Q1 2022 BJ's Restaurants Inc Earnings Call
Okay.
Good day, ladies and gentlemen, and welcome to Bj's restaurants incorporated first quarter 2022 earnings release and conference call. Today's conference is being recorded at this time I'd like to turn the conference over to Greg Levin Chief Executive Officer. Please go ahead.
Okay.
Thank you offered I. Thank you operator, good afternoon, everyone and welcome to Bj's restaurants fiscal 2022 first 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 Greg Lynds, our Chief development Officer on hand.
For Q&A.
After the market closed today, we released our financial results for the fiscal 2020 to first quarter and you can view the full text of our earnings release on our website at Www Dot Bj's restaurants Dot com.
Our agenda today will start with Rhonda Schirmer, our director of SEC reporting, providing our standard cautionary disclosure with respect to forward looking statements I.
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. Serrano. Please go ahead. Thanks, Greg our comments on the conference call today will contain forward looking statements.
The private Securities Litigation Reform Act of $19.
These statements involve known and unknown risks.
Certainties 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. Our forward statements speak only as of today's date April 21, 2022, we undertake no obligation to publicly update or revise any forward looking statements or to make any other forward looking statements whether.
As a result of new information future events or otherwise unless required to do so by the securities laws investors 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 Greg.
Thanks, Ron.
I am highly encouraged by the recent trends in our business Bj's generated record Q1 revenue, beating our previous high set in 2019, even with the significant industry wide impact from the omicron surge in January with.
With Amazon enter tree guest demand and team member staffing levels stabilized in February and then accelerated in March our team members shined once again, showing they can provide our guests with the gold standard level of service and gracious hospitality and every operating environment.
Our average weekly restaurant sales improved from 96000 in January to 110000 in February and 118000 in March compared to 2019, our comparable restaurant sales increased from negative six 4% in January to negative <unk>, 6% in February and then.
To a positive one 2% in March our solid performance continues in April with period to date weekly restaurant sales, averaging $118000, which equates to positive mid single digit comparable restaurant sales growth from the same period in 2019.
Our restaurant margin also improved throughout the quarter with full quarter restaurant margin meaningfully better than January levels, which were impacted by Amazon.
Our topline performance is being driven by improving underlying fundamentals staffing continues to be a key driver of sales and we added hourly team members and further reduce the number of understaffed restaurants throughout the quarter.
Due to our improved staffing position and solid guest demand, we began adding back more late night hours starting in March our restaurant hours of operation are now approximately a half an hour or less per day as compared to pre COVID-19 hours.
Moreover, late night comparable sales are now trending positive in April compared to 2019.
Next our team member turnover trends improved in the first quarter as well compared to the last several quarters, our training and engagement programs designed to retain team members are working and the key part of increasing our staffing and serving more guests.
Finally, our net promoter scores rose in the first quarter and our guest scores is higher in Q1 than at any point over the past year and well ahead of our pre COVID-19 measure in each metric, including overall recommend value food and hospitality.
Our unwavering approach to flawless execution continues to be noticed by guests as also evidenced by our traffic trends.
While Tom will go into the cost side of the business in more detail. We continue to experience high inflation in Q1 certain items such as fresh meats are down from their late 2021 highs, but remain elevated on a historical basis.
Our food cost has our food costs had contracts step up at the beginning of 2022.
Related to labor cost market rates continue to tick up, albeit at a slower quarterly sequential increase than the past couple of years and given our re staffing initiatives, we incurred extra hours on a short term basis as we invested in training and experienced higher.
<unk> invested in training and experienced higher than typical overtime due to COVID-19 related exclusions.
To mitigate some of the recent inflation impact we implemented around the menu pricing of one 8% in February and we will take another additional one 4% in June .
This amount of pricing is still behind current inflationary trends.
Those are improving with guest demand, we still have excess capacity at lunch and other day parts that we can drive guests into our restaurants to leverage the fixed costs in our business to improve margins.
That is our number one focus to improve margins and that is driving guest traffic. Therefore, we are carefully balancing driving traffic with overall pricing to manage margins as sales recover.
After seven months of DJ CEO , I am confident as ever in Bj's ability to deliver industry, leading results every bj's team member from our restaurants to the restaurant support center is committed to growing sales since driving incremental sales is the best way for bj's to deliver profitable growth.
Recently, we galvanize our team around five key strategic initiatives that offer the best path forward toward meaningful near and long term sales growth. They are served memorable brewhouse experiences.
The people first hospitality culture.
Build a large profitable best in class off premise experience.
Accelerate restaurant growth and new sales channels and build a better guest and team member experience through the joy of technology.
Bj's well defined strategic priorities set a clear vision that our leaders are now embarking on to drive the next phase of our concepts growth.
First in regards to serving memory brewhouse experiences Bj's offers a social dining experience in what we refer to as the polished casual space.
And our guest research that we consistently hear our restaurants described as an uplifting social oasis with a brewhouse soul guests come to us not only for our meal occasion, but for the for Bj's hospitality experience, which is not available anywhere else.
To maintain this high standard of hospitality, we are redoubling, our emphasis on high touch procedures that help build relationships with our guests so they feel special and appreciated.
Our food delivers the comfort of the familiar with a brewhouse twist, we will lean in further to expand our brewhouse food authority by creating more iconic brewhouse signature food and drink menu items.
Elevating our high quality ingredients and presentation.
We are also evaluating opportunities to take our brewhouse theatre experience to the next level.
We are testing new ideas and design features that refresh our existing restaurants and expand capacity to drive even higher sales.
We have now completed two pilot Remodels, where we added three new large booths for extra seating capacity and new design elements, such as larger Tvs to improve the client experience.
The early results are encouraging with the sales lift from the additional <unk>, providing a very attractive return.
Second is crafting a people first hospitality culture great.
Great experiences start with fantastic people and consistently great experience require a team driven by a higher purpose.
That is why every new bj's team member across our organization receives a craft card outlining our brands core values around connection respect advancement fun and trust emphasizing our values of shows key members with BJ stands for and helps them make the best decisions that align with our vision.
<unk> and goals.
With these core values as our foundation, we consistently evaluate our restaurant operating procedures to ensure we have the best practices in place that showcase our gracious hospitality and gold standard level of service to.
To help ensure our new hourly team members learned the Bj's way, we are developing new training programs that provide improved tools to deliver on our high standards of service and hospitality from the very first day.
We are leveraging new and best in class teaching and development practices to provide our team members with a foundation to execute at exceptional levels, while continually building skills that are important for the ability to advance their careers at bj's.
Third building, a large profitable best in class off premise experience.
In 2021, our average weekly off premise sales approximately doubled from pre pre pandemic levels to more than $20000 per restaurant, which is where it remains today.
This growth highlights shifting guest behavior accelerated by the pandemic as more meals prepared by restaurants were enjoying and guest homes.
We expect this trend to continue and are focusing on further innovation around our off premise guest experience to best position Bj's to earn an outsized share of this exciting growth opportunity.
We continue to explore initiatives to make our offense experienced more differentiated and optimize all channels, including takeout curbside pickup and delivery.
For example, we will soon introduce and advanced order tracker with real time progress information to complement the text message alerts our guests receive today.
We are also improving our printed order labels to include a complete package list to ensure orders are accurately filled before leaving our restaurants.
We aim to superbly execute the basics and reduce friction throughout the guest experience and we believe the processes, we have and continue to implement will help us achieve this goal.
We're also very excited about bj's opportunity to meaningfully expand our catering business. We are working aggressively to development capability and our early progress on this initiative is encouraging.
We plan to continue dedicating appropriate resources to grow our catering business, especially as more workers return to their offices this year.
Our vision is to bring the brewhouse experience to any event on our off premise and our catering offerings are aligned with this vision.
Fourth accelerating restaurant growth and new sales channels.
Data continues to confirm that Bj's unique concept can leverage an untapped in underdeveloped markets across the country to support at least 425, bjs restaurants nationwide or approximately twice the number of locations. We have today are.
Our recent new restaurant openings are performing ahead of other locations in their markets, which is a healthy indicator for continued profitable expansion.
During the first quarter, we restarted our new restaurant development program with the March opening in Charlotte North Carolina.
This was followed by <unk>.
By our second 2022 restaurant opening in San Antonio, Texas earlier this week.
We have five additional restaurants currently under construction and plan to break ground on our sixth location by the end of this month.
We remain confident in our ability to open as many as eight new restaurants in 2022 and continue building a terrific pipeline to deliver attractive restaurant growth in 2023 and beyond.
Going forward, we expect our cash flow balance sheet and financial flexibility will support our goal of increasing our restaurant base by at least 5% each year.
In order to successfully develop and open new restaurants at this rate, we will continue to invest in our teams and our capabilities.
We are also evaluating other sales growth channels, such as our Bjs Brewhouse beer club. The early results of our Brewhouse beer club are very encouraging with members increasing visits and spend in our restaurants once joining the program.
We continue to optimize the program and we'll evaluate a broader lunch for additional a broader launch four additional states.
First is building a better guest and team member experience through the Joy of technology as an early adopter of value add guest and team member technology, such as our mobile App to drive E Commerce orders and our server handheld devices to improve operations in our restaurants, our reputation as a technology leader in the industry as well.
<unk> earned we are committed to a technology at the right time approach that enhances and enables the guest and server experience without detracting from our guests overall dining experience.
We are refreshing our e-commerce platform, which will provide guests with a new more modern user experience and more advanced functionality.
We are also we also recently moved our guest data to a new platform, allowing us to offer a more personalized and one to one approach to digital marketing as a result, our targeted messaging now delivers personalized content and dynamic recommendations that have the best potential to drive gas section.
We are now able to iteratively enhancing each guest interaction based on applied learnings and continue to fine tune the program to accomplish specific goals with every communication and drive higher returns on marketing investments.
In summary, we have a comprehensive set of initiatives aimed at significantly increasing our average weekly sales and doubling our restaurant locations.
We also have ambitious long term sales and profit growth targets, including growing BJ sales to $2 billion and beyond.
In the meantime, we are incredibly optimistic that guest affinity for our brand and menu offerings, coupled with the trajectory of our business and our current initiatives will enable us to achieve attractive near and mid term growth objectives.
In closing I would like to express our appreciation and gratitude for each and every one of our team members, who remain committed to making Bj's gold standard in the casual dining industry.
Now, let me turn it over to Tom to provide a more detailed update from the quarter and current trends Tom.
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 first quarter, we reported total sales of $298 $7 million or sales increased approximately 34% versus Q1 of 2021 and 3% versus Q1 of 2019, which makes it our highest Q1 sales ever.
On a comparable restaurant basis sales increased by 34% compared to Q1 2021 and declined by one 5% compared to Q1 2019.
As Greg mentioned, our comparable restaurant sales improved through the quarter and finished with positive comparable restaurant sales in March versus 2019 deals.
Deleveraging from early in the quarter.
Early quarter Omicron sales impact and continued inflationary pressures resulted in restaurant margins of nine 8%, which was in line with our expectations.
Restaurant margins improved sequentially through the quarter as our sales improved.
Adjusted EBITDA was $13 2 million and four 4% of sales in our first quarter, beating Q1 of 2021, EBITDA, but behind Q1 2019 EBITDA.
We reported net income of $1 5 million and diluted net income per share of <unk> <unk>.
On a GAAP basis.
Our net income included a $10 $2 million income tax benefit which includes the usual FICA tip credit and applying our estimated annual effective tax rate.
The quarter started with January weekly sales per restaurant, averaging 96000, and comparable sales of six 4% behind January 2019 levels as the auto Crone wave with surging across the country.
Encouragingly, our sales accelerated in February as Covid cases declined and we continue to add restaurant team members. We increased our weekly sales to 110000 in February which was within 0.6% of 2019 levels on a comparable restaurant basis, our sales trends further improved in March with the weekly sales average reaching one.
Hundred 18000, which was one 2% above 2019 levels.
Moving to expenses our cost of sales in the quarter was 27, 3% of sales, which was a 10 basis point improvement from last quarter, but unfavorable to the prior year and to our first quarter of 2019 food cost inflation was in the high single digits as compared to Q1 of 2021 and up in the low single.
From last quarter.
Food cost inflation has slowed modestly with certain meats coming down from their highs set last quarter, partially mitigating inflation on other inputs across our commodity basket.
Labor and benefit expenses at 38, 9% of sales in the quarter were unfavorable to the prior year into the first quarter of 2019 as.
As we previously reported the omicron Serge had a severe impact to our operations in January and early February as we Deleveraged, which had a lasting effect across the quarter.
We estimate that the omicron impact weighed on labor and benefits by approximately 100 basis points in the quarter.
Also our training and overtime hours remained elevated in the quarter due to strong hiring and the <unk>.
Impacted labor as a percentage of sales by an additional 60 basis points compared to Q1 2019.
We believe the investment we've made in both managers and hourly team members are now driving meaningful sales growth and incremental profit as more guests come to dine at Bj's.
Yes.
Occupancy and operating expenses at 24.0% of sales in the quarter were favorable to the prior year, but unfavorable to our first quarter of 2019.
Due to the upfront impact in January we reduced our marketing spend in the quarter to one 5% of sales, which remain below pre COVID-19 levels.
We are encouraged by our ability to maintain off premise sales at approximately double our pre COVID-19 levels, which results in certain costs such as to go packaging and third party delivery commissions remaining higher than the periods with lower off premise sales.
We also continue to invest in refreshing certain restaurants to like new first class as we prepare to welcome back more guests into our restaurants.
We continue on our mission to identify and implement cost savings across our restaurant operations.
<unk> mandate is to find opportunities that safe, while maintaining our highest standards for all our atmosphere service and food quality.
We are committed to not impacting what makes bj's special and keep our best guests coming back time and time again.
G&A for the first quarter was $18 3 billion.
We had some additional spend related to recruiting in the quarter as well as a return to more regular business activities and adding resources to prepare for growth.
We still expect to ramp up G&A spending as the year progresses and conditions improve including investments that enable us to increase new restaurant openings and build upon our operating and talent capabilities like resuming in person operations development meetings, including our career development Conference and leadership Development Conference.
I expect full year G&A to be in the 76% to $77 million area, including an additional $2 million in Q4 as 2022 is a 53 week year.
Turning to the balance sheet, we maintained our debt balance of $50 million.
And ended the quarter with net debt of about $23 million.
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.
The strong pipeline for new restaurants, which will result in breaking ground earlier for 2023 restaurants, coupled with some of the early and encouraging results from our remodel initiative. We are now expecting capex to be in the 90% to $95 million range.
Looking to the second quarter of 2022.
We are encouraged by our recent sales trends weekly sales have remained in the 118000 area and we remain.
And we continue to add hourly team members to our restaurants to unlock even more sales the.
The second quarter is typically our highest sales quarter, which has the benefit from spring break and big sales weekends for mother's day father's day as well as large parties during graduation season.
If sales continue on their current trajectory and followed the usual seasonal pattern.
Restaurant sales should be in the 118 to 119000 area.
And we would expect second quarter restaurant margins to be in the 13, 5% to 14% range.
Also we expect an effective tax rate in the 5% to 10% range over the next three quarters of 2022.
Finally, I would like to provide an update on the three elements that impacted recent sales, but then we expect to benefit future periods restaurant staffing.
Challenged day parts and media spend.
First restaurant staffing continues to prove to be the key to unlock higher sales in the first quarter restaurants, consistent with pre COVID-19 staffing levels generated two 2% of comparable sales versus 2019, which is more than 10 percentage points better than restaurants still in the process of rebuilding their teams. We continue to add team members each week, enabling.
More sales growth.
Next in terms of day parts luncheon late night remained the most impacted in Q1, which weighed on our three year comp by more than four percentage points combined in the quarter.
In early Q2, both day parts are delivering encouraging topline trends with lunch returning to approximately flat and late night now with positive comparable restaurant sales versus 2019.
Our new lunch value menu continues to add weekday traffic and late night is benefited from us adding back more late night hours starting in March as our as our staffing levels have improved.
Finally media spend.
In Q1, 2019, we spent 40% more in media dollars promoting bj's brand across channels, including TV when comparing to our Q1 2022 spend levels.
Making the conservative assumption that our media investment just breakeven the incremental media spend in our 2029 base sales translated to more than 80 basis points of three year comp headwind in the first quarter.
With a more stable operating environment and improve staffing levels. We recently returned to larger scale advertising campaign in our top markets. We are targeting investing approximately 2% and 2% of sales in the second quarter to increase brand awareness and drive additional traffic to our restaurants, which is incorporated in the Q2 margin expectation.
<unk> I provided earlier.
Okay.
We expect each of these factors to contribute to tailwind in the second quarter and beyond and helped drive incremental sales and higher sales lead to higher restaurant margins.
In summary, we know the best way to grow margins and profit is to grow sales recent sales trends have been encouraging and we remain committed to being sales drivers first and foremost at the same time, we have elevated productivity and cost savings through our project Q initiatives.
We have a clear path to sales growth and margin recovery and our long term strategy remains intact.
We have seen new challenges emerge throughout the pandemic.
And 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 providing our guests with the best experience, which will allow us to continue delivering outsized 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 star one for questions. Please make sure the mute function on your phone is turned off so the signal can be read by our equipment.
Star one for questions, we'll pause a moment to assemble the phone queue.
We will take our first question from Alex Slagle with Jefferies. Please go ahead.
Hey, Thanks, good afternoon.
Kind of question on the quarter to date same store sales and average weekly sales.
Just trying to think you guys at all apples to apples in terms of the calendar promotions or anything to call out on the.
COVID-19.
Yes, Alex it's Greg Levin.
Yes.
It is Easter when we looked at the numbers and what we're talking about here in that 118000 were and kind of a mid single digit comps, we're still comparing into 2019 beyond kind of the last time to compare tail and back in 2019 Easter lined up the same weekend this past weekend.
So everything from a apples to apples perspective seems pretty much in line.
Great.
Consumer spending habits and overall health.
I just get an idea of what youre seeing if theres anything in your data or anecdotal observations.
On consumer spending dynamics or health or any.
Demographics any kind of shifts you are seeing.
Just given the inflation headwinds and it looks sounds pretty strong, but just curious.
Are there any other comments here.
I'll add some color to it and I don't know Tom will have something to add to it as well but.
I think what we're saying.
Is and we mentioned a little bit on the formal remarks and that is.
Our lunch specials are working really well with our guests and that is a value play there the ability to get full service sit down chicken parm for $10 $10 and here in California for $11 and a higher cost area tends to be a great value and we're seeing that improvement in.
That months day part, it's still a softer day part for us the overall and Thats, where I think we can continue to lean into that and drive the excess capacity in that business.
We have tended to continue to see increase in incident rates.
Im thinking back kind of from a pre COVID-19 standpoint, so guests are still ordering more items.
In that regard and we did mentioned the late night seems to be coming back. So people are feeling more comfortable getting out from a late night perspective other than that from our mix. It's been pretty consistent I don't know if theres anything to add to that Tom.
I would say the <unk>.
Terms of the overall business.
It's great to have the.
Everyday value across our menu, but we also are very sharp price points that happy hour and daily Brewhouse specials. So the guests that are the most price sensitive can come in at any time, but we haven't seen any shifts in mix in the business really and in terms of pricing.
When we go through these pricing rounds will measure to see what the flow through is and if we've seen any trade between products and really we haven't seen.
Any shifts there as well so we haven't seen anything of concern. It really is seems to be still a very healthy consumer.
Thanks, and a follow up on the overtime and training.
Much of a headwind do you expect that continue and just trying to think about <unk> is that starting to come off or is that headwind.
Expect it to continue that you talked about.
On the margin I would say yes.
I would say at the second half, we should see that improving and I think it's a gradual improvement as staffing and improves you hire less you have better staffing and overtime goes down so I would say in the second half, we should see that adding more of a tailwind than it is right now.
Alright, Thank you very much.
Thank you.
We will take our next question from David Tarantino with Baird. Please go ahead.
Hi, good afternoon.
My question is on the on the margins.
First I wanted to ask.
On the on the Q2.
Outlook.
Is that a good.
Run rate to think about.
On an underlying basis or are there some factors in there that you would consider.
Temporary that are depressing the margin.
But I have a second question, maybe about the longer term outlook, but I guess, how should we think about the current run rate on marginal versus.
What do you think the normalized.
Yes, David.
This is Greg and.
I think that's a.
A reasonable run rate in the margins.
As of today, and still assuming that there's going to be inflationary pressures coming on there. The second part of that question is really are part of that question comes down to is where where you from a modeling or even us internally start thinking about where our sales trends go because we're still not fully back to where we wanted to be in the dining room and that's our opportunity.
And that Leverages, the rest of the business going forward.
As we just put up this quarter here, we still saw cost of sales in the 2017 that range and I do believe when you think about the business longer term. The goal is for that to start to move itself down.
Both a little bit our pricing as we continue to develop new menu items around the core of the brewhouse menu.
And then over time, we will also start to leverage more on the labor. So when I think about that business. So I think about the margins I should say I don't see any reason why over time, our margins don't continue to accelerate back into the mid teens and get back to that.
Historic numbers over time this year I think is still going to be as Tom was touching upon still going to be some training as much as it comes out in the second half of the year I still think we're going to see some inflationary pressures going on in commodities and so forth and we're purposely under pricing.
Maybe compared to our peers only taking one eight and coming up here one for those are pretty low numbers because I. Just think we have enough excess capacity in our business that we can drive guests into the unique dining experience that bj's is and we've definitely seen guests want a place to have a social experience and I'd rather use that get the guests in.
And drive leverage over those fixed costs.
<unk> is trying to just completely lean into pricing I don't think thats the right approach.
Yeah, Great. That's helpful at essentially answered the second part of what I was going to ask about but.
With respect to traffic.
Could you give us a sense of how much traffic in April .
Down versus <unk>.
Versus I guess, the pre COVID-19 levels.
Versus 2019, and I'm talking specifically about.
The in restaurant transactions, just to kind of frame up what the opportunity might be if you recapture.
All of those transactions.
Sure.
No.
Looking at just April here, our traffic versus 2019, just dine in is is still down in the 10% to 20% range. So there is still a meaningful amount of dining of traffic and capacity in our restaurants that we can add back.
The sales levels that we talked about I mean, the benefit of the off premise being double where we were it is great because that pushes us to the comp positive position, but as we really see the opportunity of getting more staffing in our restaurants and being able to serve more guests.
Theres, a big opportunity to grow that traffic back overtime.
Great and last question I promise.
On the.
On the margin outlook.
Greg that you just mentioned does it recapturing all of that traffic necessary to get the margins back to the mid teens overtime and other several puts and takes but is that how youre thinking about it.
Not entirely now because it's.
As much as we.
We right now are taking a very measured approach in regards to inflation.
There will be additional pricing were just everybody is going to have to do to offset some of that so as that as that additional pricing over time comes in that's going to be part of it and then just the fact that we do have the.
The strong off premise sales and holding onto that off premise sales you don't really need to get all of that dine in traffic back to start to move your margins.
Closer to maybe some historical run rates.
Perfect. Thank you that's very helpful.
We will take our next question from Joshua long with Piper Sandler. Please go ahead.
Great. Thanks for taking my question and thanks for the commentary around the day part trends that was very helpful. I was curious if you're seeing similar trends across regions. So maybe it's worth.
West Coast, which had been hurt a little bit longer in terms of that.
Late night and some of the return to office pieces, if that had bumped back more or just what youre seeing across geographies.
<unk>.
The context of the day part trends that we've talked about.
Yes, I'll give you.
Top level and Tom chime in here, but in general.
Josh everything has moved in the right direction.
Our business, meaning all geographic areas had been improving period over period.
From that perspective.
I would still tend to say that the bay area is still softer.
But it's moving in the right direction, which obviously, we like we talked about the fact that late night moving in a positive direction and lunch has improved so when you look at the business overall.
When you look at both geography and day parts that are moving in the right direction, but I think as Tom just said, there and I've emphasized as well there's still a lot of opportunity to drive this dine in traffic and frankly still to drive off premise, which began alpine is higher than where we are today. So we like that opportunity that we have in front of us and we will talk about that opportunity that off.
<unk> is around transactions, it's mount guest traffic coming in versus driving the higher sales purely on menu pricing.
Got it Thats helpful.
Particularly in terms of the day part piece.
When we think about.
Some of the from the Remodels that you have lined up it sounds like those are.
Initially still early on but initially doing pretty well I'm curious if you could kind of.
Frame up how you're thinking about that having a couple of your belt now in terms of being able to roll those out and at what speed or cadence.
Next <unk>.
<unk> of those wood.
Hi, Paul.
Sure.
The two that we've opened.
There is a model of our restaurants, that's about somewhere in the quarter to a third of our restaurants that that had some unused space that we can rebuild and turn into three large booths.
When we look at where we have the most capacity constraints will be run weights that dinner time.
The extra sales that were driving.
Again early data here, but we're seeing an up to 1000 or 2000 more of sales per week. So.
The early data that we're seeing out of these restaurants is encouraging.
Where we need to we're still thinking through what the schedule and rollout looks like and we also have some other thoughts of ways to remodel different areas of our restaurants as well. So early days of the remodel initiative, but.
From again very early results here were encouraged by what we see in <unk>.
Definitely.
Pencil out what the cost is versus what the upside could be there is some some really great returns here. So we're.
We're excited about what this could look like.
Hi, Paul along as well and see how that progresses.
One last one from me in terms of thinking about the comps for the quarter and within the context of the menu price.
When does it Greg talks about taking how much effective price was going in was in place during the quarter.
Just trying to create a base for for some of those <unk>.
Next windows at that Greg outlined.
Yes, yes.
<unk>.
I don't have it specifically in here, but we generally roll out our menus in kind.
Kind of January June kind of September October those are kind of windows. So after we kind of roll through this June one September being the next time that we would take menu pricing.
I'd say overall, our menu pricing summers around the 5% range right now.
But I tend to even as we look at that the inflation really everybody's experience started pretty heavy in Q3 and four of last year and obviously into Q1 that everybody is currently facing and that timeframe. Our pricing has been a little bit last more than the kind of one 5% 2% range at different times.
So as we started to face us inflection of higher pricing I think that's where we've kind of.
<unk> taken our pedal off the gas a little bit on overall pricing.
As we continue to build the business for but I want to say, we're all in looking at back to the Q1 and two of last year, it's probably around 5% or so.
Got it and for <unk>, and then maybe to your commentary there.
Some level of obviously awareness with sensitivity around managing that price. So when you layer on the incremental 1.5% to 2% does that gets you a meaningfully into that mid single digit.
Mid to high single digit range or from a pricing perspective or as we've taken those pieces that roll off in a year over year basis does that keep you more or less in that mid single digit range.
Yes, that's fair the latter there is as we roll over from a year ago will actually be maybe even a little bit less on pricing because I think maybe at Q on Q2 might be a little bit more of a 2021.
It will still be in that kind of four to five in total as kind of a.
Constant pricing.
Got it thank you.
We will take our next question from Brian Mullan with Deutsche Bank. Please go ahead.
Thank you just a question on staffing it sounds as though things have gotten much better of late and that has helped drive the recent sales recovery, but also that youre still adding employees. Even now so just clarification question. It's definitely still an issue that is holding back sales at certain restaurants here in April or have you now kind of officially move.
Past that point.
From Stifel.
Theres pockets, Brian I wanted to say there might be a handful of restaurants are a little bit more aware the staffing levels are still below where we'd like them to be and that inhibit sales.
So we still have that in certain areas.
Other thing that plays into this as well is.
Your staffing levels.
Might feel pretty good and when we look at them on a piece of paper, but we still end up with callouts and other issues, just whether it's COVID-19 or something else that plays into it that will impact sales for that day or for a couple of days. So staffing is not new.
Not where it was in 17 and 18 or 19 from that perspective, but if I had to think about looking back on the last year, plus 15 months or so we're in a much healthier place today than where we've been over that timeframe.
Okay. Thanks, and then follow up in the prepared remarks, you indicated again looking at ways to mitigate cost across.
The organization just trying to get a sense. If there is something unique you'd call out that you plan to do at the restaurant level or is this more of kind of a corporate G&A opportunity.
Actions that you have in mind, just any color.
Yes.
I'm going to hold off on the color there because frankly, we're testing a bunch of different things and we don't know what's going to work or not work.
At the end of the day, we wanted to take care of our guests first and foremost.
So we're not looking and saying, okay, maybe we eliminate server assistance and therefore.
We don't have that position or.
We take servers to seven or eight tables, we know the reason that guests come to us is because of our people and taking care of them in our restaurants, and we wanted to make sure that our high touch points stay there. What we wanted to continue to do is look at areas in regards to consumables. Some of the operating expenditure cost and see if there's other things that we can do.
That will help reduce costs or.
And continue to keep the kind of the uniqueness in the polished casual look that we had at Bj's. The challenge is.
Frankly, the macro world continues to make it more difficult at times when supply chain seemed like they were getting better things in the macro made it a little bit more difficult.
Gan with maybe things being shut down in China in regards to some of our consumables that supply chains have gotten longer where I wanted to say in February timeframe.
We were able to start seeing a little bit more normalization of supply chains, and allowing us to do some reverse auctions, but we've got a lot of different things going on from a test standpoint.
When.
Those work and we don't see any pushback from our guests and it continues to make bj's stand out and be differentiated.
We'll discuss those the thing that I'm trying to make sure. We at Bj's. We talked about this is our executive team, we are not going to get.
So common by the terms skim inflation out there, we're not going to all of a sudden raise prices and give our guests less.
And so the things we've done already this year like we've increased our chicken sandwich from four ounce to a six ounce chicken breast we've increased the amount of portion we have in our chicken Alfredo.
To many other businesses out there that want to raise prices and takeaway things and while that might make us feel good for a quarter. It's not how you build to build the business for the long term and.
So everything we wanted to look at it comes to the point that we're still given the guest a unique and better dining experience than our peers.
Thank you.
We will take our next question from Jeffrey Bernstein with Barclays. Please go ahead.
Great. Thank you very much two questions. One just wanted to talk a little bit more Greg about the unit quite a thing.
I know you've often said.
Over quantity.
It does sound like you saw on the way or you feel increasing confidence in accelerating net new unit growth.
Maybe it might be 4% today.
Bob.
Thank you two years. So I'm just wondering if you can give a little bit more color on that.
And whether we're talking about.
No.
Markets any kind of color on that acceleration in the unit openings will be great.
Yes, Jeff Great question.
First even taking a step back here, our restaurants and our portfolio has always been very strong and I know we've accelerated over the times I've been here and then pulled back on other initiatives.
As we.
Built the company over time, so there's never been a concern that a portfolio of classes didn't work or markets didn't work for us.
So from that perspective.
So as <unk> taken on this role and seeing just a history of good restaurants that continue to.
To work for Bj's.
It is important that we get consistent in regards to our cadence of growing our business and you did you did make the right comment that we've always used and that is it's going to be quantitative quality over quantity. So even as we look at it and trying to get at above 5% to 6% and seven we want to make sure that we're doing it at the point that we can execute with really really good quality.
High weekly sales average is so important to our business to drive margins and to continue driving a high ROI and you do that with great people. So we're going to always continue to make sure that it's done at the right cadence that we can execute and not get ahead of our ski tips and I do feel good that as we build this year.
Back those regional training teams that need to be built we need to rebuild our supply chain team, which is more difficult today than at any time in the past. It is opening up a new restaurant takes a little bit of a different supply chain scale and.
And then as Greg Lynds, who Cherokee continues to build out his team in regards to being able to open restaurants consistently that we do that this year and thats part of that G&A investment that will allow us to accelerate restaurant growth next year and again I want to get above the 4% I think we can do that at Bj's.
56% to 7% range in regards to.
Locations and I'll, let Greg Lindsay the expert talk to it but right now we do have a lot of the ability to go into some of our existing restaurants, which I really like I don't know how much of it is kind of new properties versus repurpose and maybe you want to talk about that in more of a macro Greg yes.
So hey, thanks for the question Jeff.
With only 213 restaurants today in 29 states you'd think about olive garden with 800, plus Texas Roadhouse with 600 plus.
We have plenty of room within our 29 states are adjacent states to really.
Keep our expansion.
In our existing markets and where we can leverage our supply chain, our supervision and our brand awareness and Thats. Our goal is certainly for the next two years.
But we're excited about the opportunity to not only expand in our existing markets, but also take on a few new markets as we grow in the coming years.
Understood.
Follow up Greg you mentioned longer term targets.
$2 billion plus which.
But the larger units.
Youre doing but.
I know you mentioned that you have a variety of internal targets I was wondering whether you could share any incremental color on I think you said.
Margins over time getting back into the mid teens kind of what all that translates to if we go out over the next few years from an earnings perspective, any kind of color you can give on that longer term algorithm beyond just the top line sales.
Yes, Jeff we're still working.
Working through some of the details Erin one is plan to present that to the investment community.
Near future here.
Generally speaking from a very simple cadence and we've talked about this before and that is getting that unit growth up to 5% driving mid single digit comp sales starts to get your revenue.
Close to kind of 10% range and then we have to leverage the middle of the P&L and drive earnings above the 10% also at that time, we should be generating some significant free cash flow.
And using that also to augment shareholder returns that's kind of the the kind of algorithm that we're looking at in our business.
And again it all starts with driving the weekly sales average because that's going to allow us to continue to leverage that in the middle of the P&L to get that earnings above and Thats kind of our view there and look between all of US on the call, we hope to get to $2 billion in sales with less than 425 restaurants.
Yeah.
That's our goal we're not just wanting to get there by a double of the Bj's restaurants, we want to grow that weekly sales average up and I think we have a good opportunity in off premise and I think we still have a good opportunity in the dining room, because even what we're doing today as Tom mentioned earlier, we are still seeing negative traffic in the dining room sales.
I like the opportunities in front of us.
Understood and lastly, just I know you said, 14% in the second quarter and that was a good run rate for the back half of the year, what is that incorporating in terms of commodity and labor inflation as we look out over the next few quarters.
Ability to have on either of those or what's the assumption baked into that sort of thing.
<unk>.
Sure. So in terms of the commodity inflation, it's similar to what we're seeing right now where we're seeing versus last year up kind of in the high single digits.
The on the labor side.
It is.
Sequentially still going up kind of more in the low single digits. So that's.
Baked into the.
The margin assumptions that we provided.
Understood. Thank you very much.
Thank you we will take.
We'll take our next question from Todd Brooks with the Benchmark company. Please go ahead.
Thanks for taking my questions.
First if we if we look back I think 118000 a week in April .
If you look back to I am just wondering typical seasonality in this quarter could you do a big events coming up with mother's day father's day graduation, if you go back to.
That prepayment on that kind of Q2 thousand 19.
How did April rank relative to May and June and how the how the quarter progressed from an average weekly sales standpoint.
Sure So April .
It fits.
About.
It was a slightly less than then.
In May and June you'll see some nice levels still because of spring break so it fits.
A little less than May and June , but not much but you do see some pickup into may and June and Thats really driven by those big weekends really that mother's day father's day weekend as we see those big.
The big increases.
It's surprisingly.
Consistent Todd, which.
I know it sounds it doesn't.
And one more.
Makes sense I guess, but what ends up happening is April <unk>.
Pretty decent spring break number so it brings up your weekly sales average pretty high.
And then as you get into May and June you get kind of peaks and valleys you get a mother's day that churn drives that number up a lot you get a father's day as it strives that week that number up a lot and then some congratulations here or there. So it's kind of peaks and valleys, but it's surprising April is not that much of a low watermark versus may and June .
They're all relatively consistent and I think we did 113 or so in 2019 and the delta between the 113 meeting between like a may and June and in April is pretty much the same pretty consistent.
Okay, Great and then how do you feel about the staffing levels to handle these peak events with mother's day father's day argue.
I know it sounds like staffing is healed quite a bit but when you get to the peak kind of weeks like that are you equipped to fully.
Take advantage of the opportunity at this point.
Yeah.
That's a great question and we were able to do it on Valentine's day in February which is a tough day in of itself.
And then we've seen it on a couple of other days as well, where we've broken some sales records here in Q1 and thankfully.
We've got great managers in our restaurants that get prepared for that well end up doing other sales driving initiatives and staffing initiatives that we've done around the other holidays, but we're always thinking about our staffing levels and making sure we have the right team members.
In our restaurants that can deliver gracious hospitality take care of our guests and make sure our managers take care of our team members.
Because ultimately if we have that right culture in the restaurant will have a great staffing and we'll be able to take care of our guests come these bigger.
These bigger celebratory events.
That's great. Thanks, Craig and then.
March was in that $118000.
Weekly sales range can we maybe kind of.
Try and take some of the noise out from early in the quarter and the omicron hit the margins.
Did march margins kind of match up with that 13, 514% restaurant level that youre guiding to is there. Some other improvement that needs to happen expense wise in Q2 versus how you were exiting Q1 to hit the margin targets.
Yes, I would say the margins were in that area, we will be taking some some pricing in June so we will see a little bit of that benefit in the back end of the quarter in Q2, but but yes for the most part.
Thinking about it right.
Okay, Great and a final one for me there is just a follow up on David's question earlier.
I know you said you don't need to get dine in volumes back to historic levels to get to the margin targets, but I'm just wondering if youre seeing anything you look at the competitive environment do you have any reason not to believe that youre going to get the time and volumes back given just the number of kind of competitive closures in the category and.
Scaled brands getting stronger over the course of the pandemic.
No I don't I don't see a reason why we wouldn't get our dining room.
Package.
Debt.
The trend towards historical dining patterns seems to be playing out and I know everybody wants it to happen yesterday, and so forth as we look at our business and people get more comfortable going out. We also haven't seen late night now.
And a positive comparable restaurant.
Active.
I don't believe there is any issues there I still think as Tom mentioned, a little bit earlier, and we're getting there and you talked to it as well Todd It is about making sure you've got the staffing to be able to handle it.
And while staffing is not like it's been in the past the more people we have in better people. We have the more people, we can take into our restaurants.
We wanted to continue working on that staffing and then will continue always working on ways to drive efficiencies on there while we didn't talk about it specifically and I forget the exact amount, but things like mobile pay or using the QR to pay like those are turning out to be fairly sticky.
In our restaurants or not at the levels. They were in the pandemic when everything was touchless per se, but there is little things like that that can make it faster on the gas to make it better on the gas from an experience standpoint, and make it easier for us from a team member perspective and be able to therefore, our turn those tables quicker.
So we wanted to continue working on those areas at the kind of at the shoulders of a guest dining experience to be faster and more productive in our restaurant, but getting back to your original question I don't see any reason why our traffic patterns when returned to where they were pre COVID-19 .
Okay, great. Thanks, Greg.
We will take our next question from Jon Tower with Citi. Please go ahead.
Awesome, Thanks for making the time just a quick clarification first if I may on the commodity inflation guidance for the year, but you said high single digit now and I think you suggested that was going to persist for the year, but how should we think about that in terms of.
As you start lapping some of the higher prices in the second half of 2022 are you still thinking that it's going to be high single digit year over year inflation at that point in time or is it going to be more like flat on a two year.
It'll be.
At that point in later in the year. So when I was responding I was talking about specifically about Q2.
When we get to later in the year, we should see that flatten out a little more so.
But year over year inflation will see high single digits, we're expecting high single digits.
The.
For the next quarter.
It should still be probably in the mid single digits to maybe even slightly above that in the back half, but it does come down a little as we start lapping the higher.
Inflation in the back half of 'twenty one.
Got it that makes sense.
And then I love the comment the term skin inflation, Greg that you had mentioned on the call and I'm just curious.
You're seeing that number one today from any of your chain competitors or any of the independents in the markets, where your traffic and then kind of following up to the pricing question earlier can you get into what drives your decision around the incremental pricing that you are taking in terms of.
Using your past history, and saying look we take above this level.
Even in the inflation backdrop that we have today, which is kind of unprecedented.
We see some sort of resistance at a certain dollar level or a certain.
Relation level relative to the rest of the industry and just trying to get a handle on how you guys think about pricing.
Yes, John .
There is definitely.
Definitely science in there there's also some art in there.
Net net we look at we in historically over the last couple of years have had groups of restaurants that you hold out to see that when you do take pricing and you compare it to the holdout group what happens to the menu mix and what happens to those certain menu items. So we do tend to look at that and then frankly, we looked.
Across the board at where where price in certain category items and make sure that we're competitive or that maybe were below them. So it's a little bit of everything.
Also as we've done a lot of consumer research over the last year, we know the reason that guests come to Bj's.
And where they are from a price sensitivity. So we look at all of those in there from that perspective.
I can't specifically I'm going to get to your other part of your question I can't specifically say if <unk> completion.
Many of our peer restaurant companies.
I know restaurant companies that have talked about it whether it's the less less wings being offered or something else on the appetizer.
And the great recession, a lot of companies try to do less for less and it didn't work in that regard because guests are used to getting a certain amount for a certain price point.
When I travel and you think about going into hotels in Houston, having service and so forth you don't have any more would you pay for a higher price.
Traveling on airplanes I know when we get certain service maintain higher for the tickets I get all of that has gone on out there and Thats why I see the inflation and I think we have this ability with excess capacity in our restaurants to drive traffic and traffic always has less of a flow through even pricing does but driving traffic into our <unk>.
France still has flow through and it's still Leverages our business I think the approach that we're going to lean into right now, but we're not we're not saying, we're not going to take pricing.
As we mentioned we do have one forthcoming here in June and we will continue to evaluate that where commodity scale, but we want to make sure that we're providing what I call price affordability on our menu not just with people on and consider value being everything but want to make sure that those price affordability and that value equation as well.
Got it and then just it's nice to see that Youre <unk>.
Numbers for unit growth are stepping up this year and the confidence in that persisting into the future sounds great. I'm curious like are you seeing anything in the environment change Thats boosting your confidence specifically site available.
Can be site availability picking up or our landlords, calling you more frequently than they were previously.
I'll, let Greg Lynds handle this but the one thing I would say that.
And we try to stay on this a little bit earlier as well is we've always opened up really good site.
I've always felt confident comfortable and confident.
80 to pick right sizing and bill Bj's restaurants.
So the pipeline I guess, Greg Rubel, you've seen any changes in landlord.
I mean it.
Over the years really.
And I've said this before on these calls is that the AAA sites, there's always a lot of demand for those sites. So.
The <unk> sites, we are seeing more what I would call <unk> sites from availability, where landlords are offering more ti or being more flexible but in terms of just overall site availability for Bj's I would say, we're pretty consistent with where we were maybe even in 2019. However, we are seeing more.
If you will either restaurants or retailers that have gone vaca <unk>.
Require a complete redevelopment we are seeing more of that coming our way in and we are anticipating that as we go forward as well.
Almost all repurpose.
Either restaurants or other.
Retail returns are being repurposed and not many major model developments right. If any very few and the ones that we are seeing are more mixed use with.
Some type of apartments on top and residential involved.
Got it and just last one for me for now in.
In terms of thinking about the labor spend versus 2019 can you talk about how much more you're spending now.
Per employee in total versus those levels are you up 5% to 10%.
I'm just curious.
No.
<unk>.
I don't have it in front of me, but if I think if you go back to 19 hourly wages are up in the 2025% range.
And yes. Some of that is the fact that we are in California, and California has $1 step up every single year and so this last year. So we probably might have a higher labor quotient and maybe somebody else, but I wanted to say its in the 20% 25% range compared to 19, yes. That's fair in terms of hourly labor we were in the mid <unk>.
At the beginning of 2019 and now were in the 13 area. So it's yes.
Yes, 25%.
So just on in terms of dollar per hour yes.
Not including test kits.
<unk>.
Got it I will stop there thanks for making the time.
We will take our last question from Nick <unk> with Wedbush Securities. Please go ahead.
Thank you just a couple first.
Just two.
Clarify did you guys say that you are comfortable with the 13, 5% to 14% margin range in Q3 and Q4.
So that was our Q2 range.
Recently, we do see our sales decline a little in Q3, So and then pick back up in Q4 so.
I would expect the margins to two work similarly, with with a little deleverage and then a little more leverage there.
There will be some again the top line will drive it at the end of the day in terms of what we can where we can leverage on the labor and other fixed cost line. So.
That was purely about Q2, but if we.
Sales are still on the same let's say comp versus 19 level. It should dip a little bit into Q3, but we'll see at the end of when we talk next where where we are in terms of sales and.
We'll give more guidance then.
Okay.
And then.
Transactions in the dining room still down sort of 10% to 20% because I think what you've got with the commentary was.
I guess what is the guiding factor there right I mean with staffing is it.
Just a day parts of the geography.
Northern California.
Because I mean, that's that's.
Trailing a little bit like the peer set so I guess.
Internally when you kind of when you guys kind of look at the dining rooms, where transactions are within the dining rooms now.
How do you think about that discrepancy versus the peer set.
He Nick believe it or not without us getting into all the specifics, we're able to pull over black box dine in traffic trends and sales trends.
And.
Because of our large sales were off premises and so I think there is an.
An ability to still grow off kind of a floor.
You pull that out and just look at dine and we're actually in the last two periods, beating Blackhawks sales on a dine in basis.
So we so I think what's happening in the industry down I think it is good for the industry by the way people get the off premise sales. This helps further obviously their comps us with $100 in WSI to begin with when we get a 10000 increase in our off premise and somebody else get six or $7 increase in off premise.
Doesn't have the same type of impact because we are starting to just add a higher sales number. So I think the entire industry is still saying I guess I'm getting at.
<unk> in the dining room, even though slowly coming back.
And when we look at it there are still certain geographies in there as we mentioned.
That are coming that are slower to come back from its still staffing level some sell office levels.
In there so it's a little bit still not lunch timeframe frankly is as strong as dinner is I think there is opportunity to drive more traffic at the dinner side and then it tends to be a little bit more geography, I think we've got pretty well known brand awareness, we're driving better sales from that perspective versus maybe some.
The other smaller markets.
Okay. Thank you very much.
Ladies and gentlemen. This concludes today's conference. We appreciate your participation you may now disconnect.
Thank you everyone.
Okay.
[music].
Okay.