Q4 2021 BJ's Restaurants Inc Earnings Call
Okay.
Please standby good day and welcome to the Bj's restaurants, Inc. Fourth quarter 2021 earnings release and conference call Today's conference call is being recorded.
At this time I would like to turn the conference over to Greg Levin, Chief Executive Officer and President. Please go ahead Sir.
Thank you operator, good afternoon, everyone and welcome to Bj's restaurants fiscal 2021 fourth quarter Investor Conference call and webcast.
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, our chief growth and brand officer, and Greg Lynds, Our Chief Development Officer on hand for Q&A.
After the market closed today, we released our financial results for the fiscal 2021 fourth quarter and year ended Tuesday December 28 2021.
You can view the full text of our earnings release on our website at Www Dot Bj's restaurants Dot com alright.
Our agenda today will start with Rana Schirmer, our director of SEC reporting, providing our standard cautionary disclosure with respect to forward looking statements.
I will then provide an update on our business and current initiatives and then Tom will provide some commentary on the quarter and the current environment. After that we'll open it up to questions.
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 1095 forward looking statements involve known and unknown risks uncertainties and other factors that may cause actual results performance or achievements of the company to be materially different from any future.
Our results performance or achievements expressed or implied by forward looking statements investors are cautioned that forward looking statements are not guarantees of future performance and undue reliance should not be placed on such statements are forward looking statements speak only as of todays date February 17 2022.
Undertake no obligation to publicly update or revise any forward looking statements or to make any other forward looking statements, whether as a result of new information future events or otherwise unless required to do so by the securities laws investors are referred to the full discussion of risks and uncertainties associated with forward looking statements contained in the.
The company's filings with the Securities and Exchange Commission Greg.
Yes.
Thank you Rhonda.
The pandemic has taught us to remain steadfast in our long term strategy and operating principles and to prepare for any scenario is operating restaurants. During these periods requires innovative and agile teams to quickly respond to changes in the environment.
In this regard Q4 was no exception so let me take a moment to thank the Bj's teams. Once again proved we have the best team members in the industry by providing our guests the gold standard service. They expect through the omicron surge that is thankfully and retreat.
For Bj's, we see encouraging signs in our business every day as our staffing continues to return to pre pandemic levels, which allows us to expand hours and capacity in our restaurants, while serving guests before bj's menu.
We have talked on recent calls about the impact that labor availability had on our ability to operate at capacity and to that point, we've hired more than 7000 team members since the start of the fourth quarter and we are thrilled to have him onboard as part of the Bj's family.
Against this backdrop bj's generated record Q4 revenue, beating our previous high set in 2019, even with the significant COVID-19 impacts from the omicron surge starting in December .
During the quarter, our two year comparable restaurant sales went from negative one 4% in October it's a positive one 8% in November the topline improvement occurred as the operating environment has stabilized and more than half of our restaurants were staffed at pre pandemic levels by the end of November .
In mid December as the casual dining industry began to experience.
<unk> related headwinds are positive two year comp trend turned negative and we ended December down three 3%.
The sudden contraction in comp sales led by a pullback from guests heavy rain in California in December and an unprecedented level of team member exclusions deleverage margins. During what is normally one of our highest sales periods of the year.
Despite these challenges we weren't able to drive average weekly sales of more than 145000, the week before Christmas, which was our highest sales week of the year highlighting the affinity guests have for our concept and the sales levels. Our restaurants are capable of even with limited staffing and reduced hours.
While Tom will go into the cost side of the business in more detail. We continue to experience high inflation in Q4, specifically, our fresh meats, including ribeye Prime rib tri tip in pork ribs experienced some of our largest year over year cost increases.
Related to labor cost market rates continue to tick up, albeit at a slower quarterly sequential increase in the past couple of quarters and given our re staffing initiatives, we incurred extra hours on a short term basis as we invested in training and experienced and experienced higher than typical overtime due to COVID-19 related.
Exclusions.
During the quarter, we were able to rebuild our manager pars to pre covered staffing levels now.
Now with the restaurant management teams in place, we continue making progress on our hourly team member staffing, which will allow us to build sales and dealer and deliver on our gold standard levels of operational excellence.
To mitigate some of the recent inflation impact we implement implemented rounds of menu pricing of one 4% in November and 2% again in early February we are carefully balancing the overall pricing to deliver attractive margins as sales recover with pricing round as designed to limit any impact to guest.
Traffic.
To date, we have not seen a negative guest reaction to pricing actions and we are continuously monitoring this to ensure our approach to pricing is aligned with our short and long term sales and profit goals.
Now as I enter my six month as CEO I remain highly confident bj's ability to return to industry, leading results based on four key factors are.
<unk> concepts in sales and profit initiatives, our team members' culture and gold standard service.
Our guest affinity to our brand offerings value and hospitality and our very significant near and long term restaurant expansion opportunity.
Our strategy and initiatives going forward for each of these key factors is in part based on the learnings from our recently completed most valuable guest research.
To put that in context, our most valuable guests come to Bj's for a social dining escape, where they enjoy the comfort of the familiar transformed to brewhouse fabulous or.
Our guests responded that they love with the extraordinary mix of upscale yet approachable ambiance, and bj's menu and food that clearly exceeds other casual dining concepts at an extraordinary value.
Through these learnings will be launching a remodel program later this year to address short term and long term benefits, including elevating the experience to further engage the senses of our guests.
Solidifying, our brewhouse authority and expanding table capacity through some changes in our dining room layout that should provide a nice lift in sales going forward.
I look forward to sharing more on this effort in the coming quarters as we finish the desert designing the full scope of remodel options and begin this rollout.
With regard to menu, we heard consistently from our best guests love, our favorites and familiar dishes with a brewhouse twist.
This phrase we heard directly the phrase we heard directly from guests is the comfort of a familiar transform brewhouse fabulous.
In addition to the familiar we also heard the breadth of our menu as a key differentiator compared to our peers. So maintaining breadth is important but making sure. It matches with bj's core menu items will be a focus for us going forward.
For example, some of our best selling menu items that have that brewhouse twist include our brewhouse blonde efficient shifts made with Bj's blonde ale.
Our our deep dish as EDI that goes through our pizza oven and a deep dish pizza Pan.
Our chief brand and growth officer, along with our head of culinary or completing a category by category analysis of all of our menu items. Our goal is to make sure we maintain our breath, but with more focus on the quarter Bj's as I noted earlier familiar items that our guests understand and identify with but transformed to brewhouse.
<unk>.
Price point affordability is another key area for our guests we delivered tremendous overall value and received high marks in our guest research for both value and food quality. However, there is an opportunity to make sure that we have a clear price point affordability on some key menu items, while at the same time, allowing guests to indulge.
And spend up as they desire.
We also have an opportunity to increase value on some items based on our research.
While this is a challenging topic to address in an inflationary environment. It does influence our menu strategy going forward.
Our broad and differentiated menu is capable of maintaining this balance between introductory prices for some menu items, while allowing for menu creativity for indulgent items.
We are already attacking these opportunities today for example, our new lunch special test has seen a more than 600 basis point improvement in traffic compared to our control group. We're also increasing value on some of our most popular dishes by adding additional source to our chicken Alfredo pasta, increasing a portion on our sides for our seafood.
Taco and we just recently introduced a larger shareable pizza.
At a slightly higher price point to replace our small pizza.
Enhancing the value statement and quality of our signature craveable deep dish pizza offering.
Our guests love the service and hospitality that our team members deliver everyday we heard comments like hospitality, you can't get anywhere else and it's the people who make me feel comfortable and special when I go to Bj's.
At the same time for those that have been following DJ is over the last year. We have hired a lot of new faces and we are excited to have them onboard and become part of the Bj's family, but.
But we need to ensure that each one of these new team members is delivering the bj's gold standard level of operational excellence excellence and gracious hospitality, our operations leadership team and our talented our talent department are developing.
New training programs at so we can increase the distance between bj's than our peers and delivering an experience you can't get in any other casual dining concept.
To that point, we are continually optimizing our restaurant training programs and technology to help our team members the highly effective in their current roles and prepare for the future opportunities across our growing system.
Engagement at our restaurants is very strong aided recently by an internal online social platform, where our managers can share accomplishments best practices and culture building activities at our restaurants.
We are so pleased with the level of engagement and increased connectivity between restaurants that will be expanding access to this platform to all our hourly team members later next month.
We believe providing best in class training advancement opportunities and engaging workplaces are key to attracting and retaining our talented team members.
We're also applying our deep learning from our guests as we build our guest 360 digital platform. We are just beginning to use this capability in our website personalization.
Gramatica targeting and segmented loyalty campaigns.
In the near future. We will also have the ability to do more one to one gamification.
These efforts will build a stronger engagement with our guests and provide an enhanced and leverage of all marketing capability that will make a difference in the future.
Regarding some of our other sales driving initiatives. We have seen continued positive a positive momentum in the early stage of our catering and beer club initiatives catering showed progress in Q4, as we did over $400000 in off premise catering in the in the fourth quarter with just one company and we have an additional 150000.
As of Q1 sales either completed or scheduled to be completed in the coming weeks with that same company showing the scale and recurring nature of this type of business.
This is a new skill set and revenue channel that we did not have a year ago.
We have high expectations for our catering business, especially as businesses more fully reopened later this year.
Next our beer club that is rolled out across most of our California restaurants continues to add new members the level of engagement and additional traffic driven to our restaurants is surpassing our expectations. This year, we will continue fine tuning the membership program and testing other benefits for our members to make sure we have the best offering possible.
Before expanding to other key markets.
Before I move on to our restaurant growth opportunity I think it's important to note that for us to provide.
<unk>, a higher quality differentiated casual dining experience. We will also remain focused on eliminating inefficiencies and driving productivity through our organization.
While nothing can substitute for the leveraged from driving top line sales, we are working hard to minimize costs and efficiencies in our business given the current environment around supply chain labor staffing and overall inflation.
It's about six to seven years ago, we implemented project queue to go after these cost savings while project Q never went away. It is being elevated today as a strategic priority given today's environment, our supply chain team and operators have already identified new opportunities that we will be testing over the next several months to help us mitigate inflation.
Dairy costs.
Additionally, our supply chain has normalized we will once again be in a much better position to proactively reverse auction and bad many operating costs that have creeped during the pandemic.
In fact, we were recently able to reduce certain takeout related costs as more suppliers came back online and we were able to proactively bid.
Last but very importantly is our significant near and long term restaurant growth opportunity. 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.
Demonstrating our ability to drive strong sales to new restaurants, we continue to be encouraged by our recent restaurant openings. Our class of 2021 restaurant openings continue to exceed both our internal targets and the sales levels for other bj's, we are targeting as many as eight new restaurants in 2022, but the final number it depends on timing of Perm.
Myths and receiving critical equipments, such as HVAC systems.
Remember, we have a clear path to at least 425 domestic locations, which is about double our current footprint.
I'd also like to take a moment to highlight our recent work and success on ESG initiatives as I know this is an important topic to our guests team members communities shareholders and other stakeholders.
We have maintained a top governance score of a one out of 10 as rated by ISS quality scores recently.
Recently, we improved our social score to a two out of 10, which is a leading score for our industry. After publishing a number of documents highlighting our our human resources, our diversity and inclusion and other labor related policies and programs.
Finally, we also improved our environmental score in Q4, though we have more work ahead of us on this front, we'll be engaging with an outside environmental consultants to help us determine our strategic priorities for this important aspect of our business.
We are proud of the strides we have made across the ESG spectrum and are committed to pursuing and reporting on additional initiatives and progress on this front.
I'd like to finish by taking a moment to once again acknowledge every one of our key members that <unk> provided a new level of disruption to our operations and I truly appreciate all their hard work and dedication to manage through the most challenging days to liver gold standard experiences to our guests.
Now, let me turn it over to Tom to provide a more detailed update for the quarter and 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 is subject to the risks and uncertainties associated with forward looking statements as discussed in our filings with the SEC.
For the fourth quarter, we reported total sales of $291 $3 million or sales increased nearly 50% versus Q4 2020 and came in slightly ahead of Q4, 2019, which makes it our highest Q4 sales ever.
On a comparable restaurant basis sales increased by 46% compared to Q4 2020, and while we were on track to meet or exceed 2019 levels. The impact of with the impact of <unk> Q4, 2021 comparable restaurant sales declined one 1%.
Compared to Q4 2019.
The late quarter sales impacts from Omicron and continued inflationary pressures led to restaurant level operating margins of 10, 1%, which improved by 350 basis points as compared to Q4 2020, but trailed Q4 2019 by 580 basis points.
Adjusting EBIT adjusted EBITDA was $13 7 million and four 7% of sales in our fourth quarter, beating Q4, 2020, EBITDA, but behind Q4 2019 EBITDA.
We reported a net loss of $4 7 million and diluted net loss per share of <unk> 20 on a GAAP basis.
We started the we started the quarter with October weekly sales per restaurant, averaging 103000, and comparable sales were one 4% behind October 2019 levels incurred.
Encouragingly, our sales accelerated in November and as Covid cases declined and we added restaurant team members. We increased our weekly sales to 108000 in November which was one 8% above 2019 levels on a comparable restaurant basis.
In November on premise sales were within 2010 percentage points of 2019 levels and our off premise sales were more than double 2019 levels.
We maintained positive two year comparable restaurant sales in the first weeks of December and sales continued to build sequentially week over week until the last week of December when <unk> impact was the most severe and we closed for Christmas, which fell on a Saturday this year.
In fact, we posted our highest sales week of the year at more than 125000 per restaurant in the week before Christmas. Despite the building omicron pressures in a number of our restaurants still being understaffed.
The late December pressures pushed the month to negative three 3% in the quarter to negative one 1% compared to 2019.
Moving to expenses.
Expenses, our cost of sales in the quarter was 27, 4% of sales, which was 20 basis points higher than last quarter and unfavorable to the prior year and to the fourth quarter of 2019.
Food cost inflation of approximately 10% continued in Q4, consistent with Q3 and was driven by our popular slow roasted meats and other proteins. As a reminder, 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 many of these meat products cannot be <unk>.
<unk> for long periods of time.
We express we expect prices on key commodity items in our food basket to moderate with the supply chain gradually normalizing over the course of 2022.
Therefore, we have locked into less annual pricing agreements with our suppliers than usual in order to have the ability to benefit if prices decline.
Labor and benefit expenses at 37, 9% of sales in the quarter were favorable to the prior year, but unfavorable for the fourth quarter of 2019.
We hit we historically leverage sales and drive margins with very strong sales in the last weeks of the year, which were impacted by the late December Omicron Serge.
We are very encouraged to have ended the fourth quarter fully staffed in terms of restaurant managers that we did deleverage against these higher fixed cost when sales declined late in the quarter.
Our training and overtime hours remained elevated in the quarter due to strong hiring and impacted labor as a percentage of sales by 60 basis points compared to Q4 2019, we.
We anticipate these investments will drive meaningful sales growth in the near term and will more than offset but be more than offset by the incremental profit from the increased sales we can generate.
Let's see in operating expenses at 24, 6% of sales in the quarter were favorable to the prior year, but unfavorable for the fourth quarter of 2019, we increased our marketing spend in the quarter to one 9% of sales from the low 1% in the first three quarters of the year, which still remains below pre COVID-19 levels.
We are encouraged by our ability to maintain off premise sales at double our pre COVID-19 levels, which results in certain costs such as to go packaging and third party delivery commissions remaining higher than periods with lower off premise sales were.
We also continued to invest in refreshing certain restaurants to like new first class as we prepare to welcome back more guests to our restaurants.
As Greg mentioned, we are redoubling, our efforts to identify and implement cost savings across our restaurant operations. Our dual mandate is to find opportunities to save while also maintaining our highest standards for our atmosphere service and food quality.
We're committed to not impacting what makes bj's special and keeps our best guests coming back time and time again.
G&A for the fourth quarter was $18 4 million given the environment at the start of 2022, I anticipate G&A to be in the $17 5 million to $18 million range for Q1, we.
We expect to ramp up G&A spending as the year progresses and conditions improve.
Including investments that enable higher new restaurant operating levels and build operating capabilities like resuming in person operations development meetings, including our career development conference.
We expect full year G&A to be in the $76 million area, including an additional $2 million in Q4 as 2022 is a 53 week year.
Turning to the balance sheet, we refinanced our credit facility in November we maintained our $215 million capacity and we were able to return to terms consistent with our pre COVID-19 facility.
We repaid an additional $21 $8 million of debt in the fourth quarter, reducing our debt balance to $50 million and we ended the quarter with net debt of about $11 million.
Our strong liquidity enables us to fuel growth with construction now underway on five new restaurants, and with more slated to break ground in the coming weeks and months.
Our new restaurant pipeline is 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.
Given the challenges of the last two years, we are very pleased with the strength of our balance sheet 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.
We are targeting opening as many as eight new restaurants in 2022, there are delays in permitting and receiving critical components, such as HVAC systems could impact the actual number of restaurants, we opened this year.
Our 2022, Capex budget of $80 million to $90 million includes as many as eight restaurant openings during the year and starting construction on more for 2023 opening dates in addition to starting to remodel initiative Greg outlined.
Looking to the first quarter of 2022 <unk>.
<unk> had a significant impact on our business in January to.
To put <unk> in context of past Covid waves. The number of team member team members excluded for Covid positive tests and the peak Omicron weeks of late December and the first half of January was six times higher than the peaks of past waves.
The amount of team member exclusions required us to limit our operating hours and menu and a large number of locations throughout January <unk>.
Resulting in average weekly sales of 96000 as compared to and comparable restaurant sales of negative 9% compared to the same period in 2020.
As Covid cases, receded or average weekly restaurant sales have recovered to more than a 106000 to date in February including the impacts from a severe winter storm earlier in the month.
And the most recent week, our average weekly sales increased to more than 116000, which included both a slow day of Super Bowl Sunday, and a strong Valentine's day Monday.
Our two year comparable restaurant sales have returned to positive in February to date, when adjusting for weather and the shift in the timing of Presidents' day weekend.
In light of the severe severe disruption omicron cause to our sales in January we are now expecting restaurant margins to remain in the 10% area for Q1, 2022, which would be similar to Q4 2021 levels.
The degree of sales deleveraging in January will weigh on the full quarter margins. So we are encouraged by the margin recovery accompanying the higher sales in February to date as compared to January .
We expect restaurant margins to continue recovering along with sales to the low to mid teens as 2022 progresses.
Finally, I would like to highlight three elements that impacted recent sales, but that we expect to benefit future periods restaurant staffing challenge day parts and media spend.
First restaurant staffing continues to prove to be the key to unlocking higher sales in.
In the fourth quarter restaurants, consistent with pre Covid staffing levels generated four 4% comparable sales versus 2019, which was more than 10 percentage points better than restaurants still in the process of rebuilding their teams we.
We've made meaningful progress in hiring throughout Q4 and into Q1 2022 and continued to add team members each week, enabling more sales growth.
Next in terms of day parts lunch at late night remained the most impacted which combined weighed on our two year comp by approximately three percentage points in Q4.
We expect lunch to rebound once more employees return to the offices. This year, the timing of which was extended due to the omicron variance and a positive development certain large companies have recently announced returned to office plans.
Additionally, we are seeing encouraging early results from our new weekday lunch menu test, which is driving incremental sales and profit through nice traffic gains.
Switching to late night, a reduced hours due to staffing shortages continues to directly impact late night sales in the range of one to 2000 on a weekly sales average basis.
Finally, finally media spend.
In Q4, 2019, we spent 60% more in media dollars promoting bj's brand across channels, including TV when compared to our Q4 2021 spend levels.
Making the conservative assumption that our media investments just breakeven the incremental media spend in 2019.
Base translates to more than 100 basis points of two two year comp headwind in the current quarter.
We remain at a low media investment level currently compared with pre COVID-19 spend given the environment, but we look forward to bringing back more high ROI marketing. This year once we enter a period of more normal operating conditions.
These three factors weighed on Q4 sales by nearly 10 percentage points in aggregate, which can provide a meaningful tailwind to sales when reversing.
The higher sales lead to higher restaurant margins in.
In Q4 are fully staffed restaurants with two year comp sales more than 10 percentage points higher than understaffed restaurants also had restaurant margins approximately 350 basis points higher than our underset restaurants with the lower sales.
In summary, we know the best way to grow margins is to grow sales and the most.
Current data from Q4, clearly indicates that we as we fully re staff our platform, we can accelerate topline momentum.
At the same time, we have elevated productivity and cost savings throughout our Q project Q initiatives.
We have a 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 the near and long term objectives and remain steadfast in our focus on providing our guests with the best experience, which will allow us to continue delivering outsized growth 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 would like to ask a question. Please signal by pressing star one on your telephone.
If you are using a speaker phone. Please make sure your mute function is turned off.
Take military care equipment again press star one to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal for questions.
And we will take our first question from Brian Bittner with Oppenheimer.
Good afternoon guys.
A question on margins I was wondering if you could perhaps talk about the store level margins that you actually did see in the month of November because that is a timeframe where two year comps did turn positive relative to the rest of the fourth quarter. It was really choppy I know you've talked about store level.
<unk> being in the low to mid teens as 22 progresses, but any color on kind of the actual margin experience in November I think would help frame for us how to think about margins.
Two year trends to stay positive and I have a follow up.
Yes, Brian .
Pat.
It's still hard on November because the amount of training that was coming into the business.
I would say in general when we think about the share maintenance to the better way to kind of frame it up and think about it.
One is cost of sales where they are right now is in this 27% range over time, we see that number moving down.
Either it's through some of the menu pricing and supply chain getting back in line. So even in November we saw the high cost of sales number there and that's something that historically, we've run in the 25 to low 26. So there is a 100 basis points there that over time I think we have the opportunity to continue to move that down.
We're going to take it.
Prudently from that perspective.
And then we continue to have the high labor even in November and that was really again more of the training.
And rolling out the new menu that we end up rolling out we took the one 4% pricing, but I would say in general it is.
About getting back into that lower to mid teens in Q1 again is still the as Tom said depressed or where we are today and I do kind of a depressed number but I think we have the ability to again, we've got back into the team, especially as you get into Q2 things.
Things normalize in our weekly sales average grows and then the project Q initiatives that we continue to work on.
And just as my follow up based on the project Q initiatives based on supply chain normalizing your price increases.
So on all of those factors, where do you think that your average weekly sales need to be in order to potentially recapture those.
Pre COVID-19 store level margins in that 16% to 17% range because I think that's what we're all kind of.
Pending the opportunity towards for store level margins and so thinking about the average weekly sales required to get there would be helpful.
Okay.
Well.
I think that number and we I'm sure like you as well on us internally continue to run different.
Scenarios in different levels on what the incremental flow through as our weekly sales average goes up and we need to move our weekly sales average at least share the shorter term into the 110 plus range.
To continue to grow those margins I don't know the exact <unk>.
Number.
But that starts to leverage the manager leverage because that's more of a fixed number and leverages a lot of the operating occupancy and other controllable costs. So when we see for example, this last week, which is a Valentine's day week mixed with a very slow Sunday because of Super Bowl Sunday, and we see weekly sales averages in the 116.
Our range, we start to tendency restaurant level margins getting back into that kind of mid teens range or so it's still up at a higher cost of sales and thats that number that over time, we want to work it down in the right direction.
And thats, probably going to be a little bit.
Lapping that in a little bit more menu pricing later in the year to move that down so it's a little bit of a combination between that weekly sales average going a little bit more menu pricing and where we have today I mean, we're pretty conservative when we took 2% menu pricing here. Despite California has taken another dollar minimum wage as well as other states.
Do you see I think overall food inflation at 10%.
I am really took out one four in November so I start to think about your question. Some of your question also relates to how much menu pricing, we want to lean into later in the year and our goal right now is to actually drive that traffic kept that lunch day part back and get that late night part coming back as I've covered.
Declines in offices open I think.
You add the pricing on top of that I think we can get there.
With with probably sales again, maybe mid teens, but probably lower depending on the pricing in there.
Thank you Greg.
Thank you next we'll move on to Alex Slagle with Jefferies.
Okay. Thanks.
To dive a little deeper into what you're seeing in the business day to day with the staffing and consumer behavior.
Perhaps just anecdotal or certain metrics, maybe beer club tidbits or some things things that give you confidence in the trajectory for 'twenty two and.
And then also maybe within this.
Kind of curious a little more color on like what the traffic looks like in the bathroom.
Thank you said the later hours were still tough because it staffing, but kind of wonder what the demand is like as well there.
Yes, Alex.
A lot of great questions in there and I would tell you looking at and seeing our guests day to day.
We are seeing.
<unk>.
Incremental nice improvement.
December and January were tough months I think it's.
Pretty straightforward in our formal remarks.
I think our team members did an unbelievable job managing through exclusions are six times higher than anything we've ever seen and you start to put that in the context of what we're trying to do are doing in the fourth quarter and that was higher team members rollout a physical menu and getting back to a full menu and if you remember in the.
October call not all of our restaurants were out a full menu. So we got that into place in November and actually we're making great strides. We obviously had training with it an additional cost to roll those out but really liked the project the trajectory in regards to what we're seeing from our guests and what we're seeing in our restaurants.
And then it really take a.
Ah turned 180 to return with the way the omicron surge kind of came in a little bit of weather in there, especially in California and came through into the January months as it starts to recede or has been receiving we're starting to see much more normal patterns patterns that allow for us to optimize our business.
And that's really important as we look at our business the ability to predict weekly sales allows us to prep correctly allows us to par our food out correctly allows us to staff correctly and allows us to buy controllable is correctly and so forth and leverage.
All the way through the P&L. That's your optimization that happens when you have a very stable and predictable business.
And we're starting to see that in February so I like the green shoots that we're seeing in our business.
I think it gives us a nice trajectory forward.
To be able to drive topline sales and then optimize in the middle of the P&L.
Now in regards to the late night part of the business.
In November we saw the late night part of the business really start to flatten out we are less than $1000 difference in our late night business comparing it to 2019.
We reached December that number went back to somewhere in the two to $3000 range. So it really.
Decelerated on us.
Decelerated on us as well into January .
From a February perspective, it's coming back this weekend will give us a better at telling because two years ago in February .
<unk> stay weekend was earlier and have already been passed and so forth and those are big days for us because of our holiday weekend, but what we saw in December was a real pullback there in that number and the same thing with lunch lunch with another one and Tom hit it on his formal remarks lunch pullback as well with omicron as I think people just kind of hibernate it again.
Stayed inside and we're starting to see that Tom and our marketing leaning into our new lunch specials has really helped drive some of the lunch traffic, albeit at a little bit lower average check which is a little bit of our design I want to make sure. We maintain a real strong price point affordability for our guests as they start to come back to the office.
Helpful. Thank you.
And then just on looking ahead Youre also on your ability.
Full dining room capacity as you look ahead do you anticipate like four hours versus calendar <unk> 19 or <unk>.
Trends at the late night just based on.
I mean, I guess staffing related demand doesn't sound like the biggest issue.
Yes, it's a little bit of both.
In regards to that I do believe we will get back to full staffing, we're making great strides and we're seeing just that changed throughout the workforce more people applying for jobs showing up for jobs and building that that team member ranks at Bj's and we're always going to.
Have some pockets here or there and we've always had that even pre COVID-19 .
And restaurants in more challenging area, but I do see our levels really turning back to pre COVID-19 levels within our restaurants.
I command commend our restaurant management teams are doing a great job of hiring people at the right pace that we can manage it within our business in regards to late night, we've always been a place for late night and it's an important differentiator for Bj's and we wanted to get that back it's going to be a combination of having the right people. So we can add that back.
But also making sure consumers are ready to go out late night as well and I think we are seeing that but that's our goal and are targeted to drive that part of our business back.
Got it thank you very much.
Thank you and next we'll take genes.
With their forward with Stephens.
Hey, Thank you for taking the questions I wanted to pivot over to unit growth for a moment you got it.
Eight units in 2022 and that looks to be about right around 4% growth in historically.
Grown much faster I'm just curious when you look at your pipeline out for the next few years in your plans.
What's your thoughts on kind of regaining some of that historical growth and will those units be.
Will it look much different than the ones that you've built historically and then I have a follow up.
Yeah, Great question, so ideally.
Or bjs, we would like to be at 5% plus unit growth.
And that was originally the target for this year as well as to get back to a 5% unit growth I think we can do that with high quality I think you layer on top of that the ability to drive comp sales.
And then leverage the middle of the P&L and I think that gets to a strong earnings.
Cadence going forward.
This year. The reason, we said as many as eight and originally we were talking eight to 10 is we are seeing a lot of challenges getting through the permitting and planning.
And a lot of communities and frankly.
Seeing the same issues with.
Kitchen equipment and other equipment. So we've taken a little bit more of a conservative approach. The way things are moving around that that eight to 10 is probably looking more like as many as eight or eight on that as we continue to manage.
Manage kind of the supply chain out there I would expect like we're seeing on the commodity side, meaning the food and controllable in our restaurant that if things continue to open up and people work through the supply chain challenges that the kitchen equipment side will come back in line and be much more.
<unk> be much more methodical like it's been in the past I'm not sure where the city planning units are right now that that permitting.
Thank and Greg Lynds is in the room I think it's doubled does that sound about right, Greg yeah, depending on the area definitely everyone's still working from home so and tell people will get back in offices full time, that's going to make the biggest difference from a <unk>.
Planned development and permitting standpoint.
So.
So the goal is there to get back to 5% plus.
Unit growth in regards to our restaurants going forward, they're going to be pretty similar to what we've done.
What we built over the last couple of years and what we call. Our prototypes 20 at the same time, we're continuing to look at ways to optimize the off premise side of our business with some digital boards in either way easier ways for guests to come in in order for us to run out of food. That's one area that we look at and we do also know from some of our research with our most valuable.
Asked that.
That energy around the bar statement is so vital to bj's that we're going to continue to make sure that we have a best in class kind of bar statement that.
That really shows off the energy within our restaurants, and it's interesting our guests that we saw did not necessarily necessarily say, we love the bar statement, because we wanted to just go and hang out in the bar. It was more about that bar statement any energy it drove throughout the entire restaurant and that's a real important aspect of it we don't want to be.
A bar only concept, we never going to borrowing concept with I'll call it up 20%, but we love the energy and the visual that the bar provides for the entire restaurant.
Okay. Thank you for that and then my second question is on the recent sales trends. Thank you for all the detail that you did give us I.
Wanted to dig in a little bit on that 116000 average weekly sales here recently.
Because I don't know what you were doing in that week two years ago, just level set us what kind of a two year comp does that imply and if you could split that out what's your dining room doing versus what's your off premise business doing kind of compared to two years ago. Thank you very much.
Yes, I'll take the first part and then I'll, let Tom hit to hit.
We said in our press release and in our formal remarks, I think is probably the best way to think about it and that is.
Our comp sales on a two year basis had.
Move to trending slightly positive as the way to think about it when we take out the.
The weather that came through that first week of February and then we are still a mismatch on President's day weekend. So it's hard to be exact week for week, but if we normalize and take out the Monday related to.
The President's day week, we compare on Monday, Valentine's day to a Friday Valentine's day, and so forth.
US into kind of a slightly positive comp sales I wanted to say somewhere in the kind of half a percent or so.
I think that's right is that alright, that's right.
I can take the rest there, yes, and thats through February and integrates point the the 116.
When we look at the 2019 numbers. It has the President's day in there. So it's not a perfect way to compare but it's probably better to look at the totality of.
February is we said which was modestly positive comp.
And we do not see I mean.
I know you had a question too on just.
Dine in and off premise as well, we're seeing continued strength on off premise, we're still seeing double or more than double on the off premise side. So.
When we think of the sales recovery.
On premise is certainly the opportunity and it's great to see these these sales on off premise staying where they are so when we get re staffed and were able to build that traffic back up we've got a lot of opportunity there, yes, I think Tom's comments.
The one that we tend to look at internally and that is how is the dining room business moving forward.
And it.
It was moving in a nice direction in November Thats, when we put up a 2% comp and things are removing our ticked us real step back in <unk> 12 in Taiwan with the Omicron and if we can hold onto this off premise, which looks like we are doing and now starting to grow the dining room again as things normalize I think there's a good amount of upside for this business.
Helpful. Thank you.
Thank you, we'll move on to drew north with Bayer.
Thanks for taking the question I wanted to follow up one more.
Recent trends I hope I was hoping we can level set on the quarter to date comps overall in January and February on a two year basis. It was helpful to hear all the perspective on the recent weeks and an underlying basis, but I think it would also help us all a line in the fourth quarter to date period, as we think about the model for Q1.
Sure in January we were down 9% and this is on a two year basis. So this is a stack now to 2020 so on.
Versus 2020, we were down nine and <unk>.
Again.
In February we are still the labs aren't perfect, but if you net out and remove the impact from the President's day as well as some of the the weather from from earlier in the months, where we are.
Slightly positive.
And would you be willing to share the underlying or I should say they reported call. It two year comp.
Instead of backing out the weather and the shifts just where we sit today.
I think a better way to look at it is.
Because this might help a little bit more from a modeling standpoint trying to get there is we did about 97000 WSI in January 90, 696000, and we're now at about 106000 weekly sales average in February and we're probably internally more focused on growing the weekly sales average.
Because thats, how we leverage that business.
So you can kind of blend those two together.
I think in 2012, its hard to tell because in 2020.
2020.
I guess, if you went back to 90, we did about 110000 weekly sales average for that quarter I think to.
To date, if you kind of blend those two together, we're still probably down about five where are we down about 5% a couple of weeks.
That's right yeah. So it looks like it's about five 5% that were down on a weekly sale.
All the way through February with a big impact from from January so that should tighten as we move through the quarter.
No.
Yes understood.
Okay.
Okay. I wanted to also ask one on the margin you mentioned the expectation for the restaurant margin to progress to the low to mid teens through 2022 from 10% in Q1, I guess was that meant to signal the expectation for the full year or more so the exit rate on 2022, I think any perspective on kind of the cadence through the year.
While acknowledging that seasonality would be helpful.
Yes, it's a great question actually.
And.
We our goal is as we exit 2022 to the much more into the mid teen range.
That's where we're going after as we see sales recovering we see some menu development commodities and supply chain normalizing, allowing us to go after a little bit more from a project perspective, and then continuing to figure out.
Areas of additional pricing based on the inflationary environment, but that's kind of our exit trajectory and then building on that.
Perfect very helpful and lastly from me just a question following up on unit development for the eight Youre targeting for 2022, what are you seeing in terms of development cost inflation and how is that playing into the returns you expect from this class of units.
One is the new units are performing well from a sales perspective, but are these inflationary.
Pressures out there in the environment, making you consider anything different for the pace of openings in 2023 and beyond.
So we talked about this on the last one I don't think anything has dramatically changed at our restaurants have moved from somewhere in the kind of five five to range to closer to $66 million to build.
A lot of that inflationary some of that.
Do you believe its transitory, but I'm not sure we're going to be back down to a $5 million or <unk>, because I, just don't think you're going to see deflation.
Deflation back to pre Covid levels.
In the building when we look at the restaurant levels sales levels that are being produced out of our newer restaurants are internal targets at a higher <unk>. So that our overall margins and returns are in the are in the high teens for our restaurants.
When we tend to look at it on a 20 year discounted cash flow basis, it's not going to make that much difference in regards to the cost of a $55 2 million restaurant moving up to $586 million from that perspective, so it hasnt changed our view on building new restaurants.
But we're we'll continue to watch it.
If we didn't have such success out of our newer restaurants over the last couple of years.
That discussion like would we look at it differently or is there something we need to change, but the new restaurants have performed well.
And while we are aware of the current.
Sure.
Increased costs.
In our business, it's not changing our perspective right now we.
We'll as we always do look for ways to value engineer, our building can figure out how can we bring this number down despite inflation. That's very important for US is we want to ring out all inefficiencies, we can within our business.
Thanks for all the color.
Thank you and we will now be taking our last question today from Joshua long with Piper Sandler.
Great. Thank you for taking my question wanted to see if we might be able to just confirm what menu price was in the <unk> period, and then also what you have.
We are in place for the <unk> period.
So as I said on the call we get the one four that we put in in November .
Okay.
And then we just put 2% here.
And kind of.
Early February so the way I would tend to think about it is we're somewhere is based on where their most recent inflations come up for somewhere in that three and a half with that now there was.
I wanted to say in July .
Last year, we put kind of Q2 and a half in there so.
I'll end, there is probably closer to about 5%, but for our business, we really started seeing the inflationary pressures.
Pressure start to hit in really in Q4 of the year and into Q1.
Got it that's helpful. And then when we think about some of the research that you you did very interesting and just curious how youre thinking about that from obviously protecting the price point and the value piece, but then a lot of the discussion was around.
Just having that kind of focused menu and so you've done a good job in terms of balancing the number of items on the menu as we went through the pandemic you pulled that back a little bit just curious if now that you've done. The research you think meaningfully changed in terms of how you think about the size and scope of the menu or if you would.
Talked about in your prepared remarks, its really about.
Dialing in.
Kind of flavor profile and what the guest is expecting.
Yes.
Gotcha, Josh Greg first of all it's a great question and I think there is.
Couple of different.
Maybe answers is by the way we are thinking about it so going with where you are they may possibly thinking at first around kind of pricing and so forth.
As I kind of said in the formal remarks that the breadth of our menu allows us to have price points at all different levels.
And right now even in an inflationary environment.
Trying to kind of go after a little bit of an.
<unk> price point with the lunch menu.
Also pushing into daily brewhouse specials, and looking at also increasing some value or portions in certain areas.
We kind of wanted to take a little bit of a different product that received from other players out there using that using the term of inflation out there may be less swings or less <unk>.
<unk> is something else, we don't think Thats the right strategy for Bj's is not what our guests are coming for us.
To the restaurants, so we're going to continue to develop our menu strategy, it's going to allow a really good entry level price point, but we have this ability to allow our guests to indulge things like.
Our prime rib or our tri tip, or even like fish and chips and we're going to continue to create and craft menu items in that area that allowed guests to outspend. The other side of it and Kevin and our head of culinary Kevin Blair, who is here with me in.
Our head of culinary Youre working on is going through kind of a turf analysis from a category by category to see really what's the right amount of menu items and.
I like our breath, I think we've probably lean a little bit too heavy heavy in certain areas that we'll probably see pullback, but we wanted to see what the kind of turf analysis says so I could see us kind of more dialing in what I would call the core or what we call familiar items transformed to brewhouse Fabulous.
What we've seen in our data as our guests really recognize.
Kind of a unique but but very familiar offerings.
And as a result, I think that's what we're going to see from our menu development perspective, I don't know I'll look over here to cabinets as you want to add.
So I think you covered actually.
Thanks, I covered it so I think we'll get there.
Yes.
Thank you for that and then last one for me in terms of I imagine it's still early on the remodel perspective, you said you had some of the Capex.
Capex for the year earmarked for that but just curious on how youre thinking about maybe the size scope or just what the initial path of Sta.
<unk> might look like in terms of number or.
Vintage that you might be targeting.
Yeah. So we've got probably about a third of our restaurants from a from a vintage standpoint.
That have the ability to kind of add some capacity into it uptown.
Up to almost 24 seats.
In our restaurants and those tend to be an older model, meaning an older version of our restaurants, so they need a little bit of an upgrade there.
To begin with.
Third there are high volume restaurants, and every time, we know we've added capacity in restaurants.
We're able to generate top level sales, we haven't defined the full dollar scope yet on those but knowing that we are adding capacity and getting seats in there.
We know that theyre going to have a high ROI just because again were you able to generate topline sales from them.
Very helpful. Thank you.
Youre welcome.
Thank you.
That does conclude today's teleconference. We do appreciate your participation at this time you may now disconnect.
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Yes.