. Propane tanks went from $40 to like $90. Those are the things that we will see and continue to see, I think, as restaurants open up. It will be those incremental costs, just like they were with PPE and getting propane gas or getting tents put up. Thankfully, we've got a great supply chain team that works that. We also try to do forecasts for our supply chain team to work with our suppliers to make sure they're thinking down the road in regards to their supply chain to have things in place. And I would probably say those are more like bumps in the night because they do happen here or there. In that regard, and then the other side, we've done a really nice job keeping in touch with our hourly team members, trying to make sure, letting them know when we think things will change and be able to bring those back. Generally, I think what you're going to see in this business, though, is as sales go up, businesses will leverage the heck out of those sales because you're just behind it a little bit in regards to keep getting the expenses in timely. Much like the opposite happened to us in Q4 as sales got shut down, we had incremental costs in our business that we normally wouldn't have had if we were always running at, let's call it, $73,000 a week. So I think you're going to see some really nice early on margins for companies. and then they'll slowly get ahead of it a little bit in regards to bringing back the right staffing levels, the right manager levels, and so forth, and you'll start to see those flatten out.
spk04: Thank you. One other question. When you paused development, you probably had a chance to rethink the format of the stores, perhaps. If you think about 22, what has changed, right? I mean, when the competitor is thinking about actually adding a drive-thru, do you include permanent social distancing or larger partitions in the restaurant as this may be something that lingers? Do you think about a smaller value? Have you changed any fundamental aspects of the prototype as you think about 2022?
spk03: Another great question. A couple of those are good examples where, you know, we think we didn't do the quick and cheap version of partitions. We did, you know, what I think I referred to here as high design or whatever you want to call it. But these look, our partitions, you know, look like they were there from the beginning, and they don't obstruct a really important part of our restaurant, which is this open feel to them and the fact that you can see our bar statement through just about every seat in the restaurant. And so we were very careful about how we approached the design and actually did some tests in different versions on partitions because I believe they're here to stay for some time to come, years, not months. But most of them have been thinking around the off-premise capacity perspective. So, you know, some kitchen engineering and placement of, you know, line elements and where we can stage more of the product in the kitchen versus in takeout. Those kind of, you know, ergonomic productivity elements I think are big. There is, you know, space, more physical space to accommodate third-party delivery, et cetera, things like that. But I put them all in the sort of capacity bucket, if you will. I thank you for putting on your list shrinking dining rooms. We believe dine-in is going to come back bigger, and we're going to, for all the capacity reasons, we're going to need every seat in our dine-in restaurants that we have today. So that is not on our list. But a lot of the others you speak of are good examples of capacity. of things we're looking at. Drive-through is not one of them. I wouldn't, you know, say no, you know, never. But, you know, our current thinking is that we can execute the takeout experience in a concierge kind of way actually more effectively and faster given the advantage we have in large parking capabilities that we do than sequentially fulfilling orders through a drive-through. You know, we're open-minded and are looking at, you know, a lot of possibilities there, but at the moment that's not highest on our list anyway.
spk04: Thank you. You're welcome.
spk07: And moving on, we'll go to a question from Brian Bittner of Oppenheimer.
spk10: Thanks. Hey, guys. When we think about the recent improvement in your average weekly sales volumes that you talked to get into around $74,000 last week or for February, can you give us some context as to what the capacity availability on averages across your portfolio in February to achieve that average weekly sales level? I think that would just help us better understand the relationship between capacity and sales.
spk01: You know, Brian, I don't – I have to get back to you on that. Honestly, I don't have that in there. I mean, I tend to think about our business, and frankly, a little bit of the way you talk about it, but I was tending to look at our business versus let's call it October where we were doing 83,000, 84,000 plus. And in that month, we had, I want to say, 48,000. of our California dining rooms open at like 25%. And now we don't have any of those California dining rooms open. And when we can get our dining rooms open in California with our patio, we get effectively to 50%, you know, in that regard, from that standpoint. And right now, with just patios, I think about California is probably around a 25% effective capacity or even a little bit less than that. So I don't know if that really helps you. I'm sorry, I just... don't necessarily have it broken out in that way for the first couple weeks.
spk03: It's also, you know, there is, you know, Dinah, and then the effective capacity of outdoor seating is very tricky, obviously, this time of year and with restrictions, too. Like, even defining capacity, it's, like I said, it's tricky with weather and regulatory is easier to figure out, obviously, but... That's good.
spk10: But it is safe to say your capacity in February is less than it was in October, correct?
spk01: Oh, yeah. Oh, yeah. Yeah. Okay. If you look at our January 21st release, at least at that time, I think we said we had like 88% of our dining rooms open. You know, that's also going to have patios. Then, you know, obviously we went down to 64%. Even getting California patios doesn't put us anywhere close to where we were in October. Also, I think places like New Mexico were closed. Oregon and Washington just recently opened. So it's a lot less than the October timeframe.
spk10: Okay. And just in a scenario where you do get all your capacity back via, you know, restrictions going completely away, which I guess you've suggested could happen maybe sometime in the second half, in that scenario, would you expect – to fully restore your volumes in lockstep with getting to 100% capacity, or is there some reasons we should be aware of to expect a lag in kind of how your sales volumes follow the capacity increases?
spk01: No, I think our sales volumes will be greater than our capacity because of the off-premise and because we will still maintain a certain amount of patios. in our business, so you're effectively increasing overall capacity versus, let's call it, 2019.
spk03: The other element to it is, and we'll see how long this lasts, but when people are going out, and I think this will be for some time, they are spending more. Our incident rates on all elements of our menu when people are dining out, including alcohol, or we're driving higher check in every element of our business, but because takeout checks lower on an absolute basis, our check is still growing, but not as much as the percentage increase in each of those channels, if that makes sense, right? But the more important point is just overall, I think you're going to see, Greg's point, we'll have more effective capacity. Like people have told us, by, you know, their actions, that they like sitting outside, at least in certain parts of the year, in certain parts of the country, particularly California. And I don't think, you know, we're not envisioning all of that going away post-COVID.
spk01: Yeah, and coupled with off-premise. And just the things that we created specifically for the off-premise channel, I think there's that opportunity to, as you said, to keep that number up, if not grow it. So I think effectively you've got an increase in off-premise, which is a capacity increase. And in the way we structure some of these patios, I think this is about that. And frankly, you know, with patios comes the better weather. It's kind of Greg's question or your question earlier, Brian. It's sometimes hard to measure our capacity where we have a patio open, but it's cold out and nobody's sitting on the patio.
spk10: Makes sense. Thanks for all the color, guys.
spk01: Sure.
spk07: And we'll go to our next question from James Rutherford of Stevens Incorporated.
spk08: Hey, thanks for taking the questions. I wanted to ask about independent closures. It comes up in every call in this space, but just a different angle on that question, if I may. You have a meaningful bar business inside your restaurants, and many bar-only concepts have been under more pressure than restaurants, given they can't do the off-premise. significantly. Have you observed any meaningful supply contraction from bars in your markets? And just what do you think about the real opportunity is to gain market share in that category of your business? And in fact, can a beer subscription sort of play into that as well?
spk03: You know, we don't, in fact, even in a normal time, our industry doesn't do a great job of tracking this. So it's all, you know, it's all anecdotal. Here I can, you know, particularly we're spending more time, you know, less time out and about than we'd like. But here in California, there's definitely been, you know, a pullback. And to your point, I'd say it's been, you know, the hardest hit have been bars for probably obvious reasons, right, except for those that are totally ignoring the rules and laws, as I was referring to, and are, you know, remaining open with the indoor service. But, yeah. But I do think that that element of the restaurant business isn't going to be the hardest hit there. It's interesting to say we're developing and working on a beer subscription program not related to that, but that could be a fortuitous coincidence for us and opportunity in that regard.
spk01: Yeah, James, it is hard to try and get the correct numbers around the closures. Knowing, you know, Southern California and driving around this area, I think Greg said it well. You see a lot of independent restaurants that are maybe more of a sports bar related, just kind of one-off that don't have patios out there and kind of shut their doors. We don't know if it will be permanent or if it's temporary, but again, There's a lot of what I would call the independent, more bar-centric restaurants that definitely have closed. It's fairly obvious driving around, but it doesn't get quantified in a lot of the national information, so to speak.
spk08: That color is helpful. The second question is a bit of a follow-up on a previous question, just digging into state-level trends a little bit. You gave some helpful detail in your business update a few weeks ago about on what you were seeing in some of the, I guess, less restrictive states, Texas, Florida, and so forth, and the comps they were doing in, I think, negative mid-teens in January. I'm just curious, what's the bridge to get back to flat there? Do you think in those states at this point in time it's purely a capacity constraint? We've got customers just waiting during peak times to get a seat, or is there still some demand hurdles that it really will take you know, full vaccination or something close to it to get back to normalized or better sales levels compared to pre-COVID.
spk03: It's all about capacity. It's all about capacity. You have to remember it's not just number of seats, but it's curfews, curtailing late night, you know, day parts. It's, you know, in California, you can't have TVs on in the restaurant. So, you know, people aren't showing up to watch a game. So, you know, it's all about capacity. the lifting of restrictions and establishing capacity.
spk08: Understood. Thank you very much. Thank you.
spk07: And we have time for one more question. We'll go to Brian Mullen of Deutsche Bank.
spk02: Hi, thanks. Just a question about the subscription beer club you just mentioned. But what kind of lifting traffic are you seeing where you put it in place, if you'd be willing to quantify or? provide color on that. Are you seeing good food attach on that traffic? And then maybe just remind us, is this a program you see eventually across the entire base of stores, or is it something you think really only works in certain locations? Thanks.
spk03: I'm sorry, Brian. I missed the, couldn't hear the middle question of it was what kind of traffic are we seeing, and then there was something between that and the national expansion question.
spk02: Yes, I was just, are you seeing good food attach on the traffic that comes in due to the program? And then does this program work everywhere, or is it only maybe certain states where you have ambitions for it?
spk03: Yeah. Look, we're not in a position, given its early stage here, to start citing specific metrics. I'll give you a few general observations, though. you know, the first indicator is are people willing to sign up and give you their credit card and subscribe. And, look, all of these are caveated of we launched this program, you know, September of last year in the midst of all of this, right, you know, with full awareness. So we've had ups and downs of, you know, we need at least outdoor dining, right, in some form in dining rooms here. So even despite those hurdles, we've seen sign-ups at rates that have been encouraging, is what I tell you. I mean, we were exceeding our expectations in the interest level, not just interest level, but actually sales levels at the outset. So that was happening and has been happening faster than we anticipated. And we're also... encouraged by the attached rate you're asking about is people are using these benefits. So I'll give you an example. One of them is the ability to refill a growler for $5 if you're a member. People love refilling growlers for $5, but the good news is over half the people that are doing that are actually buying food or, again, an attached rate of an appetizer or whatever to go along with that growler, for example. So We like what we're seeing in terms of overall activity. We want people, sort of like the health club business, we want people to use the health club and get on the treadmill. We want people to take advantage of these offers because we want them to stay members, right? So, again, I say all of this with the super caveat. We're in eight restaurants in weeks, not years here, or months, not years. But we like what we're seeing on those key metrics. In terms of the national question, we are limited from a TABC or state and local alcohol and side house laws of where we can implement the program today. We like the fact that COVID has initiated a number of states or sometimes wherever Tidehouse allows to be eased in terms of carryout. So we are advocates of maintaining that flexibility in those states. So that's the plan is that You know, we continue to see these kind of results after California has just started approaching those states.
spk01: Yeah, I think it covers some of the neighborhood of about 70% of our restaurants where we'd be able to move the beer clubs here. And depending on if other states open up, we might be able to get that number higher.
spk02: Okay, thank you.
spk01: You're welcome. All right. I believe that was our last question. Is that correct, operator?
spk07: Yes, sir. And at this time, I'll advise that concludes today's call. Thank you, everyone, for your participation. You may now disconnect.
spk03: All right. Thanks, everybody. Thank you.
Disclaimer