Q4 2022 BJ's Restaurants Inc Earnings Call
Greetings and welcome to Bj's restaurants incorporated fourth quarter 2022 earnings release and conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please press star zero.
On your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to Greg Levin, Chief Executive Officer, and President. Thank you you may begin.
Thank you operator, good afternoon, everyone and welcome to Bj's restaurants in fiscal 2022 fourth 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, and 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 fourth 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 Rhonda Schirmer, our director of SEC reporting providing our standard cautionary disclosure with respect to forward looking statements. I will then provide an update on our business and current initiatives and then Tom will provide some commentary on the quarter and the current environment.
After that we will open it up to questions Serrano. Please go ahead, thanks, Greg our comments on the conference call contain.
Forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 forward looking statements.
Known and unknown risks uncertainties and other factors that may cause the actual results performance or achievements of the company to be materially different from any future results performance or achievements expressed or implied by forward looking statements.
You are cautioned that forward looking statements are not guarantees of future performance and undue reliance should not be placed on such statements are forward looking statements speak only as of todays date February 16, 2023, 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.
Filling with the Securities and Exchange Commission Greg.
Thanks, Rod Bj's fourth quarter results demonstrated continued growth across key metrics as we beat the industry as measured by comparable sales and comparable guest traffic. According to black box and we made further progress improving our restaurant level cash flow margins are.
Our comparable restaurant sales increased six 6% over the same quarter a year ago on a 14 week versus 14 week basis, while a slower start to December and late winter storms provided a slight headwind to the industry BJ still delivered its highest weekly sales average ever reaching more than 130 <unk>.
1000, the week before Christmas.
With our focus on staffing our restaurants to ensure we are delivering gold standard service and gracious hospitality and our high energy Library restaurants, we were able to increase dining room sales, while maintaining off premise sales at twice the pre COVID-19 levels.
Of note our comparable sales performance has accelerated in fiscal 2023 to date driven by growth in the dining room guest traffic and an additional three 7% of menu pricing, which is a 190 basis points more than our pricing round that we took last February .
If our year to date sales trends continue first quarter comparable restaurant sales should be in the high single digits.
Currently we are carrying pricing in the mid 7% range compared to a year ago.
Like all consumer facing businesses, we are closely monitoring customer trends and the broader macro environment to date, we have not seen any meaningful change pointing to a slowdown in spending at bj's.
For example, our check driving incidents for add ons, such as appetizers drinks and of course, our <unk> remain above pre COVID-19 levels, and we are not seeing negative mix shifts towards lower priced or discounted items.
The one area that has moderated somewhat has been our alcohol incidents, we are still selling more alcohol per checking our dining rooms than before the pandemic, but the amount of extra drink incidents has declined modestly.
This trend began in mid 2022. So we believe it has to do more with a return to the more normal guest behavior than any macro impact on our consumer.
During the fourth quarter, we made progress improving our restaurant level cash flow margins. Despite the ongoing inflationary pressures.
We all know growing leads to incremental profit and margin expansion. The sales growth we generated in the quarter coupled with some early success from our margin improvement initiatives and to a lesser extent the extra week in the fiscal year helped propel our margins ahead of both the same quarter a year ago as well as the third.
Quarter of 2022.
To that end our focus for 2023. This current year is about expanding our restaurant level margins through our sales driving initiatives are.
Margin improvement project and allocating capital to high returning investments.
Our sales driving initiatives targeted capturing even more dining room traffic through a menu focused on craveable familiar may brewhouse Fabulous offerings high return on investment Remodels that are proven to lift sales.
As well as driving additional off premise sales through our own channels with our new ecommerce platform and through our third party partners.
In regards to our margin improvement initiative and as we discussed on our third quarter conference call. We are targeting at least $25 million of annual cost savings with 200 basis points of margin improvement.
We expect to see savings from sourcing changes, where we can enhance and differentiate bj's high quality products through our kitchen technology competitive advantage. So for example, which we touched on last quarter the change to slow roasting our own wings alone will save us over $4 million annually.
And benefit our margins by 30 basis points.
We continue to test a number of other impactful opportunities to optimize our business, including a simplified menu that is still broad, but reduces the menu item count complexity and skus, while improving execution in prep hours in the kitchen.
We intend to rollout a menu with approximately 10% less menu items in July and we will test for moving even even more items later this year. Additionally.
Additionally, we just started testing AI driven sales forecasting to provide an additional tool to our restaurant operators to forecast sales more accurately, which then improves labor scheduling efficiency as well as kitchen prep.
I am very confident that we will achieve our goal of identifying at least $25 million of annualized restaurant cost savings this year.
We also continue to evaluate our menu pricing strategy and expect additional rounds of menu pricing later this year in order to manage ongoing inflationary pressures and manage our margins with commodity and labor costs now each up approximately 30% since 2019.
Menu pricing will play a role in our expected margin growth this year.
To date, we have price more conservatively than many peers. During the recent period of rapid inflation, which has benefited our guest traffic trends and value scores.
As a result guests continue to see their tremendous price point value provided a bj's from our lunch specials daily brewhouse specials, and happy hour offerings, along with our more indulgent favorites still at great prices like our slow roasted prime rib and fresh Atlantic salmon.
Remodels will also play a key role in our sales building initiatives for the next few years. The guests' response measured by increased traffic sales and profit has been excellent. Our remodel program includes adding seating capacity and updating our bar statement, where applicable and other highly impactful elements in <unk>.
Syed and outside the restaurants.
To date the return profile on these investments has been highly attractive. So we have made additional remodels and important part of our 2023 capital allocation strategy, which Tom will cover in more detail shortly.
Based on our current and expected sales growth trends, our margin improvement progress to date and expected further margin opportunities and additional pricing, we expect run rate restaurant level cash flow margins in the low to mid teens as we exit 2023, assuming a continued healthy macro.
And consumer environment.
Finally, our new restaurant expansion strategy continues to provide strong results and growth in the fourth quarter. We opened the final three restaurants over the year for a total of six new restaurants opened in 2022.
We tend to open restaurants in markets with high sales and attractive restaurant cash flow potential.
To illustrate in January our class of 2022 restaurants had had average weekly sales more than 20% higher than the rest of the DJ system.
We are very pleased with the strong sales performance of our new restaurant openings, which reinforces our confidence in the attractive financial returns by allocating capital to new restaurants.
We expect to open another five new restaurants in 2023, one of which is a relocation of our Chandler, Arizona restaurants to a new prime location in the same trade area.
Also reflecting prudent portfolio management, we will close two older restaurants in the first half of this year.
On the people front last quarter I announced that we added bjs first Standalone Chief people officer, Amy crawling to our leadership team early in the fourth quarter.
Also in Q4, we welcomed Putnam Shin as our new chief growth and innovation officer to Bj's.
We are thrilled to have EMEA platinum joined the executive team. They are both already making significant impacts across the organization and I know they will be strong leaders as we drive the business on our road to $2 billion.
So 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 controlled pace and top quality sites with a goal of growing BJ sales to $2 billion and beyond.
We are having technical difficulties.
Thank you for your patience.
Once again, we are having technical difficulties and thank you again for your patience.
We are having technical difficulties, we relate to thank you for your pay.
<unk>.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
[music].
Yes.
[music].
Thanks.
Yes.
Yes.
Yes.
Okay.
[music].
Alright. Thank you operator, I believe we had some technical difficulty.
Here I am just going to do my lap paragraph about here, that's where we dropped off and then we'll we'll turn it over to Tom <unk>, Our Chief Financial Officer.
Sorry about that everyone.
In summary, we know the best way to grow margins and profits is to grow sales our recent trail.
Our recent sales trends have been encouraging and we remain committed to being sales drivers first and foremost we intend to continue building sales into 2023 with demand for experiential dining room.
Remaining strong.
Okay.
Hum.
And our goal is to grow our sales into $2 billion and beyond by delivering meaningful earnings growth and shareholder return.
In the meantime, we are incredibly increasingly confident that guest affinity for our brand and concept coupled with the trajectory of our business and our current growth and margin enhancing initiatives will enable us to achieve attractive near and midterm growth and margin objectives now let me turn it back over to Tom for a more detailed update from the quarter and current.
<unk> com.
Thanks, Greg and good afternoon, everyone.
I will provide details of the quarter and its been forward looking views. Please remember this commentary is subject to the risks and uncertainties associated with forward looking statements.
As discussed in our filings with the SEC.
For the fourth quarter, we reported total sales of $344 2 million, an 18% increase from the prior year include.
Included in fourth quarter sales were $26 5 million from the extra week in our fiscal year and $3 $2 million gift card breakage revenue related to a change in estimated redemptions of gift cards issued prior to 2022, which have yet to be redeemed, resulting from the COVID-19 pandemic.
Excluding the extra week and gift card breakage adjustment, our sales increased approximately 8% versus Q4 2021.
On a comparable restaurant basis, which is unaffected by the gift card breakage adjustment sales increased by six 6% compared to Q4 of 2021 on a 14 week to 14 week basis.
The comparable sales improvement in conjunction with certain savings, we began to realize from our margin improvement initiatives and to a lesser extent the extra week in our fiscal year.
Bj's improve margins in the fourth quarter.
Our restaurant level cash flow margin was 12, 9% in Q4.
After removing the gift card breakage benefit discussed earlier restaurant level cash flow margin was 12, 1%.
Our Q4 2021 restaurant level cash flow margin was 10, 1% or nine 6% when removing the $1 6 million.
Employee retention tax credit benefit.
When comparing margins, excluding the gift card breakage, and <unk> benefits restaurant level cash flow margins improved by 250 basis points in the fourth quarter compared to the prior year.
Adjusted EBITDA was $26 1 billion and seven 6% of sales in our fourth quarter, which included the gift card breakage benefit when again, excluding the gift card breakage benefit from 2022, and the <unk> <unk> benefit from 2021, Q4, 2022, EBITDA beat the prior year by 10.
$8 million with a margin that was 260 basis points higher.
We reported net income of 4 million and diluted net income per share of <unk> 17 cents on a GAAP basis for the quarter. Our Q4, GAAP net income and EPS benefited by approximately $2 4 million and 10 cents per share respectively from the gift card breakage adjustment discussed earlier when applying our 24 two.
Percent effective tax rates.
From a weekly sales perspective, we averaged more than 112000 per restaurant in the fourth quarter were approximately 7000 higher than our Q4 of 2021.
We maintained our off premise weekly sales average in the low 20, thousands while generating dine in sales with more than 92000 in Q4.
Moving to expenses, our cost of sales was 26, 8% in the quarter.
After removing the gift card breakage benefit to revenue described earlier, our Q4 cost of sales was 27, 1%, which was 20 basis points favorable compared to Q3 of 2022, and 30 basis points favorable compared to Q4 of 2021.
Food costs remain high.
Year over year inflation moderated to the low single digits in the fourth quarter.
Inflation figure would have been approximately two percentage points higher if not for the first round of margin improvement changes, we implemented across our food basket, including the new slow roasted wings that Greg highlighted which were fully rolled out across our system early in the fourth quarter.
We did not take any additional pricing in the fourth quarter and our pricing carried was slightly less than 6% in both the quarter and the full year compared to the year ago levels as.
As Greg noted, we took three 7% of menu pricing in January to combat ongoing inflationary pressures and to recapture additional margin.
Judy.
We have seen no guests pushback, so our menu pricing rounds.
We are finalizing plans for an additional pricing ground early in the second quarter.
Labor and benefits expenses were 36, 8% of sales in the fourth quarter.
After removing the gift card breakage benefit described earlier, our Q4 labor and benefits expenses with 37, 1% of sales in the quarter.
Which was 140 basis points favorable compared to the fourth quarter of the prior year after removing the <unk> benefit.
We continued to improve our labor efficiency in the quarter, which is driven in part by improving labor retention in our restaurants, which was that the.
Best level over the past two years in Q4.
Our overtime and training hours improved as well, which as a percentage of sales were 20 basis points better than Q4 of 2021 and within 20 basis points from pre pandemic levels in Q4 of 2019.
Occupancy and operating expenses were 23, 5% of sales in the quarter.
After removing the gift card breakage benefit described earlier, our Q4 occupancy and operating expenses were 23, 7% of sales in the quarter, which was 80 basis points favorable compared to the fourth quarter of the prior year as we leveraged higher sales.
We continue to identify unos savings opportunities as part of our margin improvement initiatives with the first round of cost savings rolling out in the coming months.
Adding new leftover packaging containers and change in the frequency of certain maintenance programs.
G&A in the fourth quarter was $19 3 million coming in lower than our prior estimates due to a true up for annual incentive bonuses lower deferred compensation expense tied to Dupont performance in our deferred compensation plan and other savings against our original G&A budget.
Turning to the balance sheet, we ended the quarter with debt of $60 million and net debt of about $31 million.
We are very pleased with the strength of our balance sheet and will remain consistent in our approach of prioritizing growth driving investments by return profile, including building, new restaurants, improving our existing restaurants and funding sales driving initiatives.
We finished 2022 spending $78 6 million in Capex.
<unk> would've been approximately $85 million, but approximately $7 million shifted from the end of 2022 at the beginning of 2023 due to timing of year end construction payments.
We did not repurchase any additional shares in the quarter, which leaves our availability under our currently authorized share repurchase program at approximately $22 1 billion.
Looking to the first quarter of 2023 as Greg said, we are encouraged by recent sales trends and we expect Q1 comparable restaurant sales in the high single digits.
Factoring in our current sales and cost trends I expect restaurant level cash flow margins to be in the 12% area in Q1 and expanding through the year as we grow sales through strategic initiatives make additional progress on our margin improvement initiatives and take additional menu pricing.
As Greg noted, we are targeting restaurant level margins in the low to mid teens on a run rate basis as we exit the year.
We are expecting food cost inflation in the mid single digit area in 2023.
For 2023, we are targeting G&A in the $80 million to $82 million area, taking into account investments in strategic growth areas, such as off premise and catering as well as the step up back to more regular bonus payout and deferred compensation plan return levels.
Our capex spend as planned in the 90% to $95 million range, including the approximately $7 billion of construction payments that shifted from late 2022 to early 2023.
In 2023, our capital allocation priority will continue to focus on investments with attractive returns, including a mix of new restaurant growth restaurant, Remodels and other sales building and margin enhancing initiatives.
This year, we plan to open five new restaurants with the first scheduled to open later this month and the second in early April and to expand our high return on investment remodel initiative to more than 30 restaurants or approximately 15% of our restaurant base.
Additionally, as part of our margin enhancing initiatives, we plan to strengthen and optimize our restaurant portfolio by closing three legacy restaurants. This year, one of which will be relocated to a great new site in the same trade area, which is included in the five new restaurants.
In summary, we know the best way to grow margins and profit is to grow sales recent sales trends have been encouraging and remained we remain committed to being sales drivers first and foremost we intend to continue building sales into 2000 tweets, where you with demand for experiential dining remaining strong, especially at Bj's at the <unk>.
Todd we have elevated productivity and cost savings through our margin improvement initiatives with momentum continuing to build we.
We have a clear path to sales and margin growth and our long term strategy remains intact. Thank.
Thank you for your time today, and we'll now open the call to your questions operator.
Thank you if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
Press Star two if you would like to remove your question from the queue and for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys. Our first question is from Alex Slagle with Jefferies. Please proceed.
Thanks.
Hey, guys.
On the the commentary on the restaurant level margin expectations.
It sounds like the cadence is sort of a gradual ramp that.
Sort of given the timing of the initiatives or Mike.
Might there be maybe the seasonally strong <unk>, maybe that Glenn you can get to the lower mid teens margin level, just trying to dig into that a little bit more.
Yes, Alex this is.
Greg and then ill pass over time, if you've got additional commentary.
That's generally how we're thinking about the cadence in the sense that as our margin initiatives work their way through I do think to your point Q2 is our strongest weekly sales average and I think based on where we are today and knowing how to ourselves can grow.
Tend to see that number go up.
And then to your point it would go down into Q3, and then accelerate into Q4 and kind of get us onto that trajectory of where we're going the other thing just when we think about it as well.
You saw on the news yesterday with producer price indexes and so forth on inflation, we tend to have a certain amount of contracts that get reset on January one.
So in this first quarter, we have some of those resetting contracts, while our menu pricing of three 7% will help offset that as well as some of our other initiatives. Our next round of pricing somewhere in that April may timeframe, Israeli magic kind of take care of some of this additional pricing for some of that additional inflationary pressure that we're experiencing right now so.
Generally the.
The ramp up that we see.
Tom do you have anything to add to that.
Yes, I would agree.
The combination of pricing that we've taken some in January we'll take more later in the year and the margin improvement initiatives that continue to build.
Yes.
That's how easy the margin.
Increasing as the year progresses.
Okay, maybe you can comment on the contract resetting and sort of where you are.
How much is contracted for the year at this point.
Sure.
So in the in January we have the majority of our contracts come due so we are.
About 35% to 40% fixed which is a little less than we have been in the past. There is some contracts were staying floating on this year because just the.
Extra premium to lock in contracts for the full year.
We saw it more.
Advantageous for for our cost structure to keep them floating take the lower cost now and not expecting them to go up as high as some of the fixed costs. So that was the extensive our contract resets that happened in January but as Greg mentioned wing scope for example.
That's an area where the market is good right now and prices are still low so we kept that contract loading to get the benefit of the current at the current market as well as where we think the.
Market should go for the balance of the year.
Yes, we as we look into the Q1 and gave the forecast margins for Q1 it takes into account the <unk>.
Extra cost that we saw in January but as we think about pricing. What we took in January what we could take again in Q2 that should.
Should offset that inflation plus.
No extra too.
Some extra flowing through margins.
Great.
Wanted to follow up on the capital allocation commentary you can provide a little more color on the remodel rois and maybe how many of each type of.
Opportunity you see for for 'twenty, three whether it's the bar area or the seating.
Any color there would be helpful.
Okay.
It's Greg.
So as we mentioned in the.
The call, we're trying to get a minimum of 30 done next year.
And I would say, it's probably right now evenly split or settle between the bar and then what we would call kind of expand capacity around that you're ceding some of those will overlap, but we can do both and those restaurants and what we've seen out of that yet.
<unk>.
Super specific I guess.
Is the bar is a higher cost.
Bar tab to the backend over one.
<unk> hundred 30 inch TV and very lighten up the restaurant.
And that cost of EUR 500000 to 700000, however, the returns from a sales standpoint on those restaurants have been significantly higher than the return on sales, meaning the amount of sales that we're getting on just adding the three additional days, while the three additional boots forecast only about 150000.
Lots of across maybe 150, it's not depending on what else we deal on there.
The incremental sales there.
Successful and high in the sense that gives us a good return on investment it doesn't drive the same type of return that we do in the bar does that really I think kind of accentuate.
Accentuate the energy within our restaurants.
So.
That's where we are today, we're looking at those returns somewhere.
We'd like to be maybe in the 25% range for the cost of that investment.
That's great.
Interesting thanks.
Yeah.
Youre welcome.
Our next question is from Brian Bittner with Oppenheimer <unk> Company. Please proceed.
Hi, Thanks. This is Mike Tamas on for Brian two quick questions first one on pricing can you talk about maybe what you are planning on having for the full year of 2023 inclusive of the future price increase you were talking about.
April and are you planning any additional price increases beyond April and just generally how are you thinking about pricing against that more shaky consumer backdrop now thanks.
Sure. Thanks, Mike.
So yes.
Like we said we took three 7% in January to April round is what we're targeting somewhere in the 2% plus area and we will have another opportunity potentially in the September timeframe for more pricing.
Adding that up we could be in the eight.
8% plus area for the year.
Okay. Thanks.
And then just the commentary on the low to mid teens margins exiting 'twenty three I just want to clarify I mean.
Does that mean that for full year 2024.
And that range, assuming sales and everything sort of shakes out to where you think it's going to be or is there anything that we need to think about that.
About that run rate exiting 'twenty three 'twenty four.
Mike that's our goal our goal would be exactly as you laid it out there and that is as we move our margins up.
Through the year through the margin improvement initiatives, one thing that we didn't mention it Alex asked the question about how it plays out to the cadence and that is starting in July we will have.
Reduced menu and.
And continue to play with another set of the menu as well that would really help on the prep hours and the efficiency.
As well as that we talked about the labor forecasting from the from our AI or artificial intelligence.
Systems that we're working with so as we work through that as we get ourselves in that right getting to that run rate as we go into 2024, we would expect our margins to be in that mid teen range.
And move from there and obviously, it's going to be seasonally adjusted Q2 will be higher Q3 be a little bit lower but overall, we would see 2024, an area where our margins are in the mid teens.
Okay. That's perfect. Thanks, if I could just squeeze in a quick modeling one on the Remodels.
Is there anything we need to be thinking about in terms of downtime in terms of impact on either.
Overall sales or comps and margins just as it relates to some of those remodels.
No.
Greg Lynds is inherent keep it on the officer. He is really his team is handling the remodels and they have perfected at where they can get in there and do them at night time, I'm, sorry, a restaurant's day opens that we shouldnt be losing any restaurant days our restaurant weeks.
And there's really no additional training or any other changes from that perspective.
What we've tended to see that that might take a couple of weeks just because guests have to yes.
And then build from there a little bit, but we definitely like the pumps that were saying when you get to the weekend you get the Valentine's day, having that extra capacity it really helps us.
Perfect. Thanks, so much.
Thank you.
Our next question is from drew North with Baird. Please proceed.
Thanks for taking the question.
I was wondering if you'd be willing to share an update on how the comps specifically, we're tracking quarter to date and I. Appreciate the color on extrapolating the trend for the balance of the quarter, but just wondering if you could help quantify the quarter to date metrics just to level set us here.
Sure.
It's an interesting question.
And without getting very specific the first two weeks of January were really strong sales. They were north of 20% as you went over omicron.
And since that time, it's kind of leveled out where we felt comfortable with kind of mid single digit.
But 10% or high single digits on site, which would tend to be kind of where we expect the next weeks and the other week to be so I think we saw first couple of weeks of January with some pretty strong sales in the kind of level set it into where we are today, maybe maybe a tad higher per se.
Okay, that's helpful and understood.
One follow up on the margin specifically related to the commodity inflation outlook of mid single digits. I believe you mentioned I was hoping you could share some.
Active on the cadence of that inflation through the year based on your existing contracts and what you may be cycling.
Sure.
There was a step up as we mentioned in Q1, when the fixed price contracts. Most reset we do have a little more loaded in the back half for beef and steak items.
There is forecast out, saying given herd sizes that we could see some some higher prices. Indeed later in the year, So thats loaded in the forecast as well, but otherwise.
No.
I think this first reset was the new the new pricing as there's going to be some markets.
What up were somewhat flat, but those are the I think deep was the only one worth highlighting beyond that.
Thank you I'll pass it on.
Thanks drew.
Our next question is from Sharon.
Backfire with William Blair. Please proceed.
Hi, good afternoon.
It's really good to hear about how the new units are performing and I.
Understand the capital allocation strategy this year.
But as you think beyond kind of 2023, how are you.
Are you.
Hi, guys.
Bobby in the thought process between further remodel.
And accelerating growth because it seems like.
Roy on new units would be pretty healthy given the.
Activity that you outlined in the press release.
Or maybe just juxtapose that with what youre seeing with construction costs and if thats been a major factor in kind of the thought process. This year.
Yes sure Great question.
Sorry, Jeff and that we're excited to get one opened in your neck of the woods here shortly in the Chicago area.
That will be our kind of our next bill kind of low single handedly boost your incidence rate of alcohol.
Yeah that and you could get that <unk> will be really happy.
But.
You kind of hit upon at the end there and that is the key.
Cost to build new restaurants.
<unk>.
Higher than we anticipated coming out of Covid as well.
We're building restaurants last year, they were kind of in the mid sixes, maybe upper sixes as we went out and got bids. This year those that started to come in with the $77 million.
Handle there or starting with the seven handle and I can let Greg lynds jump in here for a second but Tim and his team have gone out and rebuild that and we're trying to bring those costs down.
And while our sales to investment ratio is actually pretty good at one to one because our new restaurants have opened up really well and we're really pleased with them.
Felt that.
<unk> investment costs for our new restaurant versus having these high ROI remodels.
This year it made more sense to pivot and knowing that even as we go into next year, we're still going to have restaurants that we wanted to spend time on remodeling kicked the can only get 30 down next year, I think it's going to be a little bit less as well, but taking all that aside.
The ultimate cadence back in our business.
Is to get our new restaurant growth back in this 5% plus increase in weeks.
We're at five new restaurants this year.
Where we sit here today, we would like to increase that Nextera increase that thereafter, and get ourselves closer again to five 5%.
I think we do that we drive comp sales in the kind of 3% to 5% range you start to look at 8% to 10% revenue growth.
And then leveraging in Bellevue margin allows us to grow earnings at about 10% that I think at that time was darn optum decent free cash flow as well allows us to start to think about how we want to prioritize our excess cash for our shareholders. So that's the longer term cadence in our business.
Even though right now we are getting a little bit about.
Of a pivot towards remodels because of that high investment costs.
If you want to add anything here.
Just kind of add to what you said with our current initiatives going on we think now in 2024, we can get our total costs and thats. Our all in costs. So thats construction FF any soft cost site work everything back to that.
Million dollar are targeted in that $6 million range.
It still gives us great rois in that 20% to 30% range depending on.
Landlord contributions in that kind of thing.
Thank you for that and then just.
Two quick clarifying question the mid single digit commodity inflation for this year was that gross or net of anticipated kind of cost savings that you identify and then did you give traffic for the fourth quarter can we get that.
I'll I'll do the traffic light because that's the simple.
So for the fourth quarter, we ended up with six six comp.
Our traffic was was around two and half or so and the rest was.
Was the average check going up and just jump into the average check low that we had mid five pricing I think below the industry, our checks a little bit lower.
And that is really due to the fact that we see an outsized growth and launch in the fourth quarter and the late night business those areas that tend to have a little bit lower overall average check and Thats why average check 1% to 4% range.
Our 5% pricing and then again as our traffic was positive two five plus percent range I'm going to hit on the commodities.
Sure.
The commodity inflation question the mid single digits was.
Our net number there is possible for upside just depends on what else, we were able to achieve in our margin improvement initiatives, but right now the mid.
Single digits was was net but.
So evaluating a number of other.
Attractive opportunities to save there so.
There could be some upside on top of that.
Okay. Thank you.
Thanks.
Our next question is from Todd Brooks with the benchmark company. Please proceed.
Hey, good evening, everyone. Good to talk to you.
Couple of questions.
One variable and Greg you into that your comments and talking about the recovery in the restaurant level.
Margin and an exit rate for the year in the low to mid teens.
What's the assumption of sales thus far you talk about that as being your best driver of margin recovery I know, we've got the margin improvement program I know, we've got some pricing coming in.
What's your assumption for what you need for same store sales growth.
As a component of reaching that target or are you not expecting.
Much on that front beyond Q1.
Any increment there would be.
Put your higher into that targeted range.
Okay.
Yes. Good question, Todd I think when we look at our our business and think about the fact that we were looking somewhere in the 7% to 8% menu pricing, we're picking up from 78% menu pricing I think we're thinking.
Sales and revenues revenue growth and the kind of maybe mid single digits or so hopefully a little bit better.
But we feel that there's opportunities that we can drive that margin by looking at our cost improvement initiatives to.
To help manage that down so I think we got to get that that that pricing to come through.
In our business.
To kind of continue to move ourselves in the direction of those margins.
Okay, Great and then just a quick follow up and I'll hop back into queue as well.
Is there a way with the early experience with the Remodels and what Youre seeing for lift out of.
You blend it out the bar program and the incremental.
Reboot program.
What type of structural same store sales do you see as we get into the program. So as we do the first 30.
There should be a lift because that is a meaningful piece of the young.
The overall chain.
From these efforts how do we start to think about maybe a structural same store sales tailwind from this program.
No.
I think.
Well couple of things one we're definitely seeing a lift when we talk about the the bar program, giving us sales.
<unk> ended 2000, a week level I'm, sorry, the <unk> and expand capacity, what we've mentioned, we're still working through the bar bar, we've done I want to say three restaurants right now.
Two are performing really well one was a great day.
One was just completed last week, so we're watching that one.
And it tends to be a sales number above that we will come back to the investors and the investment community. After the first quarter and we kind of finished up with more of the expanded capacity, which is the additional boots.
Boots, and then have more of the bar in front of us and come back and give you kind of where we think they blend down what type of lift was saying.
Right now as I said, we're targeting at 20% return on that cash.
So we could be spending 200000 on the.
On that.
Additional boots, and we could be spending $5 to 700000 on bar and other areas.
Pending so we can kind of back into that a little bit, but we wanted to see where it kind of plays out the rest of this quarter.
Okay perfect. Thanks, Greg.
Our next question is from <unk> <unk> with Citi. Please proceed.
Hi, Thanks.
Two quick ones for me.
First.
Would you be able to call out any differences maybe youre seeing.
Same store sales.
Tech heavy areas, maybe versus the rest of the system.
Anything along those lines.
Okay.
Okay.
Okay.
Yes, so in regards to looking at the first quarter.
And this is not unexpected I think because of what we've seen over the last couple of years. The Bay area. How is outperforming in regards to comp sales.
It's a pretty strong contributor right now actually our California is doing well, but the bay area is definitely coming back and we're seeing some nice comp sales up in that area pay across the board. We are seeing good comp sales in many areas, but we've talked many times about the bay area.
California, being a little bit more of a drag on our business short term and right now it's turned a little bit and giving us a little bit of a.
As a tailwind.
Awesome. Thanks, and then just one last one for me.
Good to hear that you are able to get.
Some staffing.
Resolved.
Can you talk to how much youre seeing.
That is being macro driven versus.
Maybe what youre doing in the restaurant to help bring people in.
<unk>.
Applications or.
Retaining existing staff.
Yes.
Yes, Kevin I think.
It's a combination of both.
We're hearing across the industry that finding people is easier today than it was a year ago.
And definitely we see that we placed an emphasis within bj's to make sure. We're taking the time to do the things to onboard our people correctly.
To make them part of the culture and part of the Bj's family to grow our business.
And that seems to have really helped us from that standpoint, and it's something that we continue to do one of the things that will also help us going forward and we don't talk about it as much from a recruiting standpoint is as we continue to work through some of our margin improvement initiatives, especially around the smaller menu that helps bring people onboard into.
And already complex business, where we have $145 menu items learning our menu is going to be more challenging than getting a menu. In fact are getting a position in fast casual or <unk> or other casual dining restaurants. So during some of those things as well as some of the other initiatives that we've done in regards to our values.
Shipments and other things that we rolled out this last year.
Bringing more people on board for us and continuing to improve our staffing at our restaurants, and it's a real emphasis for us and I got it.
My hats off to our general managers I've spent a lot of time rebuilding our restaurants is doing a great job of people in there. So that we can deliver gold standard level of operational excellence. So that we can deliver a grace of hospitality to our to our consumers that come in and visit us for our guests.
Awesome. Thank you.
Youre welcome.
Our next question is from Nick.
<unk> with Wedbush Securities. Please proceed.
Hi, This is actually Michael on for Nick just two quick ones for me did you provide what wage inflation was in Q4.
And then on.
Just the opening cadence for next year it sounds as though you've got one in the first quarter one in the second.
You have any idea as to the timing of the relocation is that going to be Q3 Q4.
Okay.
So on the openings the relocation will tend to be Q3.
So we're looking at kind of one one is here.
Q1, one in Q2.
And then we start to finish up the year hopefully with the remaining three we'd like to maintain in Q3, but probably will end up with.
One to two in Q3 and in one to two hour, However falls out into Q4.
And.
Let me answer the question number for wage growth inflation in Q4 on the hourly front, we saw about a 7% year over year increase in the wages.
Okay.
Great. Thanks very much.
Youre welcome.
And our final question is from Andrew Wolf with CJ King. Please proceed.
Thanks, Good afternoon, I might've missed this.
Mentioned or could quantify what the impact might have been from the.
Terrible monsoon rains that occurred in California during the pit during the quarter.
Andrew we did not quantify it.
It definitely was a headwind.
We're going over <unk> from a year ago, our omicron from a year ago and those range, where the Canada last December and the first couple of weeks of January that all of that was coming through it got masked a little bit because of just the challenge of year ago from Amazon that really had a hit our industry in a lot of other industries.
Yes.
Strong way, I guess or impactful way we do.
Ed mentioned, because there is somebody else had asked the question about how the year started.
I think it was through over out there and we can set the first couple of weeks of January <unk> comp sales were north of 20% per se in that kind of double digits. So we started the year really strong it probably would have been even higher if we didn't have the rains in California.
Okay. That's good color I appreciate that and now you are saying high single digit is sort of current trend.
Is that against a normal <unk>.
Is there any omicron benefit of that this is really the straight question or is that against the non omicron compare.
Not really.
Thank you.
<unk> seen from other companies as well if you look at black box and other data.
It's definitely coming it's kind of like a ski slope, maybe a black diamond ski slope.
Double black Diamond and think that.
The first couple of weeks of January were really impactful.
And then you kind of.
Move through January as things start to normalize and companies built their sales we did as well from a year ago. As these tend to look at ourselves here in the February .
It's much more of a normalized operation there was again at this time last year about staffing up.
February <unk> to drive <unk> sales and Thats, where we think we are today, but.
But that big impact electron with kind of the end of December into the first few weeks of January .
Got you and the other question I wanted to ask was.
Thank you.
Our plan and what you said, you're planning a 10% menu items.
Reduction.
And.
You kind of obviously mentioned it'll help the P&L, but could you maybe give a little more color on I am sure. The operating costs. It simplifies that because that was sort of thinking about it is there must be items that are selling so good she might save some shrink and procurement might get better.
So just as sort of a sense of how that helps.
At the restaurant level and also the flip side, how do you think about and plan for potential loss sales.
And.
Work that support that all up.
Yes, Andrew.
Great.
Very insightful question and that is it's much easier to grow sales when youre, adding items first regarding sales when you take items away.
And so we've been testing the smaller menu for a while.
Right now trying a couple of things with different placement trying to see how we lose between if we're losing anything on add ons or for Louisiana in the entre side or how we can mix gas from one item to the next.
And based on our testing to date it looks like we're able to pretty close hold onto our current average check and our trend based on what we are removing from our restaurants.
And then we continue to look at it exactly as you said what are the highest dollars, what's the reach and frequency to the consumer because something that might slow frequency like perfect takeout, but if it's got broad reach media.
Consumers you end up losing those consumers so as much as we've allowed us David.
So the way we manage against that as we test it and then on those tests, we have done a couple of different iterations, where we've made a different items and different places on the menu. So that when we come into the July timeframe and roll it out well felt comfortable what it does to topline sales and sale comfortable what it does to do that.
Restaurant operations and restaurant operation is twofold. One is it will help with prep because you won't have as many items because it.
As much as we talk about menu items that we're removing its really about the prep hours and reducing more skus around traps and actual items for the consumer the gas.
And that's one area that we go after.
And we look at it and then the other side of it is the ability to cook something or just the memorization and repetition from less items will make our current products that much better.
We'd rather start.
So the last items, but make sure every single items.
Perfect.
This is really the goal there.
The other thing I do want to bring up is it must be workers down BJ for having a broad menu. We're not looking over time to get down to 60 items or 70 items, a competitive advantage and a differentiator for BK is to have a broader menu and traditional mass casual concepts.
So we will always continue to have that as we continue to go forward and we'll continue to kind of prune, where its appropriate and make sure we're putting on matches the brewhouse.
But for the Bj's concept.
Okay. Thank you.
Youre welcome.
And that was our final question. So we can conclude today's conference. Thank you everybody for your participation and have a wonderful evening.
Thank you.
[music].
Yes.
Okay.
[music].
Okay.
[music].
Sure.
[music].
Okay.
Yes.
Yes.
Yes.
[music].
Okay.
Okay.
[music].
Okay.
Yeah.
[music].
Thank you.
[music].