Q3 2022 BJ's Restaurants Inc Earnings Call
Okay.
Yes.
Good day and welcome to the Bj's restaurants incorporated third quarter 2022 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 2022 third quarter Investor Conference call and webcast.
I am 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 afterwards.
After the market closed today, we released our financial results for the fiscal 2022 third quarter 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 one is 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 <unk>, who will provide some commentary on the quarter and the current environment.
After that we will we will open it up to questions. Please.
Thanks, Greg our comments on the conference call today will contain forward looking statements within the private Securities Litigation Reform Act of 90, 95 forward looking 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 investors 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 looking statements speak only as of today's date October 22022, 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.
Refer 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 Rhonda.
P J third quarter results beat our internal forecast showing our ability to leverage extra sales growth and drive incremental profit despite the ongoing inflationary environment.
While our sales have continued to recover nicely on our comparable restaurant basis restaurant costs remain elevated impacting restaurant level margins compared to our historical levels.
However, we have seen a more recent moderation of inflation and we are beginning to see the initial benefits of our margin improvement initiatives, which when combined with our sales driving initiatives.
Give us the opportunity to expand our margins back into the mid to upper teens over time.
From a top line sales perspective, our quarter three comparable restaurant sales increased eight 2% as compared to the same quarter in 2019.
Accelerated from four 8% in the second quarter on the same three year basis.
Likewise comparable restaurant sales increased eight 9% over the same quarter in 2021.
Looking at our different sales channels dining in comparable restaurant sales traffic's traffic trends improved in the quarter, reflecting our ability to staff at higher levels, ensuring our guests know you will be taken care of with our gold standard level of service and gracious hospitality during every visit.
Our dine in comparable restaurant sales have now beat the casual dining industry as measured by Black box on a three year basis every quarter in 2022 in fact, we increased our diamond sales lead over the industry in each quarter of 2022 in the third quarter represents our widest lead yet over the industry during the pandemic.
Era.
Off premise sales also remained very strong and continue to pace at more than double pre COVID-19 levels.
Even in the dining room traffic recovers, we continue to see very healthy sales levels for both takeout and delivery.
Our comprehensive strategy to grow sales as I outlined in detail on our previous quarterly call is working even though we are only in the early innings.
Sales initiatives over the long run will allow us to leverage the fixed cost inherent in our business to drive margin expansion.
Our sales building initiatives starts with great best in class restaurant leadership and staffing.
Earlier this month, we held our annual General managers conference in Denver After spending time with our restaurant leaders from around the country I am confident we have the right people with the right mindset to execute our culture around craft matters gold standard level of operational excellence and gracious hospitality to drive <unk>.
<unk> forward on our road to $2 billion in sales and beyond.
To that goal Bj's added the first Standalone Chief people officer, Amy crawling to its leadership team in early Q4, we are thrilled to have Amy joined the team and know she will help make bj's, even more competitive in the marketplace.
In the third quarter hourly retention rates continued to improve and we're better than year ago levels, but still not back to pre pandemic levels.
Because it remains a strong correlation between restaurants staffing levels and comparable restaurant sales, we intend to continue adding team members as necessary in the coming weeks to capture more sales in the near term and to have the right teams in place as we head into the busy holidays. So we are able to maximize our fourth quarter sales.
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Another area of growth within the four walls of our existing restaurants is our remodel initiative.
We have now added seating capacity of seven restaurants and have had similar sales success at each location, creating a very attractive return profile. We have also updated the par statement in a high volume legacy restaurants by modernizing the woodwork streamlining the bar by moving the taps to the backhaul and adding a new 100 <unk>.
<unk> TV as the centerpiece.
It looks absolutely great and we have another bar Remodels planned for later this month.
We also plan to remodel two patios in the fourth quarter to increase the number of days, we can offer patio seating effectively increasing the capacity for these restaurants as well.
With the restaurant return profile, we have seen to date remodels improve the economics of our existing restaurants, and we will and will be an important part of our capital allocation strategy going forward.
We will continue to analyze and refine this plan through the balance of this year and we will incorporate a larger remodel initiative into our 2023 capital planning.
We also made considerable progress in the quarter on initiatives that will drive future sales.
For example, we continued our work on expanding our high potential catering business.
We are testing a more high touch catering experience to help further expand the corporate channel, which tends to have more recurring orders with a higher average check.
In the third quarter, our catering business was up approximately 75% over 2021 and more than double 2019 levels.
We expect the trend of more workers, returning to office and more in person meetings to be a tailwind for catering in the near term.
Next we continued to project to progress with some great best in class guest and team member technology.
We updated the software and our server handheld tablets used for order taking to improve functionality and reliability.
Our team member feedback has been fantastic and our servers are much more effective with the devices.
Additionally, our digital order tracker is now lives so guest ordering takeout curbside and white label delivery contract or order status in real time, we.
We are seeing approximately 75% usage for the relevant orders, which proves how useful this technology is to our guests.
As an added surprise and delight feature aligning with our brewhouse concept. The tracker is a pint of beer that fills up as the order moves through the click through to completion.
We've also integrated order tracker with our existing digital curbside checking portal digital curbside checking usage has quickly increased by 5% with the rollout of the digital order tracker illustrating the benefit of providing our guests with a broader set of digital convenience tools.
Another key initiative is our digital call ahead wait list, which uses artificial intelligence to determine and communicate accurate table wait times to our guests through digital and automated voice channels.
This is another example, where our tech innovation and adoption helps both guests and team members since the legacy processes slower and more labor intensive.
We have been testing digital call ahead wait list for number of months and intend to roll it out across our system in the fourth quarter.
Finally, we are far along the process of designing and building a new <unk> E Commerce platform.
We intend to launch our next generation web based ordering platform by the end of this year. The team has been hard at work preparing the consumer interface and flow to make it easy and enjoyable for guests to order and reorder.
We will then leverage the web design work to update our mobile App next year we.
We believe that modernizing digital ordering will deliver a strong payback in terms of increased digital orders.
With regards to our new restaurant expansion strategy last week, we opened a new restaurant in Las Vegas, Nevada, which is our fourth opening this year.
We are very pleased with the strong sales performance of all of our new restaurant openings, which continue to demonstrate that the get back guests love the Bj's concept in both new and existing markets.
We also recently closed a legacy small format restaurant that was no longer financially viable to operate bringing our current footprint to 214 restaurants.
We now expect to open two additional restaurants in the fourth quarter, which would bring our total openings this year to six restaurants.
<unk> supply chain and construction delays, we now expect these two restaurants are initially slated to open this year to open in the first quarter of 2023.
Looking to next year, our new restaurant pipeline is in excellent shape. However, we are still finalizing our 2023, new restaurant openings given the challenges from construction inflation supplies of HVA and kitchen equipment construction labor shortages and delays in <unk> and.
And permitting for municipalities.
Additionally, we plan to prudently balance new restaurant growth with high return Remodels, which drive sales through among other things added added seating capacity.
Therefore, while we have not finalized our 2023, new restaurant opening plan.
I would anticipate that we will open a similar number of new restaurants next year.
We also resumed returning capital to shareholders. This past quarter through share repurchases. Therefore, as we finalize our 2023 capital allocation strategy. Later this year, we plan on prudently investing in sales building initiatives, new restaurant growth Remodels and Opportunistically returning capital.
<unk> to shareholders.
With respect with respect to the broader macro environment and consumer demand Bj's underlying guest measures have remained steady weekly sales have followed a pretty typical seasonal pattern and our three year comparable restaurant sales were in the middle to upper single digit range throughout the third quarter and into the <unk>.
First three weeks of the fourth quarter, when adjusting for promotions and Hurricane Ian.
Guest expectations rise with menu prices, which I believe benefits bj's getting our attention to providing exceptional service hospitality and food quality, we are committed as ever to making sure our guests leave smiling and wanting to come back for more.
Shifting to cost operating costs in our business remained high through the <unk>.
We remain high though the level of inflation has moderated recently, which Tom will cover in more detail.
As I outlined on our last earnings call, we launched our cross functional margin improvement initiatives to identify a wide range of cost saving opportunities to benefit our restaurant margins.
We have made tangible progress over the past quarter, finding meaningful cost saving opportunities.
Our cross functional team has been actively identifying vetting and when appropriate implementing identified cost savings our third quarter results reflect hourly labor savings as we rollout more efficient labor scheduling early in the quarter.
We also tested and approved a number of changes across our food inputs that save money, while maintaining or even improving and enhancing food quality.
These saving opportunities began rolling out in late Q3, so the benefit is largely not reflected in our third quarter results.
We also have several other savings initiatives at different stages of testing and approval.
So to offer more insight into our program and the effort and creativity of the team. Let me quickly review recent changes we made to our chicken wings as an example.
For years, we have served a large pre cut the bone in wing that we would try when ordered an idea from our margin improvement team was to test sourcing raw jumbo wings cooking them and our slow roast ovens that only we can do at bj's because of our technology.
The chain casual dining segment.
And then finally slow roasted wings when ordered.
They say necessity is the mother of invention.
These wins are delicious and the best way and Bj's has ever served these new wins are in all bj's restaurants as of earlier. This month and we are now saving materially by sourcing a commodity raw raw jumbo wing as opposed to a pre cut wing that was made specifically for bj's.
This change alone.
This change alone saves us more than $3 million annually based on current prices and benefits to restaurant level cash flow margins by approximately 20 basis points.
We remain committed to identifying cost saving opportunities that could enhance our restaurant margins by as much as 200 basis points.
Given the progress to date and the number of opportunity still being explored I am confident we will achieve this goal. Moreover, this is a powerful initiative since cost savings directly reduce the pricing required to offset inflationary pressures, which in turn further strengthens our competitive value position.
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In summary, we are focused on a comprehensive set of initiatives aimed at significantly increasing our average weekly sales growing our restaurant margins and continuing our national expansion with a control pace and top quality sites with a goal of growing DJ sales to two $2 billion and beyond.
<unk> and delivering meaningful earnings growth and shareholder returns over time.
In the meantime, we are incredibly optimistic that that guest affinity for our brand and then offerings coupled with the trajectory of our business and our current growth and margin enhancing initiatives will enable us to achieve attractive near and mid term mid term growth and margin objectives.
Now, let me turn it over to Tom to provide a more detailed update from 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 third quarter, we reported total sales of $311 3 million or sales increased approximately 10% versus Q3 of 2021 and 12% versus Q3 of 2019.
On a comparable restaurant basis sales increased by eight 9% compared to Q3 of 2021 and by eight 2% compared to Q3 of 2019.
Our three year comparable sales accelerated from the negative one 5% in Q1.
Four 8% in Q2 to eight 2% in Q3.
The comparable sales improvement in conjunction with certain savings we started to realize from our margin improvement initiatives and the benefit of our August pricing ground help partially mitigate the typical margin declines that accompanies our seasonally lowest sales quarter.
Our restaurant level cash flow margin was 10, 3% in Q3 of 2022 or 160 basis points lower than Q2 of 2022, which tends to be our highest sales quarter seasonally.
As a reference point in 2019, our restaurant level margins declined 350 basis points from Q2 to Q3. So we are encouraged by the factors that helped offset a meaningful portion of the typical seasonal margin decline in Q3 this year.
Adjusted EBITDA was $15 2 million and four 9% of sales in our third quarter behind Q3 2021 reported levels.
As a reminder, we had a $3 1 billion dollar employee retention tax credit in conjunction with the cares Act that benefited our labor and benefits line in Q3 of 2021.
When removing this onetime benefit our adjusted EBITDA and adjusted EBITDA margin, both improved this quarter from a year ago.
Yes.
We reported a net loss of $1 6 million and a diluted net loss per share of <unk> <unk>.
On a GAAP basis for the quarter, which was an improvement from a year ago.
Sales perspective, we averaged in the mid to high single digit positive comparable restaurant sales range through the quarter compared to 2019.
This equated to a weekly sales average of more than 111000 per restaurant or approximately 8000 higher than Q3 of 2019.
We maintained our off premise weekly sales average in the low 20, thousands while generating dine in sales of more than 91000 in Q3.
Moving to expenses.
Our cost of sales was 27, 3% of sales in the quarter, which was 30 basis points favorable compared to last quarter. There were 10 basis points unfavorable compared to the third quarter of 2021.
Food cost remained high but the increases to our food basket have moderated.
Our food cost inflation was approximately 5% higher than the third quarter of 2021 and up modestly from the second quarter of this year.
As Greg highlighted we are implementing margin improvement savings that will benefit food costs.
We rolled out some minor changes during the third quarter and expect to realize more meaningful savings opportunities beginning this quarter.
To help offset inflationary pressures, we increased our menu prices by an additional 2% in August .
We have now increased our menu prices brought up by approximately 12% since the beginning of 2020 as compared to food cost inflation of about 23% over the same period.
We raised menu prices slower than the inflation impacting our business to gauge the sustaining cost increases while being careful to maintain strong competitiveness and known value items and offer our guests a range of options to enjoy regardless of their budgets.
Our next menu pricing ground is planned for January 2023, and we will price accordingly to further recapture restaurant margins and offset inflation that we are not able to mitigate through our margin improvement initiatives.
To date, we have seen no guests pushback to our menu pricing rounds.
Labor and benefit expenses at 37, 7% of sales in the quarter were 50 basis points unfavorable to the third quarter of the prior year as reported but 60 basis points favorable when removing the.
Of the one time <unk> <unk> benefit from the prior year figure.
Our hourly labor efficiency greatly improved in the quarter.
We improved our hourly labor as a percentage of sales by 30 basis points from Q2 to Q3, even as our weekly sales declined seasonally by approximately $7000.
That's quite an accomplishment by our restaurant operators.
Part of the improvement was driven by more efficient labor scheduling tools from our margin improvement initiatives. We also lowered our overtime and training hours, which are now 20 basis points higher as a percentage of sales than Q3 of 2019, an improvement of 50 basis points from the pre pandemic comparison last quarter.
Occupancy and operating expenses at 24, 7% of sales in the quarter were 30 basis points unfavorable to the third quarter of 2021.
Including included in our <unk> expenses was marketing spend at one 7% of sales, which was higher than the third quarter of 2021 by 40 basis points driven by immediate investments, including connected TV in certain markets to drive incremental sales.
Excluding the additional marketing investment our O&M expenses would have been favorable by 10 basis points compared to Q3 of 2021.
G&A for the third quarter was $18 9 million in line with our expectations. We continue to forecast full year, G&A and the $74 million to $75 million range, including the impact of our 50 <unk> week in Q4.
Turning to the balance sheet, we maintained our debt balance at $50 million and ended the quarter with net debt of about $31 million.
We are very pleased with the strength of our balance sheet and remain consistent in our approach of prioritizing growth driving investments by a return profile, including building, new restaurants, improving our existing restaurants and funding sales driving initiatives.
We continue to expect Capex spend in the 90% to $95 million range. This year, which includes six restaurants, we intend to open in 2022 and two additional restaurants opening.
Two additional restaurant openings now slated for 2023 early 2023.
Even though we postpone two restaurant openings to the first quarter of 2023 due to supply chain and construction delays most of the related capex spend will still occur in 2022.
As Greg alluded to earlier the strength of our balance sheet allows us to continue our growth investments.
While again, opportunistically repurchasing shares or operating stability sales building and margin improvements success positioning bj's to Opportunistically return capital to shareholders through share repurchases in the third quarter during.
During the quarter, we repurchased and retired approximately 91000 shares at a cost of approximately $2 4 million, which leaves approximately $22 8 million remaining available under our currently authorized share repurchase program.
Looking to the fourth quarter of 2022, we remain encouraged by our recent sales trends our comparable restaurant sales period to date in October increased approximately 8% and 6% compared to the same periods in 2021, and 2019, respectively. When adjusting for the impact of Hurricane Ian in 2022.
As Greg said in his remarks, we have yet to see any meaningful shift in our guest trends that we continue to monitor the situation and will remain agile to appropriately manage to any environment.
Historically, our sales build from the third quarter to the fourth quarter, driven by improving restaurant traffic, leading up to the holidays for.
For example in 2019, our average weekly restaurant sales increased from approximately 104000 in Q3 to approximately 108000 in Q4.
In Q4 of 2022, I anticipate that our sales will follow a similar seasonal trend, which will allow us to leverage the additional sales and improve margins.
Given the higher expected sales the 50, <unk> week and early margin improvement opportunities, we've realized and other opportunities in front of us.
Which will help mitigate inflationary pressures, we are targeting Q4 restaurant level margins in the low to mid 12% area.
In terms of taxes, I expect a modest tax expense in Q4.
In summary, we know the best way to grow margins and profit is to grow sales.
<unk> sales trends have been encouraging and we remain committed to being sales drivers first and foremost we intend to continue to build sales and what we will believe what we believe will be a busy holiday season with demand for experiential dining remaining strong.
At the same time, we have elevated productivity and cost savings through our margin improvement initiatives, which with nice momentum built over the last quarter we.
We have a clear path to sales growth and margin recovery and our long term strategy remains intact.
While new challenges emerge through the pandemic, we continue to meet these 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 the years to come thank.
Thank you for your time today, and we'll now open the call to your questions operator.
Yes.
Thank you.
If you would like to ask a question. Please signal by pressing star one on your telephone keypad and if you're on speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment against star one to ask a question.
Yes.
And we will go to our first question from Alex Slagle with Jefferies.
Alright. Thanks.
I had a question on capital allocation, if you could kind of talk through.
A bit more how you are thinking shifted over the last few months with the restart of the buyback efforts and plan to expand the remodel program in 'twenty three.
Maybe just what you are seeing.
The business with and with the remodel tasks.
Just how this in your views of the broader development landscape has evolved.
At this point.
Yeah, I'll start off Allison.
Sure, Tom and Greg Lynds, our Chief development officer might be able to add in here.
So I think on a broad picture getting less constant bills on time has probably been.
Big Challenge for us in the industry I think it used to take us some neighbor of about 130 to 150 days they get a restaurant belt, if maybe even a little bit earlier.
And that are quicker than that and it's basically double that somewhere in the $2 $60 range or so theater restaurants out and that's why we saw the purchase at the same time, we still like the the sales levels and returns, we're getting from new restaurants, but because of the challenges of getting restaurants done timely and just the supply and.
And we continue to see an elevated construction costs there.
And while our sales to investment ratio are still above one based on the solid sales of new restaurants.
It makes us frankly kind of take a look across the board as to how we want to allocate capital at the current time, where everyone had that right balanced approach of investing in new restaurants, knowing that now we've got these high return remodel, especially where we can add capacity and keep our concepts in a like new first class and <unk>.
Temporary manner. So I think as we go through this year and <unk> some of the challenges.
On the construction side.
Pivoting a little bit more towards Remodels P&L drive that sales that will help drive improved margins and economics in those restaurants, I would say that's a hot as higher priority in our business as the opening new restaurants as well as in other sales building initiatives.
Third on that three legged stool is the capital allocation program.
And we will continue to evaluate that in regards to share repurchases, but.
But we don't want to do it at the expense of <unk>.
Being able to invest back into your Remodels at our sales building initiatives and building new restaurants.
Tom or Greg is there anything to add to construction or anything that you're seeing.
Greg loans I think from a construction standpoint, when you think about what's happening in the future here. If we're out to bid right now we're going to feel all the pressures that the development cycle has right now youre seeing not only the construction cost, but youre seeing entitlement delays permitting delays inspection delays.
And we do see that abating next year. So in terms of building our pipeline, we're really looking for.
Mid to late 2003, and 2000 2024 type projects when we see a lot of this abating.
Okay.
Thank you Alan.
As a reminder, it is star one we will pause for just a moment.
And.
We'll go next to John Tower with Citi.
Great. Thanks for taking the questions just a few if I may.
The quarter to date commentary that's encouraging.
<unk> of what you are seeing for same store sales I'm. Just curious if maybe you could give us any sort of color into perhaps if the California stimulus is helping that number at all or if youre seeing this more spread across the system.
Sure thing John .
We've looked at it when the stimulus is started earlier this month and.
I would say southern California has been outperforming on an average and it continues to so there might be.
A little bit there, but it really hasnt shown up in any big way in the numbers. So.
So we're happy to have it but now it does look like the business itself.
It was performing well before and is still.
Where we like it.
That's great.
I'm curious maybe going back to the commentary regarding fourth quarter margins and specifically getting into the food cost inflation I don't think I think you offered it as a 5% or so for the third quarter, but I'm curious to see or hear what youre seeing for the fourth quarter and if you are starting to be able to lock into 2023.
Any insight into how thats, forming at least to start the year.
Yes.
As we're going into the fourth quarter here. The two main factors is one just the overall commodity cost him into the margin improvement initiatives and the benefits we will see there. So we're still seeing even from Q3 Q2 into Q3, we still saw modest inflation. So there.
Going into Q4.
We're not modeling in any deflation there could be some help from the margin improvement initiatives.
But as we as we look into next year, we are expecting more inflation, we were still early days with.
Walking in our contracts. The most are ones that we would set in January .
So early to really determine what levels, yet, but yes.
Yes, we're looking at into next year anything thats kind of process and labor driven.
It could be going up so it's early to tell but we are expecting.
Some inflation going into next year on more of the contracts have been locked for the for the year, but otherwise.
We're seeing some inflation at those levels were also seeing some some good movements in the fresh meats in the grocery and produce that have been.
One that we pay market rates for.
Yes.
I think John .
Greg just kind of adding on there.
I still think we're going to see another.
I wouldn't say inflation going up but I don't think we're going to see it coming down right away I think as a lot of contracts on annual basis.
As we go into next year that that labor number which is an input into everything.
It's still going to result, and a level of negotiations with our vendors from a contract standpoint, I still think you will see the same thing come in January as well as us with state, suggesting minimum wages painfully gain in California, The California dollar step up is done even though it's now tied to CPI. So there will be an increase there, but how is it.
So I think we're going to see sell a little bit more inflation going into Q1 of next year and then I think it will start to abate after that timeframe after contracts get locked in on top and companies move forward. It also gets to Tom's point earlier that we have not yet SaaS, what our pricing is going to be in January because we are going through it here in this kind of fourth quarter.
To understand where we're going to be from an inflationary standpoint to make sure that we take reasonable pricing to offset that.
Awesome I appreciate all the color on that I, just going back to the 200 basis points of margin improvement at the store level.
Over time based on the initiatives that you've kind of dug into during the call, including the chicken wings, etc.
Incremental to just underlying improvement that you expect in the business meeting hitting that mid teen store margin target that you discussed is that including that 200 basis points or 200 basis points be additive.
I think it's a combination of both.
Ultimately, we'd like to be above that fixed let's call. It mid teens, we want to continue to drive that some of that comes with sales. So when you start to look at those numbers it.
It's always a function.
The dependent variable of sales at <unk>.
Play through to it so it's additive and one.
But at the same time, if sales don't continue to perform.
It's going to be inclusive in it.
Okay got it I will pass it along thanks for the time.
Thank you.
And so we'll go to our next question from Nicole Miller with Piper Sandler.
Thank you. Good afternoon can we just reconcile the price and for Q I had about 8% then I wanted to see if that was right and then if you don't let's just say you don't take price in January knowing that it is under consideration does it ratchet down a couple hundred basis points in February when you.
Price in this year.
Okay.
Hi, Nicole.
In Q4.
Im sure Youre asking for the year over year change in price will be carrying.
Kind of 6% area into Q4.
Okay. Okay.
Yes, I said that wrong.
Getting up to maybe almost 8% when we added the 200 basis points in August that's exactly what I meant so thanks for reading my mind, but so it's a little too high it's like the 6% range and for Q, So something must be coming off in the prior year.
Correct, we took.
One 4% in November of last year, which will roll off.
Okay. So 6% as you get into <unk> and then if you don't take price.
For <unk> of next year.
Get down.
You'd be around for something like that.
February right.
All right, we're going to lose about 225 of pricing that would come off and kind of mid January yet.
Okay perfect. So I just wanted to level set that.
So we can get the comp rate and is there anything yes.
And just to make sure you have the right Q4 number at six 5%. So that's the.
The full number.
That's super helpful.
Can you just talk a little bit about the construct of mix and traffic in terms of EMEA almost 9% comp in <unk>.
And traffic was quite a bit less than or excuse me price was less than that so how is mix and traffic playing out.
So great question.
We are still seeing more guests per check and more incidents higher incidents in our check so people and guests are coming into our restaurants, they're spending more. So there is an element of better mix that we're seeing in our checks still because our check is higher than just the.
Pricing alone so we're getting an additional benefit from the increased mix.
To go along with the pricing.
Okay.
And then just a final one Greg I also found your supplier commentary pretty fascinating. So is there anything in the underlying health of.
That business getting more back on track in terms of like stuff getting to you on time.
There were substitutes in out of stocks, which I guess to your point made you kind of reinvent certain things like around the chicken wings Thats interesting can you just talk about the delivery times and the product they are bringing and how that's trending.
And again just cover that.
Mid teens margin otherwise and.
And then another 200 basis points I mean, that's pretty outstanding.
But yet you maybe would invest against that is that the way to think about that I just wanted to get that conclusion right.
Yes so.
Let me handle a couple of those things so on the distribution side things are completely continually improving.
They are not perfect by any means but they are getting better and the things that you hear about in the airline industry to the hotel industry to the restaurant industry.
<unk> also seen in the distribution of our trucking industry in regards to.
Drivers are things coming out of the processing plants, and so forth, but it is getting better and it's and it's moving in the right direction for everybody.
So I do think going into next year, we're going to see even more consistency there.
And not having to worry about substitution as an out of stock areas.
So thats the first part is not it's not.
Back to what I want to me, but its getting better everyday just like our restaurant staffing levels continue to get better.
And then in regards to margins of Harvey with discussing.
Discussing margins that time is people want to talk about margins.
Outside our absent of sales levels, yes.
And this business is leveraging our deleveraging a lot based on sales levels. So when we talk about the 200 basis points that we're going after a lot of thats based on where we are today, but I can tell you if our sales stay exactly where they are today and don't grow next year, the 200 basis points wont.
It really show up in a positive way per se on our P&L, because we'll lever level of deleverage from other inflationary costs. So we need to grow the top line sales I think everybody in this industry, sometimes so thinks about margins as such a.
Our independent variable versus being independent variable on sales.
We talk about our capital allocation programs, we wanted to make sure we're investing in remodels because it drives top line sales, we want to be investing in our menu, we want to invest in marketing and so forth to drive all of that topline sales that move margins naturally up on our fixed costs and then again leveraged some of these other initiatives on top so that we can be.
Above mid teens.
We will always done I think you set a really great point, there and that is we will always invest back into our restaurants or back into our gas for the long term nature of our business over the long term value that you get from the guests coming back.
As we look at certain things I will tell you on the call that you're familiar with our company week ago, a frozen salmon, we taste of frozen salmon and our test and our test kitchen downstairs, and we can save money on frozen sandwich versus fresh salmon.
Our fresh salmon.
So good I would I'd ask everybody to enable bj's restaurant and get our salmon. The way. We took it is unbelievable and you can tell the difference between frozen and fresh we use fresh ground beef our burgers, we can taste the difference between frozen and fresh so we're always going to err on the side of quality to drive our business long term.
Hello.
Thank you for that I appreciate it thanks guys.
And Nicole just to I want to make sure we get the the pricing levels out there. So for the quarters. This year. Just so everybody has them we were up about 5% year over year in Q1, and then about 6% for Q2 and Q3 and Q4. So about 6% is where we've been for Q2 Q3 and Q4.
We've taken price in lapsed price.
And we'll move to our next question from June North of Baird.
Great. Thanks for taking the question I wanted to circle back to recent topline trends and our results suggest some nice acceleration in comps exiting Q3. So I'm wondering if you could share some perspective on what you think drove the strength in comps exited in the quarter and then perhaps why you think the underlying growth versus pre pandemic.
Our 2019 settled a bit here in October when excluding the impact of the Hurricane and then just are you willing to share what the quarter to date figure would be including the impact of the hurricane just a level or level set us there.
Yeah I'll take the first part on this.
We are looking at that as well trying to look at the business and see the.
The nice comp sales and it's come down a little bit in Q3, So obviously very solid comp sales in that.
<unk> mid single digits in the six plus percent range as Tom talked about and looking at the business and trying to understand the business a little bit.
I think what we thought and this is a little bit.
The data on what we see in front of us.
Is.
Is during the latter two months of the summer timeframe. We started we saw larger parties I think that's what you see in Canada, the leisure and hospitality World, where people wanted to take trips they want to get on airplanes and wanted to get a hotels and spend that as kind of leisure and hospitality and so our <unk>.
Guests per shack was higher in the summer months and versus where our guest check is now and it seems like that's probably a little bit of a difference in our business between where we ended Q3 and where we are today and what we're seeing when we look at that is we're really seeing a REIT.
Turn to kind of pre COVID-19 trends.
And that is as we get back into the October timeframe sales bottomed out a little bit when you start to go grow a little bit in the holiday timeframe and that tends to be what we've seen in our business now as Tom mentioned, when we look at incidents per check or incidents per guest those are still higher we're still selling a lot of appetizers talk about too.
19 level, we're still selling more alcoholic beverages about 2019 levels. So that incident seems pretty pretty much in line. There. It's just the party size has actually gone down a little bit going into kind of the end of Q3 and in here into Q4.
And then in regards to comp I'll, let Tom take about it's getting less and less every day. So I think what we're trying to talk about is this is kind of where we see a run rate, but autonomous cleaning you want to add to that yes.
Most impacted week was the first week. This is this is about the hurricane Ian.
Question you had.
Our first week of October .
October was the most impacted and it was it was about.
100 basis points impacted comp.
That week. So we're three weeks in so it would have weighed about call it 30 bps or so.
This three week window.
Rolling it out through the quarter it won't be material, but I just wanted to kind of adjust for it with these early weeks as it's more material for just looking over three weeks.
Thank you that's helpful.
Okay.
Sure. Thanks drew.
And well go to our next question from Joshua Long with Stephens, Inc.
Great. Thanks for taking the question just wanted to circle back with you.
Might've mentioned and if so I missed it but when you talk about trends through the quarter from an average weekly sales basis was that relatively steady I think thats, what we had talked about in <unk>, but just curious if there was any sort of upward Denver trajectory during the quarter from an average weekly sales basis.
Yeah.
Josh not really I think all in all really played out much more seasonally likely to expect so when you're talking about average weekly sales.
It's going to be higher in July and August and September after labor day.
And so.
So we saw that nor that that historical seasonal trends come back into our business.
And I think that the way we're tending to look at it even here in Q4 is the business now reminds us a lot of how 2019 weekly sales average trends play out because the differences obviously, we've got the inflation.
We are a supplier.
Flyer challenges et cetera that we didn't have in 18 and 19, but from a top line sales perspective very consistent.
And I would even say off premise trends tend to work the same way as well, meaning after labor day off premise sales came down same percentage of sales.
Came down to kind of match up a little bit with the weekly sales.
The seasonality of sales trends.
Got it that's helpful. Thank you and then when thinking about some of the.
The large investments you made in your human capital side earlier in the year with I think something around us.
Nature of 6000 hires it sounds like Thats progressing well from getting those team members ramped up and you are relatively pleased with efficiency.
Any sort of additional comments you can provide there and then when we think about the need to add on our supplement some of those efforts with ongoing.
Hiring and efforts at the store level can you put that in perspective is that are we in kind of a more normalized range now where those additions would be balanced against some of the <unk>.
<unk> trends, we're seeing and just kind of the normal.
Back filling of the pipeline as it were.
Yes, that's a good way to frame it up Josh.
The improvements we saw over the quarter I mean, it certainly was great to see everything from training and overtime start to get back to normalized levels still not exactly back to 2019 pre COVID-19 levels, but much closer to it. So as we think of the new team members that we hired in Q2 that we talked about the big <unk>.
Amp up in and our staffing.
We're really starting to see the efficiencies now in.
Really the third quarter, we saw in the numbers, but into the fourth quarter here. So.
I'd say its much more back to regular seasonal times, we increase our sales going into Q4, and we typically staff up a bit more ahead of the holidays. So it's.
We definitely want to keep adding to our team member base. So we can drive the most sales as possible in Q4, but it feels much more seasonal than anything still pandemic related.
Got it that's helpful. And then last one from me in terms of thinking about <unk>.
Correct in that there is going to be <unk>, 14, or an extra week to 14 weeks in the <unk> period, and if that is correct anything you'd point to or talk about in terms of.
Leveraging that extra week, especially as we lap over what might have been kind of a partially impacted <unk> from omicron last year.
Yes.
Correct, we do have a 50 <unk> week here.
As we.
With forecasted it's it is looking back to last year, but also looking back to the trends of <unk> 19, which seasonally we can see where we leverage the fixed costs you can get some leverage on the labor lines you get some leverage on the.
The more of the fixed elements of the restaurant costs and.
Corporate costs in that.
Just from the seasonal benefit of sales, but then also.
Some of those fixed cost as well and into the into the 50 <unk> week. So as we guided on the restaurant level margins that I was inclusive of.
That benefit we would expect.
Great. Thank you.
Thanks, Josh.
We will go to a question from Todd Brooks with benchmark company.
Hey, good afternoon, just a couple of wrap up questions here, if I could on the 200 basis points of savings from Europe .
Your cost and efficiency work.
If we look at are recovering sales environment whats the window to harvest those savings how long does it really take to extract those if the sales are improving.
Yeah.
It's probably through the first half.
Half of next year or so some of the things will come in faster some will take time for rollout.
We've talked in the past even about the wings.
And we've been talking about the wind is probably about 90 days.
And we were just able to get them through supply chain here in October so as we go through and test. Some other items that we have out there and things that we're looking at to get those lined up in supply chain and rolled out take longer than Wow. This is great can be implemented by Wednesday of next week, meaning can we get it done in seven days.
So I tend to look at that aspect of it.
At the same time, Tom has talked about the labor scheduling system and things that we put in place there and we've seen some really nice improvement on labor I think even to the other question that Josh asked the fact that we've gotten ourselves staff and team members have gotten their sea legs under them, that's improved our operational capability as well in the restaurants.
Still have some areas to go there as well and we'll continue to work through so I think it's a gradual rolling over the next two.
Two to three quarters.
Including the Q4 here perfect.
Perfect. Thanks, Craig that's helpful.
Another quick one the six openings that are targeted for next year are there any as of now anticipated closures against those.
Do you have a kind of a quarterly opening cadence beyond the two that are sliding into early Q1.
Okay.
As far as the opening cadence I think we're looking at two in the first quarter I don't know.
<unk>, Greg, Greg Lynds, and Tom here in regards to.
Closes we've got a couple of leases that were continuing to take a look at.
And we will make decisions on them most of our leases coming up at the end of the year and we're just trying to figure out do we stick with that or do we relocate them in another area as far as our legacy small footprint restaurants, I think there is a handful of those that as those as those come up we will continue to evaluate those as well but.
There is no.
Yes.
There is no initiative in place as of today that says, let's go and closed 10 restaurants.
It's mainly about the lease negotiations on a few restaurants here or there, but nothing too significant.
Our two material.
Okay, Great and then just a final one for me Greg on the last call you hinted it continued work around.
Many rationalization and going through and testing some some changes there I guess where is that process stand and if you are making any changes to shrink the menu when should we expect to see that.
Yes.
Great Great question, Todd and we do have in restaurants right now.
A smaller menu I think we've reduced somewhere in the neighborhood of about 20, plus menu items from single source items.
Some.
SKU rationalizations, and so forth, we will let that test for some reason neighborhood.
Three to six months.
And taking a look at that.
And.
Based on that work there we would see SME.
Fall and where we want to go with it. We then is seeing a smaller menu somewhere towards the middle of next year, we generally rollout new menus in the January timeframe, because menu pricing, we do have pricing summers in the May June timeframe and then we just said this year, we do we do a new menu in the kind of September October time frame.
Jim.
So right now a smaller menu is not scheduled for January timeframe, we'll let the test, especially the holiday timeframe.
So if we ended up with a smaller menu that would come in the.
In the June timeframe.
We'll say this though just in general we need to bring down that menu. So we can introduce new menu items that our culinary team is building in the pipeline so more likely than not kind of the June timeframe, we will see a smaller menu, but at the same time it might not be it might not be <unk>.
It might be a net 15, because we might end up introducing five new items at that time.
Okay, great very helpful. Thanks, Craig.
My pleasure.
And our last question comes from Brian <unk> of Deutsche Bank.
Hey, Thank you just a question on the late night business.
I'm wondering what level of sales have you recaptured versus 2019 as of the third quarter and I'm. Just curious if you've decided if all of those operating hours or back or issue.
Maybe you've made a decision that some of them might not.
From all the way back based on any analysis I know in the past.
Sure.
So.
The afternoon day part has been the one that's outperformed all others through throughout this pandemic time in Q3.
Late night was.
Very very close second and thats without increasing any hours so.
We're about a half an hour per restaurant on average less per day. So it is and it is the late night day part that we just haven't increased hours and a lot of our restaurants.
And some of that is.
Making sure we're doing the right thing for our team members and our managers and balancing it from the sales, we would expect but even without that extra call. It half an hour.
The positive comp sales on a three year basis is.
Some weeks, it's higher than afternoon, sometimes it's right below but our late night day part is very well performing.
Okay. Thanks, So just to clarify is the law.
Late night.
Average weekly sales back to.
Where they were in 2018 in sum total.
Or is there still yes to both.
Got it okay.
And then just.
Sure.
Go ahead.
No go ahead I'm sorry.
No.
Wanted to make sure that that was clear that youre on a comp basis versus 19, yes.
Yes.
We're well above 2019 levels currently on a dollar basis.
Got it and then just a follow up similar question, but just the.
The lunch business I know you referred to the afternoon day part don't know if thats a promoted could.
Could you just speak to the lunch business versus 2019 is that does that all the way back and if not are there are some initiatives that you can proactively look at to drive that business specifically.
Next year and beyond.
Yes.
It's back to 2019 levels.
We're happy about there, we we did come out with.
A $10 $11 lunch menu. So we've got some great value in there so we're getting.
The traffic back but it's.
Part of it is the <unk>.
<unk> in the middle of the week if people aren't back in the offices are not fully using cash.
Casual dining for for this lunch business. So it is back to 2019 levels, but.
In terms of growth I think as you see the.
More people come back to offices that only gives.
More tailwind to that lunch business.
Thank you.
Thanks Brent.
And so that does conclude today's question and answer session in today's call. Thank you for your participation you may now disconnect.
Thank you everyone.
Thank you.
Yeah.
Yes.
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Yeah.
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