Q3 2021 BJ's Restaurants Inc Earnings Call
Okay.
Good day, ladies and gentlemen, and welcome to the Bj's restaurants incorporated third quarter.
1021 earnings release and conference call. Today's conference is being recorded at this time I turn the conference over to Greg Levin, Chief Executive Officer and President. Please go ahead.
Thank you operator, good afternoon, everyone and welcome to Bj's restaurants fiscal 2021 third quarter Investor Conference call and.
Or just.
I'm, Greg Levin, Bjs, Chief Executive Officer, and President and joining me on the call today is Tom <unk>, Our Chief Financial Officer. We also have Kevin Mayer, who has taken on a new role at Bj's as our chief growth and brand officer, and Greg Lynds, Our Chief Development Officer is also on hand for Q&A.
After.
After the market closed today, we released our financial results for the third quarter of fiscal 2021, which ended Tuesday September 28, 2021, you can view you can view the full text of our earnings.
The lease on our website at Www Dot E Jay's restaurants dot com.
Our agenda today will start with Rhonda.
Webcast, our director of SEC reporting, providing our standard cautionary disclosure with respect to forward looking statements.
They provide an update on our business and current initiatives and then Tom will provide some commentary on the quarter and the current environment. After that we will open it up for questions. Ron. Please go ahead, thanks, Greg our.
Comments on the conference call today will contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 forward looking statements involve known and unknown risks uncertainties and other factors that may cause the actual results performance or achievements of the company to be materially different from any future results performance.
Or achievements expressed or implied by forward looking statements.
You are cautioned that forward looking statements are not guarantees of future performance and that undue reliance should not be placed on such statements are forward looking statements speak only as of today's date October 21, 2021, we undertake no obligation to publicly update or revise any forward looking statements.
Or can you make any other forward looking statements, whether as a result of new information future events or otherwise unless required to do so by the securities laws investors are referred to the full discussion of risks and uncertainties associated with forward looking statements contained in the company's filings with the Securities and Exchange Commission.
Thanks Rhonda.
As discussed on our Q2 call back in July we entered Q3 with optimism as the country showed several signs of emerging from the pandemic. Our weekly sales average during the four weeks of July surpassed 107000, which was one 4% higher than sales levels from the same period in two.
2019, we noticed that flavor was our biggest near term challenge to realizing the true sales potential of our overall platform.
Sure.
Realizing the strong demand for an appreciation for the Bj's concept. Our teams were focused on ramping up staffing levels. So we can accommodate even more guests as the third quarter progressed.
However, beginning in August with the spread of the COVID-19 Delta variant casual dining industry comparable sales took a step backwards and declined approximately 370 basis points in August from July comparable sales levels versus 2019 as measured by black box during.
During the same period.
Bj's outperformed the industry sales declined approximately 260 basis points over the same weeks.
In addition to consumers pulling back on their dining occasions staffing levels became more challenging in August and September as increased team member exclusions related to Covid cases resulted in reduced seating capacity.
Asked and limited hours during the quarter over 20% of our restaurants were placed on limited menus due to both staffing and supply chain shortages.
Throughout this time our goal is to make sure. Our team members were taken care of and that we delivered gold standard level of execution to our guests.
We understand that.
At a time these conscious decisions sacrifice short term sales by limiting restaurant seating and capacity as well as menu items.
However in doing so we know that the guests that are in our restaurants are getting the service hospitality and food quality that they expect and will keep choosing bj's over other concepts.
<unk> <unk>.
As a result third quarter comparable restaurant sales finished down a half a percent compared to the same period in 2019, which reflects the deceleration from one 4% of positive comps in July to negative 1% in August and negative one 7% in September.
At the same time supply chain is already stressed before the summer felt more acute pressures from staffing and transportation that caused certain foods to increase further, particularly fresh meats. This caused a rapid rise in commodity food costs mid quarter, which resulted in lower than anticipated restaurant operating margins.
In addition to the industry wide sales pressures.
Excuse me Vijay is also lapped a period with heavy promotion in 2019.
We promoted a $3 per Vicki deal throughout September 2019, with TV support.
Because of the capacity limitations related to current staffing levels are immediate.
Spend per restaurant was 40% lower than the third quarter of 2021 as compared to the same period in 2019.
As we said on the Q2 call and as I, just reiterated staffing remains our number one opportunity to drive near term sales growth.
We continue to see a direct benefit to our comps.
Restaurants with higher staffing levels.
Towards this goal our restaurants nearing their 2019 staffing levels increased to approximately half of our system at the end of Q3, that's a 10 percentage point improvement since the end of the second quarter.
Importantly, restaurants that were close to 2000.
Amps are keen staffing achieved comparable restaurant sales of more than 5% over 2019 levels and continue to drive positive comparable restaurant sales into October.
Conversely about a quarter of our restaurants were 20% or more behind 2019 staffing levels and had.
High single digit percentage percentage comp sales decline in the third quarter compared to the same period in 2019.
Excluding those restaurants are comparable restaurant sales for the quarter would be positive low single digits.
I'm sharing this data and perspective, because while our typical growth.
Drivers revolve around menu sales building initiatives and new sales channels, such as off premise and our beer club. Our current number one priority and the one that will quickly reverse the margin percentage impact on labor and other costs had on Q3 as sales.
It's fully rebounding our staffing as.
As this challenge posed a more significant headwind on traffic and sales during the third quarter than it did during the first half of this year.
Additionally, our restaurants that were closer to fully staffed.
And able to drive positive comparable restaurant sales in aggregate had restaurant level margins that were over 150 basis points better.
<unk> understaffed restaurant.
So despite the current pandemic induced inflationary pressures on our business. The restaurant business still has a high degree of fixed and semi fixed costs that are very leveraged <unk> by driving top line sales.
Looking to the future I remain incredibly confident in bj's ability.
Then I'll return to industry, leading results because of four key factors.
One our differentiated concept and ability to execute at the gold standard level.
Second is our team members and the Bj's culture third as our guests affinity to our brand offerings value and hospitality and fourth our very significant.
<unk> and long term restaurant growth opportunity.
First our differentiated concept to execution, we are unmatched in the industry given our polished casual positioning best in class bar statement and <unk> approaching $6 million on an average guest check in the mid to high teens.
The way our concept is designed.
Years allows get allows guests to visit Bj's for lunch midafternoon dinner and late night.
There are not many casual dining concepts or for that matter restaurants in general that have the ability to drive sales throughout the day.
With that in mind, we have invested in productivity and technology initiatives.
<unk>, so that we can execute at what we internally call the gold standard level of execution.
This includes refined marketing and guest loyalty programs internally developed technology that gives us ability to rapidly iterate compared to our peers, including our own internally developed App and QR code link digital menu and our server.
Handheld tablets, we have large and flexible kitchen that allow us to have a broad and innovative menu to stay current with food trends.
And we have craft beer authority that is unparalleled in the industry and.
In fact, just last month, we won another gold medal at the Great American Beer Festival.
So have many sales building initiatives and opportunities.
<unk>, including continuing to grow off premise sales through takeout and third party delivery Bill.
Building out our catering infrastructure, which is very early stages and growing our beer club subscription service, which no one can replicate at the scale that we can at bj's because of our internal brewing capabilities.
The bottom line is we.
We are clearly a differentiated concept with strong competitive advantages and tremendous future opportunities to grow our weekly sales average.
Next our team members, we continue to bolster our first class operations team to lead the execution in our restaurants, while readying for the next stage of Bj's growth we are fortunate.
<unk> cultivated a deep bench of talent and promote from within to maintain our leading high performance culture and standards, while undertaking the expansion, we see ahead to drive future growth.
In order to get ready for new restaurant growth. We recently added the role of senior Vice President of operations to our executive team and us.
<unk> digital is solely responsible for leading day to day restaurant operations, thus, allowing our executive Vice President of operations to help guide and integrate our longer term strategy over to hiring training development and retention of our new managers and team members.
We also made some other changes during the quarter, including a new Vice president.
Innovations to oversee much of the east coast and six new directors of operations and several new general managers to lead the day to day operations of our regions and restaurants.
We have high expectations for all of these newly elevated leaders to make a major positive contributions to our business in the coming quarters as we build back our staffing.
Staffing levels.
Additionally, we've added talent at our restaurant support center to drive the next phase of our weekly sales growth as we emerge from the pandemic, including our new senior Vice President of culinary, our new leader of our E Commerce and digital experience.
Experienced team to help build our technology to better serve.
Of our guests.
New leader of our beer subscription services to advance our beer club initiative.
As well as a new leader to drive marketing and a newly created position to drive quick prototyping ideation and innovation at Bj's.
Next our guests this quarter, we completed a seminal project.
Develop a deeper understanding into why our most valuable guests choose bj's above all other concepts.
The team spent countless hours speaking with and listening to our best guess and I love what we heard.
<unk> differentiated position is defined by an environment that energizes the senses with an inviting bar at the core and then.
Jack to do with familiar offerings made with the brewhouse twist.
<unk> raved about our gold standard level of service and the value and breadth, we offer across our menu with food quality that rivals restaurants with much higher prices.
Our most valuable guests few bj's as an escape from their ordinary day and they come to Bj's for all.
Many of social dining occasions.
Armed with a deeper appreciation of our best guests and are attributes that attract them, we can more effectively target and drive even more brand affinity and traffic to our restaurants.
To that end, we are beginning to develop our own internal guest personalization platform to better engage with our.
Types in a one on one manner. We are in the early innings, but we are already using the learnings and the significant guest data we have been capturing to help guide decisions across our business to best serve our guests.
Last but very importantly, our significant near and long term restaurant growth opportunity I am a firm believer.
Gassy indicator of the future success of our brand as the performance of its new restaurant openings.
Our recent openings in Lansing, Michigan, and Maryville, Indiana continue to perform strongly and above our system average sales <unk>.
Communities are excited to welcome Djs and it shows what these restaurants opening and remaining fully staffed.
Looking ahead, we have a terrific pipeline of sites identified for new Bj's restaurants in 2022 and beyond we have been unwavering in our real estate standards for top sites in Premier trade areas and we believe our openings in the next few years will be some of our best yet.
And remember we have a clear path to at least 425 domestic locations, which.
Which is about double our current footprint.
These opportunities plus other initiatives such as catering and our beer club will be instrumental in Bj's long term strategic plan, we are vigorous rigorously analyzing other potential sales opportunities given our differentiation in the casual dining industry. Additionally, we are using.
Earnings from our best guests and prioritizing our investments for 2022 and beyond.
After we present our plan to our board of directors in December I look forward to sharing more about these initiatives with our investors and analysts.
I'd like to finish by taking a moment to acknowledge every one of our team members I am incredibly proud of.
Using our grit and devotion to delivering gold standard experiences to our guests. Despite the significant challenges across the restaurant industry. When considering response to current pressures we remain steadfast in our approach of prudently, making decisions that are right for bj's over the long term in the best position us to continue to lead.
Our team sales unit growth and shareholder returns in the years to come.
Now, let me turn it over to Tom to provide a more detailed update from the quarter and the current trends pump.
Thanks, Greg and good afternoon, everyone I will provide details of the quarter and some forward looking views. Please remember this commentary.
Lead and is subject to the risks and uncertainties associated with forward looking statements as discussed in our filings with the SEC.
For the third quarter, we reported total sales of $282 $2 million or sales increased 41, 9% versus the third quarter of 2020 comp.
Compared to the third quarter of 2019.
Materials decreased half a percent on a comparable restaurant basis.
The seasonally lower sales also pressured by renewed pandemic concerns and higher cost pressures resulted in restaurant level operating margins of 11, 2%, which improved by 170 basis points as compared to Q3 2020, but trailed.
302019 by 230 basis points, adjusted EBITDA was $16 4 million and five 8% of sales in our third quarter, beating Q3, 2020, EBITDA, but behind Q3, 2019, EBITDA of $24 5 million.
We reported net loss of $2 two.
And diluted net loss per share of <unk> <unk> on a GAAP basis.
As Greg just outlined we started the quarter with July weekly sales per restaurant, averaging more than 170.
107000, and comparable sales were one 4% ahead of July 2019.
Encouragingly, our on premise sales were within 10 percentage points of our 2019 levels and our off premise sales remained approximately double of 2019 levels.
As we entered our seasonally slower months of August and September we and the rest of the industry at large faced the added headwind from the Delta.
Level surging in communities across the country impacting both guest demand and our ability to staff restaurants, given renewed COVID-19 exclusions of our team members are.
Our weekly sales averages declined to 104000 in August and 97000 in September as our sales for comparable restaurants declined to negative one person.
Variants and negative one 7% in September as compared to 2019, driven by a pullback of dine in sales more than offsetting modest off premise gains.
In terms of day parts lunch in late night remained the most impacted which when combined weighed on our comp by more than three percentage points in the quarter.
In all we expect lunch to rebound once more employees return to offices in the new year.
A more delayed timeline than we expected before the delta spread.
Our reduced hours due to staffing shortages is directly impacting late night, our restaurants closed one three hours earlier on average through the third quarter as compared.
Pre pandemic hours due to staffing limitations.
Overall, we lost approximately 25000 operating hours across the system in the third quarter versus the same period in 2019 or approximately 10% of our hours concentrated in the late night day part.
As Greg mentioned in Q3 2019.
We spent approximately two thirds more in media dollars promoting bj's brand across channels, including TV when compared to our Q3 2021 spend levels.
We also utilized more discounting to drive traffic, including a $3 per <unk> special that was promoted throughout September 2019, making.
Making the conservative assumptions that are <unk>.
19, that's been just breakeven the incremental media spend in our 2019 based sales translates to approximately a 100 basis point of comp headwind in the current quarter.
Moving to expenses our cost of sales in the quarter was 27, two percentage of sales, which was unfavorable to the prior year into our.
Median border of 2019.
Cost of sales was pressured by food cost inflation of approximately 10% driven by a popular meats, including ribs, prime rib ribeye and tri tip and salmon we.
We serve only fresh meats to maintain our quality standards, which have experienced some of the highest impacts from inflation and because they are fresh not for.
Third many of these meat meat products cannot be contracted for long periods of time.
Labor and benefits expenses at 37, 2% of sales in the quarter were favorable to both prior year and our third quarter of 2019. The line includes a $3 1 million employee retention tax credit.
In conjunction with the cares Act, which if excluded would result in our labor and benefits being unfavorable to 2019 and 2020.
As a result, our labor and benefits expense tend to deleverage in the third quarter. When sales are seasonally low then leverage again in the first.
Fourth quarter when sales levels pick back up.
Our.
Frozen time hours remained elevated in the quarter due to increased hiring and compared to Q3 of 2019, our training and overtime hours impacted labor by 70 basis points.
As we continue adding more team members to our restaurants, we expect the additional labor cost dollars to be more than offset by the incremental profit.
And <unk> increased sales we can generate.
Occupancy and operating expenses at 24, four percentage of sales in the quarter were favorable to the prior year, but unfavorable to our third quarter of 2019.
Operating and occupancy in our operating expenses remained elevated due in part to a continued high level of off.
From the sales, which carry the added cost of third party delivery commissions and to go packaging.
We also added back certain outside services and invested on refreshing certain restaurants to like new first class as we welcome back more guests into our restaurants and get ready for the busier Q4 sales period.
Looking ahead.
From the fourth quarter, our sales continued to build in October for the most recent week, we generated approximately 105000 average weekly sales per restaurant, which is 8% higher than our average weekly sales in September and represented comparable sales of positive zero, 2%.
As compared to the same week in 2019.
<unk>.
And an improvement over recent weeks.
On staffing as Greg mentioned, we finished the quarter with about half of our restaurants with staffing levels close to 2019 levels and we continue to make strides in hiring so we can fully capitalize on what we expect to be a busy holiday season.
We are also going to test.
19, some additional marketing targeting approximately quarter of our restaurants with the best opportunity to take advantage of the guest traffic based on current staffing levels.
Our messaging is centered on brand building and promoting our everyday value, including our daily Brewhouse specials.
In regards to restaurant hours, we lost more than.
25000 hours in Q3, 2021 versus Q3, 2019, however, with our recent staffing levels and staffing level improvements, we've been able to extend hours at a number of our restaurants.
Our restaurants now close one hour earlier on average improving from closing one three hours earlier through the.
First quarter.
We intend to continue adding back hours when staffing levels are adequate to execute at our high standards.
Returning to pre Covid hours is a 1000 to 2000 weekly sales average opportunity for our late night business.
Finally pricing as.
As inflation starting to pick up in Q2.
The <unk> thousand 21, we implemented a two 5%.
Pricing in July which was at the high end of our historical pricing rounds, but still below inflationary levels with.
With food cost re accelerating starting in mid Q3, we are set to take an additional one 4% round of pricing in the coming weeks.
This level of pricing.
Two that is still below the recent inflationary pressures we have experienced however, the number one way for bj's to protect and leverage margins is to improve our staffing levels.
No that fully staffed restaurants drive positive comparable restaurant sales and leverage the fixed cost in our business.
Therefore, we plan to protect our traffic.
Pricing price affordability and value at Bj's as we continue building our staffing levels.
After our November menu update in pricing round. Our next menu rollout is scheduled for February at which time, we will determine the magnitude of additional pricing to be taken based on how commodities and labor have trended as our economy gets on more settled.
Through ground.
With regards to the middle of the P&L, we expect these commodity headwinds to hold our cost of sales in the low 27% area for the fourth quarter consistent with Q3 and taking into account our planned November pricing rounds.
From a labor perspective, we expect labor in the mid 30%.
7% range in the fourth quarter accounting for modest sales growth current wage trends and the labor investment as we continue to hire and train team members.
We expect an increase in labor efficiency. Once we are past the short term investment and hiring and training.
Ultimately the sales we generated in the fourth quarter will be a key.
<unk> driver of our ability to leverage labor costs.
For operating and occupancy costs, including marketing we are expect to expect to remain around 25000 per restaurant operating week average for the balance of the year consistent with Q3 levels.
This spending level includes the additional marketing discussed earlier.
Key drug <unk> for the third quarter was $17 3 million I.
I anticipate G&A to be in the 18% to $18 5 million range in Q4, which includes recent investments in talent that Greg outlined and to account for general inflation in certain G&A costs, and a return to more normal levels of business activity, including travel.
<unk>, we are now targeting G&A of around $68 million for 2021, which includes $6 million for incentive compensation compared to less than 500000 booked in 2020 due to the impact of Covid on the business.
As always depending on results the $6 million of incentive compensation may vary.
Our G&A budget also includes approximately $7 million related to equity compensation, which is about in line with 2020.
Additionally, I am expecting our diluted shares outstanding to be approximately $24 million for the fourth quarter, which will will reflect options and warrants in the fully diluted share count once we.
To a net income position.
Turning to the balance sheet, we've repaid an additional $10 billion of debt in the third quarter, reducing our debt balance to $71 8 million. We ended the quarter with net debt of about $12 million.
We continue to use our strong liquidity and cash flow to fuel growth with construction.
Returns started on three new restaurants scheduled to open in early 2022 with another location, where we will break ground in the coming weeks.
Our new restaurant pipeline is reposed robust and filled with high potential sites that are a mix of infill in some of our most successful markets and expansion into adjacent and new markets. We are very pleased.
<unk> now strength of our balance sheet and we will continue.
And we will remain consistent in our approach of prioritizing growth driving investments to build new restaurants improve our existing restaurants and fund sales driving initiatives.
Looking ahead to 2022, while our planning process is still underway, we anticipate growing comparable restaurant sales.
With 2019 levels as staffing has rebuilt across our restaurants and dine in traffic continues to recover.
We have wage rates, we will have some inflation as the tight labor market continues and we take the last $1 step to $15 minimum wage in California. However.
We expect to be able to leverage the additional sale.
Above to effectively manage labor rate to manage labor.
Increases we.
We expect food cost to remain high but moderate somewhat while our ongoing pricing actions regain margin, while we maintain our leading value proposition.
Of our eight or more new restaurants opening.
Sales slated for 2022, we expect to be in position to open for the locations in the first half.
In summary, we know the best way to grow margins is to grow sales and data from Q3, clearly indicates that by fully re staffing our platform. We can accelerate top line momentum we.
<unk> clear path to sales growth and margin recovery and our long term strategy remains intact.
While we have seen new challenges present throughout this pandemic, we continue to meet the challenges head on and manage our business for both near and long term objectives and remain steadfast in our focus on delivering our guests the best experience, which will.
We are of course to continue delivering outside growth in years to come.
Thank you for your time today, and we'll now open the call to your questions operator.
Thank you, ladies and gentlemen, if you'd like to ask a question you may do so by pressing star one on your telephone keypad. Please make sure the mute function on your phone is turned off so signal can be.
Allowing our equipment.
One for questions, we'll pause a moment to assemble the queue.
We will take our first question from Alex Slagle with Jefferies. Please go ahead.
Thank you.
I had a question on the new unit.
<unk> opened up if you could talk a little bit more about those.
Mind us sort of square footage and features those builds.
How those sales metrics you provided compared to previous classes at this early stage.
I would tell you is.
Greg Levin, probably let Greg Lynds.
<unk> done some of this as well.
Those restaurants are what we call our prototype 20 restaurants.
And they've got kind of more of a circular bar versus our what I'll call. Our proto seven in front of 6000, our prior generation of restaurants from a square footage standpoint, though they are pretty much in line with our prior.
Prior restaurants, so theres not much difference between that.
However, with a circular bar they end up having a patio that they can roll out to which helps us from that standpoint.
And it just actually asked for a more inviting feeling within the restaurants. When you look at the overall weekly sales average in both of those restaurants that are really really.
<unk> and.
In that regard and they are holding up really well.
When I look at like Lansing, Michigan, which has been a good market for us as well the sales levels are in line, if not better than other restaurants in the Michigan area and I think the <unk> line, which is more of a suburb of going into the Chicago area.
Excuse me.
So a leader within that industry or within that area and also holding up better than traditional restaurants, I don't know, Greg lynds anything different on those restaurants no no.
The class of 2021, which is merrillville in Lansing is pretty much like 2000 22019 in terms of square footage and.
As all seats, so as Greg mentioned, the indoor outdoor patio that we have in the class of 2021 is a little different as a few more seats, but other than that they're very similar to the other classes. Alex the one thing I would say, though being a little bit newer to dispositions, obviously that pega for a while.
Is the.
Number of core and the difference in that restaurant versus some of our older restaurants.
<unk> is obviously, it's a little bit lighter in that regards we like the way the round bar looks some of the artwork is more contemporary and feels the brewhouse buoyed a little bit more of that I think is sometimes missing in some of our older restaurants.
And as we go into next year as I work.
The team here and put together a plan I think we'll see some remodels being down to some of our existing restaurants to get them to look a little bit more like some of our prototype 20 restaurants.
Got it the patios.
Cause those down right.
After the second quarter or so the temporary ones.
Work with the gas the temporary patios have been closed down and the majority of restaurants, we do have a few here in California, a couple of other places where we've kind of kept some of that additional patios, but for the most part they have been closed down we found just off hand, we found when we left them open even during delta variant because we kind of brought some of them back.
Just really wanted to get inside the restaurants under the Mylan the heat in the summer time.
Soon as those restaurant doors were open made they really flocked to inside the restaurant.
Okay, and then just a question on the restaurant level margins and you gave a lot of good details.
I guess, it's all sort of changing as we.
Through this but I mean on your longer term restaurant level margin use I mean is there anything you've seen in the third quarter in terms of permanent cost increases are structural changes that would really alter your view on eventually being able to get back to.
The levels of 2018 that you had seen you know when your volumes can cause.
Fully recover.
Yeah. So we spent a lot of time looking at that and looking at our positive restaurants versus our negative restaurants and so forth.
And I generally think looking at this business and then the restaurant business in general.
Bill a lot of fixed and semi fixed costs that get leverage when you drive topline.
Sales.
From that standpoint, when we look at the commodity side, and we werent expecting a 10% increase in that regards and we look at frankly the mix in our business guests are really gravitating much more towards kind of the comfort foods more on the red meat that had an outsized impact on us and the fact that we use fresh it makes a little bit more.
Challenging to contract, taking all that aside and thinking about where we are from a pricing today, which everybody has got to take some pricing I think the ability of adding some pricing over time, and we want to do it right because that value and that price point affordability and our price points are key to us is really really important in regards to driving additional.
Additional sales, but as we have that we continue to drive the off premise sales in our business and the fact that there's so much fixed and semi fixed cost in this business, we have the ability and the opportunity to get back to a more historic margins. So I still see that in our game plan I don't think anything has changed from a longer term perspective, I think it's going to be a.
A little bit more challenging here as we just saw in the third quarter in regards to training and the fact that.
The delivery companies shows up at 12 o'clock in the middle of a lunch shift that's a real challenge for us in that regards and it pulls people off you have to pay overtime and everything else I think as our country works through some of the supply.
<unk> and bottlenecks when we get back to a more even business so to speak or more settled footing on the economy I have no doubt that we can continue to leverage our business and move it forward to historic margins.
Got it thank you I'll pass it along.
We will take our next question from drew.
North with Baird. Please go ahead.
Thanks for taking the question first I wanted to ask about trends in October.
Sharon perspective on the various cohorts and the most recent one week, but taken together for the months how are trends tracking for this system relative to 'twenty on team I think it'd be helpful to better understand where you.
We're tracking earlier in the quarter and get US all on the same page.
Yeah. So if I had to look at it from the quarter standpoint, and Tom can chime in here as well the quarter started off a little bit more challenging as we went over a free <unk> day, and then we went over a 10 or 40.
Marketing in 2019.
And as a result, I think that first week or we can have we were down in the kind of 3% to 4% range since that time, we flattened out.
We finished last week as Tom said on the on the call. We finished out at positive comp sales.
Plus <unk> two not a lot there from that standpoint, but still we like the way that trend is going.
Pop it out we've moved our weekly sales average back into the 105 106 range and at one five and 106 allows us to be a little bit better in regards to managing the margins are getting leverage within our business. So if I look at that and looked at how 2019 shaped up October is generally our lowest weekly sales average of the fourth quarter. So I would expect our weekly.
Sales averages still to move in.
And the same in that direction meeting weekly sales averages go up, especially as we hire more people.
Assuming there is not a new.
A new variant out there of Covid.
But overall I think we're probably about down 2%, but we kind of move from more recent.
To a flattish flattish number.
That's helpful. And then I wanted to also ask about the outlook for labor and commodity inflation in 2022.
No. It's early and you provide some directional color, but based on what Youre seeing out there. How are you thinking about the level of labor inflation and commodity inflation next year.
And then how are you thinking about pricing against that inflation do you expect to take an additional.
Pricing beyond the November price increase you mentioned.
Yes drew we mentioned in our formal remarks, and Tom that come February as our next general menu rollout and we will take some.
Some menu pricing at that time, we have got a another dollar a minimum wage hitting here in California, and then I think we're going to be in a really good position from that standpoint on California going forward in regards to just annual increases which has been about five years and around moving from about 10% to $15 snap perspective as a result.
I think youre still going to see inflation, probably in our labor inflation, probably kind of still in that mid to high single digits, even though it does seem to be abating, a little bit I think what we're seeing differently.
Is.
We're seeing people.
Show up for interviews and then show up for their jobs.
For the first day, we didn't really see that at the very beginning as the economy opened up we saw people that would kind of book and interview, but they didn't show up for or we find people that might not have shown up for a job. So as Tom mentioned, we've got about 70 basis points right now and over time in training and Thats a lot for US 70 basis points over 2019.
We're actually getting close to maximum training that we can do in a restaurant.
We're down 30 people in a restaurant just throwing a number out like that we can train all 30 of them in one week, we could probably train up Max six to seven people per restaurants. So it takes a while for us to get through that.
The good news is we're getting through that now we're seeing people.
Because.
We're seeing people really want a job and come back and we're also seeing higher retention rates or lower turnover going into September and October across the board. So really seen within our business that kind of going into August and August was really kind of the apex and then from there it's come down.
On supply chain, we're starting to see that abate, a little bit as well and I think as we go into next year. It will start to flatten out I do think over time, we could see cost of sales.
One from pricing and other things starting to get below the 27% and getting back to more of our historic norms overtime from Tom you got anything else.
Sure.
Yes.
To Greg's point, when we think of the cost of sales inflation next year.
We're looking at it both auto overall inflation basis as well as just a rolling basis.
As we think of the the recent costs in our especially these fresh meats, we've seen some of the prices start to.
Ticked down modestly so we still expect some more of the cost of sales inflation.
Absolute basis next year, but.
It seems like at least in some of these new categories.
At least we'll be moving in the right direction, there and to Greg's point with pricing it.
It's all it's all helpful to margins.
And true to your first part of the question was about pricing next year, which.
As I mentioned, we will take in February we don't know the amount of pricing, we're not going to take pricing right now in what we consider to be kind of this pandemic induced bubble in that regards once you've taken pricing and you've lost that price point affordability with your guests you don't get it back.
And we've got so much opportunity to grow this business for the long term that we understand what's going on right now, we'd rather see supply chain start to normalize get a better understanding where labor's going in some and some of these other things around supply chain and then take the appropriate pricing at that time, and frankly have that pricing powder still inside bj's to deploy.
Play as we need it.
That all makes sense. Thank you.
Okay.
We will take our next question from Nick <unk> with Wedbush Securities. Please go ahead.
Thank you.
First.
I guess.
Appreciate all the detail.
It gave them out.
Offing headwind, but just all in all of their way to quantify what staffing headwind was two comps in Q3, I mean, it sounds like it's in the 5% to 6% range is that correct.
Yeah.
That's correct, we looked at a lot limited hours and we looked at the restaurants.
It had below 90% staffing levels for the most part and the fact that we had to put a lot of restaurants on a limited menu when we look at all those things.
Nick they kind of come into the numbers that you just talked about there are limited menu restaurants, they end up with an average check of about 35 or less.
You got a sense or more than restaurants that had full menu from that perspective. They are also closing their doors or more than one to two hours greater so we lose that late night business and then obviously, we're not seeding all the tables. So we looked at those deltas.
Those things, we see that the other thing that we just recently did as we finally got.
35.
Our physical menu back in front of our guests one of the things we've heard from our guests as they love, having a physical menu.
And I think we're all really excited in this business to get the HTML lendings, because there'll be thinking we're going to eliminate printing costs and so forth from that standpoint, but we've seen our guests like a physical menu.
What we have seen other restaurants with a physical menu, there's a sense of normalcy that we hear from our guests we know that the physical menu, which we're able to rollout here in November. It is also worth about 70 more per average check.
So there's a lot of good things, we have going in the right direction.
Moving the business forward. It just Q3 the way it kind of started.
And then when it came through from really the Delta and <unk>.
Our exclusions in our restaurants really put a challenge in front of us and frankly, we would rather look at the business.
From the long term perspective, and make sure we're taking care of our team members taking care of the guests that come to Bj's and know that we will build it over the long term.
And.
On the Labor side, you know I think you said you went from 40% to 50% fully staffed in the Q3.
I guess given just the recent trends in terms of hiring where do you expect to be at the end of Q4 and then.
What percentage of the understaffed.
Stores can you say, maybe you know each startup understaffed.
Staff on average, we still need about 10% more employees, 5% more employees just to give us some context.
Okay.
I don't know I don't know if I can give you that context.
I think what I would tell you is when we get to close to 2019.
When she could probably.
I think somewhere in the neighborhood of upper 80% to 90% or close to 2019 levels, we can generate.
Restaurant sales in that regards.
So I can't tell you are thinking about it you know what how much each restaurant's missing is it 10 or 20 employees from that perspective.
That's kind of that part of it there Nick look if you had and we've said this before we'd love to be staffed yesterday.
In that regards and our goal was to be stepped up at the end of the third quarter and I think us as well as we've heard it from other company has got a little.
<unk> challenge is the hiring didn't pick up as much as people might have thought early on in August and September I think a lot of that was due to the Delta Varian I think that's also due to the fact that people have pretty solid balance sheet, some might not need to come back to work right away, but as I mentioned, just a few moments earlier, we're seeing key members show.
<unk> or a new employee show up I should say, we're seeing that number.
You just mentioned get better throughout the quarter and it looks like it's getting better here into into Q4, our goal and I think Tom mentioned this on the call was to get every restaurant back to a full menu by early November.
And to get restaurants back to a full menu by early November means our goal is to have all of our restaurants staffed up by early November.
And would that also imply.
Four hours.
Not the one hour or less.
Hum.
Good.
Our goal would be to get there I'm not sure on that one.
I think thats going to be the last move for us.
Extending some of that ours, I think certain restaurants were already extending the hours because we know we have the capability, but as those team members get trained and we can put the full menu in place that's going to be the first step the next one.
Dita. Additionally closed the gap on the hour.
Okay, and then just last question.
I think we talked about putting off for some.
Pricing plus one 4% pricing in Q1, we still have the February pricing through February so.
That puts us in Q1.
That would put us somewhere in that 4% four 5% range.
That would be correct kind of going in and if you've got $2 five and one for that puts you lets just call. It right at four and then sometime in kind of I would say mid <unk> mid to early February or early to mid February will be when our next menu rolls out.
Thank you very much.
Youre welcome.
We will take our next question from Todd Brooks with CL King <unk> Associates. Please go ahead.
Hey, good afternoon folks.
<unk>.
Quick question for you on the topline side across and we're very focused on the expenses in the quarter and the headwinds but.
As we are emerging from the pandemic and I know delta caused a wiggle in some traffic, but it seemed like it was more of an operational.
Curtailment, Greg is there any change in your thinking about.
<unk> really building back to a substantially higher level as we normalize coming out of the pandemic as far as success.
We're still seeing with off premise revenue retention.
Return of.
Dine in demand.
The situation is a little bit more normal and some of the other incremental drivers of revenues just your thoughts on when we get to a new normal where.
Hey, <unk>.
Could be tracking towards.
Yes.
There is nothing that has me changed there's nothing that has changed my mind, our Bj's. We go from weekly sales average.
I think not only what we you just talked about there in regards to holding off premise in fact, frankly growing off premise.
Knowing the fact that we brought somebody on board to lead BR.
Towards hub, which has drove an increase.
Frequency of our current guests from that perspective, knowing that we've got catering that we really haven't even rolled out from that side of it and the other initiatives around off premise as well as the fact that as guests come into our restaurants, we're growing that weekly sales average.
In many of our existing restaurants that are fully staffed.
I still look at the fact that we can get off premise.
What's right now in that kind of let's call it 20% to 25000 range, depending on seasonality I think there's another 5000 there in total off premise if not more than I think we have that ability still to drive the dining.
<unk> frankly is kind of running in the mid 85% range.
So getting the dining room back and holding onto the off premise.
I think our weekly sales average goes it goes above where it's been historically, we have not seen as we've kind of settled into where we are right. Now we have not seen the tradeoff anymore between offering.
Our premise and dining room.
That happened as dining rooms opened up and get started going back, but now that all your dining rooms are open.
Off premise has held really well in that regard I think we haven't done a lot of promotions around off premise, but it's.
It's held from that standpoint, and it's about getting our restaurants staffed and drawing that dining room and those together.
<unk> room, we're going to I think put our weekly sales average above 2019 levels.
That's great that's great and then you guys talked about the.
The relatively fully staffed cohort.
And the performance in Q3 can we talk about.
Just the performance in Q4 is it still kind.
Together, a group of stores running up in that that mid single digit type of range.
Any change there or is that actually conflicting hires would come out of that seasonal slow period August September.
Right now it's still primarily the same cohort of restaurants that are driving that this last.
That goes restaurants start to go up in regards to weekly sales average as we got through the free <unk> day, and some of the other thing and we've seen our overall weekly sales average move into 105000, plus so we have seen those restaurants move forward, we actually set a record last week in.
One of our restaurants, so we're seeing those move forward.
Last week, where we're seeing the challenge we've talked about this before so this is not.
I think anything new but its still the bay area is.
As a challenge and we are expecting office buildings to come back our people to come back into our offices.
In originally around September or October Thats can be pushed to 2022. So I think we've got.
That opportunity there to grow that part of it.
And then.
The kind of some of our restaurant on the eastern Seaboard, just are not as staffed as we'd like to be and they are slowly moving in the right direction, but as you kind of pull back from some of those restaurants.
Are ones that are fully staffed are doing what we expect them to do in <unk>.
Giving positive comp sales.
Okay and the final one for me and then I'll pass it along.
You talked about seasonally.
Average weekly sales would build from from here on out through the end of the year just as we get into the heart of the holiday season is there anything we need to be aware of from a fiscal 19 type of compare.
There from other promotion.
Promotional activities that might be.
Not allow it to maybe.
Grow in a linear fashion and B make the comparison tougher then we might realize over kind of a November December window.
Not to the same degree, but I will say, we spent closer to.
And I've got a follow up 19 here, but I think that in marketing closer to 8 million, let's say I put my 19 numbers here 19, we spent almost $8 million in Q4 in marketing and our marketing here is going to be somewhere in that kind of 555 range. So it is less marketing dollars.
<unk> being spent right now.
That $10 40 was probably a big one in the free <unk> day that we did at the beginning of October and the $3 <unk> September we're probably that the highest hurdles we had to go over but we're not at a point frankly, we're not at a point yet because our restaurants are fully staffed to lead all the way into marketing.
As I said on my part of the call I would love to do other sales initiatives. Some of the things we've learned from our best gas and things like that that are coming forward next year, but really we know that right now if we drive staffing into our restaurants.
We can drive topline sales and then we can leverage the fixed and semi fixed cost within our business.
So if.
You get the staffing goals for November you would expect to see average weekly sales kind of grow from this latest week in October where you are in that 105 range that just seasonally.
That's correct.
Okay, great. Thanks, a lot.
We'll take our next question.
And from Nicole Miller with Piper Sandler. Please go ahead.
Thank you good afternoon.
Can understand I think and definitely appreciate that you're almost fully staffed like at your ideal matrix, but when you think about what you've learned from the employee.
How do you think about whether any of this is.
Question Corey.
What measures would you take and when I'm thinking about.
Beyond higher wage rates.
Over faster.
Knowing that you know there's pressure when people call in or whatever.
How do you think about that and frame it up I guess, if it's not transitory.
Transit the culture, that's a great question I think everybody in the industry continues to figure out.
How to deal with the with the employee challenges out there and I'm not sure anybody has come up with the you know the magic pill, yet and.
And we hear all the different initiatives out there and believe me we.
As well from that standpoint, maybe we don't celebrate them publicly as much as other companies do in that regard, but we do things like team member appreciation weekly do Raffles shift Raffles referral bonuses and so forth from that standpoint, I think what you might end up staying in this business over time is more around predictive scheduling.
Do then or.
From that standpoint, where team members and we try to do this to make sure they get guaranteed shifts.
Is that the sales are slow or if the sales are going are the sales are stronger keeping people on from that perspective.
I think that's one that I think everybody in the industry is probably looking.
Schedule, because a lot of team members would like to have more predictability and be able to work around certain parts of their schedule.
That plays an important aspect of it and then frankly I've always been a believer of this.
It's about the culture within the four walls of those restaurants, and we spend a lot of time with our general managers teaching.
Going out.
The to take care of the team members from a culture standpoint.
People arent running away from one job to the next 410 more and pay a 25 more and pay et cetera from that standpoint, it's about the balance within the restaurant, both within the kitchen and within the dining room.
And giving.
<unk> nine was better predictive scheduling can play into that from that standpoint, and how our general managers take care of our team members all of that plays into frankly, providing a better experience for our team members and those are things that we continue to work on as well as all the other things in regards to offerings that can be used out there.
That's it for me that that's the color I was looking for thank you.
Youre welcome.
We will take our next question from Sharon Zackfia with William Blair. Please go ahead.
Yeah, Hey, guys. This is Alexandra Sharon just a couple quick ones.
So maybe could you just quantify.
Some of the overall staffing level is right now versus pre Covid and what your line of sight, maybe to be returning to full staffing and what could underscore your confidence in restoring those hours menus by early November.
Well you.
Yeah.
Where do you answered your question by saying when the menu rolls out in November because that's when we'd like to be there in that regard so.
That's our timeline that we're going after I do think changes in the <unk>.
In the in Covid could play into that.
From that from that stand.
Point I'm trying to pull up and see if I've got like kind of.
The staffing levels unless you have a Tom.
It's sitting on average at about 90% across our system. Some have more staffing than we did in 2019, but obviously some a bit less so just looking at the average it's right around.
90%.
Okay, great. Thanks, and then just one more.
So in those restaurants that are staffed below 2019 levels is there any kind of underlying common thread between those and what tactics do you guys plan to use to bolster those staffing levels.
So I guess I guess.
Actually an interesting question.
And when we look at that I think Theres a couple of things here in California, maybe.
Texas and some of the other markets, where we've got a lot of brand recognition have been around there for a while it's easier to get team members back, but it's also easier to borrow team members.
So if we've got restaurants in California that are.
8% to 10 miles away, we can borrow team members, which can make that work really well.
So when we start to look at some of the areas that are more challenged it's some of our newer markets. It's somewhere maybe the restaurants don't have a sister restaurants close to them, maybe the sister restaurant.
Two hours away or three hours away. So it's much more difficult to borrow team members. So that is one of the common themes that we see in that regards.
When we look at kind of the staffing levels, it's not I wouldn't call it a 100% like with us.
Let's say, it's an R squared of one.
But it's it's it's a common theme that we see on some of our restaurants and then as I said earlier and I think Nicole out to really get great question on that just about getting people back in the things we're doing and we're doing like all other companies are doing whether they are job fairs referrals going in.
And just talking to different people looking.
And that rig restaurants, providing opportunities to grow from whether it's a server assistant into a server or working in the different areas of the kitchen we.
We've changed up some of our training materials as well to make things easier and take on smaller.
Smaller areas to begin.
From that standpoint.
I mean, we've done a lot around culture in regards to team building weeks and team appreciation weeks as well as Raffles and so forth to bring people on board.
Okay, great. Thanks, guys. That's all for me.
We will take our final question from Jeffrey Bernstein with Barclays.
And please go ahead.
Thanks, guys actually Jeff Priester on for Jeff Bernstein.
First Greg kind of if I look at average weekly sales you guys have kind of gotten back to your 2019 levels, despite significantly lower advertising and promo expense. So longer term how are you kind of thinking about.
Barkley and to put that advertising and promo back into the business. How you put it into the business and whether it's absolutely necessary to put it back in the business at all and then I have a follow up.
Yes, great question.
<unk>.
So.
I think theres a couple of ways to look at it.
We wouldn't put it back into the business.
We're really until we're fully staffed just when we think about it in the very.
Traditional sense it makes no it doesn't make.
Yes, again, using the word any sense of sudden go out there and do a lot of promotions.
In marketing and advertising if restaurants are only 60 or 70 or 80% staff, because we're not being able to drive.
<unk> sales for that additional marketing to make sense. So that would be my first thought about it when you think about the timing secondly, and I think this is and I'll, let Kevin probably talk to this as well as we've been able to learn more and more about our guests and some of the projects that we've been doing and we continue to build out our.
The incremental guest database, where we can do more personalization and digital and social engage with guests on a one on one basis I think our level of marketing.
Be less dollars because it's more efficient when you can do it more digitally and reach to our guests, but it's also probably be a little bit more of a one on one basis versus what we've seen in the past.
Kevin is really an expert.
So I'll, let Kevin kind of talk through some of this thanks Greg.
It's a segway.
We have certain restaurants, I mentioned that are already staffed at decent levels.
And we're able to go in right now and actually put marketing around those restaurants, we can be very localized with today's tools, the digital marketing and what we can do with personalization on our website.
Site and Geo targeting so we are doing some of that but as Greg mentioned, what we do within our loyalty program within our our channel messaging, whether it be E mail marketing SMS marketing, we can go almost at the guest level. So we're doing a little bit of both we're looking both geographically around restaurants that are ready to take the marketing and secondarily guest segments, who are back in market when we can actually target.
Guests that we know are in market today looking for restaurants, but I will say that the last part of your question. We've seen historically very strong response from our guests to promotions to brand marketing around our stronger assets like our daily Brewhouse specials.
We look forward to getting back in the market one day, where we can.
Kind of let loose the.
The marketing channel again, it really pushed some of the great things that drive our guests back into restaurants at the national level.
Great.
Finally, Tom just the construction industry is where you're thinking of all of the same challenges the broader economy is with labor shortages and supply chain issues. So how should we be thinking about capex for those units in 'twenty and.
'twenty two.
Yes.
No.
This is Greg.
And you addressed it to Tom from that standpoint, but one is.
We feel good about the eight units and we always worry about our general contractors being able to deliver on that.
On the shortage from that standpoint.
Complaint, but right now we have seen historically higher costs than what we were building restaurants for two or three years ago, which were summers around $5 million on a gross basis today I wanted to say theyre more in the $565 $8 million range, yes, yes.
I guess I would add to that is really what has helped us navigate all of these issues and youre absolutely.
Right.
We've seen in the commercial construction business the same kind of.
Supply chain issues, but our solid track record of consistent growth.
And a great base of contractors has helped us offset.
A lot of those supply chain issues.
Okay.
Great. Thanks.
Youre welcome.
And ladies and gentlemen, this does conclude today's question and answer session and today's conference. We appreciate your kind of anticipation you may now disconnect.
Thank you.
Yeah.
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