Q1 2023 BJ's Restaurants Inc Earnings Call
Hello, and welcome to the Bj's restaurants, Inc, Q1, 2023 earnings release and conference call.
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I'd like to turn the conference over to Greg Levin, Chief Executive Officer, and President. Please go ahead.
Thank you operator, good afternoon, everyone and welcome to Bj's restaurants fiscal 2023 first quarter Investor Conference call and webcast.
I am Greg, rather Bjs, Chief Executive Officer, and President and joining me on the call today is Tom <unk>, Our Chief Financial Officer. We also have Greg Lynds, our Chief development officer on hand for Q&A.
After the market closed today, we released our financial results for the first quarter of 2023, and you can view the full text of our earnings release on our website at Www Dot Bj's restaurants Dot com.
Our agenda today will start with Rhonda Schirmer, our director of SEC reporting, providing our standard cautionary disclosure with respect to forward looking statements.
I 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 operating environment.
After that we will open it up to questions Serrano. Please go ahead.
Our comments on the conference call today will contain forward looking statements within the meaning of the private Securities Litigation Reform Act.
Yes.
These statements involve known and unknown risks.
Certainties and other factors that may cause the actual results performance or achievements of the company to be materially different from any future results performance or.
Or achievements expressed or implied by forward looking statements.
There's a caution that.
Statements are not guarantees of future performance and that undue reliance should not be placed on such statements are forward looking statements speak only as of today's date April 27, 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.
Future events or otherwise.
Acquired to do so by the Securities laws investors are referred to the full discussion of risks and uncertainties associated with forward looking statements contained in the company's filings with the Securities and Exchange Commission.
Thank you Ron.
P. J has delivered record first quarter revenue growing more than 14% compared to a year ago. Our Q1 results demonstrate the affinity guests have for the Bj's concept, we are unmatched in the industry given our given our polished casual positioning broad varied menu with <unk> of more than $6 million and growing.
And our focus on delivering gold standard operational service and gracious hospitality to our guests each and every day.
Given these factors and our unwavering commitment to taking care of our guests our first quarter comparable restaurant sales and guest traffic continued to beat the industry as measured by Black box.
Our first quarter comparable restaurant sales increased 9% with our average weekly sales for the quarter rising above a 121000.
We also made meaningful progress on our restaurant level margins, reaching 12, 6% compared to nine 8% last year. Despite continued inflationary pressures.
Our ability to grow our top line and leverage the incremental sales is a testament to our restaurant management teams, who are executing well against our sales driving and productivity initiatives, while delivering gold standard service to our guests.
The best way for Us to continue improving our margins is by driving top line sales every additional sales dollar earn leverages the fixed elements of our restaurants cost structure and flows through to profit at a higher rate.
That and we continue to focus on a variety of initiatives aimed at increasing top line sales.
All of these sales initiatives must begin with a focus on the guest and how we can improve the guest dining experience at Bj's.
We know from our consumer research that guests come to Bj's for an experiential dining experience that is rooted in our brewhouse theatre environment with a best in class Bar statement familiar foods made brewhouse Fabulous served by our talented team members, whose mission is to deliver gold standard service and hospitality.
<unk> every day.
To that point, we continue to execute against our remodel plan. So that we maintain our competitive differentiation around our high energy polished casual positioning and brewhouse theatre environment.
As you May recall, our remodel program includes a variety of potential improvements, including additional seating capacity and updated bar statement, new lighting artwork booths and tables to name just a few items.
The new bar statement is amazing and includes a much lighter more contemporary bar featuring a new 130 inch television that screams brewhouse theatre to all guests.
As we noted last quarter, we plan to remodel at least 30 restaurants, this year or approximately 15% of our base to that date to date, we have completed nearly half of the 2023 planned Remodels. In addition to the nine we completed last year, which all are driving incremental comp sales for these restaurants.
Our culinary and menu strategy is rooted in the familiar items made brewhouse Fabulous based on our guest research.
Last year, we began testing a smaller yet broad menu focus on these core familiar made brewhouse fabulous items.
Just on the success of this test we plan on introducing this new menu in July .
This new menu will have approximately 10% fewer items, allowing us to improve daily execution, while reducing inventory and prep hours in our kitchen.
It will also allow us to introduce future menu innovation, while keeping our overall menu tight. Additionally.
Additionally, later this year, we are planning another test with removal of additional items, while continuing to provide the guest variety bj's is known for.
From a menu pricing strategy. Our goal is to maintain a good better best pricing strategy that allows for guests to receive excellent value across all price points and have the option to indulge with more premium items, if they so choose.
To that point, we have maintained our daily brewhouse specials lunch menu and happy hour prices to provide value options for all guests, while maintaining a higher price strategy with our craveable and differentiated proteins, including slow roast items like our double bone in pork chop and prime rib and our fresh.
Atlantic Salmon for guests looking for a more premium experience.
The execution of our sales driving initiatives is not possible without the commitment and passion of our talented team members over.
Over the last couple of years, we have added a lot of new faces to the DJ family.
Therefore, beginning next month, we are implementing a series of sales driving and optimization initiatives to enhance our dining room and kitchen execution, including updated gracious hospitality procedures and improved kitchen systems and prep procedures.
These initiatives will uplift our already strong net promoter scores.
<unk> sales and optimize our efficiencies in our restaurants, so that we can better leverage our increasing sales and continue taking care of our guests.
In addition to our sales driving initiatives, we continue to execute against our cost savings programs to drive margin expansion.
As we previously discussed last year, we launched a cross functional initiative to identify at least $25 million of four wall cost savings opportunities that will benefit our restaurant operating margins, while maintaining our quality standards.
Given our progress to date and the number of opportunities still being explored we are confident that we will achieve our $25 million goal importantly, we won't stop there as we continue to vet additional opportunities to ensure we maximize savings across our business while of course still providing great quality and value to.
Our guests.
Yes.
While driving top line sales and improving margins are top of our priority list. This year, we continue to complement these initiatives with new restaurant openings.
As we've said many times, we believe there is an opportunity to double the number of bj's locations in the U S.
However, we will continue to execute our expansion strategy at a rate that provides high quality sites and execution over growth for growth sake.
Our new restaurants continue to provide solid results as the Bj's restaurant concept remains in strong demand by guests across many regions throughout the U S.
To date, we have opened two new restaurants and expect to open three more restaurants. This year for a total of five new restaurants in fiscal 2023.
Our first our first new restaurant this year opened in Orland Park, Illinois, which is our first restaurant in Illinois. After building many successful restaurants in the Midwest, including Ohio, Indiana and Michigan.
We are very pleased with the strong sales performance of our new restaurant openings in fact, our restaurant class from 2022 and 2023 to date has maintained average weekly sales approximately 20% higher than our other restaurants and our two new restaurants to open. This year are averaging approximately 150000 and weekly sales.
Yes.
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 driving towards a goal of growing DJ sales to $2 billion and beyond while delivering meaningful earnings growth and shareholder.
Our returns in.
In the meantime, we are incredibly and 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 mid term overall 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.
In the first quarter total sales grew 14% to $341 3 million because of the 50 <unk> week in 2022.
Our Q1 period ends on April 4th this year as compared to March 2009 for last year.
On a comparable restaurant basis sales increased by 9% over the same weeks last year calculated by shifting to 2022 periods by one week to end on April 5th.
Without this shift and using our fiscal Q1 2022 weeks as the comparable restaurant base, our first quarter comparable restaurant sales rose 10, 7%.
The comparable sales improvement in conjunction with improving operating efficiencies and further progress on our cost savings initiatives contributed to Bj's first quarter margin improvement our restaurant level cash flow margins.
<unk>, 6%, an improvement of 280 basis points compared to the prior year.
Adjusted EBITDA was 25 million and seven 3% of sales in the first quarter, which beat the prior year by $11 9 million with a margin that was 290 basis points higher.
We reported net income of $3 5 million and diluted net income per share of <unk> 15 on a GAAP basis for the quarter, each of which were more than double year ago levels.
Our net income includes a $1 8 million income tax benefit which includes the usual FICA tip FICA tip credit and applying our estimated annual effective tax rate as compared to a $10 2 million income tax benefit from the same quarter a year ago.
From a weekly sales perspective, we averaged more than 121000 per week for.
For restaurants in the first quarter or more than 12000 higher than Q1 of 2022.
We maintained our off premise weekly sales average in the low 20, thousands while generating dine in sales of more than 100000.
California was our strongest market with comparable sales of 12% in the quarter and it was encouraging to see similar strength across all markets in California, including the Bay area.
Notably we also drove outsized growth in our late night and lunch day parts demonstrating that guests are returning to more normal consumption patterns.
Moving to expenses our cost of sales was 26, 6% in the quarter, which was 70 basis points favorable compared to Q1 of 2022 and 50 basis points favorable to Q4 of 2022 after removing the gift card breakage benefit to Q4 revenue as described in our fourth quarter earnings release.
Inflation in the low to mid single digits on a year over year and quarter over quarter basis was in line and even modestly favorable to our expectations. The inflation figure would have been approximately two percentage points higher if not for the cost savings benefits from the changes we implemented to date across our food basket is part of the cost savings initiatives.
Taking into account our January pricing round, we carried pricing in the mid 7% area in Q1 two.
To date <unk> seen no guests pushback to our menu pricing rounds.
Yeah.
Labor and benefits expenses were 37, 6% of sales in the first quarter, which was 130 basis points favorable compared to the first quarter of last year.
We made further strides improving our labor efficiency in the quarter, which was driven in part by increasing labor retention in our restaurants.
Which was at its best level in more than two years.
Our overtime and training hours improved as well which is.
As a percentage of sales were 20 basis points better than Q1 of 2022 and within 30 basis points from pre pandemic levels in Q1 of 2019.
Operating and occupancy and operating expenses were 23, 2% of sales in the quarter, which was 80 basis points favorable compared to the first quarter of last year as we leveraged highest higher sales we continue.
Two identify O&M savings opportunities as part of our cost savings initiatives, which.
With savings beginning to materialize in areas, such as new leftover packaging containers, and renegotiating and optimizing certain maintenance programs.
Additionally, in the quarter, we made the decision to invest in re instituting third party janitorial services as opposed to using our own team members.
This move helped move helps ensure guests consistently experience our restaurants in a like new first class condition.
G&A was $19 7 million in the first quarter, which was slightly less than our original estimates.
Turning to the balance sheet, we ended the quarter with a debt balance 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.
Looking to the second quarter of 2023.
The industry has experienced some choppiness in comparable sales as the timing of Easter and spring breaks shifted.
However, we are entering what is typically our strongest sales quarter propelled by mother's day father's day and graduation celebrations.
We tend to see our average weekly sales per restaurant grow modestly from the first quarter into the second quarter.
Factoring in recent and historical trends, we expect expect to grow our average weekly restaurant sales in the second quarter by 4% to 5% over the 118900 per week, we generated in the same quarter last year.
Factoring in our sales expectations and cost trends I expect restaurant level cash flow margins to be in the low to mid 13% area in Q2, as we grow sales through strategic initiatives make additional progress on our cost savings initiatives and benefit from menu pricing.
Including in the margin expectations as our plan to increase our marketing spend as a percentage of sales by 70 basis points from one 4% in Q1 to two 1% in Q2 due to an awareness driving marketing media campaign in certain key markets in the second quarter.
We expect marketing spend as a percentage of sales to return to the high 1% in the third and fourth quarters, which is more consistent with 2022 levels.
We continue to target restaurant level margins in the low to mid teens on a run rate basis as we exit the year.
With G&A spend to date, we are trending toward the lower end of the $80 million to $82 million range, we provided for the year.
Also we expect a tax benefit in the second quarter similar to the first quarter, which will again include the usual FICA tip credit and applying our estimated annual effective tax rate.
We continue to expect Capex spend in the 90% to $95 million range. This year, which includes the five restaurants, we intend to open in 2023 and more than 30 restaurant Remodels.
Two of our new restaurants are now open and the remaining three are under construction with expected opening dates in the second half one of which will be a relocation.
As previously discussed we made the decision to close two underperforming restaurants, one of which was a small format legacy restaurants with one closing in Q1 and the other closing early in Q2.
We also continue to push ahead with various remodels, depending on the specific restaurant, which range from 150000 to 750000 per restaurant.
We expect to spend approximately 450000 per location on average this year.
We have now completed 14 remodels to date and remain very encouraged by the extra traffic, we have been able to generate with the remodels and the resulting return on investment.
On average restaurants, adding more debt on.
Restaurants are adding more than 1500 per week in sales following the lower cost Remodels, where we add three extra booths and enhanced the lighting artwork and other upgrades and adding multiple thousands of a weekly sales after more costly remodels with broader scopes, including updating the bar statement along with many other ups.
Grades.
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 building sales into 2023 with demand for experiential dining remaining strong, especially at Bj's at the same time, we have elevated productivity and cost savings through our margin improvement initiative with momentum continuing to build.
<unk>.
We have a clear path to sales and margin growth and our long term strategy remains intact.
For your time today, and we'll now open the call to your questions operator.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
Youre using a speakerphone please pick up your handset before pressing the keys.
Jonathan The question queue. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Today's first question comes from Alex Slagle with Jefferies. Please go ahead.
Hey, thanks.
Congrats on the quarter.
It looks like the EBIT seeing some really strong non comp sales trends.
In the recent couple of quarters, I guess with the new stores, performing really well and.
Trying to think about if we should expect those trends to continue that positive gap and as you talk about that 4% to 5% average weekly sales growth in <unk>.
Should we be thinking about like a 2% to 3% same store sales.
Metrics underlying that.
Alex.
I think it's.
The four to five is probably the reasonable comp sales in there. This is this is a little bit of a reversal of Q1 NOI because it's an interesting question where in Q2, we actually and fiscal Q2 ended the week of July 4th and Thats, a low weekly sales average for us.
So in a way again much like Q1, and then it evens out from there more or less but we end up replacing a fairly high weekly sales into Q1 and put a low weekly sales into <unk>. It's one of the reasons that we tried to give a little bit more color around what last year's comp sales was a 180%.
900, and a way to think about building your model would be 4% to 5% off of that number.
Okay that makes sense. So the average weekly sales growth beyond that probably shouldnt be.
Two significant beyond the comp for the balance of the year.
That's right Alex in the second quarter.
The weekly sales average growth will will be right around the comp growth. We have seen about it could be a 100 basis points extra that were getting from the extra weekly sales from our non comp restaurants, but because of.
Because of the shift to Greg mentioned it gets it about in line for Q2 so.
At four to five should be both weekly sales growth as well as comp growth in Q2.
Great.
And the expectations for the holidays and events coming up mother's day and graduation.
Recall them being pretty strong last year was there anything different in terms of staffing rather year over year differences to consider as we rollover those.
No.
I think we're obviously well staff Nab I believe based on everything we're seeing in our business that will be more efficient and more effective taking care of our guests this year than last year because of the maturity and our team members and being staffed up I think at the same time from a macro standpoint, there was a certain amount of excitement for guests to get back out in celebre.
After two years of challenges around Covid, So I think and I think from what we can control and execute I think we'll do better we continue to want to monitor the what I would call the macro side of it.
Okay I'm not sure. If you mentioned any changes in guest habits or anything with mix or appetizers strength things like that that you noticed over.
Last couple of months, but.
Maybe just remind us if there were any changes you noted.
Yes, I think and Tom.
Comment he mentioned that we're seeing some really strong sales coming on late night at lunch.
Some of that has to do with obviously the Bj's concept. We've got great line specials, we updated our lunch specials. This year in the first quarter and introduce some new items that are becoming best sellers for us.
We have seen I think in general party size start to normalize a little bit.
So a little bit better than where it was versus 2019, let's call it and our incidence or app versus kind of the 2019 timeframe, but as we look versus 2022 last year, we have seen a little bit of a slowdown in alcohol incidents I think we mentioned that on the Q4 call.
That's one area that we continue to watch, but generally everything else seems very consistent in our business I don't know Tom is there anything else to add.
Yes, I think zinc recovered it and just to be clear on the.
The outperformance we've seen in lunch and late night those day parts do have slightly lower check. So that we think are the incidence levels that Greg mentioned thats.
Cause of it we do have these day parts.
One great thing about Bj's, we drive sales in our restaurants, starting at launch all the way through late night. So these areas that have been down more from pre COVID-19 levels are recovering, but when the traffic comes back it's a little headwind on the check side. So that's the the dynamics at play there.
Got it thank you.
Thanks, Alex.
The next question comes from Jeffrey Bernstein with Barclays. Please go ahead.
Great. Thank you very much.
Two questions one just on the menu pricing I think you said for the first quarter in its entirety you were running in the mid 7% range.
I believe you mentioned there was no resistance I'm wondering if you could just walk us through maybe what was taken in the first quarter and maybe what your current outlook is for what you would take for the rest of the year, what the pricing would be if you didn't take anything for the rest of the year.
It does seem to be some concern that new.
New pricing is going to be harder to pass through with what seems like food at home now fallen below food away from home. After a nice 18 month period, where restaurants had some perhaps protection. So just trying to get your sense on that.
The pricing outlook and your confidence and what you plan on taking as we look to the rest of the year. Thank you and then I had one follow up.
Yes, Jeff.
We're looking at somewhere in that 7%, 8% for the.
The rest of this year, where we sit right now.
The plan at this current time any additional menu pricing with our June I guess it would be our June 2019 menu.
We'll determine after that there is usually an October menu.
And probably in the October menu, we will take pricing as we start to think about that pricing trying to cover inflationary costs going into 2024.
At the same time, we continue to try and be.
I guess as I mentioned in the call strategic in the way we are trying to look at our pricing items that are more unique and differentiated our consumers that are coming out and looking at things like a prime rib that maybe you can't make it home that provide much more of an experiential dining we feel that there could be room for pricing on those areas.
But at the same time, we want to continue to balance it with that barbell approach, which is around the lunch specials are daily brewhouse specials, and so forth to make sure that again, there's kind of a good better best pricing.
But where we sit right now kind of in the.
Seven I think it went a little bit higher than that right now that's kind of how we're going to roll through this year, even as we some pricing will roll off in June probably bring us down into the kind of low sevens at that time or so.
Okay.
And Jeff one one piece to add on this too.
When we take our pricing there is the the post audit that we do looking through.
Both incidence rate if we see any.
<unk> down or looking at trading relationships and we've seen very consistent ordering before and after the pricing round. So as we made the comments in the prepared remarks, we haven't seen any any.
The impact from the price range that they've been accepted that's really what's driving it is really.
No incident shift after pricing rounds, as well as no trade downs no not trading from something that's higher cost and the lower cost, we're seeing very consistent ordering patterns before and after.
Well, that's very encouraging.
Encouraging.
My other question was just on the the dollars you're spending I know in 2023 seem to be focused more on.
The remodels with 30 or more units.
Whereas the new units, Greg I know you often talk about quality over quantity and that's very understandable with the seemingly five units this year.
Presumably you'd like to do more but you want to find quality.
But the couple of your already opened this year with 150000 average weekly sales.
Very impressive I'm just wondering what are the greatest issues, you're finding in terms of finding sites more so than the five I think investors would love to see a reacceleration in the unit growth, which you guys used to deliver.
So I'm just wondering what maybe are the challenges you're finding to find more than five sites in a particular year, whether it's real estate or the investment cost or anything along those lines would be helpful. Thank you.
Yes, Great question Geoff It's actually your what you ended <unk> with one is the site cost to build.
As much as we had a one to one right now with the new restaurants doing 150 times, obviously 50 weeks gets you about $7 5 million and we meant.
I mentioned this on another call.
Myself, our board of directors, our executive team really don't want to be spending $7 5 million of other restaurants.
And we continue to look for ways to bring that down but still maintain the elements of the brewhouse theatre, which are so important to differentiate our concepts.
So Greg Lynds, who is here is working with his team to work on ways to bring that down and work through a couple of different prototypes. So that's number one.
Number two is as the people get better, but we wanted to make sure as we continue to build restaurants, we have the right quality of individuals to run. These restaurants that are doing $7 million as we just talked about and those are the two governors to growth I don't think this puts any change in our in our view of where we can go and.
Really we wanted to get back to growing our new restaurants at a 5% plus clip, which would get you 10, plus new restaurants, we're continuing to line up the new restaurant growth for next year and what that pipeline is going to look like I don't think were going to get to the 5% next year, meaning 10, plus some.
Some of it again building up the infrastructure and doing the right way for quality over quantity, but that is our target and I fully believe we'll get back to that targeted here shortly.
Thank you.
Youre welcome. Thank you.
The next question comes from David Tarantino with Baird. Please go ahead.
Hi, good afternoon.
First question is.
I was wondering if you could help to break down the composition of the comp a bit better for Q1.
Can you talk I know you gave us a pricing mid 7%, but.
Was there a mix impact or as traffic essentially the plug there.
Sure David.
Yes.
When we said that the.
Lunch and late night increase that did weigh on check a little bit. So think of traffic was was low single digit positive, but then.
Yes, then the check was up in that 6% to 7% range.
Got it and then.
Does your guidance for the second quarter assume on those metrics. It sounds like you might be running a.
A bit higher pricing, so I wanted to understand kind of what's the underlying traffic.
Assumption is for the second quarter.
Yes.
It's more in the kind of flattish to negative low single digits based on the where the average check is is trending.
Okay. So.
Hi.
Maybe you could clarify what the pricing is.
You said.
It was.
Ed.
I think the way to think about it David if we talked about the fact that we're going to try and grow average weekly sales in the 4% to 5% range.
And pricing being in that kind of upper single digits, we've talked about trying to be <unk> 78 for the.
The entire year it starts to depending on where you look at it.
Piece it together it looks like kind of low single digits negative traffic.
And generally does the difference there would be we're not getting the full 7%, 8% and our menu pricing is down as Tom just mentioned centered in the 100 to 200 bps. So that's why the difference is going to be traffic.
Zero to negative two ish, let's call it negative three ish.
Got it Okay, and then does that I guess is.
Is that how you are running right now or are you mentioned some choppiness at the start of the quarter optimism about what's to come so is the message here that.
The traffic improve.
Improvers.
Kind of how you are running right now.
Yes, it's been all over the place I would say more recent trends as we get away from Easter.
Have been closer to the mid single digit comps have Jose.
Okay, Great and then the last question I had is.
Yes.
In general I know, you've given us a lot of detail on the price increases.
Affecting kind of a mix.
Mix impacts are of what consumers are buying but.
I'm wondering.
If you could maybe opine on whether you think there's any traffic degradation related to the price increases.
Either for you or the industry I know you are not alone in having to take pricing.
I wonder.
Just as you lean in on pricing to protect margins are you seeing any sort of information on your traffic data that would suggest there's a pullback.
Yes.
It's interesting.
David because when we look at last year, so I'm using last year and kind of go into this year. There was really no change in our traffic.
As we take different pricing last year, and lastly, I think we ended up more in the mid sixes or so for the full year.
Saving $6 seven on top of the talent blends at different times, and we didn't really see much change in there.
This year it was hard harder to tell because of the.
The January going over against Omicron, and seeing how things are kind of like settle then right now what I would tell you which will be played.
Kind of plays into our numbers overall.
We're continuing to see better growth in the dining room, which makes sense, even herein into the April timeframe, and we're seeing more of a flattening out of the delivery and I stay delivery and takeout, meaning total off premise.
So that number is kind of flattening.
There's pricing there and that becomes for lack of better term, maybe a little bit negative on the traffic, where you're seeing better in the dining room and it's allowed us to be expected as our dining rooms get better and more efficient. That's what we are seeing consumers consumers to go I don't know how much of that is really pricing on when we've taken pricing seeing a real change in our business.
Got it great. Thanks, I'll add I'll add on that as well.
One metric we also watch after the the pricing round is just how were trending versus black box. So we get weekly both sales and traffic data from from Black box.
Through last year through this year, we've been beating the industry and that margin Hasnt changed and we track it right. After we take pricing and usually it's not that visit that will impact it will impact. The next visit so we watch it in the coming weeks and months and it's been very consistent with the.
Our our trends versus the industry and how much we're ahead.
At least it's not impacting us anymore than the industry. It seems like it's being accepted and my comment.
Comment on this one and I know this.
So as you can go a bit more challenging because it's.
Both of them are qualitative and quantitative but it's the reason that on our drive and optimize conferences coming up we're spending time on really making sure. We're taking care of our guests within our restaurants at the end of the day, we have to deliver that gold standard execution, we have to deliver gracious hospitality.
Our guests know that if they are spending more they are getting a better dining experience at bj's and are willing to pay for it.
That's key for us going forward, it's one of the things that we will always invest back into our people and make sure that theyre, taking care of our guests everyday.
Great very helpful. Thank you.
Youre welcome.
The next question comes from Nick <unk> with Wedbush Securities. Please go ahead.
Thank you.
I wanted to focus on margins a little bit more here.
Cogs.
Q1, obviously in the sort of 26 six range.
Took a little bit more pricing here in early Q2.
It sounds like inflation running a little bit better than what we thought even a couple of months ago.
How are we thinking about the cadence of cards. This year in Korea exit Q4 under 26%.
Sure Nick.
Yes, very very possible there so.
Going into the year, we did have some is some inflation. So we're not modeling in deflation right now, but the the percentage of increases has been.
Modestly under what we were expecting even a short time ago.
The back half of the year, it really depends on what happens with beef that's a.
A big input into our business. So if we have some inflation baked in there and that was part of the full year forecast, but.
That's that's really the determinant if it's.
If it is a little higher a little lower but.
But yes, we certainly expect it to given given some pricing and how that flows through.
It could certainly be in the 20 fives.
Okay.
Is there anything in terms of mix shifts or anything else that we should think about.
That might derail sort of the sequential downtick in comms from Q1 to Q2 Q3 into Q4.
Yeah.
Nick I think as Tom said, it really would be around <unk>, one of the things that we've seen in our business.
Really coming out of covered I'd almost argue maybe a little bit into COVID-19 is consumers like they're kind of indulgent comfort foods.
And at times, they are things that are a little bit more unique than what they can make it their home easily and we've seen over the years, especially coming out of Covid, just things like ribeye and our tri tip.
Really start to come up our chain of commodities versus maybe people thinking of Bj's from 15, 20 years ago, where it was kind of a pizza and beer joined that varied menu is really move that mix around a lot on us.
And because we use.
A fresh product in regards to rebuy and prime rib as well.
Our tri tip, it's not locked in for the full year. So we continue to watch that we've got some initiatives against that in regards to how we can be more efficient and continuing to manage that but I think thats the real wildcard out there as Tom said.
And then just relative to sort of that $25 million cost.
Takeout number where are we now relative to that $25 million.
Okay.
We're probably in the middle innings.
Put through some things like we've talked about before such as the wings are cut.
A ways that we've changed our cutting of our fresh salmon has come through on the commodities right now I think we're a big efforts going after the operating occupancy line. That's an area that just has shifted on us as well as the rest of the casual dining industry some of its the off premise.
It was those challenges with off premise in regards to take out packages and other costs that now we can competitively bid and get those and as Tom mentioned, we've got takeout packaging coming in later this year that'll give us some savings there we're.
We're looking at also.
<unk>.
Les I think actually leftover packaging is coming in this year. We can have some changes in take out packaging thats actually higher quality to go after we've got to offset that with some changes in janitorial.
We're starting to see a good momentum on there in regards to labor and then we will see another round here as we go through with the new menu coming in in June are basically July with less menu items that allows us to readjust, our staffing labor lines as well as adjusting our prep as well.
Efficiencies in there. So there is really another level thats going to start to come here and in Q3. Unfortunately Q3 is a little bit lower weekly sales average. So some of it will get masked by that but I think going into Q4, it will start to see that real benefit coming from.
The efficiency is driven from the lower from the little bit smaller menu and then on top of that the other efficiencies around the cost savings.
Great. Thank you very much.
Youre welcome.
The next question is from Andrew Wolf with C. L. King. Please go ahead.
Okay.
Just wanted to focus on labor.
With regards to wage rate inflation, which I think you said, what's about running I think last quarter, you said it was 7%.
And have you seen any.
<unk>.
Changes in that rate or is it kind of too soon in.
The economic slowdown for there to be had.
On a relief on the on the labor side.
Hi, Andrew sure.
The year over year number did decelerate a little bit more it's more in the mid 5% range now for Q1.
If you look sequentially more the quarter over quarter. It was more in the mid 1% range. So yes. It continues to.
Still it is still inflation, it's still we're paying more per hour, but it's nothing like the increases we were seeing a year or two ago.
Hey, Andrew.
Other comment on that as well as Q1 is generally going to be some of our highest inflation carriers because of minimum wage increases to start to hit in January one so to Tom's point, we're not necessarily saying, what we've seen a year ago.
We'll see how that continues through the year the other side and Tom mentioned this in his formal remarks is our retention levels.
Are the best they've been in a couple of years and that really helps us they're not as good as they were back in 2019, and Thats, where we need to get back tail, that's really important for us to make sure that we're bringing on the right people at Bj's, We're onboarding them correctly, and then three and basically reducing turnover that drives efficiencies within our restaurant and it helps manage the <unk>.
Over time helps manage the training training costs and ultimately that is a buttress against inflation and that's a big initiative of ours.
Okay excellent color I was actually going to ask about the metrics.
Getting back to I think the last question a follow on on the $25 million cost savings goal.
It looks like the run rate in Cogs is around $8 million just based on the color you gave in your earlier.
So is it fair to think that.
And based on the commentary you just gave as well, but more of that is going to be skewed to labor and packaging and some of the other costs and the <unk>.
<unk>.
Okay.
To get whatever you're running at now.
To the full realized amount.
We'll be looking still across the board if I think of everything that is being vetted right. Now there is still plenty in the food cost line as well. So it really still is a full court press against if you want to put it into three buckets, the labor or the food cost and the <unk> the operating expenses so.
Great that we have found is some of these great wins on the food cost side, but there's other items being tested right now that still have some.
Decent impact so but yes. There is there is certainly I mean, we did highlight a number of things that we will be helping on the labor front as well so yes, it wont be.
I wouldn't say, it's more skewed in one area versus versus another.
Andrew the best thing Thats happening I don't know if it's the best thing but.
Tapping really well as we are.
Getting back to what I would call kind of just normal operating cadence and what that means as well and I think it's a little bit.
Tom's point on the commodity side, we have the luxury now or the ability now to go out and dead certain products that you just couldn't do last year.
Some of it worked out better for us. So for example, as we talked about at ways. We couldn't go out and bid our wings last year. So we had to figure out something better than that really helped us, but now that we can bid certain things, maybe we don't need to look at it different differently, we could just get better pricing that we couldnt get a year ago as supply.
They are coming back online so I think to the point as we look for our $25 million and the reason, we're pretty bullish that we'll get above that is there is areas that we couldnt go after last year some of them by the way our takeout packaging that we talked about our to go packaging, but you're also seeing in the commodities line and other things, which I think will continue to help benefit us as well as the rest of the industry.
Okay. Thanks for that color I'll leave it there.
Thank you.
The next question is from Joshua long with Stephens, Inc. Please go ahead.
Great. Thank you for taking my question wanted to see if we could circle back to the commodity conversation and how much of your basket is locked right now I know I appreciate the comments around beef and how that can kind of shape up or drive the trend for what happens in the second half of the year, but what kind of visibility do you have on the remainder of your basket here over the next quarter or two.
Sure Josh about a third is locked on annual contracts right now so it's a little less than we would have been kind of in the pre COVID-19.
And with that we would approach.
Across the board here, but theres areas of our business like wings for example, where it was.
Kind of a process product before and we would lock it in for the year, we could have locked wing prices in for the raw product for the whole year, but it was very favorable to not do that who floater market. There is other areas of our business that just strategically are we think of the.
The premium that was being charged to lock it just made more sense and the direction of where the commodity markets were headed it just made more sense to to float.
So a little bit less than usual, but not by any wide margin.
Great. That's helpful and then on your comments around picking marketing back up, especially as we go through the back half of the year can you talk about what channels have been working particularly well for you and just how youre thinking about that messaging as we get into a more normalized environment I mean, theres, obviously conversations around potentially softening macro and just remind us is it going to be awareness Brad.
<unk> building is it going to be a little bit more targeted price points with what's working in the current environment from a messaging and awareness perspective for the Bj's brand.
Yes, Great question, Josh right now, it's a little bit more brand building. The reason, it's a little bit higher this quarter.
It's really more due to the fact that we did new creative and so we've got to expense that creative and it's going to be an expense in Q2.
Some degree the amount.
C.
Media spend are being on TV are doing digital TV.
Linear versus connected et cetera is somewhat similar with last year, but it's really the more creative that is coming through from the expense side of things as we look at our business. We wanted to build the brand even though with our brand building. We do have usually some tagline and might not necessarily be price specific but it might be more.
Or the limited time offerings. So like right now our tagline is around our <unk>. Our <unk> is one of those drivers for us that is unique and differentiated.
We will continue to use Apple from a connected linear television as well as social and digital.
Great. Thank you.
Youre welcome.
The next question is from Sharon Zackfia with William Blair. Please go ahead.
Hi, good afternoon.
I was hoping to talk some more about that menu rationalization can you talk about whether I believe it's been and test whether you've seen any kind of loss sales are consumer pushback and kind of the order of magnitude of margin benefits that that provides.
Then second question just the loss on disposal of assets running a couple of million dollars a quarter for the last few quarters is that related to the remodels and is that something we should kind of expect.
For the foreseeable future.
I'm going to handle that so let me I'll handle the second question first so this quarter.
The majority of that that expense was related to these glass providers that we put up in our restaurants during during the Covid era.
<unk>.
It was a high quality glass.
Put up his divider to really give.
Folks the the ability to come to the restaurants, where we can expand capacity at the time, but.
With where we are today and it does break down the sight lines to our Tvs and so we're going through and removing those divider. So theres some write down associated with with those but.
But otherwise for the Remodels, we did write off.
We did have a plan coming into the year. So you saw an increased amount that was.
<unk> expense in Q4, so the majority of the Remodels should have been captured in that.
In the Q4 window.
Sharon the menu rationalization, yes, thanks, yes.
Yes.
First of all great question on the menu asset rationalization.
Because it is something we've been testing for a while and you are right in the sense that it's very difficult to rationalize the menu and grow sales.
It takes a little bit of time, and it's probably one of the reasons. We've been testing this for a while and have gone through different iterations to.
To get it to where we believe we've got it right and I will tell you as we work through this and I'm going to get you into a little bit of sausage, making I guess for lack of a better term certain things didn't work for us and we took off some certain appetizers.
And we saw our what I would call our add on sales go down so we've had to add those back.
And continue to work through some of that where we feel that the changes should be more or less net neutral within our business.
And it is we try to look at reach and frequency.
There are a couple of just interesting ones we took off.
This one who is our internal debate you're going to lap we take off the side wedge salad.
And guess what people that want a wedge salad.
Not switch to a how solid or to a side Caesar salad. So all of a sudden we lost sight salads and.
We went ahead as we go through and do this testing and therefore, when it rolls out in the July timeframe. It will still have a side salad. So bottom line is we've gone through and we've worked with a lot.
And tried to make sure that we know it the best we can that being said every restaurant is a little bit different but we feel comfortable in the fact that we've taken the right amount of testing that we for lack of a better term measure twice and we'll be cutting once.
In regards to this menu and hopefully there is another round and we can take off some other items as we continue to create new more craveable items for Bj's.
And Greg I know you had mentioned you were taken up 10% of the menu items.
What percent of ingredients or things that come in the back door aren't going away.
I wanted to say.
Yes, I want to say, it's like 21, Skus I don't have I'm, sorry, I think I mentioned on one of the other calls it's a decent amount in skus the decent amount of changes in the way we are doing some prep to your point there.
On some of the single source items that Werent high sellers that would come through <unk>.
Adjust our prep hours.
On that going forward, but it is there are there are more skus that are disappearing then there are menu items I believe.
Okay. Thank you.
Youre welcome.
The next question is from Todd Brooks with Benchmark Company. Please go ahead.
Hey, Thanks for taking my questions here.
Just wondering if we could and I don't know, which way is easier to snapshot. The difference of where you are from a staffing standpoint year over year going into your seasonally strongest quarter correct.
Can we I think dimensionalize, maybe what we think we lost in Q2 last year from having.
I think 25% of the workforce at that point have been hired in the last three months.
We were coming off of limited menus and getting back to full menus and some restricted hours you have a sense of maybe what would it cost you last year or if you want to talk about from the prospective standpoint, how excited are you to be going into this seasonally strong period with staffing where you want it return.
Improving so youre getting bodies.
Stayed in the role longer and gotten more efficient.
Yes, I think it's easier to talk prospectively.
And we are as an organization excited I think going into this year as graduation mother's day and father's day.
Seasons, not only fully staffed from.
From a body standpoint, but its really about the staff getting their sea legs under them.
And getting used to doing the volumes we've done at Bj's I think we learned a lot obviously last year, we learned a lot believe it or not is going to sound.
Again, a little.
Little different and that is even like around veterans day weekend with some of the veterans day specials. It's a lot of volume that comes into our restaurants and our key members did a great job handling yet. So we're excited to be fully staffed I think we can give better execution to our guests they have even a better dining experience at bj's and I think overall it should be.
A strong period for us at the same time, though as we did talk and I guess im tempered a little bit with there is a lot of buildup of people wanting to come out last year and it's one of the reasons I think we see it and maybe alcohol incidents kind of slowing down a little bit.
So I tempered a little bit with that but I think we're excited to be fully staffed we're excited the executing at the level that we're executing at and therefore, we're excited to be able to take care of even more guests that want to come to bj's.
If you look at something like Valentine's day in Q1 do you see evidence that the demand was tempered on that occasion, because it'd probably be the most recent return.
No we haven't.
Really good Valentine's day, and it was executed well by our team they did a tremendous Valentine's day and they did a great overall Valentine's day weekend. So.
You can you can feel it in our restaurants I give my hats off to Chris.
<unk> and our vice President of operations team that are really doing a great job, making sure. Our teams are delivering on the gold standard integrations hospitality.
See it today versus a year ago, we see our restaurant managers out on the floor, we see our team members.
And care of our guests and I hadn't really thought about Valentine's day, I guess, maybe because we're so much into April but I think your points are good one in the sense that we really had a strong Valentine's day, we executed well against it in regards to our operational cadence.
Okay, Great and then just two quick ones for Amp up one.
When you were talking about capital allocation. The one piece that you didn't mention with share repurchase.
Obviously the stock in the group have been weak here.
Based on kind of the reality of the results that you put up.
You can almost argue the highest and best use of some capital may be share repurchase at these levels, where does that fit into the overall plan given the other claims on capex.
Yeah.
Okay, I think as we continue to grow our business share repurchase and other capital allocations to benefit shareholders as an important part of the Bj's story.
I think even if we were saying we are growing our business at 5% in regards to new restaurants.
We would have extra cash in our business, assuming we move our margins the right way, which we fully expect to to be able to use that cash to buy back shares.
And as we continue to look and execute against our plan, adding share repurchases will be part of our business going forward.
Okay and then the final one you guys talked on the last call about it.
Our scheduling tool I think it was being tested in <unk>.
20 restaurants. So is there any update you can give us on maybe labor efficiencies through the tool is providing kind of in that control group of restaurants.
Is it something where you know you want to proceed through the rest of the chain and maybe what's the cost save opportunity might be.
<unk>.
Yeah.
Sure.
We're still we're still very encouraged by what we're seeing we're testing so almost 20 restaurants and I would say on an average weeks there.
As a good tool to get the sales forecast rights. So we can schedule more accurately as well as prep more accurately.
Some of these weeks if you go into like the Easters in.
It's still need some training there, but we're encouraged we're still.
Testing, but but.
Yes.
This is something that I think is.
Something we are certainly excited about and thinking about how it could benefit us.
Okay, great. Thanks.
Thank you.
Today's last question comes from Jon Tower with Citigroup. Please go ahead.
Great Hey, most of my questions have been answered so I guess two quick ones.
Any impact of weather in the quarter over quarter to date that you want to call out because I know, California, obviously, you had some fairly big swings rest of the country has got some benefits to start in the first quarter, but anything noteworthy to call out.
Yes, John it's <unk>.
Did see some impact in California, especially earlier in the in the quarter, especially when you think of the rain that came through so it was a headwind certainly in for some of those days and weeks, but like I said, California was our best performing market. So nothing that held us back but.
It was a modest headwind.
Okay, and then just real quick flip into the menu reduction that you're talking about it sounds like theres going to be some labor savings and prep improvement.
Didn't mention anything about table turns and I'm, assuming that's part of the equation here, but just want to verify that that's the case, it's part of the the work here is getting faster table turns.
Okay.
John .
Should be a byproduct if we're able to be more effective in our kitchen and get menu items out sooner and quicker to our guests then essentially our tables, but turned faster, but we have other opportunities there we have mobile pay.
And our restaurants effectively used mobile pay end up with I wanted to say about <unk>.
Seven minutes or 10 minute quicker table turns and people that traditionally pay the way. They currently are so we're continuing to work through some of those other aspects to be faster, our making some changes to our our server handheld tablets, where they can actually take the payment there to speed up the process the interesting.
Thing about this.
Can you go a little bit longer is we've done a lot of testing with our innovation team in regards to how we can be faster in our restaurants.
Even set up in a test and a couple in a restaurant to kind of do a quick service for our guests where they can order right when they walk in and then get ceded.
And guests come to Bj's as I said for that kind of experiential.
Dining experience and even the ones that kind of ordered at the counter during our test they end up ordering another beer they end up already and particularly dessert at the end and they still spent basically about an hour at bj's. So we know the reason that a consumer kind of the bj's. They made their decision based at our house not necessarily driving down the street is at.
<unk> or as a bj's now that being said, we wanted to be as efficient as we can with our with our table turns and give the guest wants to be faster the ability to be faster. So we will continue to work that but at the same time, we understand that we are therefore in experiential dining.
For our gas and therefore, we wanted to make sure that we're doing everything we can to make sure that they have a great experience.
Got it thanks for the for taking the questions I have a good day my pleasure.
Thank you ladies and gentlemen, this concludes our question and answer session and the call is now concluded.
Thank you for attending today's presentation you may now disconnect.
Thank you everyone. Thanks.
Yes.