BJ's Restaurants, Inc. (BJRI) Q3 2012 Earnings Report, Transcript and Summary

Gerald W. Deitchle - Chairman, Chief Executive Officer, President and Member of Special Committee Dianne Scott - Director of Corporate Relations Gregory S. Lynds - Chief Development Officer and Executive Vice President Wayne L. Jones - Chief Restaurant Operations Officer and Executive Vice President Gregory S. Levin - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Secretary

Matthew J. DiFrisco - Lazard Capital Markets LLC, Research Division David Dorfman - Morgan Stanley, Research Division Conrad Lyon - B. Riley & Co., LLC, Research Division Will Slabaugh - Stephens Inc., Research Division Jeffrey Andrew Bernstein - Barclays Capital, Research Division Jeffrey D. Farmer - Wells Fargo Securities, LLC, Research Division John Dravenstott - KeyBanc Capital Markets Inc., Research Division David E. Tarantino - Robert W. Baird & Co. Incorporated, Research Division Sharon Zackfia - William Blair & Company L.L.C., Research Division Nick Setyan - Wedbush Securities Inc., Research Division Joshua C. Long - Piper Jaffray Companies, Research Division Paul Westra - Cowen and Company, LLC, Research Division Robert M. Derrington - Northcoast Research

Ladies and gentlemen, thank you for standing by, and welcome to the BJ's Restaurants, Inc. Third Quarter 2012 Results Conference Call. [Operator Instructions] This conference is being recorded today, Thursday, October 25, 2012. And I would now like to turn the conference over to Jerry Deitchle, President and CEO. Please go ahead, sir.

Thank you, operator, and hello, everybody. I'm Jerry Deitchle with BJ's Restaurants, and welcome to our Third Quarter 2012 Investor Conference Call, which we are also broadcasting live on the Internet. After the market closed today, we released our financial results for our third quarter of fiscal 2012 that ended on Tuesday, October 2, 2012. And as always, you can also view the full text of our earnings release on our website at www.bjsrestaurants.com. Joining me on our call today, in the order of their prepared remarks, are Greg Lynds, our Executive VP and Chief Development Officer; Wayne Jones, our Executive VP and Chief Restaurant Operations Officer; and Greg Levin, our Executive VP and Chief Financial Officer. We do have a lot to cover today, and our prepared remarks are probably going to run a little longer than usual today, so we'll get started right away after Dianne Scott, our Director of Corporate Relations, provides our standard cautionary disclosure with respect to forward-looking statements. Dianne, go ahead, please.

Thank you, Jerry. Our comments on the conference call today will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the company to be materially different from any future results, performance or achievements expressed or implied by forward-looking statements. Investors or cautioned that forward-looking statements are not guarantees of future performance and that undue reliance should not be put placed on such statements. Our forward-looking statements speak only as of today's date, October 25, 2012. We undertake no obligation to publicly update or revise any forward-looking statements or to make any other forward-looking statements whether as a result of new information, future events or otherwise, unless required to do so by the securities laws. Investors are to refer to the full discussion of risks and uncertainties associated with forward-looking statements contained in the company's filings with the Securities and Exchange Commission.

Thanks, Dianne. As we noted in our press release today, despite the very challenging headwinds that most casual dining restaurants were up against this summer, BJ's delivered another quarter of solid double-digit growth in total revenues, thanks in large part to the continuing successful execution of our new restaurant expansion program. Additionally, we also delivered our 11th consecutive quarter of growth in comparable restaurant sales, successfully hurdling the headwinds and also, successfully hurdling a very tough comparison for the same quarter last year. When we also consider the relatively small size of our operational footprint and our limited advertising power when compared to our larger mass-market chain competitors, we believe that BJ's top line performance for the quarter was well earned and from a comparable sales perspective, should, once again, be above the average performance for the casual dining segment on that metric for the third quarter. The headwinds that I am referring to are probably well known by most, but I think they are worth repeating on our call today because, taken as a whole, they were clearly not helpful in generating additional guest traffic in many casual dining restaurants in general this summer and at our restaurants in particular. High television viewership levels for the summer Olympics and the national political conventions, higher gasoline prices, particularly here in California, the impact of Hurricane Isaac, the record-hot summer, lower movie theater admissions this summer that may have impacted nearby restaurants, increased levels of advertising and lower price point promotional activity by the larger mass-market casual dining chains, increased competitive intrusions in the restaurant trade areas and most importantly, generally choppy levels of discretionary consumer spending on restaurant occasions in general, were, in our view, the key factors that impacted traffic levels at our restaurants during the quarter just ended. So far, this October, again, high TV viewership of the national political debates and the unexpected and unusual surge in California gasoline prices at the beginning of October, which, thankfully, are now beginning to abate, those have not been helpful factors either. But in spite of those factors, our comparable sales comparisons to date in October have actually picked up a little bit, which is a positive leading indicator. But having said that, we're still in a tough operating environment in general. We do remain optimistic that our sales have an opportunity to continue strengthening as we move closer to the holiday season, based on the positive holiday sales forecast by the National Retail Federation, the potential of our planned upcoming promotional events during the holiday seasons and importantly, our recently updated large party and catering program. If you recall my comments from our conference call last quarter, our new catering and large premise program, off-premise -- I'm sorry, large party program includes expanded offerings or repackaging of some of our most popular items, and we've simplified the entire process for our guests. So we are locked and loaded for sales building this coming holiday season. Turning to our bottom line performance for the quarter. Although we achieved positive comparisons in net income and diluted net income per share compared to the same quarter last year, our total revenues for the third quarter, even though they were up a strong 16% compared to the same quarter last year, were slightly less than we had internally anticipated, principally due to the headwinds I just noted. We're not alone on that factor in the casual dining space, as many restaurant analysts and investors know. But that also means that the related flow-through benefit to our bottom line for the third quarter was also a little less than we internally anticipated. Additionally, on top of that, we incurred onetime costs and expenses during the third quarter that were associated with the rollout of 3 very important longer-term sales building initiatives that also distorts some of the line item comparisons on our third quarter's income statement. The good news is those initiatives have now been fully launched, they're beginning to gain some solid traction and the upcoming fourth quarter has good potential to return to a more normalized cost structure and operating leverage characteristic. Also, our average weekly sales for the fourth quarter tend to be seasonally higher than the third quarter, thus providing for a more favorable operating leverage opportunity. After Greg Levin, our CFO, analyzes all of this quarter's pushes and pulls for you later in the call today, I believe that you will share our view that both the BJ's Restaurants concept and company continued to form -- to perform quite well in a very tough operating environment, that we are doing a solid job of controlling everything that we can control, that we are not going to sacrifice making the necessary longer-term investments in the core of the BJ's concept just for the sake of maximizing short-term performance, that BJ's continues to be very well positioned to benefit from any improvement in the operating environment for casual dining restaurant traffic and most importantly, the visibility of our new restaurant development pipeline remains in excellent shape as we enter 2013 and extend our pipeline into 2014. As I previously noted, our total revenues for the third quarter were up a solid 16% to $175.2 million. We have 2 primary revenue growth drivers here at BJ's. First and foremost, our most significant revenue driver is and will continue to be the continued successful execution of our new restaurant expansion program, which contributed 87% of our total revenue growth for the third quarter. The continued execution of our new restaurant expansion program at the right pace and with solid quality, predictability and leverage, drove an approximate 14% increase in our productive capacity during the quarter that we measure in terms of total restaurant operating weeks. We opened 4 new restaurants during the third quarter just ended, and we plan to open 5 more during upcoming fourth quarter, of which 2 have already opened. This is a solid testament to the strength and depth of our new restaurant development and opening teams. Additionally, our average sales per restaurant operating week also increased close to 2% during the third quarter and reflects the solid weekly sales volumes from the 22 new restaurants that were not yet in our comparable restaurant base at the end of the third quarter, coupled with increased sales on our base of 103 comparable restaurants. Once again, our new restaurant expansion program continues to be high-quality expansion, not just growth for the sake of growth. Our other revenue growth driver is comparable restaurant sales, which contributed the remaining 13% of our revenue growth for the quarter. Our comparable restaurant sales were up a very respectable 2.3% for the quarter, successfully hurdling a very tough comparison of 6.5% for the same quarter last year and successfully overcame the pressures of all of the headwinds that I mentioned earlier. As we look ahead to our key top line revenue drivers for the fourth quarter of 2012 and for the full year 2013, our most important revenue driver, our new restaurant expansion program, remains in solid shape. We've opened 13 new restaurants so far this year, including 2 already opened during the fourth quarter, and we're solidly on track to open as many as 3 more restaurants before Thanksgiving. As a result, we will fully achieve our previously stated double-digit capacity growth rate this year in terms of total restaurant operating weeks. During 2013, we currently plan to open as many as 17 new restaurants, and by doing so, we'll maintain our double-digit annual capacity growth rate next year. During the past 8 years, we have always delivered on our stated capacity growth goal, and we expect to continue doing exactly that going forward. And Greg Lynds, our Chief Development Officer, will comment on that later on the call today. In our past couple of quarterly conference calls, we outlined some of our planned key sales building initiatives for 2012. All of these initiatives have now been successfully launched, and I want to take a few minutes and briefly update you on a few of them. First, we decided to accelerate our regularly scheduled fall menu update, which usually occurs in late October or early November each year; we decided to accelerate it to late September this year. Now this did result in a shift of the timing of related menu update costs into the third quarter just ended, so we're obviously going to have a favorable comparison on that particular item in the upcoming fourth quarter. After working extensively on certain improvements and new products for our signature pizza product line during the past several months, we wanted to introduce them company-wide as soon as we were ready to do so. Well, we were ready a little earlier than originally expected, so we executed accordingly because speed is one of our competitive advantages as a smaller restaurant company. BJ's has always been a leader in casual dining with respect to high-quality differentiated pizza offerings, and we're not going to cede our leadership position to any competitor, not now, not ever. We have over 30 years of experience in executing high-quality differentiated deep dish pizza, and we've successfully leveraged our pizza experience and know-how first to our flat breads and now to our new hand-tossed pizza line. We now cover all of the bases on pizza from a consumer preference standpoint. And as we noted in our press release, we're already enjoying a 6% lift in total pizza purchase incident rates since our menu update in late September. And as I think most of our investors know, pizza has a slightly higher gross profit margin for us, so the more we sell, the better impact we earn on our total gross profit margin going forward. We also completed a Beer Master education program for all of our servers and bartenders during the third quarter. As a complement to our pizza product update, we also wanted to reeducate our sales force on craft beer styles, flavor profiles and menu pairings so that we can sell more craft beer. And as we've mentioned in our press release today, we're already enjoying a 4% lift in our beer guest purchase incident rate since completion of that program compared to the same period last year, which should also provide a favorable gross margin impact going forward. Our late September menu update also included about a 1% menu price increase, and we also rolled out a new better engineered menu format in late September, that, in tests, also generated an estimated favorable mix shift impact on our average guest check of about an additional 1% or so. Depending on our final assessment of expected commodity and other input cost increases for next year, which we'll complete during the next 30 days or so, we may take some additional menu pricing earlier than usual next year. We have not yet determined what additional menu pricing we'll be taking next year, although we do have a built-in 2.5% factor that carries over to next year from our price increases that we've taken in 2012. Since we realized there could be no guarantee that menu price increases will be ultimately accepted by our guest, we will continue to consider them very carefully. We're also going to the focus next year on a little more robust menu mix management, and our marketing and merchandising executions is another potential offset to input cost inflation that we expect for next year. Next, we ran a second test of television advertising during the third quarter in 2 more markets: in Reno, Nevada, where we only have 2 restaurants; and in San Antonio, Texas, where we have 4 restaurants. Both of these markets have relatively low awareness levels for the BJ's concept in general, so we wanted to find out if television advertising could move that awareness needle and move the sales needle on a sustained basis. As we mentioned on the last couple of our conference calls, we do realize that we're early in the life of BJ's with the TV test and having to absorb all of the related television production and media testing costs, but we do think it's very important to begin our learning as to what benefit, if any, TV advertising can provide BJ's in terms of driving our overall brand awareness. So the good news is that similar to what we saw in our first television test in the Sacramento market during the second quarter of this year, we, once again, saw favorable results in both Reno and San Antonio, with sales increases in the mid- to high-single digits compared to our control group of restaurants. Now we're still measuring the tail effect of the ads now that we're off the air, but early results suggest that these markets appear to be sustaining a good portion of the sales lift they experienced while we were on the air. It's still too early to calculate precise cause-effect relationships from these tests, but we are going to likely utilize television advertising next year on a selective basis from time to time in a few more markets. However, we're not planning to devote a significant portion of our relatively small marketing budget to television advertising in the near future. BJ's current geographical footprint is not yet a media-efficient system from a television perspective, but we do have a handful of markets that are more media-efficient than others. This will be one of our key sales building initiatives for next year. We also rolled out our premier rewards loyalty program during the third quarter. We're pleased to report that our guest participation levels in that program are nicely ramping up. We're approaching 300,000 participants now, and we expect to see a continuing gradual ramp-up of participation during the next several months. As we have said before, we are probably a little early in making the upfront investment in a state-of-the-art program of this nature given the relatively small size of our company. But due to our small size, we can't effectively compete against the large, mass-market chain competitors with mass media marketing. We can't compete on that basis. But we can effectively compete with them in the one-to-one guest marketing area, and that's the primary role of the loyalty program. Now I know that our investors are very interested in the specific metrics of our loyalty program, and we prefer not to provide too many specifics because our competitors are also listening in, and they'd love to have a roadmap in considering whether to launch and design their own loyalty programs. However, we have consistently said before that, in tests, our loyalty program generated incremental guest visits and spending per visit that exceeded our break-even cost hurdle for the program, so we remain very confident that the longer-term sales building benefit of the program should more than cover its ongoing related expenses. The other potential benefit of our loyalty program, which we have not yet begun to work on quite yet, is that now we are a building a database of valuable information about our most loyal guests, their demographics, their purchase behaviors, their visit frequencies and so forth. So another one of our key sales building initiatives for next year will be to mine this database and apply our findings to our marketing and promotional programs in order to better target and then capture more guests that match the profile of our most loyal guests, and to convert more existing guests to that loyalty profile. So now I'm going to turn the call over to Greg Lynds, our Chief Development Officer, for his update on our solid new restaurant development pipeline. Greg, go ahead.

Thank you, Jerry, and good afternoon everybody. As we noted in our press release today, our new restaurant development pipeline remains in excellent shape, and we continue to be very pleased with the overall quality and quantity of the sites in our [indiscernible]. We've worked hard to better position BJ's as a higher-quality, more differentiated casual-plus dining concept, and our new restaurant designs and site selection strategy continue to strengthen this positioning. BJ's standing within the retail development community has never been stronger, and that's important to point out since competition for restaurant sites has recently increased as a result of the recent IPOs in casual dining, along with the ramped-up expansion programs of other restaurant operators and retailers. In spite of that increased activity, BJ's continues to have a solid track record of success in securing almost every quality site that we desire and pursue. Our development team has worked very effectively during 2012 to successfully achieve our previously stated expansion target: to grow our total restaurant operating weeks in the low-double digit range. By year-end, we will have successfully delivered on our stated goal to open as many as 16 new restaurants. As Jerry mentioned, we have opened 13 new restaurants to date, including the relocation of our smaller Boulder, Colorado restaurant to a larger, more productive facility. So far, we have been very pleased with the initial sales performance of the entire restaurant class of 2012. In the third quarter just ended, we opened 4 restaurants: Wichita, Kansas; Menifee, California; Boulder, Colorado; and Portland, Oregon. Already in the fourth quarter, we have opened 2 restaurants. On October 8, we opened in Lubbock, Texas, and then on October 15, in Doral, Florida. We have 3 more planned openings for the fourth quarter, and all 3 should open before the Thanksgiving holiday. As we build our new restaurant development pipeline for the next 24 months or so, our growth goals remain the same and that is to achieve a low-double digit capacity increase per year as measured by total restaurant operating weeks, in the approximate range of 11% to 12%. With that in mind, we currently are planning to open as many as 17 new restaurants in 2013, including the relocation of another one of our smaller former pizza and grill restaurants, and that one's in Eugene, Oregon. This will be similar to what we did in Boulder, Colorado. All the sites for potential 2013 openings have been identified, have been secured with either signed leases or letters of intent and have been sequenced on our planned opening calendar for the year. Of course, the number of timing and restaurant openings continue to be subject to many factors that are outside of our control, and we will continue to keep everyone updated on the quarterly call. Geographically going forward, our new restaurant development plan for 2013 calls for continued expansion within our existing 14-state footprint that allows us to continue our focus on driving leverage for the entire business. Also in 2013, we have been working to secure prime sites in the mid-Atlantic region of the country, specifically Virginia and Maryland, and we plan to enter this region and open new restaurants beginning late next year. As we enter the new markets, we'll stay with the same discipline and site selection strategy of the past; that's securing AAA quality locations with premier cotenants in more mature trade areas with proven and predictable sales levels. As I've mentioned before and on previous calls, many of the new development opportunities that we are seeing today are still within existing shopping centers that are being redeveloped at this big box -- because of the big-box vacancies and other retail and restaurant closures. Because of our ability to develop both freestanding prototypes and the inline custom restaurants, we are very well positioned to take advantage of these redevelopment opportunities that we know our team will be seeing over the next 12 to 24 months. Longer term, we continue to believe that there is room for more than 425 larger-format BJ's Restaurants domestically that have the potential to perform at the current levels of our average unit economics. At the end of this year, we'll have 130 restaurants open in 15 states. We have plenty of quality growth opportunities remaining in our core California, Texas and Florida markets, and we have now established a strong national brand presence and national footprints in California to Florida and into the Ohio valley. Having said that, our team will always choose quality over quantity, and we will continue to ensure that we execute a high-quality profitable expansion plan. Even in today's unpredictable economy, our BJ's new restaurant development pipeline remains in excellent shape, and because of our strong brand positioning, our proven and sustained top line performance and our solid relationship within the retail development committee, we are very well positioned for long-term successful new restaurant growth well into the future. Jerry, back to you.

Thanks, Greg. We continue to believe that BJ's four-wall economics are very sound and they certainly support a continued steady pace of new restaurant expansion. We're going to continue to carefully execute our national expansion program at the right pace that facilitates the achievement of 3 outcomes: quality, predictability and leverage. We also remind our investors that in contrast to many of our more mature, more fully penetrated casual dining competitors, who rely more on comp sales growth as the key driver of their annual growth in total revenues, BJ's will continue to rely more on high-quality new restaurant expansion as the key driver of our annual revenue growth going forward for the foreseeable future. Now I'm going to ask Wayne to give you a very quick update on our restaurant operations. Wayne?

Thanks, Jerry, and good afternoon, everyone. We continue to be pleased with the overall execution of our sales building initiatives by our restaurant operations team, in particular, the execution of our menu-based initiatives, which have proven to be popular with our guests. As Jerry mentioned, our teams were very busy growing out our new fall menu at the tail end of the third quarter, which was primarily focused on broadening and strengthening our pizza product line. We introduced our new hand-tossed pizza, along with an enhanced preparation and presentation of our signature deep dish pizza. Operationally, I believe that we are now executing our pizza better than ever with our new equipment and procedures. You may recall that one of our key productivity initiatives this year was to implement a new labor scheduling and productivity measurement system, which we launched late in the second quarter, that is based on the production and sales of actual item counts. In tests, this new approach helped our restaurant operators to more effectively allocate and balance labor hours between the dining room and the kitchen on each shift. We are seeing some early signs of this approach beginning to generate its intended benefit as we saw productivity improvement in our dining room labor hours over the course of third quarter without sacrificing the guest experience. In our kitchens, we incurred some startup labor inefficiencies related to our new pizza program upgrade, which was significantly more complex and had more moving parts than a typical new menu change. And we are also experiencing some increased pressure on kitchen wages, which are currently running about 4% to 5% higher compared to prior year and which are obscuring much of the net productivity benefit. Having said that, we do expect to maintain our dining productivity while gradually improving our kitchen productivity. The cost of our restaurant management labor is holding fairly steady, even with the need to carry some additional management staff in order to staff our upcoming new restaurant openings. Be assured that our restaurant operations team is working very hard to deliver even better productivity and efficiency, as we prepare for what we expect to be a very busy holiday selling season. Jerry, back to you.

Thanks, Wayne. Looking back at our third quarter, we asked our restaurant operational teams to handle a lot of pretty significant changes all at once. We asked them to digest a completely new labor scheduling system, on top of the additional but temporary labor requirements associated with our 3 key initiative rollouts, all in a sales environment that was gradually softening. So that pretty much summarizes the reasons for the labor challenges in our margins for the quarter. And as you importantly noted, Wayne, going forward in the fourth quarter, we do expect to return our labor leverage to a more normalized level, now that all of these initiatives are behind us and now that we've gotten more experience with the new labor system. And we'll also benefit from an expected seasonal increase in average sales per week in the fourth quarter, everything else being equal. Now we're going to turn the call over to Greg Levin, our CFO, for his financial commentary on the third quarter. Greg?

All right. Thanks, Jerry. I'll take a couple of minutes. I'll go through some of the highlights for the third quarter, provide some forward-looking commentary for the rest of 2012, and I'll also provide some preliminary forward-looking commentary for fiscal 2013. All such commentary is subject to the risks and uncertainties regarding forward-looking statements that are included in our SEC filings. Additionally, my commentary may also refer to certain non-GAAP financial measures that we use internally when we review our business and that we believe will help provide insights into our ongoing operations. Before I get into all the comparable restaurant sales and all the line item detail, let me provide everyone with a top-level perspective on the quarter. First of all, as Jerry mentioned, we rolled out 3 initiatives in the quarter that collectively impacted our restaurant level margins by about 40 to 50 basis points. Those initiatives, as we mentioned, are the premier rewards loyalty program, our new menu and the hourly Beer Master program. The majority of these onetime implementation costs related to the training and rollout of these initiatives, as well as some additional administrative labor to implement the loyalty program. As a result, our labor was impacted by about 30 basis points from the rollout of these initiatives. We also incurred an additional 20 basis points of additional restaurant level related expenses in the nonlabor lines, and those were associated with these program rollouts, primarily marketing materials. As such, excluding these costs, our restaurant level margins would've been approximately 18.9% for the quarter as compared to the reported number of approximately 18.4%. This 50 basis points or so difference equates to about $0.02 a share. And second of the initiatives, from a revenue perspective, we estimate that a 1% increase in comparable restaurant sales would have equated to about $1.4 million in sales during the third quarter and generally, had an estimated 50% flow-through behavior to restaurant level operating income. This equates to another 40 basis points in consolidated operating margins and $0.02 a share. Therefore, assuming our comparable restaurant sales had been 1% higher as some might have expected and had we not incurred the rollout costs for our 3 initiatives, then we believe our restaurant margins would have been approximately 19.1%, our consolidated margins would have been around 5.9% and our diluted earnings per share would've been approximately $0.28. So it's kind of a quick reconciliation for the quarter. Now with all that in mind, let's review the specific line items on our income statement for the third quarter. As Jerry mentioned, our total revenues increased approximately 16% to approximately $175.2 million from $151.4 million in the prior year's comparable quarter. This increase is a result of approximately 14% more operating weeks and an approximate 1.7% increase in our weekly sales average. As Jerry mentioned, our aggregate comparable restaurant sales increase for the third quarter was 2.3%. Each month was positive, with August as the strongest month for us, with comparable restaurant sales around 3%. As Jerry mentioned, this quarter, we faced a lot of headwinds that impacted our comparable restaurant sales. First, as we mentioned on our second quarter conference call, the July 4th holiday shifted from the second fiscal quarter last year for us to the third fiscal quarter this year. As we mentioned, this shift positively impacted Q2's comparable restaurant sales by approximately 30 basis points and have the opposite effect on Q3 sales. During the Olympic time frame, our weekend sales were impacted. In fact, we experienced negative comparable restaurant sales during the opening weekend of the Olympics when most -- when many consumers were at home watching the opening ceremonies on TV. Our sales were also impacted by the television coverage of both political conventions. During those days as well, we also experienced negative comparable restaurant sales. From the geographic standpoint in regards to comparable restaurant sales, there is no specific area that stood out. In general, we saw lower comparable restaurant sales in the majority of our areas when comparing our trends to the previous quarter. As such, on a sequential basis, comparable restaurant sales in both California and Texas, our 2 largest areas, were lower in Q3 as compared to Q2, which appears to be in line with the industry data that we've seen to date. However, while their comparable sales metric was softer in Q3 as compared to Q2, both geographic areas were solidly positive for us during the quarter. Additionally, all of our day parts and weekend and weekdays remained positive. As for my earlier comments with the impact of the Olympics and the political conventions, our comparable restaurant sales for our dinner and our weekends were slightly less than the other day parts and days of the week during the third quarter. Our 2.3% comparable sales increase for the third quarter consisted primarily of an approximate 3.4% benefit from menu pricing and then an approximate 1.1% decrease in guest traffic. Our net incident rate and mix during the quarter was basically unchanged. In our view, maintaining 99% of our guest traffic in our comparable restaurant base was a solid achievement for the third quarter in light of all the headwinds we face. So as I mentioned, our weekly sales average increased about 1.7% for the quarter compared to our comparable restaurant sales increase of 2.3%. As we have said in the past, as a relatively small restaurant company with restaurants in only 14 states, our weekly sales average performance as compared to our comparable restaurant sales metric will be a result of many factors, of which one will be the geographic mix of our newer restaurants not yet in the comparable restaurant sales base, as well as the length of time these newer restaurants have been open. As of today, we currently have 24 restaurants not on a comparable restaurant sales base of which about 2/3 are outside of California. Therefore, I would caution investors to not read too much into the initial sales volumes of many of our new restaurants or changes in our weekly sales averages as compared to our comparable restaurant sales metric since we will always have a diverse geographic mix of newer restaurants with different maturation patterns as we continue to build our national presence. In regards to the middle of our P&L, our cost of sales of 24.7% of sales was flat with last year's cost of sales and down about 20 basis points from the second quarter. In regards to cost of sales this year, we have seen our market commodity basket up in the mid-2% range, which we have been able to largely offset through pricing and some savings from our new food service distribution agreement that began this past July. Labor during the third quarter was 35% compared to 34.2% in last year's third quarter. As I mentioned, we incurred approximately $500,000 or 30 basis points of incremental labor during the third quarter related to the implementation of our loyalty program, new menu and hourly Beer Master program. The fall menu normally rolls out in late October so in essence, moved those training costs forward by one month. We believe these initiatives and investments over the long run will continue to enhance the differentiation of the BJ's content and drive incremental sales for us. The remaining 50 basis points of incremental labor is primarily in our kitchen resulting in both higher wages for kitchen talent and some deleveraging due primarily to the labor-intensiveness of some of our new menu items, as Wayne discussed. And as Wayne noted, we do expect to see some improvement in this area during the fourth quarter. Our operating occupancy cost increased by 80 basis points to 21.9% compared to last year's third quarter. Looking at our operating costs per week, they increased from approximately $21,700 per week last year to $24,000 per week this year. This is an increase of approximately 5.5%. This increase was primarily due to the higher marketing costs including approximately 20 basis points in additional costs to promote our newer premier rewards loyalty program and our new menu, as well as higher insurance costs for both property and general liability, coupled with less sales leverage. To give you some perspective on the leverage or deleverage on operating and occupancy cost in the previous quarter, in the previous quarter or the second quarter of 2012, our operating occupancy cost also averaged about $24,000 per week, which resulted in operating occupancy costs being 20.5% of sales in that quarter. However, in the second quarter of 2012, our weekly sales average was a little over $116,000 per week compared to our weekly sales average in the third quarter, which was approximately $109,000 per week. As you can see, this was a big difference in weekly sales volume due to the seasonality and is really the primary driver of leveraging operating occupancy costs. Our general and administrative expenses for the third quarter were approximately $10.4 million or 6% of sales. Included in G&A is $806,000 and $772,000 of equity compensation for both 2012 and 2011, respectively, or about 50 basis points of sales for both years. During the third quarter, we reversed approximately $1 million of incentive compensation based on our financial performance through the first 3 quarters of the year. Therefore, excluding the reversal of incentive compensation, our G&A would have been approximately $11.4 million, which is primarily in line with the prior quarters. Our depreciation expense for the third quarter increased 30 basis points to 6%. This increase was primarily due to the higher depreciation related to our initiatives and investments into our existing facilities and depreciation on our newer restaurants. Our depreciation per week averaged approximately $6,600 per week in this year's third quarter as compared to last year where our depreciation averaged approximately $6,100 per week. Restaurant opening expenses were approximately $2.4 million during the third quarter of 2012, which was primarily related to the 4 restaurants we opened up during the quarter plus some opening expenses for restaurants that just opened in early October in the fourth quarter, as well as some carryover expenses for restaurants that opened towards the end of the second quarter. On average, our preopening costs continue to be around $500,000 per restaurant. Our tax rate for the third quarter was approximately 25% as we are able to utilize additional tax credits based on the annual true up of our tax provision to our cash return. As a result, we now expect our full year tax rate for 2012 to be around 28% as compared to our original estimate in the 29% to 30% range. Before I turn the call back over to Jerry, let me spend a couple of minutes commenting on our liquidity position and also provide some forward-looking commentary for the rest of 2012 and some preliminary commentary on 2013. Once again, all of this commentary is subject to the risks and uncertainties associated with forward-looking statements as discussed in our filings with the SEC. In regards to our liquidity, we ended the quarter with a little over $49 million of cash and investments; our line of credit for $75 million does not expire until January 2017. Our total gross capital expenditures for the first 9 months of 2012 is approximately $85 million before any landlord allowances. As of today, we are targeting approximately $120 million in gross capital expenditures for 2012. We have received or expect to receive approximately $15 million in tenant improvement allowances and sales proceeds from the sale leaseback at one of our restaurants earlier this year. Thus, our net CapEx for 2012 will be around $105 million. This is up from the previous quarter as we now expect to close on the purchase of underlying land for 2 of our planned 2013 restaurant locations in this fourth quarter. As we mentioned in the past, our expansion strategy is predicated on leasing our restaurant locations. However, from time to time, we may decide to purchase the underlying land for our new restaurant if that is the only way to secure a highly desirable site. In these cases, we generally will sell the underlying land once the restaurant is open. We are also planning to begin construction earlier than anticipated for our restaurants that are expected to open in the first half of 2013, and we accelerated some of our ongoing initiatives this past year. As such, the majority of our increasing capital expenditures for this year comes from a position of strength in our real estate pipeline, allowing us to start next year's construction sooner than anticipated. Before I begin discussing our current trends for this year's fourth quarter, I do want to remind everyone that last year's fourth quarter was comprised of 14 weeks as compared to this year, which will be our standard 13-week quarter. As most of you may recall, we noted that the extra week for last year resulted in an additional $14 million in sales during the fourth quarter and contributed approximately $0.06 in diluted earnings per share. As I mentioned during our 2011 fourth quarter conference call, our operating and occupancy cost benefited the most from the extra week of sales. We had previously estimated that our occupancy and operating cost benefited by about 80 to 90 basis points due to the fixed and semi-fixed nature of these costs. As such, for those building your models on an apples-to-apples comparison, or more specifically, on a 13- to 13-week comparison, our operating and occupancy cost for the fourth quarter of 2011 for last year would have been closer to 21.2% as compared to the reported 20.3% for last year. From a revenue perspective for the fourth quarter of 2012, our comparable restaurant sales through the first 3 weeks of October are in the 2.5% range, which is slightly higher than the third quarter and slightly higher than what we are seeing in September. Much like the political conventions, we continue to see negative or softer comparable restaurant sales on the nights of the presidential and vice presidential debate, and I would expect that we will see negative comparable restaurant sales on the upcoming election night. Separate of the debate, we continue to see some choppiness in our comparable restaurant sales, which at times have made it challenging for our managers to efficiently schedule and manage the restaurant. Therefore, with only 3 weeks of sales information to date for October, it is difficult to ascertain if the current trends represent the trends we will end up seeing throughout the remainder of the year or how strong the holiday retail selling season will be. Currently, we anticipate having menu pricing of about 3% for the fourth quarter, and I would expect about 1,670 restaurant weeks for the fourth quarter. Furthermore, in regards to our weekly sales average, I would continue to expect that our weekly sales average percentage change to be slightly less than our comparable restaurant sales metric as we continue our national expansion program and open more restaurants outside of California. In regards to the cost of sales for the fourth quarter of 2012, the majority of our commodity costs are contracted at least through the end of this year. As such, I would expect cost of sales to remain in the upper 24% range, which is fairly consistent with what we have seen over the last few quarters. In regards to labor, our fourth quarter 2012 will end on Tuesday, January 4 -- January 1, 2013. Therefore, much like last year, the final payroll of the year will be paid in fiscal 2013, and this will result in high payroll taxes in the fourth quarter. This is the same issue that occurred last year, resulting in labor being about 34.9% of sale -- the sales in last year's fourth quarter despite comparable restaurant sales of 5.5% in last year's fourth quarter. As such, I would anticipate labor in the fourth quarter of 2012 to be the 35% range. Any slight increases or decreases in labor as a percent of sales will be based on the ability to gain leverage on our comparable restaurant sales, productivity initiatives, as we've discussed, and seasonality related to our weekly sales averages. I expect our operating occupancy cost as a percent of sales to be in the mid- to upper 21% range based on our planned marketing spend and our continued ramp-up of our premier rewards loyalty accrual balance. However, changes in our comparable restaurant sales may have a greater impact on our operating occupancy cost as a percent of sales because of the leverage and deleverage that comes from the fixed and semi-fixed nature of many of these costs, as I previously mentioned. Our G&A in the fourth quarter should be around $11.4 million, and that includes the equity compensation. As I've already mentioned, we currently expect restaurant opening costs to be about $500,000 per restaurant. However, we will incur preopening noncash rent as much as 5 or 6 months before a restaurant opens and therefore, preopening costs for any quarter may not be indicative of the number of restaurants that opened in that quarter. I anticipate opening costs in the $2.5 million range in the fourth quarter related to the expected 5 openings in that quarter plus preopening rent for restaurants expected to open in the first quarter of next year. We currently anticipate our income tax rate for 2012 to be around 28% and our diluted shares outstanding for the fourth quarter to be around 29 million. In regards to some preliminary information for 2013, as Jerry and Greg Lynds mentioned, we anticipate opening as many as 17 new restaurants next year, including the closing and relocating one of our older smaller format pizza and grill restaurant in Eugene, Oregon, to a new site that can accommodate a large format grill house restaurant. While all of our sites for 2013 have been identified, we are still completing our 2013 annual operating plan and have not yet precisely determined the exact timing of every restaurant opening for next year. However, as of today, and this is very preliminary, I would anticipate our opening schedule for 2013 to be very similar to 2012's opening schedule. Therefore, I would anticipate one new restaurant opening in the first quarter of next year, resulting in an expected increase in operating weeks of about 12% to 13%. I would also anticipate 5 to 6 new restaurant openings in the second quarter. However, as we've said before, the actual number and timing of new restaurant openings for any given period is subject to a number of factors outside of the company's control, including weather conditions and factors under the control of landlords, contractors and regulatory and licensing authorities. Once we complete our 2013 business plan over the next couple of months, we will be able to provide some additional guidance regarding the 2013 opening schedule. As Jerry mentioned, we will also continue investing our core business and making sure our restaurants do not lose their relevancy and appeal with the guests. Therefore, in addition to our new restaurant capital expenditure for next year, we will continue to allocate capital to remodels and productivity enhancement initiatives. Our CapEx plan for 2013 has not yet been finalized and approved by our Board of Directors. But at this time, I would anticipate our gross capital expenditures for 2013 to be in the range of $120 million before any tenant improvement allowances or proceeds from the sale of land that we anticipate purchasing in the next couple of months, as I have already mentioned. As such, we currently anticipate tenant allowance and sale leaseback proceeds to be in the $10 million to $15 million range and therefore, our net CapEx to be around $105 million to $110 million next year. As of 2012, we anticipate funding our 2012 gross capital expenditures from cash in our balance sheet, cash flow from operations and landlord allowances. Please remember, this is very preliminary and therefore, our capital expenditure plan may change. In regards to margins for 2013 and inflationary costs for next year, it is still very difficult for us to comment with a high degree of certainty, as our supply chain department is currently in the middle of negotiations for many of our key commodities for next year. Based on our latest information, and that is still very preliminary, as we are continuing to negotiate with our suppliers, we currently anticipate the cost of our agri commodity baskets to increase around 4% or so next year, which is close to the current estimates from the USDA and what we are also hearing from many other restaurant operators. We will do our best to manage through the input cost pressures using a combination of marketing and operational initiatives, coupled with prudent menu price adjustments and menu mix management. However, there can be no guarantee that we will be able to effectively do so. We will also have to watch the menu pricing actions of our competitors. While we do have some items locked for at least the first 6 months of next year, the majority of our protein contracts, including chicken, pork and our Angus ground beef expire at the end of this year. Again, our current expectation is subject to significant risks and uncertainties in the food and energy commodity markets. We'll know more specifics about our commodity cost position for 2013 during the next 45 days or so. I would anticipate menu pricing in the 2.5% range for Q1 and Q2 of 2013 at the current time. However, depending on our final assessment of expected commodity and other input cost increases for next year, this number may be greater. BJ's competitive strategy has always been focused on providing a higher-quality, more contemporary, casual-plus dining experience at about the same average guest check of many of our mass market competitors. Accordingly, to the extent that our cost for key input such as food commodities are lower than expected, we will be able to better protect our value concept positioning with consumers and thereby, keep our expected menu price increases as small as we can. In regards to labor next year, as Wayne and I have mentioned, we have seen some pressure on kitchen hours and kitchen wages. However, we do believe that as our operators continue to gain knowledge in our new kitchen systems, we should be able to improve our kitchen efficiencies next year. Separate of the benefit we will get from the new labor system, we will see increases in our workers compensation program for next year. And like the last couple of years, I do anticipate that many states will continue to increase some of their payroll taxes to help fund their state unemployment deficits. For 2013, again, based on our preliminary renewal numbers to date, I anticipate these taxes and fringe benefits pressuring labor possibly 10 to 30 basis points next year, absent any real strong growth in comparable restaurant sales. In regards to our operating cost for next year, much like labor, we are seeing some increases in our general liability and other insurance program. And I do anticipate some normal inflationary pressure for some of our other operating and occupancy costs. However, in general, a significant percentage of these costs are fixed, such as occupancy and preventive maintenance contract and therefore, our operating occupancy costs as a percent of sales will vary based on comparable restaurant sales comparisons and average weekly sales levels. While we have not finalized our 2013 G&A plan as of this date, our continued goal is to gain leverage in our G&A cost. As such, the only way we can do this is by making sure that our G&A costs do not increase at a rate greater than our top line growth. Therefore, our G&A costs for 2013 should grow at a rate less than our expected growth rate in total revenues, which will consist of an expected 12% increase in total restaurant operating weeks plus increased comparable restaurant sales. Our expected income tax rate for 2012 should be in the 28% range, and we continue to expect that diluted shares outstanding for 2012 will likely be in the mid- to upper 29 million range. Finally, for those of you building your models, as we said earlier, I would err on the side of conservatism and build your models based more on our menu pricing and growth and operating weeks. Therefore, in building your models, as we already laid out, we expect our operating weeks to grow around 12%, and we expect our menu pricing to be somewhere in the 2% to 3% range for fiscal 2013. We do expect to continually leverage our G&A cost to gradually improve our operating margins over the long term. Therefore, when you put it all together, and assuming no material change in the current operating environment as it impacts consumer confidence and consumer discretionary spending, we continue to believe we have a good opportunity to drive revenue growth in the mid-teen range and achieve some additional operating leverage to help drive our overall earnings growth next year. Again, the forward-looking perspective that I provided today for 2013 is preliminary and is subject to change. Our final operating plans for 2013 will be formally considered by our Board of Directors before the end of this year, and we'll be in a better position to share some additional details of that approved plan with investors in January. Jerry? Back to you.

Thanks, Greg. As usual, very thorough overview, thanks for that. So to summarize our prepared comments, which I indicated were going to run a little longer today because we have a lot to cover, despite the tough operating environment this summer, BJ's delivered another quarter of increased revenues and earnings, and we're off to a decent start here in the fourth quarter despite the pressures of the operating environment. Most importantly, we're wrapping up another year of profitable new restaurant expansion for BJ's. We believe the best years of growth are still well ahead of us here at BJ's. We've only got 127 restaurants opened in 14 states now. We're just starting the third inning of the BJ's ball game. And please, let me repeat what I said earlier today. In our view, both the BJ's concept and company continue to perform well in a tough operating environment; that we're doing a pretty good job of controlling everything that we can control; that we're not going to sacrifice making necessary longer-term investments in the core of the BJ's concept just for the sake of maximizing short-term performance; that BJ's continues to be very well positioned to benefit from any improvement in the macroeconomic and operating environment for casual dining operators; and most importantly, that the visibility of our new restaurant development pipeline, which is our primary engine for future growth, remains very solid. So now, that concludes our prepared remarks, and we'll stay on as long as we need to today to answer every question. So operator, let's start the questioning.

[Operator Instructions] And our first question comes from the line of Matthew DiFrisco from Lazard Capital Markets.

I just had a question with respect to the openings. And I'm just curious as far as -- it sounds like, is it taking a little longer to get them opened in this environment? I guess, it seems to be a common theme. So is there any incremental cost or lead time associated with that or investment in order to, I guess, execute on getting the stores opened on time?

This is Jerry. Let me give you a quick answer, and then I'd like to turn over to Greg Lynds, who runs that program for us. But I think we've been saying in general, that due to the the reductions in the municipality staff, it certainly takes a lot longer these days to get through the various design and planning commissions to get your permits to get your inspections. And I think that's pretty true across the board. So what that requires us to do on our end is to be further out in front of the whole restaurant development process, and as we put together our schedules to add a little more time in before we commit to a certain level of operating week growth to give us a cushion in the event that we run into some of those issues. Some markets are a little bit tougher than others. For example, we're opening in South Florida, we have a couple of restaurants, one that we just opened and other one that's getting ready to open. And now that particular area is a very tough area to get your permits, to get your sign-offs, to get all your connections. That's a new area for us. So we're learning a little bit as we enter into some of the new markets. Would you like to comment further on that, Greg?

No. I mean, you covered a lot of it, Jerry. In 2012, a lot of what's happening is exactly what you said. The planned development process took a lot longer. The inspection process took a lot longer, mainly because the municipalities weren't staffed up. In terms of our -- the cost basis there, the cost of BJ's was -- in our average growth CapEx was just about what we planned. We did have some additional preterm rent in terms of costs but really, the GC had to pretty much eat that cost if they were on site other 2 or 3 weeks. We put the [indiscernible] on them for that. So I think the overall construction costs were about what we planned, but the planned development and permitting time definitely was stretched out.

And Matt, just to follow-up on Greg's comment, we factor all of these particular contingencies into our operating week growth estimate for the year. So this year for 2012, we will hit our 12% operating week growth rate. And if we commit to a similar growth rate next year then, based on what we know today, everything else being equal -- but again, we've provided for certain cushions in that, we would expect to also hit whatever we say we're going to hit.

Excellent. I guess just also in the guidance for the fourth quarter, labor, 35% range. Is that also somewhat -- I guess, is that what we should look at as a normalized basis, or is that also feeling a little weight of the 5 stores opening in this quarter? I heard someone mentioned staffing up a little bit, and it's understandable. I'm just wondering if on a run rate basis that, that will normally get better -- will normalize maybe in 1Q when you only have one store opening and there could be some momentum behind that in a normalized quarter?

That's correct. You're exactly right. It will normalize a little bit, and the other quarter will have some inefficiencies that come in the fourth quarter. But the fair portion of it that makes a difference is really that tax rate. The fact of the matter is, our employees are going to get paid in fiscal 2013, and we're going to have 3 weeks in the fourth quarter being paid and or being accrued for, so to speak, in 2013 wages, and that's per set of employer taxes. We saw the same thing last year, Matt, when we did a 5.5% comp, and we still ran at 34.9%, I think it was, labor. So I think you've got to be conservative in regards to how you think about that in this fourth quarter. And as we go into next year, we'll get that behind us and get our traditional normalization behind us, and we'll see that continue to leverage.

I would just also add, Matt, that when you look at 2012, we've asked our restaurant operators to absorb a significant amount of changes with respect to the new labor scheduling system that we just put in at the end of the second quarter, which they're still digesting and making adjustments to. We've had several key initiatives this year that have directly impacted within the 4 walls of our restaurants, and we've just asked them to do a lot. They've had a lot to digest. I'm happy to report that the fourth quarter, we're done with initiatives, we've moved our menu change up from the fourth quarter to the third quarter. So we've already absorbed that particular pressure. And as we look to 2013, particularly for the first 6 months of the year, we're going to be a little more careful and perhaps a little lighter with respect to key initiatives that directly impact labor within the 4 walls of the restaurant, to give our restaurant operators a little more time to really develop a better rhythm with all of the changes that we made this year. And I'm very, very confident that we're going to quickly return to our normal operating leverage characteristics with respect to labor. But I do think we all need to keep in mind that this has been a very interesting year with the operating environment, with sales being soft relatively on a comparative basis and with all of the things we've asked our restaurant operators to do that frankly set us up for much more productivity and sales building capabilities going forward.

Okay. And last question, digging into the same-store sales a little bit. I appreciate all the detail you gave, but I think there was an exercise, Greg, where you were sort of normalizing the earnings and you brought back in a 1% comp. I'm just curious, is that sort of a -- is that what you presume that the -- I guess, the adverse impact of sort of the elections, the Olympics? Is that sort of quantifiable as 1%? And then I also just want to look ahead. I know you got a lot of the early part of this quarter. You have the headwinds of the election. I would think also the Texas Rangers not being in the playoffs might be impacting you a little bit. I don't know if you see that at night, but when I look at the holiday time, I would assume with your bar business, you're going to get a little bit of a benefit from having the holidays fall during the week, Christmas and New Year rather than on weekend?

We probably will in regard to the movement of the holidays kind of time frame until we stop to determine what's going to happen in the retail sales in that area. Taxes have been consistent for us. We're not really seeing any significant changes as of right now. I mean, now we're getting to the World Series. From that standpoint, we do have the Giants in there. We have restaurants in Northern California.

Yes. Frankly, our most productive restaurants are in Northern California, so you've got the Giants helping us a little this year, I think.

Yes. So -- I'm not sure if those 2 things play off from that. In regards to your question about the 1%, I haven't gone back through and actually normalized everything from the openings ceremonies which just were a very tough weekend to us, as well as the 2 political conventions and hit us. I think what I was trying to do there, is I believe most people out there have revenues higher than what has showed up. And I wanted to let you guys know that when you think about revenue and you think about comp sales, right now, it's about $1.4 million in comp sales. And we generally see somewhere in the neighborhood of about a 50% flow-through. That's what we aim for in that regard. And when you kind of do the math there, and tax effect it, that's what you're going to get, you're going to get $1.4 million; we should get a $700,000 of additional profit coming through from that standpoint, you tax affect it and you're going to get right around $0.02. And it just allows you guys to think about how you've built your models and how that might impact you.

And the next question comes from line of David Dorfman from Morgan Stanley.

I just wanted to ask about the various sales initiatives that you mentioned, the loyalty program, the Pizza and the Master Beer program. And so, maybe just take each side, one -- first, the investment side, where you sort of called it out to cost $0.02 for the quarter. But versus your guidance from last year, where you already gave sort of detail, sort of margin guidance, it would seem that those -- that's -- that was not -- you missed those targets anyway, or those prices came in a little bit higher even on a dollars basis. So maybe you can talk about what you had contemplating going in and what ended up being a little bit higher there? And on the sales side, if you can just talk about how those programs have sort of gained traction and what you saw in early October, and maybe -- to me they seem like they may be more mix oriented in up-selling people or add-on sales once people are in the restaurant. And how that maybe can address the deceleration in traffic, and maybe some of the competitive discounting you're seeing as well?

Yes, good questions. This is Jerry, let me address the sales side of your question and then Greg will address the margin side. As we mentioned in our press release here, so far, in October, we have seen guest incident purchase rate increases in both our pizza and our beer categories. And you're absolutely correct, those are driving an increase in the average check. They're not necessarily driving guest traffic at this point in time. In addition, we also mentioned that the new menu format that we rolled out concurrently with the pizza rollout, which is a completely reengineered format, was specifically designed to generate another 1% increase; at least it did in tests in terms of the average spend per guest. So those are all mix-driven, they're all very positive, they do represent sales increases. But I think it's fair to say that the overall operating environment has not yet turned conducive enough to really facilitate significant guest traffic increases. Now as we move past the election and we'll all have to see how consumers feel, I personally think that there's going to be a sigh of relief when the elections are just over, and we'll know exactly where we're kind of headed as a country. And based on forecast of the National Retail Trade Association and some other industry forecasting, I think the holiday season is expected to be a pretty strong season and so we're going to be prepared to handle that. But I think until the macroeconomic and operating environment gets a little more favorable, it's going to continue to be tough to drive guest traffic. As far as the increased level of low price point promotional advertising and other promotions by the mass-market casual dining companies, I have to tell you, I've been around, for many, many years, and I frankly have never seen a more intense period of heavy television advertising by the major mass-market chains across all of the different concepts that are able to advertise nationally, that are not focused on new menu items or new products introductions; they're purely focused on low price point to really try to drive share. And it's hard for us to determine what impact that has on our business. Because on the past, when they've done this -- and the last time that we saw it at this level of intensity was probably during the recession of 2008, 2009, and we looked at some states like Texas where we really compete in the teeth of the mass-market chains and our sales held up quite nicely there, as we look at our Texas sales here, as Greg mentioned earlier in his comments that during the third quarter, yes, they have flattened out a little bit. But then we've heard that, that could be the case for most casual dining operators. So I think the overall macroeconomic environment and the headwinds there have to begin to turn before we're going to be to see a significant favorable environment for guest traffic. So in the meantime, we're doing what we can to offer our guests many, many opportunities to buy a little more, spend a little more if they want to, and I think that will benefit our sales going forward. And Greg, do you want to comment on costs?

Yes. There's a couple of things on the cost, David. And the first one is the new menu. I don't believe we -- at the time of the second quarter conference call anticipated that menu rolling out when it did, and being, frankly, as invasive as it was when we made the changes to the pizza. We've put a lot of new equipment in there. In regard to how they proof the pizza, the fact that we're taking it out of the pan means that it's got to look perfect from that standpoint. And that took a lot more training than we were anticipating. The other side of the cost that we weren't anticipating was what I would call kind of the administrative costs around the loyalty program. The loyalty program has been a success for us in the sense that everybody's signing up, and that paperwork has to be contemplated -- or has to be performed in the restaurant. So we've spent more time in what I would call kind of an administrative duty, processing that paperwork for the guests that have signed up for it. And we saw that really hit us hard in July and August as that program began its first rollout. It's more or less normalized now; we've been able to absorb that administrative cost within the restaurant. But when it first rolled out it was significantly more than we anticipated. And those were 2 areas, specifically labor, that we weren't quite expecting. And just, frankly, as we roll those out and we move the menu up forward, we've wanted to market around that menu. So we have a little bit more marketing costs. So those are some of the things that might not have been contemplated earlier when I gave my details.

And the other thing I would add to that is that we have consistently said that, with respect to the loyalty program, you're not going to see, and we never expected to see some significant top line benefit from day 1 when you flip the switch. We've consistently said that it's going to take a while, some months before we ramp up to a sustained level and get our participation levels up. We consistently said that there was going to be an upfront cost associated with this that we just going to have to absorb. And so now we're in process of gaining altitude with that program and we're very, very confident that, again, it's going to continue to generate a fine long-term ROI for us. But this is one of the prices for growth that we've had to pay for in advance. You'd like to pay as you go in a business like this, but we've had to write the check in advance in order to get this competitive advantage. It's very important for BJ's because we compete against the major mass-market chains to maintain our nimbleness, to maintain our first mover advantages and to maintain our speed of execution.

And our next question is from the line of Conrad Lyon from B. Riley & Co. Conrad Lyon - B. Riley & Co., LLC, Research Division: Question -- let me just follow on, on the loyalty program. Might be too early, but is there a sort of normal rate of redemption you're seeing with the awards at all yet?

No, Conrad. Again, we track all of the data. Believe me, we have all of the metrics that I'm sure you would love to discuss with respect to our loyalty program, and our competitors would love to have access to all of our detailed metrics. Now all I can share with you is that we do track that information, we're beginning to see a gradual ramp up of loyalty transactions, both points earned -- there hasn't been that much redemption activity, frankly, yet, because the participants are building up their points. So let us let this -- we just got this horse out of the barn here, let's let this horse run a little bit. And then as time goes on, then we'll try to share a little more data with you that we're comfortable with to give you confidence that this program is going to perform as it's intended and generate a good ROI. Conrad Lyon - B. Riley & Co., LLC, Research Division: So -- and this might be a kind of a naive question but, so how do you know that you're getting a decent payback on it? Is it just -- the people that are signing up, I mean, is there some sort of incremental traffic that's resulting from that?

We track the visit frequency of the loyalty guests and we also track their spend per guest, so -- per loyalty transaction. We know what those numbers are and we can clearly calculate a breakeven for running the costs. And as I think we've repeatedly said in tests, the visit frequency and the guest spend per guest, taking those together and the flow-through from that have more than offset the projected cost of this program. So believe me, we wouldn't have rolled this program had those numbers not generated a favorable return on investment from our perspective. So again, we know what those specific numbers are, we know -- but we just are a little reluctant to share them because our competitors would love to know that data as they think about structuring and rolling out their own loyalty programs. Conrad Lyon - B. Riley & Co., LLC, Research Division: Got you. Okay. Quick question on the labor front. A lot more competitors -- a few competitors are adding more restaurants. Has there been any pressure on turnover, any greater-than-normal turnover?

Wayne, you want to want to answer that one?

Yes, Conrad. I think that overall, our currency rates are fairly normalized. But there could be a little upward pressure, but we're not seeing anything significant at this point in time, but as the marketplace expands and competition comes into particular market areas, there -- that possibility certainly exists.

I would also add to that, Conrad, that in our recruiting pipeline, and we have a very robust pipeline, this year I think we're going to recruit something like 280, 285 managers, something like that. Next year, it's probably going to be closer to 350. We are seeing more interest from other casual dining restaurant concept managers than we've ever seen before, because they see BJ's as a legitimate growth opportunity, they see us as a higher food chain participant in terms of quality differentiation. And as Wayne mentioned, when you look at our retention rates of both our management and our hourly employees in the restaurant, they've been very steady for the past couple of years. Conrad Lyon - B. Riley & Co., LLC, Research Division: Got it. Okay. Final question, and especially maybe even in the back half of next year, with growth that you've talked about maybe planning. Might preopenings start to grow a little bit just because of perhaps inefficiencies of being away from the home base: travel and so forth and that type of thing?

Yes. You could see it on the -- we have right now, 2 schedules for next year. I don't know if anything else will move in there. And Greg, you might be able talk to that. So there could be additional preopenings for those ones that we see in normal -- in newer markets. But other than those 2, most of our other restaurants, or all of other restaurants are in existing areas. And I would tend to think that our preopening and the plan that we have in place has worked well for us over the last many, many years. And I don't see it being materially different next year.

And our next question comes from the line of Will Slabaugh from Stephens.

I wanted to ask quickly about the consumer environment and trends as they progress throughout the quarter and industry. Really, the impact that you saw month-to-month, if you could talk about it maybe x some of the events that would have been a negative influence on the quarter, and into October as well, if you would.

I'm -- well, I'm looking at kind of my monthly chart here and trying to get a general idea. When I look at it, trying to take out some of the trend stuff and get a better sense, at least for BJ's, as I mentioned, August was the best month for us. And looking through the numbers, August seemed pretty solid. We hit about a 3% comp as I mentioned. I think it was actually -- might have been a tad above that, as I mentioned on my formal remarks. July was just frankly -- was soft. And I think July got hit hard with the July 4 timeframe and with the opening ceremonies. And that -- the Olympics -- over the Olympic timeframe, we're generally softer. And that was a 2-week timeframe there. So that kind of impacted July timeframe. September seemed pretty consistent except for those 2 conventions. The Democratic convention that nailed in food, and I guess the way our calendar falls, the Republican convention falling into the kind of September period. Absent that, I think September was fairly normalized. But what we have said -- I've said this before, and we continued to see it in the month of October, is a lot of choppiness with no rhyme or reason to the choppiness. We could have days where we could put up a 7% comp, and then we could have a day where we put up a 1% comp. And it's not consistent, it's not a Sunday that there's choppiness or Friday that there's choppiness, it's across the week. And that's made it probably the most challenging, I think, for our operators. That's really it. I haven't been able to necessarily ascertain any other pattern out there except that there is no pattern.

Got you. And then one more question for me on pricing. You've talked in the past about a willingness to price away inflation or at least to attempt to, depending on how high it goes. So just curious if you feel that way about next year? And then what pricing range it may look like if in fact that 4% or even potentially higher inflation were to come into play for 2013?

Well, this is Gerry. And again, when we finalize what we believe our input cost pressures are going to be next year with respect to commodities and labor and other factors, we'll sit down and we'll take a look at all of the potential levers that we can pull to mitigate that cost pressure. And we do that every year in this business; some years, it's a little more challenging than others. And as we've mentioned in our earlier comments, we do have a menu mix management lever that we're going to play a little bit more aggressively next year in terms of marketing and merchandising promotions and executions that we run. We do have a menu pricing lever that we can pull. We do have about 2% -- 2.5% menu price increases that we've taken in 2012 that are going to be the carryover impact into 2013. We're going to have to consider some additional menu pricing next year; again, we just don't know how much. In the past, we have felt that as a higher quality, more differentiated casual dining competitor with more signature items, we felt that in general, we've had a little more pricing power than the less differentiated, more commoditized mass-market casual dining competitors have. However, you always want to be very, very careful with your menu pricing. Because you can't price your way to success in this business, nor can you save your way to success in this business. You can only grow your way to success in this business, but you have to do that in a productive and efficient manner. So we're going to have some additional menu pricing next year. We've got to look and see what the competitive environment will allow us to do. We'll have to look at our competitors' pricing strategies and actions. We'll have to look at what the supermarkets are going to do because we do compete with them for the consumers food consumption dollar to some degree. I think in -- generally, in periods of rising commodity costs, restaurants generally get an advantage over the supermarkets in most cases. So let us take a look at our input costs and we'll put together our menu pricing strategy for next year and as soon as we know that is, we'll be happy to share that with you. But we will be taking some additional price next year, and we'll just have to be very, very careful in terms of what we believe the consumer will accept.

And your next question comes from the line of Jeffrey Bernstein from Barclays.

A couple of questions specifically related to the competition, which you guys talked about when it comes to both unit growth and comp growth. So I was hoping to touch on both. But from a unit growth perspective, I know you've said the competition has intensified and the bigger chains are perhaps starting to grow again and the new public companies and fast-casuals. So I'm just wondering whether you anticipate that cost impact from that or perhaps, whether something like that would have delayed what otherwise would have been perhaps a quicker ramp-up in unit growth next year? Or what you're seeing from a real estate and perhaps a concession standpoint from your landlord. Just kind of getting a bigger picture impact from the competitive intensity.

Yes. You've got to think about the -- the overall state of the industry today, when I look at it, I say, there's really a lot of Class A space that's leasing quickly with strong rental rates. The B and C space is soft. There's still a fair amount of the hangover from the Linens & Things and the Circuit City. So that being said, along with that, you've got the Gardens, the Cheesecakes, the Bravo Brios, the Chili's, the Brinker's, the Bone Fish and Outback. They're all searching for sites right now. So the landlords, as you've said, are taking advantage of that. Prices have started to creep up. The good thing, from our perspective, is, we have been extremely aggressive in terms of meeting with developers, meeting with the retail development community, and then delivering on our commitment to them. So we're seeing the quality sites. And generally because of the strength of our brand, we've been able to out-maneuver the competition.

Got you. But it -- do you expect there'll be some -- where there'd be, you don't get as many sites as you'd want or they'll be at a higher cost? Is that relative to perhaps 2011 and '12?

Well, we're definitely seeing a little bit of creep in that. So we're seeing land costs for prime sites, they are creeping up.

But in terms of being able to access sites that we want, we stand first in line with any major retail developer. For spaces between, say, 7,500 to 9,000 square feet, if they are looking for a varied menu, high traffic generating, casual dining operator in our average check range, we're #1 on the list. For every site that we see, we always have acquired them. And we always out-compete our competitors, again, if the developer is looking for a concept just like ours, that fits their profile of their particular project. We've never lost out on the site that we've ever wanted and we don't see that happening any time in the near future. All of 2013 is cost included. Every site has been secured with either a lease or a signed letter of intent and has been preliminary calendared on our development plan. And Greg's team is well underway with our 2014 pipeline where we've already got 1, 2, 3, 4, 5 signed letters of intent in hand for 2014. So we're able to continue to compete effectively for the sites that we want.

Got it. And then, as it relates to the competitive environment, hitting the comp side of things. I'm just wondering, when you look at the comps that you're seeing, and obviously, trends have slowed a little bit, but I'm wondering whether you think perhaps you're losing some share as the competition intensifies or whether you attribute it more to the macro? Because we've seen that -- you've mentioned competitive intrusion, and it doesn't seem like that's going to reverse. Obviously, you're siding with -- to share voice with some more mature fully-penetrated casual diners. So I'm just wondering how you protect yourself, for example, in the pizza segment?

Right. Well, first of all, we are a restaurant that -- we're really not a pizza company per se, although it's a very important part of our concept and our -- but we have 160 different menu items of which pizza represents roughly 15% or 18% of our total sales. But in terms of the overall competitive intrusions, where we get nicked a little bit, as you would expect, is where some of the new restaurants open up in spaces in the same trade areas that you're in. And by definition, you're going to get nicked a little bit with their grand openings. And -- because consumers are going to go give them a try and then after they try them, then they're going to kind of go back to their normal routine of restaurant occasions and their normal lineup. But it's very, very common to get nicked a little bit. And I think over the last 6 months, we've probably had 25 or so of our restaurants where we've had a casual dining competitor, as Greg mentioned, as they ramp up their expansion that would open up somewhere in the trade area, and yes, they're going to nick us a little bit. But generally, after their opening settles, and after 6 or 9 months, then we're able to get that business back. So that's kind of normal frictional activity in our business. It's going to happen. But I think in terms of the overall competitive environment, it's really more the macro environment versus the competitive advertising and price points. Although I think it is a factor, but I think it's probably more of the macro environment that has impacted traffic.

Got you. And just lastly on the commodity basket, you've mentioned 4%. I'm just wondering -- sounds like for the center-of-the-plate protein, you're not contracted past this December of '12. So I'm just wondering what assumption you're making for the key proteins that seem to be so inflationary that ultimately leads you that 4% estimate at this point?

Well, Jeff, we've got -- based on -- that 4% estimate comes on actually some offers already on the table for some of those key proteins, that we just haven't accepted yet. Still negotiating with them and so on, from that standpoint. So we feel pretty good on that number as of today.

Got it. And lastly, did you ever look to 4 years ago, maybe post-Olympics, and post-debates and conventions, maybe you see a trend relative to 4 years ago where things were a little softer, September, October and then bounced back, November, December? Is that a possibility? Or how would you compare this period to last time?

Yes. Wow. Last time -- and we thought about that and we looked at it just briefly. I do remember, 4 years ago, everything -- everybody saw the world was coming to a hell in a handbag. And we were right in the beginning of the the recession; different banks, as you know, were having problems, et cetera, from that standpoint. It was a much, much different time from that standpoint, where I think you got more of a hunker down mentality. I think now you've got kind of like just this kind of slow growth reality where consumers are trying to make choices based on what they consider to be quality dining events. Where in the past, you really had the people kind of cutting back from that standpoint. I do think there's a lot of anxiety still out there. I think you can see it on the fact that as many people want to see the debate and talk about it the next day. And I think, frankly, you probably had it last year at that time as well. If you go back 4 years, though, we really didn't come out of ours until 2010, which is earlier than most other casual dining concepts. Granted 2008, I think we were down negative .3 for the entire year. But 2010 is where we came out with a 5.5% comp. 2011, last year, was a 6-plus-percent comp, where most of the casual dining industry went from being negative numbers to kind of flattish numbers. So I just -- I gave you a lot there, but I don't think there are quite apples-to-apples comparisons in today's environment.

And our next question comes from the line of Jeff Farmer from Wells Fargo.

Jerry, I think you did make this very clear, so I apologize for beating a dead horse a bit here. But is it fair to say that you think that the casual dining consumers are simply distracted right now, I guess, rather than undergoing some type of longer-term fundamental demand shift? Meaning that once we get through, again, like you said, the election and some clarity on the fiscal cliff that, theoretically, they'll come back. So I really want to understand that, or if you think there's something a little bit more sinister going on.

I don't think there's anything more sinister going on, Jeff. That's a kind of anecdotal belief. But, again, particularly during the summer, consumers had x amount of discretionary dollars to spend. And I've read some analytical commentary where there's been some, I guess, direct evidence that consumers, that they went for back-to-school shopping, and generally that's where they spent their money. They didn't go back-to-school shopping and maybe stopping by a restaurant at the same time. So they were a little more discretionary, I guess, in their choices on where they were going to spend their discretionary income. I read an article recently where proliferation of cellphones and all of those monthly cellphone charges and now with the new iPhone coming out, and I think it was a Wall Street Journal article, it was where I read this within the last 3 or 4 weeks, where that is also cutting into consumer discretionary income in terms of the cost of purchasing the latest device on the market and the monthly charges. And there was a specific reference in that article or 2, gosh, we're going to have to kind of reduce some restaurant occasions here, because they only have so much money to spend. And I do think that as much as we talk about gasoline prices, and I know that they're beginning to retreat finally here, even in California where we had an unusual spike at the beginning of this month, that still plays into, I think, consumer discretionary spending for restaurant occasions at least indirectly. So I don't think there's any secular shift in consumer attitudes towards their patronage of casual dining restaurants at all. I just think that there is an unusual confluence of factors here that have caused consumers in this particular environment to be very, very selective and cautious with their spending.

Okay, that's helpful. And then just coming back to the, I guess, in reference to the aggressive low price point promotions and heavy TV advertising that you're seeing. Historically, because you have sort of the best-in-class mouse trap, you could just ignore a lot of that noise, but it seems like this environment is a little bit different right now. So again, assuming that's true, right or wrong I may be, but what can BJ's do to strengthen its own value message in this environment if you need to?

Excellent question. We can't put our heads in the sand and just ignore all of these competitive activity. We could certainly do that and just say, "You know what? It's tough out there but we're just going to try to effectively process whatever business that happens to show up that particular day." And some concepts operate with that particular approach; we do not do that. So as we thought about that, we've had to add a layer of a little more promotional-driven marketing underneath our main message for each key event that we run. So for example, with our pizza event that we just rolled out here -- and we just actually ran our free-standing inserts here in the middle of October on Sunday, in order to get a little more interest from a promotional price point perspective, we went ahead and added a little "Hey, try our new pizza and we'll take $2 off at lunch or $4 at dinner if you just try our new product." So that's kind of how we're thinking about it here at BJ's; we'll always lead with our new product news, but we're going to have to have a supplementary sliver of underlying promotional activity that kind of addresses and tries to react to some of these pressures out there in the mass market. We say kind of internally, we not going to jump head first into that mud pit, but there are times when we may have to get ankle-deep in it in order to at least maintain top-of-mind awareness and have some type of an offer for those particular consumers that aren't going to come unless they've got some type of a promotional offer. But that will never be the primary focus of our merchandising and marketing efforts.

Got it. And then finally just along those lines, you mentioned a little more TV next year. So you've made it very well known that you did test 3 weeks in Sacramento. I think it was early May. I think there's 6 restaurants there. So, my question is, how did those 6 restaurants perform after you turned off that television? So was it maybe a 3 or 4 week sort of benefit or halo from that? Or did that last or persist through most of the summer once you got that better brand awareness?

Greg, do you have that information? I don't know.

No, I only have -- I'm sorry, Jeff. I only have, actually, during the test time when it was on, and I don't have actually when the test was off. As Jerry mentioned, during the test time, when it was on, we saw a nice acceleration in comps versus the control group that we measured again. But unfortunately, I just don't have that graph in front of me.

The way I think that we're -- to summarize how we're thinking about television advertising kind of going forward based on the results of our tests; clearly, when you run an ad, you're going to get a bump in sales no matter what you do. And the key is, after you turn off the advertising, what type of a sustainment that you have. And we're trying to get a better read on that in Reno and in San Antonio. I did mention that since we turned off the television here at the end of September for the most part, we've been able to sustain a good portion of that initial lift. But the key now going forward is, it's not just how much sales lift can you sustain, but now we go back and calibrate the denominator of that equation a little bit. How much money do you spend and how many total rating points do deploy in order to optimize a certain sustained sales lift? And that's something that the big mass-market players in casual dining that have been on TV for many, many years and commit millions of dollars to it, they understand how all of that works. Now we're trying to learn that at BJ's. So we could commit to spending much more on television. But before we do that, we need to understand what the optimal weight is in terms of total rating points and the optimal denominator of the cost so that we can determine what our breakeven level would be in terms of a sustained sales lift. And we're not in the business here just to breakeven. We're in the business here to drive incremental profits. So we need a little more experience with measuring the amount of TRPs. And then, I think, with a few more markets behind our belt and with a little longer term time in order to measure the tail effect, I think we'll be in a much better position to say, "Okay, this is what we're going to do with TV going forward, and these are the specific results that we expect to achieve."

Perfect. And I know it's very, very late and I apologize, but just one more question. And Greg, you'll probably shoot me down on this one. But a lot of moving pieces to '12. You outlined them. A lot of moving pieces to '13. You gave us a lot of detail in terms of line-by-line item guidance, tax rate, share count, et cetera. But just off the top of your head, I mean, can you give us sort of maybe a 15% EPS growth type number, just a generic EPS growth expectation you think your -- all your data points do for '13?

I'm sorry, we don't give formal guidance.

I know.

I think the best way to look at it is more or less the final comment that I gave there, which really comes back to the fact that -- let me get to the facts. We're going to have a 12% increase in restaurant operating weeks. We've got 2% to 3% in menu pricing in there, and depending on where you believe incidence rates, mix shift and guest traffic will be, it's going to determine your kind of total revenue from that perspective. Our ultimate goal from that standpoint is to get leverage on the G&A side of things. I do believe that when you look at this year in total, because of this quarter, while we did have some initiative costs, that we're seeing some lower comps more in the kind of 2% range right now that we talked about. In fact, the margins that we saw last year will be deleveraged a little bit. Meaning with the 20% that we ran last year, we're going to be less than that. And I think that gives us an opportunity depending on where comp sales come next year to get those margins back up above -- definitely above what we've just ran this quarter, which is an 18.4% and gives us the ability to get ourselves back into that 19% to 20% restaurant level margin from a year-over-year perspective. But other than that, like we've always tried [indiscernible], these are the data points that we're seeing out there. Data fluctuation that tends to happen is comp sales. And depending on how you guys want to determine comp sales is going to make the bigger difference in regards to your earnings estimate from that standpoint.

And our next question comes from the line of David Tarantino from Robert W. Baird. David E. Tarantino - Robert W. Baird & Co. Incorporated, Research Division: One quick question. On clarifying the October comp trend, Greg, could you let us know how much pricing was in that number and maybe shed some light on what the traffic trend was? Because it sounds like the new menu might have added some pricing and mix to that component in October.

You know what, I don't have...

I don't think we have the monthly breakout of pricing. We just have it for full quarter.

Yes. For the full quarter, it will be right around in the 3% range. I don't have it in front of me how all the pricing lines up. I think, as Jerry mentioned, we did see some positive movements in regards to overall incidence for pizza, as well as incidence for beer. Some of that will play from a mix standpoint. But overall, as we discussed, it's kind of 3% pricing. And when I think about where comp sales are coming in, it's probably still a little bit soft on guest traffic right now. David E. Tarantino - Robert W. Baird & Co. Incorporated, Research Division: Okay. And just I think -- according to my notes, I think the last year's price increase went in, in November. So I guess it's fair to say that the early part of the quarter will have more pricing than the later part of the quarter or...

That's correct.

That is correct because we pulled that out for a month as we rolled out this one. So that is correct. As you start to think about the second half of this quarter, I guess, you'll have a little bit less pricing in there to get your average of 3%.

Right. But then, again, as we engineered our menu and rolled that out at the beginning of October, we've got a 1% mix shift benefit in the average check that we saw. And so that's why we only went with 1% pricing here at the end of September because we had that other mix shift as a compensatory element there.

And our next question comes from the line of Sharon Zackfia from William Blair. Sharon Zackfia - William Blair & Company L.L.C., Research Division: I had a question actually about a comment you made, and I forgot who said it, but it was about the dinner in the weekends being slower. I understand the Olympics and the conventions and all of that. But I was just wondering with all of the complexity that you kind of added with the new menus and so on, if you saw table turns slow down outside of those events, if you will, if the time, the delivery to table was an impact or anything like that?

Wayne?

Sharon, this is Wayne. We do track that metric, and we're not seeing any significant change one way or the other. I think our typical dining experience for lunch, for dinner is running very solid with what we did in Q2 and the same with year-over-year. So we haven't seen any spike in those metrics really at all.

Yes, Sharon, we -- to add on to Wayne's point, we measure our cooking run times and trend those out, both lunch and dinner, at the peak periods, as well as the shoulder period. And exactly to Wayne's point there, we haven't seen any material change in those cooking run times because, frankly, that's the key to driving throughput. And Wayne and his team have spent a lot of time looking at those numbers, understanding restaurants that aren't performing at a level that they should be and lining those up from the standpoint. And frankly, there has been no real change in those numbers at all. Sharon Zackfia - William Blair & Company L.L.C., Research Division: Okay. And then I apologize if I missed this. But the new redesigned menu that drove 1% benefit in mix in test, did you say what caused that mix shift? Was it a particular category? Or can you help us think about that?

Sure. Without getting too detailed from a competitive disclosure perspective, it's all about the placement of the categories. We did the scientific test where consumers looked first; when they open up a page of menu, where do their eyes go first? And there's a lot of studies out there that really help you to optimize the value of each page of your menu. In addition, the photographs that you add into your menu also were significant drivers of consumer eyeballs and attention. And we've been very, very calculating with the placement and selection of the food photos in our menu because they do drive a lot of mix. So through that particular engineering process, that's what we were able to achieve.

And our next question comes from the line of Nick Setyan from Wedbush Securities.

Just a couple of clarification questions and a bigger picture question. So first, did you guys say that the October -- those days when we had the presidential debates, the comps were negative year-over-year? And on the TV ads that you guys ran this quarter, could you guys maybe talk about the impact on maybe occupancy and other operating expenses in G&A in the quarter? And just kind of going forward, you guys talked about rolling out the catering in Q4. Can we maybe get like a sneak peek into some initiatives that could be a driver in early 2013?

Well, this Jerry. Let me comment on the sales building initiatives for 2013. And again, I'm going to be purposely a little vague here because, first of all, we haven't locked them all down yet. And secondly, we don't necessarily want to give our competitors a road map to trying to defend against us here. But obviously, from a sales-building perspective this year, we do have menu pricing, both carryover and whatever new menu pricing we would choose to deploy. We do have the carryover impact of over new pizza program, our new beer incidence program and, frankly, our new menu format. So you'll see a carryover benefit of that next year. The television advertising, again, as we mentioned, we want to get a little learning with the cost and benefits of how much total rating point investment that we're going to make there. But I do believe that you're going to see that play an increasing role in driving our business next year with a few more markets. We are going to undergo a major refresh of our proprietary beer position and our merchandising and our marketing. Similar to what we've done with pizza that we've just finished over the past 3 weeks, now we're going to go after our proprietary beer. We're going to continue to drive participation in our loyalty program. We're going to mine that loyalty database to get as much learning as we possibly can in order to better target and focus our marketing and merchandising programs against consumers that are more likely to be loyal guests. We're working on continuing a call center test to capture more off-premise sales, which we believe we're not effectively capturing today. And we've got a number of CapEx initiatives that we're lining up as well with respect to patio additions and remodelings. We've still got about 10 deuce seating additions to do in some of our custom footprint restaurants. So again, that's quite a long list of opportunities that we have and there's some other things that we just don't want to talk about right now. But I think there's a lot going on in terms of driving sales in our business for next year. What was your other question, please?

The TV ads, maybe the impact on the G&A end, the occupancy and other?

I don't have a read for you on that. These are just -- those -- that advertising only impacted 6 of our restaurants, and we just looked at the top line to see the reaction. And like I said, we've got to take a look at the ROI in terms of covering the advertising costs and the fall-through to the other P&L categories, and we're still trying to understand that. So let us test that a little bit more. And then I think that once we optimize what we think we're going to do in given markets, then we'll be able to comment on that.

And Nick, I don't know if you were looking at it from the cost side as well; there's no cost for that in the G&A side. We put cost in Q2 from the G&A side because that was all the production costs for this onetime development of a commercial. Now it's really just the airtime that we're buying. That goes into the marketing at the restaurant level or the operating occupancy cost. And I don't have -- I'm sorry, I can talk with you offline on it. I don't have what that cost is for those 2 areas and what that impact would have been.

I think it was $125,000 to $150,000 of media expense for that test for the quarter.

So about 10 days to $0.775 million in sales.

Yes. That's what I believe it was.

Got it. And just the impact of the election debates in October, were those negative days?

Yes, they were. I think I mentioned that. They were all negative days except for -- and you sports fans will like it out there -- except for 22nd where somehow, the Monday Night Football and the Cardinals/Giants game took precedence, and we were able to eke out a little bit of a positive comp on that one. But other than that, both the vice president, as well as the other presidential debates, reported negative days.

And our next question comes from the line of Nicole Miller Regan from Piper Jaffray.

This is Josh on for Nicole. But wanted to see if you could provide a qualitative update on what's going on at BJ's R&D grill. I know that we don't want to get too specific on all of the learnings but maybe something on -- if you have any product or operational learnings to date that you would be willing to talk about. I know that, if I remember correctly, some of the new menu items might have come from some things that actually happened at the R&D grill.

Yes, this Jerry. We're a little reluctant to get into the details for competitive reasons because, again, a couple of our key initiatives that we just launched really came from the learning that we achieved at our grill -- R&D grill operation. We do have a couple more that we're working on. We'd rather to keep them under wraps for now. But believe me, the grill is serving a fine purpose as a research and development live laboratory for us, and we're going to continue to use it in that manner.

Great. That definitely spoke to where I was headed with that. And then as it complements to the internal initiatives that you've been working on with the new menu, could you also touch on off-prem sales? I know you mentioned a few minutes ago that there was still some opportunity there. But if you could maybe remind us where we are in the life cycle of those and maybe any comments on guest adoption of those off-premise sales, either to-go or online?

Right. Well, I think our off-premise sales are running roughly around 5% of sales, and they really should be much higher. And we got 2 opportunities that we're going to be working on going forward. First of all, we've been testing a centralized call center for takeout orders that come in over the phone. We don't believe that we're capturing every potential takeout order that's being offered to us. Our operators get busy. They may not be picking up the phones as fast as we'd like them to during peak meal periods, so we're losing some sales, although I think we capture most of them. So we want to understand how a centralized call center might be able to facilitate that. The other piece that we're working on would be our online orders. We currently use a third-party software support provider to handle that for us and be the primary interface. We have a very complicated menu with many moving parts and many modifiers. And it's been challenge for all of us to try to get consistent, accurate and streamlined execution there, so we're going to try to bring that in-house and try to control more of our destiny in that respect. And I think we'll be able to capture more online sales in a more efficient manner. So those are a couple of things that relate to off-premise business we're going to be working on.

And then lastly on the recruiting pipeline for -- specifically on the manager side. Have we crossed that threshold yet? Or where are we in that life cycle of recruiting from outside the organization or versus inside the organization for the new managers at restaurants?

Well, we've always kind of had 70%, 30% ratio roughly in terms of external hires to our management program versus internals that we believe are qualified to step up and be trained as managers. And I think that 70%, 30% ratio has been -- oh gosh, that's been in place here for as long as I can remember, and we don't have any intention to change that.

And our next question comes from the line of Paul Westra from Cowen and Company.

I just want to, I guess, follow up with the -- I guess, go back to the, I guess, the bigger picture historical margin number and really just kind of re-asking, how surprised were you here and how lasting the situation might be? I guess, Greg, you even quantified some of the onetime expenses and perhaps the 50% flow-through on a 1% comp. But even adjusting for that, it seems like you had 100 basis points fall in margins or 5% drop in margins on a 2% positive comp. And are we entering a new phase where that sort of situation may continue going forward? And I think we're also sort of concerned about it. Or is there something company specific or near term that may have been sort of explaining it this quarter and may not be as detrimental going forward above and beyond what kind of the stuff you mentioned? Because there seems to be, obviously, a gap from, obviously, your prior, more consistent performance.

Well, this is Jerry. And let me just comment on my perspective, and then Greg can certainly provide his. But I think we mentioned in our prepared comments, Paul, that this quarter, in addition to the costs associated with the rollout of the initiatives, we had an unusual amount of labor congestion this quarter as we were transitioning to our new item-based labor scheduling and analysis system. And frankly, we could have probably reacted a little bit quicker to the sales environment that we saw out there in some of our restaurants with what we did. So that's what I see in terms of the third quarter margins. So as you take a look at the fourth quarter going forward, do you have confidence that a lot of that congestion is going to be gradually working out of our numbers? And I think we said, yes. We do have confidence that, that piece will go out. In terms of the additional marketing spend in the occupancy and other category, I believe, that's something that I think, given the competitive environment that we're in here for -- at least for the fourth quarter, I think we're going to have to maintain those extra basis point of marketing spending here in this very, very difficult competitive environment and, particularly, with the headwinds that we face. Now if we can get these headwinds to become neutral winds or get any type of tailwind, then there won't be any need for us to spend those extra basis points in marketing to help to try to combat and react to some of the heavy low price point promotional activity by the mass-market chains. Greg, is there anything you want to add to that?

No, I think I -- Jerry is right on in regards to the discussion on the labor. We rolled out those 3 initiatives there, and what we quantified was really the training costs for it. But separate of the training costs, you have the inefficiencies that go on with it as well. And I don't necessarily have that number quantified. But as we've gotten through that, that's going to allow us to get some acceleration coming back into the labor number. When you think about the operating and occupancy cost, and this happens every year, we get the summer rates coming through in Q3. And those summer rates have gone up a lot for us in that regard. And then you tend to see some of them are in the normal kind of 3% normal inflationary pressure, whether it's on linen, cam charges, insurance, et cetera from that standpoint, which means you've got to get comps somewhere above those type of numbers to kind of get the leverage or maintain some of those numbers in that standpoint. That being said as well, as we roll out some of the new menu items and have some of those new initiatives, we have some very specific items that start to hit your operating occupancy cost, whether they're related to things that we need in the restaurant for rolling out a new pizza -- I mean, a new pizza presentation. So you run into some of those type of things that really should be behind us and allow us to get ourselves back in line with where our margins are, which is between the 19% and the 20% range.

Okay. And then, I mean, is there any -- I know you touched a little bit on -- I mean, I know Florida, you're sort of getting a critical mass of stores there. You would assume you'd get some momentum in that market. I guess the other question for the quarter maybe is, is there a geography or is there maybe just an outlier, your lower volume stores sort of pulled the average down or maybe your higher volume stores somehow paid a bigger price than normal? I mean, is there any batch of stores that may sort of explain what's behind the weighted average margin number we're seeing that could be, I guess, an outlier that helped pull the average down?

Not really. Paul, as I kind of mentioned in my prepared remarks, when I look at our numbers on an overall basis, whether it's California, Texas, Florida, our biggest -- 3 biggest markets, and I know Florida doesn't have -- what have they got? 7 restaurants -- 1, 2, 3, 4, 5, 6 restaurants in Florida that are in the comp base. They really -- there's not one of those markets or a patch of those markets that are kind of driving comp sales one way or the other. In fact, they're all very consistent to kind of the 2.3% number, give or take 100 basis points here or there to our overall company comp sales. So I didn't see anything like that. Same thing with the question about looking at it on a classier basis. I went ahead and took a look at it that way, is it newer restaurants coming into the comp base or anything else that might play into that? And again, I didn't see any real differences there from a comp perspective. We've got restaurants that are -- our most mature restaurants throwing us some of our best comps. And then we've got some of our newer restaurants throwing us some of our best comps. So it's -- there was nothing in regards to a discernible pattern that I was able to see from our restaurants except the fact the Olympics really hit us over the weekend in the month of -- in July, August, and the presidential debates hit us where -- I think, if you think about BJ's concept and why we have a great check average and we present both -- present very well both at lunch and dinner, we tend to drive more of our sales at dinner. And if you think where those -- some of those impacts happen on debates and other things, they're going to be at the dinner time.

And our last question comes from the line of Robert Derrington from Northcoast Research.

Jerry -- I think, Greg, you mentioned that inflation, you thought could be in the range of roughly 4% or so in 2013. When you look at the menu initiatives that you talked about, Jerry, that you thought could help improve COGS, is it possible to offset some amount of that inflation with moving menu mix around to -- whether it's to something more favorable like pizza? Is that possible?

Yes, it is possible and I think we -- Bob, we mentioned that in terms of trying to be a little more aggressive with menu mix management in terms of our marketing and merchandising executions, that will be an increased focus next year for us, where we're going to be able to look at the different cost increases of all of our different commodities and all of our dishes and then to the extent that we can put more emphasis on those dishes that have less of a commodity cost increase than others, then that what's we're going to try to do. So we're going to get a little more aggressive in that area, and I had -- but again, that will be one of several levers that I think we can pull to try to address this particular pressure. I think every restaurant company is going to be thinking the same thing that we're thinking here. You have some categories next year, like seafood, for example, that, I believe, are going to be less impacted than chicken or beef. So you could see us stressing a little more in the seafood area in terms of center-of-the-plate protein items next year. And you're right on the pizza, that's a good category where -- wheat and cheese increases are going to be less than some of the protein cost increases. And that was, frankly, another reason why we wanted to go ahead and get this pizza refresh out there as early as we possibly could and go through whatever we have to go through in terms of our operational learning curve and get that solidly in place so that we could use that as another point of leverage to address these input costs next year. So you're absolutely correct.

Is it possible to actually hold cost of sales flat year-over-year? I mean, is there that much leverage in that line possibly?

I don't believe we'd be able to do that just on menu mix management alone. You're going to need some price help here. And we just -- at this point, until we know what the nut is we have to crack, then we'll be able to say, "Okay, we think we can cover this much with menu mix management; we think we can cover this much with new pricing."

Got you. And then real quickly on the fourth quarter, Greg, I'm trying to understand the -- some of the things that were mentioned about labor cost in the 35% range, which is what it was in the third quarter. As we move into the fourth quarter, I thought, Jerry, you said that you'd be able to work through some of the issues that pushed it up in Q3, yet, Greg, you gave guidance at 35%. So what I'm trying to understand, is it overly conservative or is it -- where do we stand in actuality?

Yes. Bob, I always try and take, first of all, at that conservative approach to things. I think, I personally believe what we'll see in the -- here in the fourth quarter is a continued improvement in our labor efficiency led by Wayne and his operations team. I do believe, though, some of that could get offset by the higher taxes just like we saw last year. Granted in last year's fourth quarter, we did have that menu rollout at that time last year. We don't have it this year, so we get a little bit of that benefit. But I guess I'm just very conservative on the taxes. I know you guys don't want to look at that or want to get into these other things and so on. I'm just surprised that we put up a 35% in the fourth quarter of last year and we did a 5.5% comp, and I think we were pretty efficient at that time. And I didn't pull up my fourth quarter comments last year, but I believe I talked to the point of 30 basis points or so just on those payroll taxes. Because we will have 3 weeks out of 13 weeks, we're going to be paying this higher payroll tax just the way our accruals line up and everything this year, which is very consistent with last year. So I think you're getting a flip-flop between one or the other, I guess, meaning we improve our efficiencies, weekly sales average go up but that payroll tax number concerns me.

Got it. That's really good color. And lastly, you didn't give us any color on depreciation for Q4. Was there some reason?

I guess -- I normally don't. I try to kind of give you what -- in this case, what it is costing for a week. I wouldn't expect it to go up much. We tend to see it go up a lot in Q3 of each year and then flatten out for the next 3 or 4 quarters afterwards. And some of that has to do with the fact that most of our initiatives are put in place and that's that incremental little bit of difference. But I would tend to think that will probably be more consistent with Q3's number into Q4 and then your leverage would be based on your weekly sales average.

On an absolute or on a percent?

Well, I'm giving you kind of on a dollars per week because it's more of a fixed cost. When you -- however you determine our weekly sales average, that's where you would get them. So I would think you would get leverage from the 6%, meaning it would come back down a little bit.

And there are no further questions in the queue. I'd like to turn the conference back over to Mr. Deitchle for closing comments.

Okay. Well, thank you, all, for hanging with us today. We're happy to answer any questions that have. We're here at our offices, if anyone else has another question. And we look forward to speaking to you in February. Thank you.

Ladies and gentlemen, that does conclude our conference for today, and we thank you all for your participation. And at this time, you may now disconnect.