Q2 2021 BJ's Restaurants Inc Earnings Call
[music].
Good day and welcome to the Bj's restaurants incorporated second quarter 2021 earnings release and conference.
Today's conference call is being recorded 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, everyone and welcome to Bj's restaurants fiscal 2021 second quarter Investor Conference call and webcast.
I am Greg Trojan.
Call Me as Chief Executive Officer, and joining me on the call today is Greg Levin, our president and Chief Financial Officer, and incoming CEO and Tom <unk>, our VP of strategy and financial planning and analysis and incoming CFO. We also have Greg Lynds, our Chief Development Officer, and Kevin Mayer, our chief marketing.
And Vijay on hand for Q&A.
After the market closed today, we released our financial results for the second quarter of fiscal 2021, which ended on Tuesday June 29.
You can view the full text of our earnings release on our website at Www Bj's restaurants Dot com.
Our agenda today will.
So grano Schirmer, our director of SEC reporting, providing our standard cautionary disclosure with respect to forward looking statements.
Both Greg and I will then provide an update on our business and current initiatives and then Tom will provide some commentary on the quarter and current environment. After that we'll open it up.
2 questions Serrano. Please go ahead. Thanks, Greg are coming from the conference call today will contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095.
Forward looking statements involve known and unknown risks and <unk>.
Certainties and other factors that may cause actual results performance or achievement.
I'll start with the company to be materially different from any future results performance or achievements expressed or implied by forward looking statements.
You are cautioned that forward looking statements are not guarantees of future performance and net undue reliance should not be placed on such statements are forward looking statements speak only as of today's date July.
<unk>, Inc..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 securities laws investors should refer to the full discussion of risks and uncertainties associated.
<unk> looking statements contained in the company's filings with the Securities and Exchange Commission Greg.
Thanks Rhonda.
It's been an incredible experience, leading bj's from for almost 9 years <unk> has it ever gone quickly as the old adage goes time flies when you're having fun and fund.
For me as defined by the ability to grow and evolve our business in many ways.
I remember when I first came to Bj's in 2012 meet.
Meeting some of you in person and non calls early on I made mention of the fact that I was attracted to bj's for a number of reasons all of which are as relevant today.
With Florida.
First and foremost I was attracted by the strength of the concept.
The original founding group of Bj's than succeeded by Jerry Hennessey and polymer tango.
And further iterate it involved by Jerry <unk> each contributed in their own ways to create a truly compelling and unique concept.
As evidenced by the industry, leading traffic and sales volumes in the casual dining space.
I was also drawn by the strength of Bj's management team.
Our operations leadership, along with our senior leadership team at our restaurant support Center is made up of a majority of folks who were part of Bj's before.
As <unk> been arrived on the scene.
This longevity and depth of experience, but most importantly, the talent level are of our team is an important competitive advantage and 1 we probably don't talk enough about.
And the dedication resilience and focus of our restaurant level teams at all levels.
<unk> from Dishwashers and general manager has been a stalwart of our success throughout the years and never been on display more than through the pandemic challenge past year and a half.
So a great concept together with a first class team is a combination that is hard to beat.
But when you add to that Brad.
Is that because of its eclectic menu and timeless design can continue to evolve without losing the core of its essence.
Along with a long runway for organic growth.
You really have something.
It's been my great honor to be entrusted by our stakeholders through our board of directors.
Brand responsibility to lead this brand and this team over the past 9 years.
If I were a younger person I look at the same brand assets and be even more excited about bj's process prospects than I was even 9 years ago.
I am delighted to be handing over the range to someone as knowledgeable pass.
With and capable as Greg Levin.
As many of you know, Greg and I worked together for a time well before Bj's at California Pizza kitchen, when he was a star up income around the finance team.
It's been a thrilled to see him develop as a leader through his dedication and fueled by his love for this business and the.
The people that make bj's what it is today.
I look forward to helping Greg and the team in any way I can in my continuing role as a board member.
I'll, let Greg go through the current results, but I'll kick off with an observation I repeated many times during the pandemic and that I.
Cash is being proven out as we emerge and recover.
The resilience of the diner and restaurant business and I believe a particular strength of the Bj's brand confirmed by our recent research centers around the basic human need to socialize with friends and family.
We provide an oasis.
From the ordinary around the fundamentals of food and drink.
It's a strong business model that certainly has been tested like never before over the last 18 months.
But we are seeing the strength of those human needs as demonstrated by the enthusiastic return cash to our restaurants.
Glass.
Believe it or at least I would like to thank the thousands of team members, who make all of this happened in our restaurants, each and every day.
They're the ones, who take our ideas and passion to grow our business and make it a reality.
So with that I'll turn it over to Greg.
Thanks, Craig before I move into my remarks on the.
Alaska and our initiatives I wanted to take a moment to thank Greg Trojan for his nearly 9 years, leading bj's growth and progress as a concept and personally for being a great mentor to me during Greg's tenure, we expanded from 127 restaurants to 212, while setting our pathway for continued national expansion.
A quarter with a goal to more than double our current platform. We also initiated project Q and a host of efficiency initiatives, while bringing innovation to our menu with offerings such as our healthy enlightened menu, our loaded burgers and more recently, our highly successful slow roasted protein platform.
I mean, Greg tenure, we have emerged as leaders in developing and implementing a mobile app for casual dining and to this day, we may be the only national chain using handheld server tablets in our restaurants to improve the guest dining experience.
Greg will remain a guiding light as a bj's board member with so much.
Potential I'm excited and look forward to building on this platform with the entire Bj's team.
Switching to our recent performance I am very pleased to report that the positive momentum in our business continued throughout the second quarter of 2021.
Driven by both improving dining room seating capacity in key markets.
And guests eager to return to our restaurants, our sales are continuing their steady recovery.
The quarter began with weekly sales per restaurant, averaging 102000 in April as indoor dining restrictions remain in place with less than half of our locations.
With seed up to a 100% capacity in may.
Our weekly sales average rose to 106000 as certain states loosen restrictions and we had mother's day and the start of graduation season.
In June our sales accelerated even further with our weekly sales average increasing to 110000 as the remaining dining room seating restrictions were removed.
Including our California restaurants on June 15th and we had the benefit of father's day as well.
Our sales are also improving on our comparable restaurant basis compared to 2019 levels, we improved by 9 by 9 percentage points from negative 17% in March to negative 7.6 in April and May.
The momentum continued in June and we improved to negative 3.8% for the reasons I just outlined.
In July our sales are trending even stronger at positive 1.6% of 2019 levels on a comparable restaurant basis, which includes headwind from lapping a free <unk>.
Promotion in the first part of July of 2019.
That the strength of our comparable restaurant sales in July reflects dining room sales that have now recovered to about 90% of 2019 levels and off premise sales, which remained more than double pre COVID-19 levels.
In terms of day.
Dave our afternoon, and dinnertime sales are higher than 2019 levels, while late night remains challenged.
Geographically, we have some very strong markets, including southern California, Arizona, and Ohio that are delivering delivering comparable sales quite a bit higher than our average.
Several.
Arts markets like Northern California, and the Pacific Northwest remained well under our average driven by key local employers that have yet to bring workers back to offices.
Off premise sales remain at more than double of pre COVID-19 levels, even as dining room sales recover.
And that supports our expectation.
At our muscle continue enjoying the convenience of takeout and delivery going forward.
Given the strong demand for the Bj's concept, our number 1 focus this past quarter and going forward is to increase restaurants staffing.
The demand from our guests for that differentiated higher quality dining experience that we provide.
<unk> at Bj's is clearly evident as sales continue to outpace our current staffing levels.
We added nearly 3000 key members in Q T. In Q2, an increase of more than 15% from where the quarter began.
Our restaurants staffing today is still only in the high 80% range of pre COVID-19 levels.
The guests in our restaurants, we're staffing is most challenged we are limiting the tables, we seat in the near term as we are uncompromising in delivering a best in class experience to each guest we served.
We believe our approach is the right long term strategy to meet and exceed the expectations of our loyal guests and keep them coming back.
This is underscored in our net promoter scores, which were at the highest level on record during the first half despite the challenging staffing levels.
Additionally, where our restaurants are fully staffed we are delivering meaningfully stronger comp sales, which provides us confidence in the future sales benefit as we continue to add and train.
More team members.
From an initiative standpoint, we continue to be excited by the traction from our new beer club subscription services as we discussed on the last call. We launched our beer club to the majority of our California restaurants in March of this year.
As a reminder, our beer club as a subscription program.
Pay $30 for every 2 months for unique and exclusive veers from our award winning brewery team plus additional food and beverage benefits designed to drive incremental visits and spend in our restaurants.
Membership sign ups are trending well and we remain very encouraged by the guest ex interest and engagement with the probe.
We're in memory as well its ability to drive visits and profit.
Through the end of this year, we will continue to concentrate on California. However, looking forward key states, including Texas, and Florida recently adopted permanent legislation, allowing alcohol to go increasing the markets, where we can offer our beer.
Club.
With nice incremental sales and encouraging reviews, we continue to test slow roast, our virtual brand and approximately 30 restaurants in California and Texas.
Our next phase of testing will be iterating on the menu to ensure we have the best brands and offerings.
And again.
We want to build our staffing levels closer to pre COVID-19 range as before expanding on this exciting opportunity.
As I said earlier, we know that fully staffed restaurants are delivering meaningful meaningfully stronger comps and therefore, our number 1 focus will be restaurant level staffing.
Additionally, as Greg Trojan as Greg.
Trojan mentioned this past year, we have been enhancing our guest research and also our innovation capability.
Our expanded guest research has helped us identify most valuable guests and their needs and wants from Bj's and will be a key lens from which to focus our menu innovation marketing and hospitality initiatives going forward.
While our innovation team is a cross functional team from key areas and our restaurant support center and select test restaurants that are continually testing and innovating around better ways to improve the guest experience.
Combining our guest research with quick prototyping innovation and testing so we can learn even faster.
And provide better solutions for our guests will be a powerful driver of Bj's performance going forward.
Before I pass it over to Tom No discussion of our growth prospects will be complete without addressing our vast opportunity related to new restaurant openings. We opened our 2.2021 openings in the second quarter.
<unk> and Marvell, Indiana in Lansing, Michigan.
Early sales have exceeded our high expectations, which is fantastic as we continue expanding into new markets.
We're also scheduled to reopen our Richmond, Virginia restaurant in a few weeks after temporarily closing it during the pandemic and recently completing a limited remark.
<unk> faster.
As we look beyond 2021, we are seeking to increase our new restaurant openings. So that we achieve a minimum of 5% plus increase in operating weeks over the longer term. This level of new restaurant expansion combined with driving positive comparable restaurant sales positions bj's to grow revenues and.
They are single digits or more range for many many years.
For 2022, we are currently targeting 8 to 10, new restaurants, as we have built a solid pipeline for next year.
We remain incredibly optimistic about the opportunity for many more new locations as we continue on our path to at least 400.
25 domestic restaurants.
Finally, I'd like to take a moment to acknowledge my appreciation for every 1 of our team members as they are the backbone of our rebound and will be the driving force for many successes going forward throughout greg's tenure at Bj's fostered a culture that values collaboration inclusion diversity.
<unk> and celebrating each team members contributions and accomplishments.
This well established ethos will not change as we transition to our new leadership structure, Tom and I are firmly committed to fostering the ongoing growth of Bj's culture, and we will continue to prioritize integrity collaboration innovation and the delivery.
Every of our gold standard of operational excellence.
This will allow bj's to continue delivering memorable dining experience for our guests successfully grow the bj's concept and brand and build value for shareholders.
Now, let me turn it over to Tom our current Vice President of strategy and financial planning analysis and incoming CFO.
To provide a more detailed update from the quarter and current trends Tom.
Yes.
Thanks, Greg and good afternoon, everyone before I begin I wanted to take a moment to share my excitement for being named as Bj's next CFO, Greg Levin as a true leader and mentor and I Couldnt ask for a better leadership team to continue partnering with in mind.
<unk> role and to all of our analysts and investors participating on or listening to this call I look forward to spending more time with you in the coming months.
Now onto the details of the quarter and some forward looking views.
Remember this commentary is subject to the risks and uncertainties associated with forward looking statements as discussed in our filings.
<unk>.
As Greg just outlined our sales improved sequentially and meaningfully throughout the quarter, which we believe was driven by both capacity and demand.
On the capacity side, we began april with more than 70% of our dining rooms still operating with some form of dining room capacity limitations in late June our last remaining.
Markets with capacity restriction.
Passenger restrictions fully reopened and we're once again allowed to fill every seat in each of our restaurants. Those staffing is now the governor for us operating at our true full capacity.
On the demand side guests are clearly eager to dine out again COVID-19 cases declined throughout the quarter is.
With the explanation rates increased giving more guests comfort dining out.
Anecdotally, we are seeing more regulated returning to our dining rooms, and bars, which is fantastic on a more macro level household balance sheets are stronger than ever and guests in general have more to spend on experiential dining such as bj's.
Total.
Revenues for Q2 were $293 million and we reported net income of $6.4 million and diluted net income per share of <unk> 26 on a GAAP basis, the higher level of sales during the quarter allowed us to productively leveraged certain variable and fixed costs in our business, resulting in restaurant level operating margins of 14.8.
<unk>, which improved by 330 basis points from Q1.
Adjusted EBITDA also improved to $27.7 million and 9.6% of sales in our second quarter, marking our more than 100% increase from $12.7 million in the first quarter.
Inflation of key restaurant cost, including.
Including food and labor ticked up as the second quarter progressed, we took approximately 2.5% in pricing in recent weeks, which is below the current inflationary environment as we regularly do to help offset inflationary elements of our cost structure, we will be watching labor and commodity inflation levels as we move through the second half but believe.
Percent derivative approach to pricing during the pandemic to maintain our value leadership position will allow for additional pricing if the environment warrants.
Cost of sales came in at 26.0 per cent for the quarter up 90 basis points from our first quarter. The increase was driven by higher commodity costs across our market basket.
Arkansas higher incidence of our slow roasted proteins during the celebratory season.
Labor came in at 35, 9% in the second quarter, which was 70 basis points better than our first quarter as leverage from higher sales outpaced rising labor costs.
While it remains difficult to compare labor to last year.
And 5.9% labor is only 10 basis points higher than Q2 of 2019, when our weekly sales average was 7% higher at 113000 versus 106000 this quarter.
Our labor productivity as a result of adjustments, we made last year to create a smaller yet still very broad menu.
New changes in management staffing levels based on weekly sales results. The continued strength of our off premise sales and the leverage we are getting from the continued increase in weekly sales.
Our progress, adding new team members resulted in approximately 20 basis points impact to labor due to the extra training required.
Our third of the over a more normalized 2019 hiring and training levels.
As Greg noted, we will continue to add even more team members to restaurants in the coming months, which we expect to have an incremental sales benefit.
Operating and occupancy costs were 23, 3% of sales for the second quarter and.
Moving to 350 basis points from the first quarter as sales growth leverage more than offset the increases in variable elements.
Our Q2 operating and occupancy costs include 1.2% of sales for marketing.
Also included in operating occupancy cost was $1.5 million of operating expenses.
As for temporary patios, which we continue to get solid returns on and which generated over $5 million in revenues for the quarter.
However, given how we can now fully seat in our dining rooms, we removed many temporary patios by the end of Q2.
G&A for the quarter was 17.0 million.
We are.
Still targeting G&A of around $67 million for 2021, which includes more than $6 million for incentive compensation compared to less than 500000 booked in 2020 due to the impacts of COVID-19 on the business.
As always depending on results the $6 million of incentive compensation may vary.
Our G&A budget also includes approximately $7.1 million related to equity compensation compensation, which is about in line with 2020.
Turning to the balance sheet, our improving sales and resulting cash flow allowed us to repay an additional $35 million of debt in the second quarter, reducing our debt balance.
$81.8 million in fact, our cash flow generation in the second quarter has now put us in a positive net cash position with a cash balance of $88 million more than offsetting the amount of debt outstanding at quarter end.
We also repaid an additional $10 million of debt subsequent to the close of our second quarter.
We are beginning to use our strong liquidity to drive growth with construction started on 2 new restaurants, we intend to open in early 2022, and another location, where we will break ground in the coming weeks as well as further investment in our sales driving initiatives.
We are very pleased with the strength of our balance sheet and we will remain consistent.
<unk>, 2 <unk> and our approach of prioritizing growth driving investments to build new restaurants and improve our existing restaurants.
We anticipate next year, we will be in a position to determine the appropriate balance of investment and return of capital to shareholders.
Shifting to today, we are very pleased with the continued improvement in.
In our comparable restaurant sales versus 2019.
We remained steady we remained steady in the positive low single digits throughout July finishing the month at a positive 1.6% in fact, our July weekly sales.
Average reached the highest level ever for the month.
We continue to.
Consist of the Covid landscape, including the Delta variance, we remain optimistic in our ability to continue to grow sales into Q3 and the rest of this year.
Our weekly sales average has returned to a more regular seasonal trends since capacity limitations were lifted in June as a reminder, Q2 is historically our highest sales quarter.
<unk> driven by big weekends for mother's day father's day, and a lift for graduation celebrations Q3 tends to be our lowest sales quarter as vacations and back to school season impact of regular schedules of our guests a trend we expect to see again in August and September.
For reference our weekly sales in 2019 average.
To monitor total 113000 in Q2 and 104000 in Q3.
Our sales goal for the second half is to build on our comparable restaurant sales versus 2019 and continue to set weekly sales records.
With regard to the middle of the P&L, we are working with our supply chain partners to maintain ample supply.
Lie of critical ingredients and have agreed to some higher near term prices on certain commodities in order to avoid shortages.
We expect these commodity headwinds to hold our cost of sales in the 26% area for the second half consistent with Q2 and taking into account our recent pricing round.
We will have a better understanding of how much of this inflation.
Is it procurement versus transitory in the coming quarters, and we'll evaluate further actions to help offset any continued effects as needed.
Thankfully with our broad menu, we have the opportunities to shift our menu mix at times based on different promotional activities, which we can also use to help mitigate inflationary pressures.
<unk> is currently we have about 45% of our food commodities locked for the remainder of this year.
From a labor perspective, while we increased our hourly team member count by 15% in Q2, we remain understaffed in many of our restaurants. We have said as we have said consistently we are in a high touch business.
And which the print.
Precise execution of every aspect of our operations, including food service and hospitality drives long term sales growth and brand loyalty.
As a result, we believe we can drive even more sales upside by continuing to recruit and train kitchen in front of house team members.
Business restaurant managers, which in turn will help offset the additional labor investments.
Therefore, we expect labor in the mid to high 37%, which would be slightly above Q3 of 2019 levels.
<unk> into account the modest labor investment as we continue to hire and train team members and the typical.
And leveraging from seasonally lower sales in Q3.
We expect an increase in labor efficiency. Once we are past the short term investment of hiring and training.
Our operating occupancy costs, we expect to remain around 24000 per restaurant operating week average for the balance of the year consistent with Q.
2 levels.
I anticipate G&A to be in the 17% to $17.5 million range in Q3, which will be up modestly from Q2, as we continued to ramp up the hiring and training of new restaurant managers selectively add additional resources to execute our growth initiatives and returned to a more normal level.
<unk> dealer business activity, including travel.
Additionally, I'm expecting our diluted shares outstanding to be approximately $24.1 million for the third quarter.
In summary, we are now generating higher sales on a comparable restaurant basis compared to 2019, as we address the challenges related to labor inflation.
A general in supply chain. We also just delivered our highest sales ever in July which is a testament to our guest excitement to return to our high energy dining rooms, and the sustainability of our delivery and takeout sales gains.
Adding our gold standard level of food and service execution and the value proposition across our menu, including.
<unk> specials happy hour and happy hour results in clear differentiation that our guests love and a strong competitive advantage for bj's.
While there may be still some near term disruptions as the country and restaurant industry continues its recovery, we remain incredibly optimistic regarding our ability.
<unk> to continue delivering outsized growth both in the second half in the and in the years to come.
Thank you for your time today, and we will now open the call to your questions operator.
Thank you if you'd like to ask a question. Please signal by pressing star 1 on your telephone keypad and if you are using speaker phone. Please make sure. Your mute function is turned off to about your signal.
Our daily equipment again that is star 1 to ask a question.
And we will go first to Alex Slagle Jefferies.
Hey, Thanks, and congrats to all of you on year irrespective ex.
The adventures.
Wanted to.
We could follow up on the comments on the staffing levels I guess on the fully staff units for driving meaningfully higher same store sales. If you could provide any color on what that GAAP looks like and also how different the guest satisfaction scores or what youre seeing there.
Yes.
Alex.
Well. Thank you for your introductory comments there.
In regards to the range.
Pretty significant range, and we've kind of broken it down to tears.
Without getting into specifics.
I would tend to tell you that our restaurants that are at that 100% level we.
We can see up to high single and even double digit comps in there and then some.
And those restaurants, so it's a pretty high number from that perspective, and then obviously a different staffing levels like it comes down.
And then because we have really as we said on the call really.
And really made sure that we're providing the gold standard.
First of all with execution, even in restaurants that have lower staffing.
We are not in the position is basically giving a server 15 tables or if we're eliminating a certain amount of coke trying to open up all of our tables out there and just not give the right ex right hospitality and execution service to our guests from that standpoint, so because.
And at a level to do those things our NPS scores don't have quite maybe don't have quite the dispersion that you see on the comp sales side of it when all of our.
All of our tables are open.
Okay makes sense.
Then on the outlook on the third quarter's trend.
We have been and what kind of assumptions generally youre, making on volumes and capacity I mean, I guess, there's a little more uncertainty now given unknowns the virus and potential restrictions, but any color here be helpful.
And also on the patios.
Your ability to be flexible there and reopened.
And if you need to.
Yes.
Let me answer a couple of questions since probably I think others might.
Have the same thoughts or comments on that 1 is we have not seen really any change any changes in our business right now right now despite some of the increases on the Delta.
Delta variant.
Even in southern California, where our lease in Los Angeles area, where mask mandates have come back into place we haven't seen a change in the positive comp sales trends of the Los Angeles market.
In that regards and same thing with as we look at other states we.
We did make the comment.
I know Alex share up in the area. The Bay area, just with people not back in their offices really frankly, the softest market for us overall and we've seen tech companies continue to push out there are opening days in regards to bringing team members back or in their case employees back. So we would expect that area to stay soft.
And.
With that like we've always done we kind of provide you where the comps are you know at the time of our earnings and kind of use that is really just the springboard of how we think about the quarter I guess.
And then I'm sorry, your last comment on patios, while we pulled down our patios, we do have the flexibility to introduce them if needed.
I think we would do that.
You have to obviously work with our landlords to make sure that we got the permission by our landlords have been very helpful with.
With us are the majority of them have been very helpful with us.
I'd like to see us continue growing sales as well.
That's great. Thank you.
Youre welcome.
Yes.
And we'll go to our next question at this time from true North of Baird.
Great. Thanks for taking the question I wanted to ask about the pipeline per unit development in the context of the outlook from 8 to 10 units next year, which you bet out there I'm wondering if you could comment on the factors that may be holding back that number from being even higher.
Exiting the pandemic and just does it take time to rebuild the pipeline pausing for a bank and as a follow up related question I believe the brand has opened as many as 16 to 17 units in years past. So could you see the company getting back to that type of growth in the out years.
Yes again this is Gregg.
Greg Levin I'll, let Greg Lynds common.
Some other comments from that standpoint, but drew the we have always pride ourselves at Bj's in the fact that we have opened restaurants with high quality and consistency in that regards we end at least in my time here and for those that followed.
And you're a long time, we have not ever put out a press release, saying that we're closing 15 in the last 50 restaurants that we've opened over the last couple of years, because we decided to grow for growth's sake, we want to make sure theres quality and consistency in that and when you think about building new restaurants, it's making sure that not only do you have the real estate pipeline.
Bj's, but really is even Tom said about our current restaurants sales environment. The governor to that is going to be around key members and really managers. So as we exit the pandemic and we build up our manager pipeline, we are not going to sacrifice on or manage our pipeline in regards to not having the people that can operate frankly.
Frankly, 6 million average unit volume restaurants.
So for us to get back to where we want to grow our business, we're going to do it in a very deliberate manner that allows that quality and consistency. So as we think going from 8 to 10 next year, that's still going to be a lot of investment into our business in regards to hiring managers, making.
<unk> our training program.
As well as hourly team members and so forth. So when we think about that part of our business, we want to do it as I said very deliberately.
And over time, we will continue to step that number up so 8 to 10, we will continue to go and we will continue to increase and as you noted we've done 16.
Growth of <unk>, 4 and I think our goal would be to getting back there and becoming.
The ability of driving that 5% plus increase in operating weeks.
As we continue to build this business.
Greg if you see anything from a pipeline standpoint that you want to add yes, I know drew thanks for the question I do think our on our last conference call.
Call, we had mentioned that.
Our pipeline is very strong we are seeing more b type sites and C type sites from the <unk> side are harder to come by I will say in the last 2 months or so we have noticed an increase in deal flow and we're pretty bullish and confident that over the next 24 to 30.
<unk> red months, they will even be more sites available to us.
We have plenty of white space available with still a lot of states, we haven't penetrated with only.
212 restaurants in 29 states today.
Mhm.
All very helpful. I wanted to also circle back on the staffing topic I was wondering.
If the challenges there are concentrated in any particular region or market and just maybe stepping back what are the company specific initiatives that you have in place that could help accelerate your ability to fulfill those staffing needs as opposed to needing the labor environment to improve.
Yes.
True we tend to see Theres always going to be pockets that are more challenging than other pockets.
They have been that those day that way ever since I've been in this business.
As Greg Trojan mentioned back going back to California Pizza kitchen days.
Generally the bay area tends to be a more challenging area. It always has.
There has been even back in the 19 nineties from that perspective, and then it's Jim.
Just again pockets throughout the country versus very specific regions.
In regards to incentives we've gone down the path like many other restaurant companies have in regards to job fairs and other incentives out there.
I think the.
The best thing that we tend to look at.
It really is how do we incentivize and reward our current team members we.
We don't think it's the right thing to do is to offer bonuses for somebody new joining us when we've had somebody working for us for 567 years. So our general viewpoint is really to make sure. We're taking care of our current team members.
Building on that culture within the 4 walls of our restaurants and that in of itself feeds feeds feeds on itself to bring other people and 2 in the Bj's.
And last 1 from me I was just wondering and maybe I missed it did you share the off premise either sales mix, our average weekly sales for Q.
And our July that'd be helpful.
Sure.
For for off premise in total so for Q2.
Our off premise WSI was 24000.
And you have perspective on July.
Ally.
Yeah, we've seen the off premise, we're still sitting above 20000.
Yes.
So yes, we are.
We're sitting at somewhere in that kind of low 20000 area yes.
Yes, so we've come down seasonally which we would expect from about 24000 more day.
Q2 have opened up to right now in July somewhere right around 21000.
Very helpful. Thanks, guys.
And from pharma to our next question from Nicole Miller of Piper Sandler.
Thank you.
I also want to say congrats.
Everyone can be happening day, better people from awesome team from <unk>.
Ed.
In the prepared commentary you had mentioned doing from guest research from talking about finding the most valuable gas and what are their needs. So I was curious.
What did you find out what day demos.
Valuable guests, having comment why day and.
And what are they looking.
For debt, so Nicole I'm going to let Kevin Mayer, our chief marketing officer, probably handle a good portion of it but as we've always said at Bj's.
We provide this kind of a higher quality energy dining experience, which is very experiential and I would spend from selling over to Thunder from Kevin It's that.
Experience, which is really important and I'll, let Kevin build on ex he's the guy that's really been leading it up inside the Jason. Thanks, Nicole I guess just from a methodology standpoint, we did a number of different things in our research 1 starting with a from.
Our most valuable guest survey, which our guests it came in some cases 40 or more times a year.
So we can really understand what why they have such a magnitude from for our brand. We did expand that into a larger segmentation study and we just found is that as Greg was saying.
There is an energy that they are attracted to when they walk in the door. There's a consistency of execution and there is ultimately the book the social aspect of the comp.
Seth I would just love whether it be the team members are connecting with them.
We have plenty of stories of our team members knowing their drinks when they walked in the door too.
To actually being able to work through them with the menu.
To the people that come in the fact come with the fact that for any occasion ultimately come to Bj's.
Through the segmentation, we found there's 2 core guests and what they haven't really income as is the social aspect they loved to come for the energy for the aspect of sitting back and feeling kind of welcomed.
Comfortable and then Theres, just definitely nuances in terms of demographics and other needs, but a really good start to the research.
Awesome will continue to follow up on that and then just making sure we assign the appropriate level of understanding our risk is definitely too strong of a word I'm sure, but 8 to 10 stores next year, if we want a model an over under or they I'm sure. They're obviously all identified are they all our lives are they all signed leases.
First half back.
Just wanted to get it right.
Yes, I think right now we're somewhere in the kind of 3 to 5 on signed leases I don't have the signed leases in front of me from that standpoint, I think from a timing, it's still pretty much spread out fairly evenly within the next year somewhere in the kind of.
2.2 in the first quarter summer's around 3 to 4 in the second quarter than the back half of next year.
Got it that's pretty accurate.
Great and I'll sneak 1 last 1.
Annoying, but I think everyones attempted now to take these average weekly sales of 2019. It go up 2% on net.
But I'm a little nervous if I'm not going to get the seasonality right I'm, especially since you mentioned the tapering of the off premise. So.
Is there any caution against taking the I think it was 104000 plus 2%.
If there's.
I I I don't know what.
What you would say to that is the last question and thank you.
[laughter], because I think that's a reasonable way to think about it I mean.
As we look at our numbers internally.
We hope that obviously as we bring on more team members and.
Make sure we're doing everything right from that.
Standpoint that that allows our effective capacity to expand that frankly would allow our comp sales to increase.
When we talk to our operators and ask them, where they feel they are operating they will tell you that they think our capacity today is somewhere is in kind of the 80% range. Even though we have are technically all the seats open for all of our.
Restaurants, but just when we think about the staffing levels and so forth, we're not necessarily seeding or serving all of our exceeding all of our our seeding our guests all of our seats in that regards.
So we're always a little cautious from that standpoint, as we bring key members on but I do think.
Given the current environment and assuming.
There's not major changes related to Covid I think looking back in 2019 from a comp sales perspective, that's how we were tending to look at it and then how the comp businesses moving from there.
Thank you so much and again congrats.
Thank you. Thank you.
And so we will go next to Sharon Zackfia William Blair.
Hi, good afternoon, Thanks for taking my question.
This is probably a tough question to answer but I'm curious on your line of sight to getting fully staffed them. You know is that something that you're.
Assuming you have to get to by year end.
Or even sooner and then curious whether the back of house are in front of us is proving more challenging.
Yes.
Sharon so.
It's a first of all it's a great question.
Regard because obviously it.
We're hoping to to driving sales and giving that gold standard level of execution to our guests and ideally we'd like to be fully staffed tomorrow.
And we've talked to our team members and Tom alluded to it a little bit in today's call and that is.
We're going to continue to invest and hire those team members and what generally happens.
So Keith this is you get into Q3 and you get lower sales weekly sales averages as Tom mentioned you go from 114000 down to 104000, it's looking back to 2019. So generally your operators are going to adjust our staffing levels because of that that's just what happens as you come off that.
The high watermark of June with the graduation.
<unk>.
We have told our team members that while we need to be productive and efficient it's more important to make sure you bring on people and you train them and you get ourselves ready to take on the holiday period from that same where the holiday timeframe in November and December so.
Goal would be to add the fully staff before we get into.
The fourth quarter, but it's going to be a challenge out there, especially with still the unemployment level is the fact that people have as Tom said solid balance sheets, they're getting the refund that supposedly.
And in September we'll see how that plays out.
But.
As you said, it's a difficult question, but our goal.
It'd be sooner than later and our goal is not to hold back on Q3, when seasonally weekly sales averages do come down we'd rather make sure the staffing levels correct.
And have those team members in there. So we can go into the fourth quarter when our weekly sales averages start to increase again to be ready to go.
That's.
Well I know you also mentioned the late night business is still a bit of a drag but has that started to improve I mean did you see an uptick there as the second quarter went on into July.
We did that that business has improved.
We have talked in the past that late night somewhere between 13% and 15000.
Sure.
Really.
It's moving in a better direction, we're still.
Good.
$2000 less than where we wanted to be there, but it has improved I think the day.
Frankly, the sporting calendar helped a little bit on that regards with NBA playoffs, and things like that and then.
Removing the social distancing made a big difference.
Here in southern California for the longest time, you couldnt see that the bars.
Now you can see that the bars and we're getting those regular customers coming back both in the mid afternoon, which as Tom mentioned, our I think I mentioned our share sales are higher now in the mid afternoon.
But we're seeing those regulars come back at late night as well so it's moving in the right direction I would tend to say.
The 2 areas for US right now would be that late night, and frankly, the northern California area I think of the kind of maybe 2 bigger areas that are keeping comp sales from even accelerating greater taking staff from putting staffing aside.
Thank you.
Okay.
And we'll move to our next question from Jeffrey Bernstein of Barclays.
Thanks. This is product on for Jeff and I'd also like to congratulate everyone on their new roles.
I had a bigger picture question about restaurant margins if.
If the current inflationary pressures.
We remain outside.
Greg now that you're in the CEO seat how do you think about profitability are you willing to take the near term hit to margins to maintain your value leadership or would you consider incremental menu pricing above your historical norm and on the flip side are there.
There's been a cost saving opportunities that are still out there and if so where in the P&L do you see them coming from thanks.
Yes, that's.
That's a great question and I.
I am going to be working with Greg Trojan and the rest of our board of directors and frankly, our senior executive team as we.
<unk> continue to evolve.
Around Greg Trojan strategies, and the things that.
I would like to do that might be different or just a little bit of a change from that perspective.
As we tend to think about your question overall, 1 is as I mentioned earlier, we got EBITDA, we have to get ourselves fully staffed to drive.
<unk> sales.
And everything I have seen in this business over my many years, if you're not driving top line sales, you're really not going to be able to save your way to success now it doesn't takeaway being productive and efficient the project Q initiatives that Greg Trojan put in place today lives on and Bj's and is a great example of us always going after efficiency.
Within our restaurants, and we will continue to drive that but I think secondarily looking at that 1 of the things that we did and I'm not going to get into specifics here as we take a look at our restaurants that are driving positive comp sales in both may and June and we compare them to may and June of 2019.
And we have noticed that those restaurants that are driving.
Driving comp sales are able to manage margins some of the restaurants have improved the margins dramatically from that timeframe. So.
There is the ability of that as we drive comp sales positively we can move those margins secondly, 1 of the things we looked at as well is how is the throughput in our business and frankly, the throughput in our business on the incremental sales.
It's still just as much as it always was and that is if we can drive incremental sales, we can generate 40 to 50.
Of incremental dollars diners is going to be higher than the 6% or $47.50 range third party deliveries a little bit Lascar, you pay the commission, but it really comes back to the fact that as you drive those sales.
Drive the throughput.
And that drives those margins in there so.
Ultimately to your question, we're going to do at all but if I had to air somewhere I'm going to always err on driving sales and that probably means making sure we have value for our guests and that we're giving ourselves by giving our guests great service within our restaurants.
<unk> seen a restaurant company today.
Eliminate servers and improve their sales and everybody else on this call.
Think back to 7 or 8 years ago, when the whole talk of the town was putting Z asks in tablets on their tables and doing calculations at servers are now going to go to 10 tables, and thats going to save and $3 million.
And they tend.
I think about that as a dependent variable, meaning I can do that and it's not going to change sales of top level. So were.
Our goal is Kevin Mayer just mentioned earlier looking at our guests it's about the experience within the 4 walls of our restaurants, we're going to make sure that we continue to deliver memorable dining experiences at bj's.
That's very helpful. I appreciate it and congrats again everyone.
Our pleasure thank you.
We'll go next to Todd Brooks with CL King <unk> associates.
Hey, good afternoon, everyone. Thanks for taking my questions a couple of questions on <unk>.
On staff.
Kind of thing with everybody else.
Okay.
Did you share or.
Would you share of kind of a number of bodies to fully staffed I know that I think you talked about 20000 on the last conference call.
And I believe earlier in this call you said you hired 8 but then again demand has rebounded sharply so where.
Where do we feel we are as far as additional bodies that we need to hire to get to that fully staff level that you're targeting.
Yes, I don't know the exact number I think we said at 1 time that were around 23000 team members.
Today, I said, our staffing levels is kind of in the mid to high 80% range.
So I think if you kind of back into it that way and again. This is just doing the math off of <unk>.
Today's earlier formal comments it puts you in the high teens.
In that regards.
Okay, Great and then as the quarter progressed you touched on this Greg.
Hum.
Use of hiring.
As far as we've gotten closer to September as some states have terminated the unemployment benefits.
Earlier in the quarter kind of the pace of bringing new applicants on board can you talk to how that's changed as we moved into June July here.
It's gotten better.
No I think Theres a couple of things that are at play in that and this is.
Nothing original from from Greg Levin.
And that is true.
Tom mentioned balance sheets are strong for consumers and for basically people that need to get a job in that regard they're getting the.
Unemployment benefits and I'll get back to your comment about some of the other states that have started to eliminate the federal but they get the unemployment benefits coming.
Through you still have childcare on there and then frankly as a country. We kind of opened up in June right in the middle of summer where people have gone hey, I've been stuck inside for the last year do I really want to go out and get a job right in the middle of June or kind of have.
Have a summer before I have to go back and get a job so I think.
As we get later into this year I know unemployment benefits from a federal standpoint will end in September that things will get easier.
What I am saying it knowing and then you've got channel that's going to help with people going back to school. So I think all of those.
Forecast a better.
Hiring scenario in the future but.
Even taking a step back from that we have heard from our team members that have certain states have eliminated the federal unemployment that they've said, it's gotten easier from that perspective, and I would tell you going through the summer months. It seems to get easier every single month from that perspective as well.
Great and then a final question if I may.
You talked about slow roast and we're in 30 stores in test now and obviously.
Holding at 30 until we get the staffing levels. When we want so probably end of the fourth quarter is there any interim kind of early read data that you can share with us since we're gonna be pause that these 30 units for awhile on what you are.
Seeing in increments holiday, maybe even as we're moving into the summer season from the from the slow roast brand as as we're getting to a more normalized environment.
<unk>.
Sure. Thanks for the question.
Yes, we have a lot of optimism EBIT from the current test with these 30.
Restaurants out there that have it going.
We've seen anywhere in the kind of 6 or more orders per restaurant per day and solid check. So it is adding in over a point of comp as we've been testing. It so lot of lot of things to like about it and even looking.
At the overlap between the Bj's guest which is a.
A key criteria to of how this fits in with our.
With our normal customers and and.
It's in the 20% range, which is virtual restaurants go is.
Is what you want to see so yes, we're optimistic but still.
Ensure that it's a.
The right time to launch it with staffing levels as we've been discussing but also iterating to make sure that we.
Half the best option possible when it's ready to rollout.
That's great very helpful. Thank you.
Our last question comes from Jon Tower of Wells Fargo.
Awesome, Great I have a few if you don't mind and first echoing comments from everybody else that congratulations Greg Greg and Tom on the new moves obviously, Greg Trojan and I wish you the best going forward.
Thank you.
Yeah.
Hoping to dig in a little bit on the labor stuff I know everybody's been asking about it but I'm curious on the 1 hand youre going to see elevated cost this third quarter related to recruiting I am curious to get your thinking on how long that persists and then going forward.
About how.
Some of.
The menu changes that you did during the pandemic and obviously there is some of the off premise sales coming through and some staffing changes around it.
Where do you think that can reach maybe as a percentage of sales over the longer term do you think that even in the face of higher inflation, you'll be able to.
To see some labor leverage on that line say relative to what we saw in 2019 or 2018.
Okay.
Yes, John.
I do.
A couple of things in here.
1 is.
After next year, California.
I reach a $15 minimum wage so you've got 30% of our restaurants and now we're just going to be kind of a CPI versus this kind of a bigger bump that we've taken and we've kind of proven that we know how to operate our restaurants and.
In a high labor states.
And I think about some of the other concepts out there that don't have to deal with some of the cash.
California things.
Those are coming down the line.
And I think theres going to be more challenges.
Frankly, maybe at other concepts and ours, just because of where we are from a structural standpoint to begin with and that perspective. So I think that's 1 that's going to be a real benefit for us.
Going forward, just having California.
Kind of hit their minimum wages, suggesting it to a CPI perspective, and then when we start to think about the changes in the business of holding that off premise driving that weekly sales average and then looking at our business with some of our restaurants that are fully staffed how they're comping up versus where they were in 2019.
And as I said their margins.
We're in line or better than 2019, just depending where they were on that kind of on that matrix is in different markets.
So when I look at that and I think about it I think we have a good opportunity to be back in line with historical margins as we kind of work through some of the transitory.
Inflationary pressures in our business right now.
Great. Thanks, and do you think this near term pressure on some of these incentives to get people back do you think that wanes in the fourth quarter or do you think it carries over into that period.
Well, if we can get ourselves.
Back to the staffing level I think what we end.
It is a decreasing over time.
And a decrease in training and both of those actually have a.
Have a fairly decent impact on labor margins in our business and get a stack.
Again.
Being better from inflationary standpoint, even when we look at our labor rates Theres a big difference.
Between labor rates with overtime and labor rates without overtime. So as that can come down because we are fully staffed and then training, which as Tom said its somewhere in the 20 bps higher than where it's historically been all of those allow us to be more efficient in the restaurants, just from a pure productivity standpoint, so less hours because we got the right people they've.
<unk> for lack of a better term their sea legs under them and then we end up eliminating those additional costs around overtime and around training.
Great and then just maybe this is a question for Kevin in terms of the guest research that you've done.
Are you starting to implement some of the information that you've learned from.
<unk> got study or is it still kind of more of a 'twenty 2 or late 'twenty, 1 type of push and if so can you give an example of what you've done.
Yes.
Well.
There is always more to learn from our guests. So let's just start there that there is a few other steps of this process yet we're doing some things with some credit card.
So that's going to give us another overlay to really understanding our guests on a daily basis in terms of how they behave with us but going back to your question.
Now the whole pointed us as to as we understand our guest is to continue to create more differentiation within the space.
What we found is our restaurant is a place that kind of has the energy of.
Of a bar, which of course, a big part of our business is from the bar and yet we have this kind of comfortable bar environment to that people like to come and hang out with so as we look at differentiation. We're looking at doubling down on some of the strengths. We're doing we're looking by department right now how we can double down on those opportunities. We're applying some of this into the way we do targeted marketing.
April day.
We're even looking at the way we look at our loyalty guests and are there opportunities to continue to drive more frequency and upsell so kind of across the board, but this was probably I'll call. It 12 months to 24 months evolution to get to a point, where we're really working on all cylinders with this new information.
Got it thanks, and then lastly, Tom.
I just wanted to clarify I believe you had said earlier that other op expense.
At the restaurant level 2004, K per week is that inclusive of the marketing spend for.
For the balance of the year, I think youre, saying or maybe it's just the third quarter.
I think that was just third quarter wasn't it.
Yes, it should be.
<unk> estimate for the balance of the year, but that's correct.
And that's inclusive of marketing sorry.
Correct.
Awesome great. Thanks.
Appreciate the time.
Got it thank you.
Okay.
And that does conclude the question and answer session.
As well as today's call.
I'd like to thank everyone for your participation you may now disconnect.
Alright. Thank you everyone. Thank you.
Yeah.
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