Q3 2024 BJ's Restaurants Inc Earnings Call
The New York Times, the New York Times, and the New York Times
Hello and welcome to the BJ's restaurant, third quarter 2024, earning through lease and conference call.
All participants will be in lesson only mode.
Speaker Change: Strategic Assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.
To ask the question, you may trust Star, sent one on your telephone keypad, and to withdraw from the queue, you may trust Star, then too. As a reminder, this conference is being recorded.
I would know at the end of call to Rana Schirmer, Director of S.E.C. reporting. Rana, please go ahead.
Thank you, operator. Good afternoon everyone and welcome to our fiscal 2024 third quarter investor conference call in webcast.
After the market close today, we released our financial results for our fiscal 2024-3rd quarter. You can view the full text of earnings of our earnings release on our website at www.bjsrestron.com.
I will begin by reminding you that our comments on the conference call today will contain forward looking statements within the meaning of the private security litigation reform active 1995. Investors are cautioned that forward looking statements are not guaranteed a future performance and that under reliance should not be placed on such statements.
These statements are based on management's current business and market expectations, and our actual results could differ materially from those projections in the forward-looking statements.
Speaker Change: Andrew take 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 security vlog.
Speaker Change: and Vesteres referred to the full discussion of risks and guarantees associated with forward-looking statements.
contained in the company's filings with the Securities and Exchange Commission. We will start today's call with prepared remarks from Brad Richmond, our interim chief executive officer, followed by a liell tick, our president and chief concept officer, and Tom Houdek, our chief financial officer. After our prepared remarks, we will take your questions.
and with that I will turn the call over to Brad Richmond, right? Thank you, Rana and I will do those listing in. We appreciate you dialing in to hear us talk about our third quarter results.
I see several familiar names since some new ones I look forward to meeting soon.
I'm excited to be here at B.J. and what lies ahead for our brand and for our shareholders.
Law and I see a number of strengths to leverage and modest challenges that are readily addressable.
Our highest priority is a thorough discovery of the brand, its challenges and opportunities, and a serious evaluation of our activities, spending and investments.
This is Well Underway and we are moving with urgency to shape our plans for 2025.
We start from a position of relative strength as the brand serves over a million guests a week, has 220,000 dedicated team members who generate annual sales of more than 1.3 billion and free cash flow from operations in excess of $100 million.
Well, there's a good bit of work to be done. Our experience and current observation suggest we have permission to be optimistic of what the brand can deliver to our guests, team members and investors.
We will speak in greater details on our learnings and plans when we report fourth court earnings in full year to 2024 results but we'll share some of our initial thinking today.
While we'll comment more on our near term learnings and thoughts in a moment, and Tom will take us through the third quarter performance details and our outlook for 4th quarter.
And then we look forward to taking your questions and sharing our thoughts.
We ask that you lend yourself to one question and one follow-up question, then return to the cue. The three of us will remain here on the line to take all your questions.
Speaker Change: Let me again with some brief third quarter highlights and early thoughts regarding our merging financial discipline.
Speaker Change: The third quarter was significant in that we generated positive traffic and meaningfully outpaced blackbox compared to set by employing a limited time.
Speaker Change: Every day, price point approachable promotion featuring a limited number of offerings that are appealing to guests, support our gross margin criteria and feature our iconic bazookies, offered during the weekdays.
We are in a highly competitive environment where there are a significant number of major players, national brands, competing on value, was substantially more marketing spend than what we have, but we're demonstrating we can win in this space.
However, we did not flow through as much of the third quarter incremental sales gains to earnings as we would expect.
We have identified and addressed those challenges and as the offer continues through the fourth quarter, we expect to generate higher flow through and stronger margin levels.
Speaker Change: Tom will walk us through that detail later.
Speaker Change: We are instilling a more structured and disciplined approach around our financial policies.
All Capital Appointment must be a value creating investment.
Our remodel program has demonstrated good results in this regard. We need to increase our individual site's success rate to raise overall value creation delivered. But...
Speaker Change: We believe we have identified the opportunities and have the elements to make the necessary adjustments.
Speaker Change: Our current remote program, pace remains on track with the potential to increase the pace in the new fiscal year.
New Restaurant Investments has not consistently achieved a hurdle rate return at all locations.
We are evaluating our market penetration strategy and site selection criteria to improve results while maintaining a reduced opening pace as we find to these elements.
Speaker Change: But ultimately, new units are integral to our growth and value creating proposition.
As we look forward, we are assessing the optimal capital structure for our business, which has a durable cash flow generating capabilities.
We look forward to sharing our learning with our fiscal year results on this matter.
In the interim, our cash flows exceed our high probability, die creating investment opportunities.
Speaker Change: During this period these excess funds will be returned to shareholders in the form of a well structured and disciplined share repurchase program.
Similar to what was adopted post the leadership changes.
Speaker Change: yeah
Speaker Change: So, more to come on these topics, but we need to complete a thorough discovery and develop our going forward plans to inform our financial projections for 2025 before we get into greater detail.
Speaker Change: However, these comments highlight our rigor, our round financial decisions, and the directions we take going forward.
With that, let me turn it over to law for some of his initial observations and thoughts.
Speaker Change: no
Speaker Change: Thank you, Brad, and greetings to everyone who is joined us today to talk about BJs.
Six weeks into my journey with B.J.s. I find myself more energized and optimistic than the day I started.
Speaker Change: I've had the privilege in the first several weeks to visit BJ's restaurants across the country.
Speaker Change: Spend time with our operators and support center teams, including attending our GM conference, which was a great learning accelerator for me. I've worked shifts in multiple restaurants and talked to many of our guests.
As Brad referenced in his comments, BJs are starting from a position of relative strength. There's over $1.3 billion in annual sales, the third highest AUV amongst scaled competitors, and some powerful strengths and equities to build from.
Speaker Change: Through our initial discovery phase, some of the things that stand out to me are. First, inform us, our people are a real strength and advantage.
Speaker Change: There's no business quite like restaurants where your brand promise is brought to life every day through your frontline team members.
Speaker Change: is I'm out and spend time with our team members I ask three questions.
What's the best part about working at beaches?
Speaker Change: What do we do better than anyone else? And what's the one thing that you would change to make things easier or better if you could snap your fingers and make that change?
Speaker Change: And when I ask about the best part about working at B.J. universally, it's about the team, the culture, and both the desire and freedom to please the guest.
Speaker Change: There is a buy and commitment by our team members that I believe is a real strength, a competitive advantage for us to build upon, and we can help them be more effective going forward.
Speaker Change: This is reflected in both our qualitative and quantitative guest feedback as a main driver of repeat visits.
Speaker Change: 2 is...
Speaker Change: to win the cross-mortakeasions in our competition.
BJ's unique in its ability to fill a broad cross section of needs and occasions across multiple cohorts and have them seamlessly coexist under one roof.
I have found it very powerful sitting in a pack of DJs and looking around and seeing everything from a group of high school baseball players.
a friend group catching dinner, happy hour after work, a family, a girl's night out.
Friends catching the game, large group celebrations, the barricazion, our facilities, menu and brew house atmosphere, give us the right to win across more occasions than our competition. And this is reflected in our current A-U-Vs, but also an opportunity for us going forward.
Our broad appeal in breath is both a real strength and a challenge and I'm going to talk more about this shortly.
We have unique and onable platforms, like the Suzuki and our craft beverages that recruit guests and create relevancy across age cohorts, which is relatively unique.
The recent performance of our Suzuki meal deal, share gains and out performance in media markets, suggests strong consumer affinity for BJs and underlines the headroom that still remains for the brand with respect to awareness and saliency.
Taking a step back on discounting and promotions overall.
Speaker Change: While we're very encouraged by the results and potential headroom for the Pazuki Mildiel, my initial observation when looking at our overall discounting and promotional footprint is that we had an opportunity to rationalize our programs and this is a priori priority area of evaluation in the short term.
Speaker Change: The way I think about these programs is that in order to work they need to significantly expand our total available market and or drive incremental occasions. They should be targeted at days and day parts where we have capacity and ultimately drive materially more dollars to the bottom line.
So the goal will be to apply clear strategic guardrails to all programming, likely streamlining some programs and then leaning into the ones that hurtle. A good example of this for me in Q3 is the Suzuki Pass.
Speaker Change: It was more popular than we expected, which is a good sign with respect to the cache of the Pizzouky. And while it drove incremental traffic, it also drove check compression and downstream p and l pressure beyond expectations.
Speaker Change: I would characterize this program as effective but not efficient.
Going forward, this program will need structural reevaluation if it will continue. And all of our programs will go through a similar filter.
As I mentioned, our broader peel and breath is both as strength and a challenge in highlight some areas of opportunity.
While we're still learning and discovering as we go forward, 4 key areas of focus will be.
Driving more clarity around our brand.
BJ's has distinctive characteristics born out of our Brue House DNA.
We are uniquely the only national brewhouse, and have an opportunity to reinforce our uniqueness and what truly makes us special and not allow ourselves to be depositioned as a generalist casual dining brand.
Speaker Change: 2 is being clear on where we will drive authority and competitive advantage.
Speaker Change: We tend to be known for our breath and no veto vote, which is important.
Speaker Change: Our brand positioning work will guide us to drive authority and competitive advantage through platforms that reinforce our brand equity and drive designability without sacrificing men-you-turf.
Speaker Change: We want to ensure that we are the desired choice for our guests versus the just the easy one. Importantly, the brand work we do will also help us filter activity and complexity that does not reinforce brand equity.
Speaker Change: The third area is delivering great hospitality and execution.
As I mentioned, we have an amazing base of team members who are bought in and want to wow our guests.
Speaker Change: We have an opportunity to help them do that more consistently through both simplification and better leveraging our data.
With respect to simplification, I've heard consistently from our teams that we have an opportunity to make it easier for them by removing unnecessary complexity. And we're working hand in hand with them to simplify where appropriate.
With respect to leveraging data, visit about having the right people in the right place at the right time from a labor perspective.
Well, this will help with speed which impacts consumer satisfaction and tablespoons. In my observation, the bigger unlot for us will be greater utilization and the elimination of unnecessary weights and walk-offs.
The last area is continuing to take care of our assets and keep the brand fresh.
Another area of relative strength for BJ's based on our guest research is our atmosphere.
Speaker Change: And as Brad mentioned, our remodel program has demonstrated positive results and we will continue to refine and evolve this program to keep our brand fresh while reinforcing and highlighting core equities.
Today more than ever, guests have a high bar for what's worth it.
I'm a strong believer that being worth it means delivering a holistic experience that brings together craveable food consistently executed in a great environment and delivered by people who care about the guests and their transaction.
It is not just about the price point.
Speaker Change: B.J. is well suited to deliver a holistic value proposition. And as I mentioned earlier, I believe we have the right to win across more occasions than our competition.
Speaker Change: Our time and energy will be focused on programs and initiatives that continue to sharpen our focus, simplify operations, and enable our managers and team members.
I look forward to the opportunity to talk to you more specifically in the future about our plans. Thank you. And now I want to turn it over to Tom for a deeper dive if you three results.
Thanks, Lyle and good afternoon everyone. I will provide details of the quarter and some forward-looking views.
Please remember this commentarius subject to the risks and uncertainties associated with forward-looking statements as discussed in our findings with the SEC.
For the third quarter, we generated sales of 325.7 million, which was 2.2% higher than last year.
On a comparable restaurant basis, 23 sales increased by 1.7%.
Speaker Change: Our sales driving initiatives worked to grow sales, traffic, and market share in the third quarter.
Our comp sales growth was driven by 1.3% traffic growth, which was our best traffic quarter since 2018 when excluding the co-vide recovery quarters.
In Q3, compared to the casual dining industry, as measured by black box, our comp sales beat the industry by 3.1% at our traffic beat by 5.7% at points.
Speaker Change: Our traffic out performance was driven in part by value programs such as the Pazuki Pass that launched in late June and the Pazuki Meal Deal that launched in September as well as an initiative to expand loyalty program membership in usage.
These programs, particularly the Suzuki Pass and Loyalty Expansion, impacted our sales leverage in the third quarter.
We also built guest excitement around limited time offerings such as our Smors Suzuki and the Lucky Duckie Cocktail.
Comps sales built through the quarter with our September Compt of 3.8% demonstrating the momentum building behind our Suzuki meal deal weekday promotion that launched in the second week of September.
Speaker Change: A restaurant-level cash flow margin was 11.7% in Q3, which was 20 basis points less than a year ago.
We did not fully leverage our strong traffic growth as higher than anticipated restaurant costs, which we are addressing, resulted in lower restaurant level operating margin percentage.
A restaurant-level operating profit was 38 million in Q3, which was 200,000 higher than a year ago. As our higher sales, drove slightly more restaurant dollar profits.
A just an EBITDA was 18.5 million and 5.7% of sales in the third quarter.
Speaker Change: Q3 Ebitda was 1.1 million lower than last year driven by higher G&A.
The main year over year, GNA variants was hired to fur compensation expense, which is a non-cash item and fully offset in other income.
Two notes, approximately 1.7 million of net expenses incurred related to our leadership transition, are added back to our Q3 adjusted EVIDau.
We reported a net loss of 2.9 billion and deluded net loss per share of their teen sense on a gap basis for the quarter, which were both better than a year ago.
Now that the Q3 net loss includes a 400,000 pre-tax or two-sense per share, net leadership transition benefit, which is a combination of the 1.7 million net expenses added back to EBITDA and a 2.1 million stock compensation credit.
For more detail on restaurant expenses, our cost of sales was 26.6% in the quarter, which was 70 basis points unfavorable compared to a year ago.
Traffic Driving Initiatives mainly the Pazuki Pass and the Loyalty Program Expansion, weighed on Percent Marges.
Speaker Change: As Lyle mentioned, the popularity of our Pazuki Pass promotion exceeded our expectations and created margin compression.
Food cost inflation was approximately 3% over a year, which was offset by menu pricing.
Costs increased for certain key items in Q3, including avocados, brown beef and bone in wings, which are items we purchase at market.
In October, costs for all three items printed down and are now either back to or below Q2 levels.
Labor and benefits expenses were 37.1% of sales in the quarter consistent with the third quarter of last year.
Along with guest traffic, our new promotions added complexity which reduced our labor efficiency in the quarter and we do not leverage labor to our full potential.
We stepped our restaurants to deliver strong sales and traffic growth in the third quarter.
Now within proof top line trends we are actively refining our labor model to better leverage the high sales.
Speaker Change: i
Hopper, occupancy and operating expenses for 24.7% of sales in the quarter, which was 40 basis points favorable compared to the third quarter of last year.
Speaker Change: We continue to achieve strong efficiency gains over the prior year from our cost savings initiatives and leverage from higher sales.
Speaker Change: [inaudible]
The $800,000 increase in our deferred, complex fence equates to approximately 25 basis points of sales.
Speaker Change: As a reminder, this is a non-cash item and is offset in other income and expenses in our P&L.
During the quarter, we repurchased and retired approximately 268,000 shares of our common stock at a cost of 8.2 million.
Currently have approximately 44 million available under our Share Repurchase Program.
Service of the Valensheet, we ended the third quarter with net death of 48.1 million, comprised of a debt balance of 66.5 million, less cash and equivalents of 18.4 million.
This equates to net depth 800,000 hire that are balanced at the end of Q2.
Value is as important as ever to guest in the current environment.
Given the consumer backdrop, we adapted our menu strategy by quickly moving to design, test and launch a comprehensive new value program in the Suzuki meal deal. A compelling traffic driving deal with attractive economics given the food cost profile and weekday timing.
Speaker Change: We supported the launch with call to action messaging, including media and certain markets, to build the initial awareness and drive trial.
Additionally, more guests than ever are enjoying Suzuki's, which is a brand differentiator for BJs.
Since launching the Pizzic-Meal Deal in the second week of September, our weekly comp sales results have beaten black box by approximately 500 basis points on average.
For the first four weeks of the fourth quarter, our comparable restaurant sales are up more than 4%.
Our value message is now focused on our $13.00 for Zootimiel Deal, available Monday through Friday, which continues to drive sales and profits across the day parks.
Speaker Change: We are now past the impact of our Suzuki Pass promotion and our loyalty expansion and continue to deliver sales and traffic well ahead of the industry.
Speaker Change: As we've said before, dollar profit growth is our top success criteria for any promotion.
We are encouraged by the incremental profit flow through of our Suzuki Mio deal, especially given the incremental weekday traffic it is driving into our restaurants.
Given our current promotional mix, along with more favorable commodity market environment, and in 90 basis point menu pricing round in late September, our cost of sales has recently trended in the 26% area, or approximately 60 basis points better than Q3.
October is the final full month of our Suzuki Pass Promotion. Our focus is shifted to the Suzuki Meal Deal, which is driving strong sales and traffic during weekdays, and has a food-cost profile more similar to our regular menu.
Speaker Change: In terms of margin improvement initiatives, we continue to work with our restaurant teams to identify and realize labor efficiency opportunities overall and in the context of executing our traffic driving initiatives.
Also, we completed the rollout of a specialized disposable distributor in Q3 and will begin to realize the full savings in the fourth quarter.
Speaker Change: i
Taking into account recent sales and cost trends, as well as our promotional mix and continued margin improvement initiatives, we expect restaurant level margins to be in the mid to high 14% range in the fourth quarter.
This percent margin is lower than our expectations from earlier this year, but our recent sales trends are higher than our prior expectations given the positive guest response to our Suzuki meal deal, resulting in a similar level of dollar restaurant profit.
We expect GNA in the 21 million area for a Q4 which has been our recent run rate before one time and now I'm the operating items.
Speaker Change: yeah
Speaker Change: In conclusion, with significant cash flow from operations and a healthy balance sheet, BJS has the financial facility to execute multiple initiatives to enhance shareholder value.
Our goal remains to grow absolute dollar profit in any consumer environment.
Specifically, we are focused on delivering value to shareholders through sales and productivity initiatives and through our disciplined approach to capital allocation, including new restaurant openings and restaurant remodels, as well as our share-reportures activity.
Speaker Change: We have a clear path to sales and profit growth ahead in our long-term strategy and the strong consumer appeal for the BJ's brand positioned us well to continue building on our successes in enhancing Sherylder value. Thank you for your time today and we'll now open the call to your questions.
Speaker Change: Operator.
Thank you. We will now begin the question and answer session. To ask the question you may press star than one on your telephone keypad. If you're using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question you may press star than two.
As a reminder, please limit yourself to one question and one follow-up. You may then rejoin the queue for follow-up questions.
Speaker Change: We'll pause momentarily now to a similar roster
Today's first question comes from Ryan Bittner with Open Heimer. Please go ahead.
Thanks, good afternoon. A major component of the BJ's investment story earlier in the year was...
about margin expansion and the opportunity they are obviously on the second quarter earnings call.
That was taking off the table.
Speaker Change: and with these three key results.
We actually saw margin under performance.
You know, your third quarter restaurant margins 11.7% that was well below that mid 12%
Third quarter margin that you gave to three months ago, but sales were directly in line.
Speaker Change: and I know you said some costs were higher, the Suzuki Meal Deal.
Speaker Change: of Akados wings, but does that explain the entire delta between the margin under performance and what you guided to?
and you know as we look into the fourth quarter what exactly does reverse and has reverse that makes you so optimistic about the four cue margin guidance.
I'll take that and thanks for the question.
Speaker Change: So looking at the third quarter, we had a higher mix of promotional activity than expected.
So the combination of that as well as some cost ticking up on the supply chain side, as well as just not leveraging labor as well as expected. You know, we're the main drivers of the margin difference.
and when we reported, we built as the quarter went on more and more promotional activities so that weight on the margins more than expected.
Looking forward is we think about Q4 and how we guided there is a benefit and food cost both in market costs that we're paying as well as our promotional mix and the impact there that has an impact.
So that, you know, in top of just, you know, as we're looking at labor and how we'll leverage it into the fourth quarter, that is, those are the main parts we think about what is going to reverse as we're moving into the fourth quarter and leads into the guidance that we provided.
Speaker Change: Hey Brian, Brad here and let me just...
Brad Richmond: Let me just add a little bit to that and I know there's some confusion because we talk a lot about the zookies but the Suzuki Meal deal we're actually very pleased with from its traffic generation abilities but also the margins that it can deliver it is right in line with our menu in general
but we did have some other and remember that came into play at the end of the quarter. But we did have, while I think mentioned earlier, the Pazuki Pass.
Speaker Change: and it really...
Speaker Change: Didn't deliver and it took us a substantial hit to our sales.
Speaker Change: and so.
with time and with the different programs, we're getting a much better handle on which of the offerings that we have that are delivering traffic.
Speaker Change: and building our profitability. We have some that aren't. Some of those are running off. Some of them that we're addressing and we'll be done in the fourth quarter. Some will take a little bit longer.
But that's kind of why we have the optimism that we do, but I just want to clarify that it's really the Suzuki-Mil Deal.
Speaker Change: When you look at this competitive environment and the amount of marketing or meeting media dollars that were able to put out there, and the fact that we were a share of take care.
It informs a lot of our thinking and what we can do with that type of platform as we go forward. So that's probably hence it more of the optimism than anything else.
Thanks for that and, and Brad, you bring a lot of experience.
Speaker Change: To the table as you come into the role and you did mention, you know, paying some financial discipline going forward.
and just based on your experience for a brand like this with the AUVs that it has, where do you ultimately believe margins could be or should be? And just what are your early assessments on what could be some potential margin enhancers in the near term in the long term?
Speaker Change: Well, I think there's a lot of potential for this brand. When you look at the AUVs that it has and the ability to leverage those, there's meaningful upside there.
As I look backwards of what we've done here, I think we've actually focused maybe a little too much on taking cost out of the business instead of growing the business.
A.E.V.s or same restaurant sales increases is the highest value creating opportunity that there is.
Speaker Change: and so I think there's a lot of potential there when you look at where traffic was, pre-COVID.
Word is today.
Speaker Change: Uh...
Speaker Change: and the fact that we can do the Suzuki Mill Deal here today and see a really significant traffic lift. That's occurring Monday through Friday during our lower volume periods and actually utilizing our boxes more. Our box is what it is. It's a pretty good sized box.
So it has the ability to deliver a lot more volume and we're seeing when done right the guest appeal is there. We do have to work though on the internal...
Speaker Change: Working to the box to get more of the sales increase to earnings. And that's painfully obvious and something that we're readily addressing.
Speaker Change: Okay, thank you.
Speaker Change: Brian.
Speaker Change: The next question comes from Alex Slegle with Jeffries. Please go ahead.
Speaker Change: Alright, thanks and welcome while I'm Brad.
Thank you. I know it's early and you guys are working two things but you know we're kind of heading into November and it's wanted.
touched on a few of the things that's thinking about the capital allocation and the balance between new units and remodels. So, as we look ahead, it's found that you want to be a bit more conservative on the new units side and really work on the returns.
The performance of the new box, I guess, hasn't been as consistent as hope, but if you kind of talk about what you think next year might look like just initially. I mean, is it similar a number of new units and it sounds like a step up in the remodel, so that's a good way to start thinking about it.
I appreciate the question and what I will start up by saying is no, I want to grow new units. But...
I, as I look at the opportunities today, same restaurant increases, is our greatest opportunity to generate value for our shareholders.
Ultimately though we need the new unit growth and each one of those is a pretty significant bet if you will and so we really need to be sure that we're comfortable that we have all the elements right everything from the market penetration I.e. where do we want to go next?
and working on site selection criteria to ensure that we're consistently getting a high success rate.
So that's how I look at it, the pause if you will.
There's still quality sights out there. There's actually less competition for these sights than they were in the past.
and so we do want to be advantageous of going after those.
Speaker Change: It's hard today to say we're going to really ramp this pace up.
I would suspect that during the new fiscal year, what each that point will be more.
Speaker Change: More aggressive there, appropriately aggressive and we have what the elements work out ourselves, but as you're aware, there's pretty long lead times for these type of investments and so I don't think our pace for 2025, like we're still refining this.
I'm leading into this. It's not going to dramatically change. I think realistically the change that you would see would be what occurs in 26, 27.
Speaker Change: Yeah, there might be some capital dollars spent towards the mid-Latter part of next year, but we're kind of leaning into this or still work to do.
Kind of give you an idea of how we were thinking it might lay out.
Speaker Change: in Dallas, we didn't sit on the call but it's worth highlighting. We had two openings in the third quarter and both are going very well for us.
We opened in Central California in Tracy and August and we actually had our highest first week ever for an NRO about $240,000 that week.
and then we followed in September by an opening outside of Houston in an area called Cyprus and that opened it, say it's, I believe, still are third highest sales restaurant in Texas right now. So we've gotten some really encouraging openings here which were thrilled with, but to Brad's point, this, we're, we're fine tuning the box, we're fine tuning the economics and the goal is to take it the best return possible out of these types of investments. [inaudible] So we want to make sure that we're, we're, we're, we're.
Speaker Change: Turning Cash to shareholders as well as making good investments with our cash to to grow the business.
Hey Alex, I want to jump back to this Tom Prince up some pretty big points there. You know, we open the new unit in California.
where we have high awareness and the uniqueness of the brand here.
Speaker Change: was, I mean, we're really pleased with the vines that are coming out there. And we do look at it from a value creation perspective. So it's not going to have the same restaurant level for some of each margins, but the absolute dollars.
Speaker Change: Clearly justifies the investments there. As you mentioned, the Texas location, where we don't have the brand awareness.
Speaker Change: It opened up pretty strong and it continues to build from where it is. So...
Speaker Change: We just need to know and understand that better as I said, shape our penetration strategy. And then, always have to work on that site selection criteria because these are our big dollar bets and you need to get those right.
Speaker Change: for sure that was great yeah thank you for that.
Speaker Change: i
Thank you Alan.
Speaker Change: The next question comes from Jeffrey Bernstein with Barclays. Please go ahead.
Jeffrey Bernstein: Great, thank you very much. Brad, welcome back to the forefront of the industry and these calls. Nice to hear from you. Thank you. Welcome to BJ's Law and pay time.
Jeffrey Bernstein: Just had two questions. The first one just on, you know, following up from a cash usage perspective as you mentioned the new unit returns, haven't been consistent.
Clearly, as you've said, the margins aren't at the desired levels.
I'm just curious.
You know, you mentioned that new units are integral, it would seem like the alternative would be.
Jeffrey Bernstein: and Patensley Holtman, a unit relative and returned the cash to Sherholder's via.
Jeffrey Bernstein: Repurchase based on where the shares are trading today. That was a topic that was hotly debated at the last investor day pretty much 12 months ago.
is wondering whether that's an option that's been considered or why is it that you're very keen to build new units from here and then I had one follow up.
Sure, will you exactly write on this?
Speaker Change: Business, Generate Smith and Cash Loans. So we have a lot of opportunities to invest that. I think right now with...
Speaker Change: the line of sight that we have and wanting to make you quality decisions.
On these, we feel very comfortable continuing to move forward through bottles, maybe faster.
and what we anticipate prior to this.
New units, there are quality sites that we know this brand can work, but we're going to go a deliberate pace to...
We find that so we can really optimize the future opportunity there. And so it brings up the question on two points. We have this exercise cache. We will, as we started with the leadership transition, have a very defined structure.
Speaker Change: and we purchased program so it has a lot of criteria in it.
Jeffrey Bernstein: and it's not just a spot market buy but it means.
Jeffrey Bernstein: and so we execute that. We thought we had really great success in the last quarter. We will do the same again and not that we necessarily be a perfect match by quarter.
Jeffrey Bernstein: But we're going to take our RXS cache and we purchase shares with it. We think that's appropriate with where we are and just to lean in a little bit more to it. And we do need to get our 2025 financial projections done.
Jeffrey Bernstein: but it makes a lot of sense, very appropriate for this business to take on a little bit of debt. I mean, we are largely equity-financed.
and so that makes a very high bar in terms of our capital, cost of capital requirements. So we have work to do there. We will continue to be very cautious and conservative, so don't walk away thinking about load the business up with debt.
But when you look at what we have, we have very, very low levels of debt and I think from...
Jeffrey Bernstein: and Investment Perspective both us as management in terms of running the business but also expectations from shareholders to enhance their returns. There should be a little bit more leverage.
Jeffrey Bernstein: and using that leverage to buy back shares or invest in quality opportunities.
My follow up question was just on more on the comps of things which you said is obviously such a key component.
I think you mentioned, you know, of the total copper 17.
Thomas Houdek, I think you mentioned it was 1.3% traffic so I was hoping to just get the other components. I'm assuming there's a healthy price and presumably...
Well, curious to get the components, but specific to the pricing side of things. Swingering what your outlook is going into 25, whether you have confidence in the pricing power.
Again, it seems to give a very strong brand appeal and somewhat say perhaps you're underpriced and that would obviously help from a margin perspective. So again, just trying to figure out what the pricing was and the third quarter kind of they outlook and how you view the pricing power going into next year from a brand perspective.
Jeffrey Bernstein: Tour!
Speaker Change: So yeah, if the components go, you have the components right. So sales up 1, 7, traffic up 1, 3. So check it at about 50 bits. Pricing, we carried in the low 3% in Q3.
and we just took 90 basis points at the end of September, which rolled over 180 basis points last year. So we're carrying now in the mid-2% pricing. So in terms of us versus the competition, this gets into wanting to drive value in the business. So, as you know, your part of your question was around pricing power.
We want to grow traffic, but we also know that that creates and dry powder that we can be selective where we want to take some extra price because we've taken less price than a lot of our competitions this year.
Some of the mix, you know, the delta between pricing and check, we, you know, there's obviously promotions that we're running, but also off premise continues to be a drag on checks, so we're seeing some lower checks coming from the off premise business, less so on premise.
Jeffrey Bernstein: We still do also have our late night business which is outperforming in terms of traffic. So when we see some extra late night checks, they come in some lower-dollar amounts of that, that weighs on the total blend on on check as well.
Speaker Change: understood and then just to clarify the...
In this CEO departure and Brad holding the interim role, I'm just wondering what the thought process is, whether there's...
Speaker Change: and to view them going on internally and externally or whether there's other changes likely or how you view the Mandarin team today. You know, what we should think of in terms of potentially permanent CEO position. Thank you.
Yeah, that's a good question, very pertinent. I would just step back a little bit further and say, you know, the Board's kind of in reconstituted this year. They've been willing to take the bold and necessary steps.
Speaker Change: to move this business forward and you know feel comfortable with the path that we're on. I'm here really because of you know kind of public company experience.
Jeffrey Bernstein: and bringing that to this business and help with a transition here.
are grateful to have, while joined the organization brings a tremendous amount of depth and talent into the whole.
Jeffrey Bernstein: Thank you.
Speaker Change: Thanks Jeff. The next question comes from Brian Mullin with Piper Sandler. Please go ahead.
Thank you question on many civil education, you know, your reference is as an opportunity a little bit in the prepare remarks. I think the company has gone through a somewhat recent round of civil education already.
Speaker Change: So maybe could you just give an assessment, you know, as a fair, maybe the company didn't go, are not finished previous efforts, and if that's right, you have a sense of what the hesitancy was or maybe you said another way why it's clear to you today that they're still more to do. So any color on that would be great.
Yes, sure. I think when I thought about removing complexity and simplification, I kind of see it in.
Two truncices of work. One work is the kind of short-term opportunities driven by the feedback from the team members.
Speaker Change: and for working shifts in all that and that's less about kind of menus, structure and architecture and that's
Jeffrey Bernstein: and the other kind of opportunities that can make things easier day to day. So, examples of things like that are...
Jeffrey Bernstein: You may or may not know it but we have three different ways to scoop ice cream on to a Suzuki. It might be better off with one way doing that. We may have an opportunity to simplify the way we garnish and build our drinks. There's a lot of little things in terms of when you're...
You know, shoulders shoulder with a team member, how they ring in items. There's a lot of little bits like that. I think when you take a step back, the larger side of simplification and complexity goes to the menu.
Jeffrey Bernstein: What I don't have for you today is I think we can cut the menu by X amount, the approach.
Jeffrey Bernstein: that generally I like to take to menu as around menu architecture. So what we'll be looking to do is essentially map each of our sections. Make sure we understand the roles of each of the items in each of our sections.
Understand what's the traffic driver, what's a check builder, where we might be under index or over index.
Jeffrey Bernstein: and that will identify for us where we have opportunities for simplification and also frankly some opportunities where we need to have new products and innovation drive interest with guests. But on balance, I believe going forward.
In total, the menu will become a bit simpler. But why don't have it for you yet today is we're going to take a disciplined and strategic approach to the menu architecture, which is going to guide those decisions.
Speaker Change: Okay, thank you for all that. And then can you just comment on where BJ says with brand awareness, given your previous experience in backgrounds, maybe any insights or thoughts?
How you feel about a CREEM brand where the BJS YP
Speaker Change: Yeah, I mean on balance when you look at unated awareness, you know, we trail the big competition in our category and then if you kind of peel that apart in terms of unated brand awareness by geography for us, we have about half of the awareness that we have in California outside of California.
Jeffrey Bernstein: and the other one.
Jeffrey Bernstein: It's why I mentioned earlier and I do think it's an opportunity and it's why I kind of reference it a little bit earlier with the Suzuki Neildio and Brad did too with significantly lower media spend and share of voice than the competition right? We grew traffic and gain share.
For me, this gives me great confidence in both the consumers affinity for our brand, when we are kind of top of mind and salient. And it underscores the kind of opportunity and headroom that remains with respect to awareness. And I would kind of double click on that for you when you look at our media markets, all markets outperformed.
Our media markets outperform non-medium markets, and then when you double click into our non-California media markets.
Jeffrey Bernstein: Those media markets in terms of a jump out for form California. And so just showing how that gap of awareness and saliency.
Jeffrey Bernstein: you know still has had room.
Jeffrey Bernstein: The only thing I'd add, which is less about media, but I think interesting is when you look at our traffic gains that we've seen P9 and now going to the beginning of Q4, those are not just weekday. They go into the weekend. So when I talk about being salient,
Jeffrey Bernstein: The even though the marketing is against the Suzuki Meal Deal, when we're top of mind for consumers, they're picking us for the meal deal, but they're picking us on the weekend when the mail deal is not available. So that again kind of points to awareness and saliency because we're seeing those gains go across the weekend then the weekend.
Speaker Change: So to me, I just jump in and say those are important learnings for us as we move forward. Things we've learned that we can leverage. It's a little bit of competitive insight, so please don't share that in your report for the others to read.
Okay thank you for the introduction.
Speaker Change: Thank you. Alright, thanks Brian. Question comes from mixed opinions with what Bush Securities please go ahead.
Speaker Change: Thank you. It sounds like the promotional calendar is still in flux, but at the same time near term you kind of have settled down.
You know, a few promotions while you're happy to let a few others go. You know, so I actually think about the promotional sort of cadence going forward.
Are we going to have a limit time offers? Are we going to have sort of rotating offers? Is the Puzuki Mio feel here to stay? I guess, you know, to what extent is the muscle cadence going forward in flux and to what extent are you now happy?
Jeffrey Bernstein: with the current slate of promotions. And the harder the question is, you know, what extent can we expect, can you to compvewalt a little bit going forward?
Speaker Change: Look, being that we're still in kind of this discovery and learning phase, I'll have more specifics for you, probably next time that we talk. We are encouraged by the Zooke Mieldeal. We are going to continue to leverage that through Q4.
Jeffrey Bernstein: and we think there's more headroom on that program. Is it here to say forever or not? I don't have that answer for you at this very moment.
Speaker Change: I can tell you broadly I like the idea of building a value platform.
for a brand like ours with the frequency and cycle we have.
versus cyclical LTOs, but for me right now as I learn.
Jeffrey Bernstein: Everything is on the table with respect to what's going to drive our business most effectively on the top line and the bottom line, but gives you a little bit of how I think about it and I think as I mentioned in my prepare comments, I do believe there is some...
where you want to call it simplification or cleaning out of some of the tertiary programs that will allow us to lean into the ones that we know that work.
Speaker Change: Yeah, I wouldn't want you to walk away thinking that what we've learned from the Zooking Mill deal is that we're not going to tilt heavily to promotion, promote activity in different offers.
Speaker Change: That's not what we're thinking. But we do think it's very appropriate that the learnings, but also how do you pulse those learnings during?
Speaker Change: You know, the shoulder periods during the year or when you have some really new news, you want to share things like that. I think our sweet spot really...
Speaker Change: is remaining everyday approachable from a price point perspective, but also from the occasion perspective that Lyle kind of outlined earlier. That's where I see us really winning with this brand and how it's positioned with the consumer.
Speaker Change: And obviously the near term focus has been on Suzuki and there's a lot of brand equity there. You know what other aspects of the menu going forward? Do you expect to focus a little bit more on?
Speaker Change: Yeah, I mean that is, I would go back to my menu architecture question, you know, we're in the process of
Doing the strategy work and doing them and you architecture work, but you know to your point I will tell you that
When I talked earlier about where we're going to drive authority and competitive advantage.
Speaker Change: Pazuki is a very strong one, but we need more than Pazuki is our areas of authority that we are driving. And so more to come on that probably when we talk next time, because I don't want to get ahead of what the data is telling us.
Speaker Change: Thank you.
Speaker Change: Thank you. The next question comes from Sharon Zaxia with William Blair. Please go ahead.
Sharon Zaxia: Hi, thanks for taking the question. I just wanted to follow up the main architecture question.
Sharon Zaxia: on the heritage of the company which was beer and pizza and it feels like it straight away from that over the years. Is that any kind of heritage that it makes sense for you to try to reclaim?
Speaker Change: I hate to give unsatisfactory answers given that we're in the discovery mode in doing the strategy and the architecture work. Look, what I will tell you is that I think that...
Sharon Zaxia: Brands, deriving their authority from their authenticity.
and what is cord of their essence is...
Speaker Change: Absolutely important and usually when you go through the work that we're going through.
Speaker Change: You kind of go back to the beginning to understand where the real power alleys were and what was driving the brand.
Speaker Change: and those often are very telling about where you go in the future because often when brands have trouble, they've straight away from those things.
Speaker Change: or stop delivering them in his relevant way as possible. And so...
Speaker Change: You know, our journey will go back there to discover how we go forward. So, could that be part of it? Absolutely, but again, without doing the work and the data, I'm not an physician to commit on those platforms today, but again, hope to talk more specifically about that next time we talk.
Speaker Change: I would just add on both while and I've been through a number of these type situations around the menu and it is so important to get it right. But it's also so important that you...
Speaker Change: and the other one is the same.
Speaker Change: Not personal preferences. I mean, I'm not targeted consumer that we're after with BJ, so why may have strong opinions? I do think we have to do the work with the consumers to really understand what the brand stands for, what can we deliver on that and how much modification does it take?
Speaker Change: So it does take more research time than any of us would like. It takes time to test it or develop it and get it into tests. But we do see the menu as a real opportunity for the longer term success of this business.
Speaker Change: Can I have a question here, you're going through the fall follow-up as well, about the strength. Are there any kind of meaningful recalibration of closure or anything that we should think of within the DJ's network that may be coming?
Speaker Change: Yeah, I think if you're talking restaurant closures, I mean we've done some deep guys on that, I'm happy to say that we have
Speaker Change: Virtually no restaurants that aren't cash flow positive for us.
Speaker Change: That doesn't mean we still need to evaluate our portfolio and those laggards. We need to study them and see what can we do to improve their performance and once that assessment's done, if we need to close.
Speaker Change: A couple, we're not afraid to do that, but there's no compelling urgency from the data we have so far that says we need to be doing that.
Speaker Change: That's great, thank you.
Speaker Change: Thanks for watching
Speaker Change: Thank you. The next question comes from John Tower with City. Please go ahead.
Speaker Change: Hey, thanks for taking the question. It's actually, um, Karen Holt, I was on for John.
Speaker Change: Sorry to maybe kind of be the dead horse here, but asking about many simplification again.
Karen Holt: You know, is part one of them you're considering if you get to, you know, a smaller menu are you thinking about how that could relate to kitchen size and you know, is maybe a smaller unit foot print part of the plan going forward.
Karen Holt: Error is not a horrible print, yet harder to plan going forward.
Speaker Change: Sorry.
Speaker Change: As you go forward, absolutely it could have an impact on how we build the boxes and how we go to market from an NRO point of view. It has obviously those kind of cascading effects.
Speaker Change: So, so sure, I mean, in my previous life, I was a big believer in, you know, right-cost, right-size, right-place and we did a fair bit of not only menu architecture work, but then format work.
Speaker Change: and so what I see some format work in our future to allow us to do that, yes and is one of the enablers of that potentially menu, yes.
Speaker Change: I don't know if that's satisfactory but hopefully it gives you a little bit. I'm a little bit into an uncounted agitated to the group but we have 200 plus restaurants and so we have a box today that we have to make it work and what we're doing today.
Speaker Change: But I think it really does raise the question of, do we need to have the exact same menu across the company, across the country?
Speaker Change: and so might there done roadbeats some visualization of some pieces or parts of that?
Speaker Change: I don't know, but we're asking those questions and studying it as it makes sense. We'll definitely test it. We don't know that, but I mentioned this just to show the expansiveness of how we're looking at the business and the opportunities we move forward.
Speaker Change: and then just to the super quick modeling ones, if you have marketing, spend in the quarter, at hand, that would be great.
Speaker Change: and then just making sure I'm getting to the right adjusted EPS number. If you start with a 13 cent loss and take out a 22 cent benefit you're excluding, is that a 15 cent loss or does it round to a 14 cent loss?
Speaker Change: First, the marketing spending Q3 was about 1.9% of sales.
Speaker Change: for the rounding. Let me get back to you on that one. I don't have the pieces by a adjustment there.
Speaker Change: Okay, and that's it for me.
Speaker Change: Thanks Karen, thank you.
Speaker Change: Thank you, the next question comes from Todd Brooks with the benchmark company. Please go ahead.
Todd Brooks: Hey, thanks for squeezing me in. First of all welcome aboard the Brad and Lyle.
Todd Brooks: Thank you. I understand this concept of a kind of a discovery mode.
Todd Brooks: That process of more clarity around the brand.
Todd Brooks: I'm a street in idea of kind of a continuum here
Todd Brooks: Good.
Todd Brooks: I think it's a driving awareness so we need to do the work around the brand what we stand for, how we're going to message
Speaker Change: Then he's your looking for driving awareness. Are there thoughts on the retargeting at...
Speaker Change: A national level trying to drive awareness anywhere, is an in specific geographic markets where you get more bang for the buck And I know you probably don't want to hamstring yourself with kind of a timeframe to get here, but are we talking about
Speaker Change: 4-quarter type of process, or just trying to get my mind around how long it takes to complete this journey.
Speaker Change: So, I guess on your first question, you know, the awareness opportunity for us exists everywhere. The ultimately the channels and the tactics that we use.
Speaker Change: So it's not going to be just like a pure national push. Like that's not what our footprint is and it wouldn't be as efficient as we need to be, right?
Speaker Change: from like a media mix modeling point of view. We have opportunities in markets where we have more density of restaurants.
Speaker Change: to invest in broader channels of media, but across the footprint we have awareness opportunities. And so it's really about using the right channels and the right markets to start to close that gap. And then to also, I'm a big believer in kind of...
Speaker Change: Test Learn Scale, so we will probably be looking to do some pressure tests in some opportunity markets. And if we're seeing the right return on that test, we may invest there to accelerate.
Speaker Change: to accelerate some of that growth in awareness gap movement. Some of those types of tests and pressure tests.
Speaker Change: You know, can easily start to take place in the next couple of quarters.
Speaker Change: and then I think as you look at the strategy work and how that starts to impact and roll things out. The strategy work will be happening over the course of the fourth quarter and the first quarter.
Speaker Change: and then we'll start to really impact what we're doing.
Speaker Change: on the structural things that take longer time, probably more in second half. But there's...
Speaker Change: You kind of have rolling opportunities when you think about awareness and media opportunities you can maybe start to work on and impact earlier where more structural menu opportunities are going to follow on and take a little time. So you start to layer on these activities which hopefully build upon each other over time.
Speaker Change: A follow up in a separate question. Follow quickly. If you look at the 1.9% of sales spent on marketing and looking at your experiences with other brands.
Speaker Change: Does that feel like the right level of spend for a chain beager size and to do the work that you need to do you expect to have to put more investment behind working in spend eventually?
Speaker Change: You know, each brand varies how they go to markets. So I don't think you're going to see it go really high, like some of the big national brands that are heavy media marketing all the time. I do think, you know, particularly what we've learned now, some pulsing of national media clearly makes sense.
Speaker Change: So I always hit this point where still sorting through that so it wouldn't be hard to guide you on that. But we're learning enough about more capabilities than we thought we may have had just a short while ago.
Speaker Change: Thanks very much for the final one, Tom.
Speaker Change: It was looking out to Q4.
Speaker Change: and thank you about the components of average check if Suzuki has sun sets.
Speaker Change: and October and you talked about the better kind of economics and proper structure around the looking meal deal. That mixed track that we saw in Q3 is that expected to moderate and you get out to Q4 and we're thinking about same store sales.
Speaker Change: i
Speaker Change: We've even seen that drag moderate as we've worked through Q3. So to answer your question, yes. Even with we also mentioned our loyalty expansion push, that was most impactful earlier in Q2. So the impact to check.
Speaker Change: The Impact lesson is we work through a Q3 and right when we launched the Zuki Pass, that was the biggest impact to check and that moderators we work through a Q3. So we've seen that that
Speaker Change: The mixed shift impact lesson is we work through Q3 and as we started Q4 here. So you're right that is part of the guidance and informed by the more recent trends.
Speaker Change: Oh, if you step down on pricing into the mid-tos, where would you expect average check to come out with the moderation and the next-hand one for the quarter?
Speaker Change: Some were in the 1% area.
Speaker Change: Maybe a little less, but yeah, somewhere in that 1% area is, you know, a good estimate.
Speaker Change: So that's where our average check is going to come out in 1%
Speaker Change: You think that's what mixes going to all be down 1% I'm sorry I'm confused.
Speaker Change: Fierre.
Speaker Change: So, for the question of where do we expect check to be in the fourth quarter? We're expecting check to be in the one percent area, if not. It's potentially a little bit lower, but I think that's as clear as the crystal ball is right now. I think check around one percent is a good estimate.
Speaker Change: Okay, great, thank you all.
Speaker Change: Thanks Thomas.
Speaker Change: Thank you. This ends our question and answer session and the conference has now concluded. Thank you for your participation. You may now disconnect your lines.
Speaker Change: Thanks everybody. Thank you.
Speaker Change: [inaudible]
Speaker Change: The End