Q4 2020 BJ's Restaurants Inc Earnings Call
[music].
Please standby as we are about to begin.
Yeah.
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.
Thank you operator, and good afternoon, everybody and welcome to Bj's restaurants fiscal 2024th quarter Investor Conference call and webcast I am Greg Trojan.
<unk> Chief Executive Officer, and joining me on the call today is Greg Levin, our President and Chief Financial Officer. We also have Greg Lynds of 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 guys view of the full text of our earnings release on our website at Www Bj's restaurants.
Our agenda today will start with Ron of Schirmer, our director of SEC reporting, providing our standard cautionary disclosure with respect of forward looking statements.
I will then provide.
Provide an update on our business and current initiatives and then Greg Levin will provide some commentary on the quarter in the current environment.
After that we'll open it up to questions. So Ron I'll go ahead.
Our comments on the conference call today will contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 19 entitled forward looking statements involve known and unknown.
Non risks uncertainties and other factors may cause actual results performance or achievements of the company to be materially different from any future results performance or achievements expressed or implied by forward looking statements.
Investors are cautioned that forward looking statements are not guarantees of future performance and undue reliance should not be placed on such statements are forward looking statements speak only as of today's date February 11 2021.
We take 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 and lesser price of detail by the Securities book.
Investors are referred to this whole discussion of risks and uncertainties associated with forward looking statements sustainable Inc.
Fillings.
Okay.
Yes.
Thanks, Ron.
Good afternoon, everyone again.
The broad increase in the dining restrictions at occurred in November and December I am 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 and averaging over $83000. Despite dining rooms at only 28 of our 62, California restaurants being opened for the full month and.
And significant dining room capacity limitations across our system.
Beginning in November as you know numerous states rolled back dining reopening in California in early December closed all outdoor patio seating.
Which limited our sales in this day to delivery and take out only.
As such sales in November and December drop from October as 83000 weekly average 278000 in November and 60000 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 of initiatives helped us increase our average weekly sales of $66000 in January and to more than $74000 of 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. We 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 dining 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 have 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 aspects of our operations has been and continues to be our mindset.
Key to operationalize. 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 of the rate of $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 are in a strong position to invest in the right growth initiatives, while ramping up our new restaurant opening pace when the time is right.
Sure.
As a result, we've already made investments and high design quality positions within our restaurants.
Experiencing.
Excuse me of experiential outdoor tense.
<unk> and audio visual upgrades, which are important head start 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 sink both in restaurant and off premise demand with our restaurant capacity.
Front end order and pickup of technology to drive convenience and order accuracy is also helping to provide a better friction reducing experience for our guests.
We've been averaging approximately $28000 per week in off premise sales in the recent weeks, which is maintaining at more than double our pre COVID-19 levels.
And we remain committed to growing this from permanent space.
We're also pleased to see our guests increasingly engaging with our brand digitally.
More than 25% of our Diamond checks are now pay 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.
The guests has arrived.
Our innovations at increased convenience and reduce friction most surely remain popular with our guests well after the pandemic 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, we're 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 blind, 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 rose in the fourth quarter and expanded the test of 13 restaurants last last month.
This is of delivery only concept of the focused menu featuring our slow roast and other protein centric products.
Sales continue to build week over week and our guest ratings were averaging four eight out of five 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 box 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 a 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 Maryville, Indiana in 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 concept.
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's more clarity in regard to a more predictable dining environment.
When we do commence committing to new leases, we expect to build in flexibility regarding pandemic related delays in regards to opening day commitments rent commit the commencement of et cetera.
That said, we look forward to resuming and accelerated new restaurant opening cadence toward addressing and realizing the geographic potential of our concept.
In summary of the point is clear, we're not standing still and playing defense only <unk>.
We're spending time, and making investments to improve our concepts 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 navigate at 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.
Yes.
Hi, Craig.
As detailed in our business update in January of two centers.
<unk> continued to be largely dictated by capacity restrictions.
Therefore of my commentary on both Q4 in Q1 to date reflects where we at the ever changing national state and local restrictions and regulations regarding the dining room limitations.
Remember with commentary so thanks for the risks and uncertainties.
Forward looking statements as discussed in our filings with the Securities 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 26%.
However at the beginning of November numerous states fallback design end please.
And just from the California, where 62 of about two nine.
One of investments are located.
Our dining rooms, and as a patio seating.
Moving on.
The only delivery and takeout.
Asphalt come from.
November and December decreased to negative, 27% and negative 35, 3% respectively.
Earnings per quarter with comparable restaurant sales down 32, 3%.
Our total revenues for Q4 of $197 million.
A net loss of $18 1 million and diluted net loss per share of 81.
On a GAAP total.
Our fourth quarter results include a net charge of about 10, I thought of them as it sort.
Gain related to the sale leaseback of our Orange badge.
Hi, Ed.
It was offset by an impairment charge per one of our restaurants in selling area.
While the Q4 results will flow from November and December reversals in volume capacity.
Dedicated team members protected in some of our gas for managing the negative leverage in our business, allowing us to generate positive adjusted EBITDA of $2 4 million end for the quarter.
Given the number of downloads and patterns that were shutdown can lead 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 in field operations.
Management team.
In regards to our operating results the resumption of dining room restriction of during the quarter impacted several metrics.
Cost of sales came in at 25, 8% for the quarter of 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 for 120 basis points higher than Q3, which was primarily due to higher new cough.
The higher net cost is related to both higher seasonal inflation.
Our conscious decision to promote from discount a primate fossils throughout the holiday period.
Per level resulted in significant excess inventory of our fresh prime label as a result of California signing of the shutdown on premise and patio dining in late November.
Our culinary team came off of Korea, 10 current family Prime rib bundle total.
All of those kind of along with our other prime rib promotion helped us approximately 1 million of primary products in the last two weeks of December alone.
So the non <unk> items, all of our golf rebound.
And those sorts of we do not have to this fall.
In total.
Labor came in at 38, 4%.
Low basis points higher than the prior year from a more of a year perspective, we continue to leverage all of whom are driving sales in the off premise channel channel.
Benefiting from our smaller menu.
These savings were offset by deleveraging from the lower sales volume of fixed management of labor.
And restaurant level equity compensation.
Operating and occupancy costs of 29, 1% per the quarter inclusive of one 6% of sales from marketing.
Operating and occupancy costs average about 21100 per restaurant operating week.
Representing a decrease of about 14% compared to last year.
Included in operating occupancy cost with over $1 4 million of operating expense per temporary patios.
Approximately 150 volume for personal protective equipment.
From suppliers to ensure the safety of our team members and guests.
All of temporary Pi was generally well of a 50 million of in revenues for the quarter leasing of the $1 4 million incremental expense of all hall on Oi.
G&A for the quarter came in at $13 3 million on a true.
Nine basis, G&A was down approximately $2 million.
Compared to the prior quarter and Thats, primarily due to the reversal of incentive compensation from the fourth quarter.
Turning to the balance sheet during the quarter, we pay down of additional term loan 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 from fossil proven to low and additional 30 of them actively capital last month at.
As Greg said with vaccinations and they're all most of the future Bj's.
Has the capital North of say come out of aggressively pursue both new restaurant expansion.
Further invest in our sales driving initiatives.
Now shifting to today as I said at the beginning of multiple of amongst our sales continue to be governed by the borrowing capacity limitations imposed by local and state regulators.
We started January with all of our California, restaurants limited to takeout or delivery online and also had 91 shutdown in our restaurants, Inc.
West, Michigan, and a few other states and location.
As such we are approximately 64% of of our dining rooms opened in January and finished January with our weekly sales average of approximately 66400 per restaurant week.
In February of two day, California ganglion remain close.
Pedro have reopened.
Construction of asset needs in Michigan and Washington.
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As such we can sales average for the first two weeks of February has increased to around 74000 per week.
At our currently weekly sales level of approximately 74000 per week, we expect to be of modest use of cash of less than 500000 of weak, which is inclusive of restaurant level management bonuses for Rand interest expense and also for maintenance Capex.
Some other investments in our business to drive sales.
As we think about this year it is difficult to provide sales volume due to the ever changing capacity restrictions curfews and other regulations we face.
At present capacity restrictions are loosened, Inc, which will lead to higher sales.
We are hopeful that increasing vaccination should allow us to get back to a 100% capacity sometime in the second half of this year.
We see the opportunity for sales of more fully recovered 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 key at all right now, we anticipate commodity inflation of between one 2% with cost of sales in the mid 25% range. However of the level of the level of open dining rooms, we have resolved and different promotions of our menu mix and that could drive cost of sales somewhat higher.
Or low.
We are targeting G&A of approximately $67 million from 2021, which includes more than $6 million incentive compensation compared to less than 500000 book in 2020 due to the impact of turbine.
Of the G&A budget also includes $7 8 million related to equity compensation compared with 71 in 2020.
Therefore, if you look at what I would call control of our G&A.
G&A, excluding equity compensation, we expect G&A to increase by approximately $6 million from 2020.
However, I think the right way to look at those could be to compare at the 2009, which takes into consideration more normalized operations.
As such compared to fiscal 2019.
Total G&A will increase by approximately $500000 or loss.
At the current time, we expect to open two restaurants in 2021 of Greg noted non of Marvell, Indiana in early May and the other end royalty, Michigan in early June.
We also anticipate reopening our Richmond, Virginia restaurant sometime during 2021, which have been temporarily closed.
However, our goal is to open seven per 10 restaurants in 2022 are taking advantage of some of the real estate opportunities to come to drive high ROI of expansion there.
Therefore, our 2021 capital homes.
We'll include all Capex dollars from 'twenty two for restaurants that will open in fiscal 2012.
Overall, I expect our fiscal 'twenty 'twenty, one capex to be between $35 million at 50 million depending on when we start construction per restaurants, we plan to open in fiscal 2020 killed.
It is important to note that 'twenty 'twenty, one capex will also support our sales driving initiatives, including the beer called catering and off premise.
As in the past, we can see at the flexibility to pull back on these cash expenditures from.
The operating environment as many of these offerings are discretionary and variable.
As we reflect on 2020 with cash.
Even more proud of but we're waiting for the determination of our team members volume.
<unk> ended unprecedented challenges to our business and successfully created and implemented enhanced safety protocols.
Our key members and guests.
I imagined our in restaurant partner of delivery and takeout functions modified our mentally engaged guests with unique marketing loyalty offerings and leveraging our technology investments to bring the bus bj's experience possible to a lower volume.
Our teams our battle proven who has always been the core of our success and long term growth throughout the pandemic or customer type of 1 million very low and attractive to the great food.
Service hospitality and fun times of family friends and co workers kinase inhibitors of Bj's delivers.
Whenever we have opened or expanded capacity guests responded enthusiastically with strong volume traffic and check so despite the challenges we continued to execute on our long term strategy by reevaluating and re imagining 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 vaccination will move to leasing capacity of restriction and encourage even more guests to return to our restaurants over the coming quarter.
Given the service enhancements and operational changes at <unk>.
<unk>.
We stand can achieve meaningful growth as our volumes continue to approach previous levels.
As such we are highly confident that once the post COVID-19 normalization materializes.
We will realize a sustained margin uplift and museum of more aggressive expansion phase complemented by a range of sales building initiatives.
With that I'll go ahead and nothing at all.
All right.
Operator.
Thank you we will now begin the question and answer session.
We'll go to David Tarantino of Baird.
Hi, good afternoon.
At two questions first for Greg.
Greg I'm wondering if you could give us a little bit of health.
Thinking about restaurant margin and how that might progress as the volumes rebuild.
And specifically as you get back to a 100% capacity in the sales level you'd expect at that level, where we're at.
Do you expect restaurant margin to be in that scenario given all of the changes that have occurred since the start of the pandemic.
Yes.
David I think we've got an opportunity of sales start to recover to get back to margin that we saw.
Really much more end at 2018 and.
And so far from that standpoint that gets us back into 18 plus percent. When he goes out of good opportunity for want of smart better you continue to drive off premise sales of which have shown to be very profitable because of the labor benefit there of not having to put a server against that part of your sales team really leverage the kitchen.
I think the investments we've made in digital help from going to be really good for us and quality of gas and that will fade in regards to expenses around menu printing at their point of purchase materials, and then I think our cost of sales.
We will continue to bounce around a little bit of it is we have less cost of less items out there we get more efficient and we will see some opportunity of that and then we've talked all along about of hourly labor.
We continue to see less hourly labor being used in the in the back of the house and our kitchen, just because of less menu items I think all of those gives us a really good opportunity to drive margin.
They were previously if not better at sales continue to recover.
Great.
Greg will debt would that assume average weekly sales back at that.
All of that 400, 710 type of range that year end debt.
At that time or would you be able to accomplish that margin.
File honour of of lower sales volume.
Yes, I don't know if I know the effort at <unk>.
Quite active.
<unk> ramp up the sales of nice levers to pull of our business I think we have the ability to actually get thoughtful of historical margins at maybe a low of installs of average.
What kind of based on behalf of again lots of menu items, we continue to drive the ROE of the takeout part of our board will think of debt.
Of our high levels of low part of our Basel from as an opportunity to get that at a lower sales volume per se, but.
We wanted to be perfect line of coming down pulling ahead of model out what ball sales volume going to look like in 2022 post COVID-19.
We continue to think about.
We can provide the final dose right now in regards to that of the daily tackling and blocking Inc.
And look the only thing I'd add Inc.
As we're thinking about this margin opportunity is really in the context.
Establishing weekly sales averages that are more than our historical levels. As we continue to firmly believe the dine in business is going to come back.
Yes.
And I think we will see pent up demand and passion around dining with friends and family like we've never seen before her for some time.
And then with the reason, we're so focused on keeping and growing this off premise business as that becomes incremental to those historical sales averages. So we say this all the time, but at the easiest way for us to drive higher percentage margin.
The leverage of bigger number on the top line for the fixed cost elements of our business. So.
I do think Greg.
Is this accurate in saying given all of the mix and advantages.
We see an opportunity to.
Margins return at maybe lower volumes or said differently, a little higher margin of at the same sales levels, but what were really the eye on the price here is.
Let's establish new levels of.
Of sales weekly sales and our concept.
To leverage everything like that is really to be.
At the inception.
Yeah makes sense and then if I could slide at one one more end on the strategy Greg.
I guess why why are you pursuing the concept of.
Virtual brand at this point.
I guess at that obviously, you have excess capacity in the kitchen.
I'm just wondering why why are you at the more focus on growing the core business.
Yes.
I think that's obviously, a good and fair question, but.
Low.
As busy as our restaurants, how do we get that question a lot.
From.
A number of different perspectives of Michael.
Why wouldn't you prioritize.
I think of your question was essentially higher margin business given given out of 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&L in May and June when we're running.
Some of our highest weekly sales volumes or.
And traditional strength in November December.
We're flexing of lot of growth there.
And.
So we essentially the answer to your question is we do have quote unquote excess capacity.
And.
And we see this as a way to drive incremental dollars.
Through our system and through again, the fixed cost structure.
That we have so as I alluded to in my remarks, we wanted to make sure. These are truly incremental for the reasons you are asking.
That ends up being at the conclusion and obviously, we suspect it is or we wouldn't be doing that then.
And then it is at.
Is adding incremental value.
To our business and to our shareholders.
The other the other element I'd add.
That is again alluded to this in your remarks, but just to accentuate as.
We are pursuing this concept.
Perhaps a little differently then.
Others in that we're doing so and engineering at.
From the kitchen, starting at the kitchen more than almost starting with the guest and by that I mean, we're minimizing disruption in the kitchen first and seeing at that will sell versus what do we think is the optimal.
Guests menu et cetera EBIT.
And protecting our kitchen's first and foremost of that makes sense. So that so that we don't end.
Impacting the productivity and efficiency of our kitchens and impacting the capacity even more so our point of view is look we're not going to do this if we start impacting impacting kitchens.
And.
In a way that's disproportionate to the volume and we'll see what kind of sales we derived from it that constraint in place first.
Thank you for that detail.
Youre welcome.
Cash will go to our next question from Jeffrey Bernstein of Barclays.
Great. Thank you very much.
Two questions as well the first one just on the unit growth, which I know.
It comes up pretty regularly in discussion.
I think you said doing true in 'twenty, one some of the 20 <unk>.
Encouragingly ramping at the seven to 10 I guess in 'twenty two.
I'm 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.
So when you talk about the contraction of casual dining supply it would just seem like a huge opportunity.
Whether or not you are able to turn on that quickly and do it in 'twenty, one or why not maybe 'twenty two wouldn't be a lot more than maybe achieving.
New highs relative to prior I'm wondering whether there is any.
View from your perspective of that Theres, just sort of quality of site issue of labor constraint issue because of.
I know you did successfully a few years ago and that would seem like more of an opportunity of than even that.
No. It's a good good question jeopardy, and really the bottom line is we say this all the time as the constraint isn't sites.
Really as people an end.
And the pipeline timing really is another one.
Specifically in <unk>.
In the context of Covid, because we have not turned on we are we have not yet guidance at the point, where we have frankly at a level of confidence that.
The Covid coast is clear on where we want to.
Commit to.
This level of site, so, we're feeling better and better about that but it takes at least.
Typically 18 months of pipeline before we identify of site and at openings right and be more Mb.
Total assets at times here, so first and foremost it's around quality and having the people and the bench strength developed and ready to to open that any of that many restaurants, but there also is like I said of 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 too.
The opening more restaurants, and we are describing here and we're just not quite at the point, where we're ready to flip the switch and go.
We're we have a level of confidence from Covid timing perspective.
We're getting closer but we're there now one last thing and I think correctly at the body areas.
That is to say, though that we are as confident as ever that we can get back to those kind of numbers.
It's a matter of ramping.
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 we're going to err on opening with quality then.
Quantity overall.
Yes.
We're going to add to that.
Yes. It is.
Everybody thinks that the floodgates have opened in regards to sites.
And they just havent quite opened yet.
Continue to believe day well.
In that regard going at in our real estate teams adequacy at a good pipeline.
But at the same time, we can be opportunistic.
Sites open and when we think about $1 million of goods AAA site, we're not quite seeing the softening that maybe people would expect.
Certain of those markets at winding of the D&C sites nationwide.
And of all day long end opened 15 to 20 restaurants, but as Greg Trojan said, we wanted to share with.
With quality has been a hallmark of Bj's we have.
<unk> had to close the restaurant because of performance.
In that regard.
And even now including some of them.
Impairment on restaurants.
Do that mainly because of around Covid and the accounting rules versus where those restaurants are operating at year ago. So again, we've always been quality, one and we will continue with market at the same time, we're going to be opportunistic when those.
Availability at these sites come about.
Understood I guess, it's encouraging to hear alright, Greg Trojan said, you can get back to that 15% to 20. So maybe it's not in 'twenty, two but thats on the radar and well within your capabilities.
Absolutely.
My follow up was just on the Labor force side of things I mean, clearly you say a.
A couple of hundred basis points of pressure this quarter.
It seems like a lot of people were talking about these opposing forces, whether it's national minimum wage potentially going up but.
On the flipside of unemployment high which often in place of ample labor. So I'm, just wondering with that kind of.
Context love your outlook on the labor cost outlook availability.
Some of your confidence of offsetting the pressures, whether it's through cost savings or technology or whether you have to revert to menu pricing, obviously, you're operating a lot of restaurants in California, you have a head start versus many others in how to deal with this but just trying to get your sense of the labor outlook, maybe a mix of no major at credit workers any color would be great. Thank you.
Yes, I'll take the first part of asking Gregg having to add to it.
But.
Because of our geographic.
Today, even at minimum wage increases.
As of mystery there.
Yes.
I wanted to say less than 50% of our restaurants at the impacted in the first couple of years because of the minimum wage increase the federal minimum wage increase obviously figure out of California, and some of the other lines from that standpoint, while we're already in a lot of our restaurant significantly above the federal minimum wage.
Less impact maybe the bj's versus a more regional competitors some of those lower cost space from that standpoint.
So I think that kind of puts us in a better footing, maybe some of the others.
As we think about in general we've said this before at prior to Covid. The real issue on wage rate was not minimum wage increases in California, and other states it would be at that time low unemployment unemployment.
Mid 3% range of our Seo and everybody is fighting for good line correct.
People in the restaurants.
Overall and that is in.
Catherine you cover a lot of restaurant companies, we're seeing kind of at five 7% increases in wage rates across the board both kicking in obviously the dining room.
As we went through this year, we've seen that honestly.
Kind of flatten out we're not seeing quite the increases that you see in the kitchen right now.
That we saw earlier in the year. However, I would say at least currently is still somewhat challenging to get team members back into the restaurants.
The advance of new industries, but others are really just not necessarily comparable at coming back into the working environment, yet and I think that will ease over time as vaccination of without debt.
And as a result, we're going to see I think a better global market. We've seen over the last couple of years and that will help kind of manage some of the cost within the kitchen from the other areas.
We will always invest in technology, we have at Bj's is at.
Handhelds out there, we're moving fast tablets and other things for guests to use but we're not going to sacrifice of service and hospitality.
At our guest demand in fact, we're doing a lot of research right now on our gas looking at the only respect and admire and why they come at Bj's and thank these service of hospitality sit at the top of volume.
So I wouldn't be sitting here trying to build a model on year end change, okay with wages going up he can take service from three and four are capable of patients.
At eight 910 hit locations.
We're going to cut their menu down task at the items and have everything untrue.
And that's not how we're going to grow topline because of operating the best range.
Demand for labor, So we're going to take more of that I'll center of tenants.
Of that in technology.
If we know at our sales are each week.
We can drive really of our managed really get labor. The challenge that we've seen from kind of at is scheduled to go up and down each week of and Theres predictability in our business, we will get leverage in that and Thats, what we need to do and we'll continue to invest on that aspect of it.
Okay.
Great. Thank you.
Youre welcome.
And we'll go to our next question from Nicole Miller of Piper Sandler.
Okay.
Thank you good afternoon.
Great. Thanks for the time of thoughts.
To answer that Kevin and marketing of all for joining me at May ask a question then just direction.
Wondering about marketing from our perspective number one of positioning.
This is a local favorite brands from within.
National opportunity to grow in scale, so kind of what.
What's the messaging and whats the ideal.
Channel and then part two.
For full service of casual dining segment and EBITDA.
We pulled back on discounting of the current environment.
It.
Do you think of <unk>.
And tactics.
Come to discount marketing again anytime soon.
Good morning, Jeff at on this.
Hello, Ethics, and low is asking you.
Okay.
Thanks, Nicole I appreciate the question. So I guess first one out of position area.
Greg was saying a lot of what we do from a messaging perspective first starts at the experience of the relationship of our guests have with our brands so low.
Sort of what we do there starts but we also of course have will call at the use cases in the areas of dine in and catering and delivery. So our message starts really first of that connection and then secondarily we try to.
Extend that into the areas of need state of the use case and so we have positioning non at the brand level, but sort of thing from carrying too.
Our beer messaging to what we do at delivery et cetera.
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 is still more to cultivate their nationally.
Against the experience and the feeling of people have of Bj's. So your answer is number one and then at at this kind of space. We have done a lot last year for obvious reasons, but we're actually into more tactically isn't of value space of things like our brewhouse specials of done so well for us and continue to get played back to us from our guests.
What we do.
And some of the happy hour of areas. Some of the bundles, we put together in the off premise space at all been highly inter.
Interesting to our guests and taking advantage of of instead of what we're doing now is looking at more opportunities there as well as we still leverage of one of our digital to get messy.
<unk> out.
We do a lot of programmatic targeting maybe of a lot of social marketing of course, our email per loyalty. So those tend to be our strongest channel right now.
Okay, just kind of share any other thing.
It's a lot of value proposition right, but the value proposition I was asking for price with actual discount at I'm sorry interesting. Thank you.
Yes, the value add.
Okay.
The other element that is.
Grown in.
I think intrinsic to the value proposition is the popularity of our loyalty program.
<unk>.
At frequency that it drives and the engagement of our loyalty guests nickel gives us an ability to drive value I think at somewhat of a unique of unique way. So I think all of the above is our mindset is around.
Continuing to pullback on quote unquote conventional discounting to be to the extent debt.
Sure.
The competitive environment.
Permits us to end.
I think we've got more weapons to two to keep at that way then than we have in the past at or more predict but more productive, but also more unique to bj's.
That's a very good point and thanks for taking my question is at very helpful. Update. This afternoon. Thanks again.
Thank you.
Okay.
We'll go next to John Glass of Morgan Stanley.
Thanks very much.
Of course.
All of that on sales of declined rapidly.
Now preparing for that rebound in sales as you mentioned that maybe just as unpredictable as the decline.
Speaking specifically about following of the recap.
Sure.
Global back end sort of mine.
Train folks for example, maybe there's other areas like supply chain to make sure you've got visibility of good supply I suspect that we're going to be looking for the same supply at same day, but at the same time what is some disruption now preparing for as we start to see.
The other side of this.
John.
Okay.
We've seen ups.
<unk> downs in our in our in our business here and during the past year.
That's that's not something I lose sleep over honestly is like we are our operations ability to train and hire folks and adapt to higher volume.
Obviously, a problem we look forward to having.
Obviously COVID-19 has presented some challenges from a supply chain, we've had disruptions here and here and there and have had to work around those but in a normalized at.
Environment.
We have great vendors and great distribution system and so.
That's what we do.
I don't I don't.
Vision, it's a matter of kind of happen overnight, we're not going to be at 110000 of week three weeks. So I think we've demonstrated as we both end up.
Dining rooms.
You know this but we'll get at we've done notifications on a regular basis on a Thursday that we can open on a Friday.
Sometimes we say look we want to make sure we can open world 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.
We've been able to ramp up.
From carrier to off premise only in California to opening of CIT.
Sit down dining and dining names et cetera.
That's a pretty big increase.
And of short period of time and at.
And our operators are able to have been able to do that so I don't mean to be doesn't at all.
I mean to be different.
Some of that at a good question.
I can't wait to.
To think about some more yet John.
A nice problem, it's a net.
Cloud at the half 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 at within yesterday's Wall Street Journal.
The cost of propane gas.
Propane tanks went from $40 to like $90.
As of the thing that we will see and continue to see I think as the restaurants open at the health of those incremental costs just like they were with PPE.
And getting propane gas of getting 10th played out.
We've got a great supply chain team networks that we also tried to do forecast of our supply chain team to work with our suppliers to make sure. They are thinking down the road in regards to their supply chain.
Have things in place and I would probably say at as a more of like Thompson of night, because they do happen here or there.
In that regard any of the other side of it and we've done a really nice job keeping in touch with our hourly team members I'm trying to make sure of letting them know when you think things will change and be able to bring those back generally I think what youre going to see in this business sales.
Is as sales go up businesses will leverage the heck out of those sales could you just behind it a little bit in regards to kick any of the expenses and timely.
The opposite happened to us in Q4, net sales got shut down and incremental cost in our business that we normally wouldn't have had it we are always running at let's call. It 73000 of week. So I think you're going to see some really nice early on margins for companies and then they will slowly get ahead of at a little bit in regards to bring back the right staffing levels of right management levels and <unk>.
And you'll start to see those flatten out.
Great. Thank you one other question.
Pause development, you're probably at a chance to rethink the format of the stores perhaps.
Think about 'twenty, two what did change right I mean, when your competitors thinking about actually out of the drive thru do you include permanent social distancing or larger partition in the restaurant is maybe something that lingers do you think about of smaller diameter, We changed Inc.
Fundamental aspects of the prototype if you think about 2002.
Another great. Another great question and I had a couple of those are good examples where we think we didn't do the quick and cheap version of partitions.
We did.
I think I referred to here is high design of wherever you want to call at but these look at partitions.
It looked like they were there from the beginning and they don't abstract of struck a really important part of our restaurant, which is this open 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 how we approach the design and acts.
We did some testing of different versions.
Purchase at partitions, because I believe they're here to stay for some time to some time to come here is not.
Nine months.
But most of them had been thinking around the off premise capacity.
Perspective, so some kitchen engineering and placement of.
Line elements, and where we can stage prod more of the product in the kitchen vs and take out those kind of.
Ergonomic productivity elements.
I think our big there is space more more physical space for to accommodate third party delivery etcetera things like that but I put them all in the sort of the capacity back at it.
If you will.
Thank you for putting on your list shrinking dining rooms, we are not we believe dining is going to come back bigger and we're going to before all of the capacity reasons that we're going to need.
Every seat in our dine in restaurants that we have today, so that is not on our list.
But at a lot of the others you speak of are good examples of.
Of things, we're looking at drive thru is not one of them I wouldn't.
No never.
Our current thinking is that we can execute.
If you take out <unk>.
<unk>.
And of course here is kind of way actually more effectively and faster given the advantage. We have in large parking capabilities that we do then sequentially fulfilling orders through through a drive through.
We are open minded and are looking at.
A lot of possibilities there, but at the moment that's not high.
At highest on our list of anyway.
Thank you.
Youre welcome.
And moving from perpetual question from Brian Bittner.
Oh from Hymer.
Thanks, Hey, guys.
When we think about the recent improvement in your average weekly sales volumes that you talked to get into.
$74000 last week are for February can you give us some context as to what.
Right.
The capacity availability on average is 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.
I don't.
Sure.
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 think of it a little bit of the way you talked about it but.
I was kind of you look at our business versus let's call of October we're doing 80 384000 plus.
And in that month, we had I want to say.
<unk>, Inc.
Of our California dining rooms open at like 25%.
And now we don't have any of those California dining rooms open.
And we can get our dining rooms opened in California, with our patio, we get effectively at a 50%.
In that regard from that standpoint, and right now, which is patios I think about California is probably around the 25% at the capacity or even a little bit less than that so.
I don't know if that really helps here and I am sorry.
Don't necessarily have it broken out in that way from the first couple of weeks. It's also.
There is China.
<unk> of capacity of outdoor seating is very tricky. Obviously this time of year end weighted restrictions to like.
Given defining capacity.
It's like I said, it's it's tricky with weather.
The regulatory is easier to figure out obviously, but.
Sure.
Okay.
But it is safe to say your capacity in February is less than it was in October correct, Alright, Yeah, Yeah, yeah. Okay.
With regard January of 'twenty first relief at least at that time, Inc. Because we are at 88% of our dining rooms open and that's also going to have patios.
Then obviously, we went down at 64%, even getting California, patios seven selling its anywhere close to where we were in October.
Also I think places like new Mexico per call.
Ernst.
Sure.
Oregon, and Washington, just recently opened so it's a lot less than the October timeframe.
Okay, and just in a scenario, where you do get all your capacity back.
Restrictions going completely away, which.
Yes, you suggest it could have been maybe sometime in the second half.
In that scenario would you expect to fully restore your volumes in lock step with getting to a 100% capacity or is there.
Some reasons, we should be aware of to expect of lag and kind of how your sales volumes followed the capacity increases.
No I think our sales volume.
Will be greater than our capacity because of the off premise at.
And because we will still maintain a certain amount of patio and our tendency of effectively increasing overall capacity versus let's call. It 2019.
The other element to it.
As most of you how long this last but when people are going out and I think this will be for some for some time they are spending more.
Incident rates on.
All elements of our menu when people are are dining out including alcohol.
We're driving higher check in every element of our business.
But because of takeout checks lower on an absolute basis our.
Check is still growing but not as much as the percentage increase in each of those in each of those channels at that makes sense right.
But more important point is just overall I think youre going to see.
Greg plant, we will have more effective capacity like people have told us.
There are actions that they like sitting outside.
At least in certain parts of the year in certain parts of the country, particularly in California, and I don't think.
We're not envisioning all of that going away.
Post COVID-19.
And then coupled with off premise.
And just the things that we created specifically for the off premise channel.
I think there is that opportunity.
Sorry to keep that number up at micro at so I think effectively you've got an increase in off premises as I can.
<unk> increased and in the way we structure of some of these patios.
I think this is about that and frankly.
Part of that comes with that of leather.
Question on your question earlier, sometimes hard to measure our capacity, where we have a patio opened.
It's called out in obesity on Italia.
Makes sense, thanks for all of the color guys.
Okay.
And we will go to our next question from James Rutherford from Stephens incorporated.
Hey, Thanks for taking our question I wanted to ask about independent closures at kind of in every call in that space.
At a different angle net question if I may.
The meaningful bar business inside your restaurants and at mini bar only concepts have been under more pressure at the restaurants, given they can't do the off premise.
At significantly have you observed any meaningful supply contraction from borrowers in your markets and just what do you think about the real opportunity is to gain market share in that category of your business in the bank from a beer subscription sort of play.
Play into that as well.
And in fact, even at a normal times of our industry doesn't do a great job of tracking at so it's all it's all anecdotal.
Yes.
Particularly we are spending more time or less time out and about than we'd like but here in California, Theres definitely been.
Pull back in.
And to your point I'd say, it's moving the.
The hardest hit of in bars for probably obvious reasons right.
Except for those that are totally ignoring the rules and laws of that was referring to in our remaining open moving into our service.
But I do think that.
Got it.
That element of.
Of the restaurant businesses.
Is it going to be the hardest hardest hit there.
Yeah.
Youre seeing do you say.
We are developing our own working on of your subscription program not related to that but that.
That could be.
Yes.
<unk>.
Fortuitous coincidence for for Us an opportunity.
In that regard.
Yes.
Yes.
It is hard to try and get the correct number is around closures.
Knowing.
Southern California, and driving around this area.
Gregg said at while you see a lot of independent restaurants out of a maybe more of a sports bar related to.
Kind of one off of that don't have ideas out there of kind of shut their doors. We don't know if all of the permanence of or if it's temporary.
But there is a lot of added from the.
Pending.
More of our center for restaurants that definitely at close.
Apparently obvious driving round, but it doesn't get quantified in a lot of the <unk>.
National information side of the stake.
The net color its helpful at the.
The second question is a bit of a follow up on a previous question just thinking at the state level trends a little bit you gave some helpful detail in your business update a few weeks ago.
On what you were seeing at some of the.
I guess less restrictive state of Texas, Florida, and so forth and the comps they were doing and 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. He got customers just waiting during peak times to get a seat or is there.
Still some demand hurdles that it really will take.
Full vaccination of something close to it to get back to normalized or better sales levels compared to pre COVID-19.
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 at night.
Day parts.
In California, you can have Tvs on in the restaurants so.
People arent showing up to lots of game so.
It's all it's all about the lifting of restrictions in establishing capacity.
Understood. Thank you very much.
Thank you.
Okay.
And we have time for one more question, we'll go to Brian Mullan of Deutsche Bank.
Alright. Thanks.
Question about the subscription per club you just mentioned it but what kind of lift in traffic.
Put it in place.
Willing to quantify or provide color on that and are you seeing good food attach all of that traffic.
And then maybe just tremendous this of program you see essentially across the entire base of stores or is it from when you think we will end.
Works at certain locations.
I'm sorry, Brian.
I missed the Couldnt hear the middle question of.
What kind of traffic are we seeing and then there was something in between that and the national expansion question, Yes.
Yes, sorry emphasis are you seeing good food attach.
On a 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.
Yes.
Look we're.
Not at a position given its early stage here too.
Third citing specific.
Patrick I'll give you.
<unk> general observations, though.
Is the first indicator is are people willing to sign up.
In and give you their credit card and subscribe.
And most of all of these are of caveat at of we rolled we launched this program at September of last year and in the midst of all of this rate cut with total awareness. So we've had ups and downs.
We need at least outdoor dining.
And in some in some form and dining rooms here. So even despite those hurdles we've seen sign ups at rates that have been encouraging is what I would tell you I mean, we we were reached.
Exceeding our expectations and the interest level at just interest level, but actually sales sales levels.
At the outset, so that was happening and it has been happening faster than.
Than we anticipated.
We're also.
Encouraged by the attach rate you're asking about at what people are using these benefits. So I'll give you. An example of one of them is the ability to refill of growler for $5. If you are a member.
People people love retail and rollers for $5, but the good news is that over half of that people that are doing that are actually buying food or again I'm, an attach rate of an appetizer or whatever to go to go along with with with background of our for example, so.
We like what we're seeing in terms of overall activity, we want people at sort of like the health club business, we want people to use the help and get on the treadmill. We want people to take advantage of of these offers because we want we want them to stay members right. So.
Again as I say all of this with the Super caveat, we're at eight restaurants in.
Weeks not net.
Not years here of months not years.
We like what we're seeing on those on those key metrics.
And in terms of the National question.
There we are.
Limited from from.
CIBC or.
The local alcohol free.
Diagnose laws of.
Of wear.
Where we can implement the program today.
We like the fact that Covid has initiated.
A number of states or sometimes they are kind of wherever townhouse laws to be eased in terms of carryout. So.
Where we are advocates of.
Of maintaining that flexibility in our.
In those states so.
That's.
That's the plan is at we continue to see these kind of results at our California to start approaching.
Those states I think it covers some of in the neighborhood of about 70% of our restaurants.
Diego can move.
The aircraft depending.
Depending on of other states open up theoretically I forget that number number higher.
Okay. Thank you.
Youre welcome.
Yes.
Alright.
I believe that was our last question.
Thanks, operator.
Yes, Sir.
At this time.
So if I can.
That concludes today's call.
Thank you everyone for your participation.
You may now disconnect.
Thanks, everybody. Thank you.
Yeah.
Okay.
[music].
Yes.
Yeah.
Okay.