BJ's Restaurants, Inc. (BJRI) Q2 2014 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to the BJ's Restaurants Incorporated Second Quarter 2014 Results Conference. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Greg Trojan, President and Chief Executive Officer. Please go ahead, sir.

Thank you, operator. Good afternoon, everyone, and welcome to BJ's Restaurants fiscal 2014 second quarter investor conference call and webcast. I'm Greg Trojan, BJ's' Chief Executive Officer; and joining me on the call today is Greg Levin, our Chief Financial Officer. After the market closed today, we released our financial results for the second quarter of fiscal 2014 that ended on Tuesday, July 1. You can view the full text of our earnings release on our website at www.bjsrestaurants.com. Our agenda today will start with Dianne Scott, our Director of Corporate Relations, providing our standard cautionary disclosure with respect to forward-looking statements. I will then provide an update on our business and current initiatives. And then Greg Levin, our Chief Financial Officer, will provide a recap of the quarter and some commentary regarding the second half of 2014. After that, we'll open it up to questions. So Dianne, if you'd go ahead, please.

Thank you, Greg. 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 are cautioned that forward-looking statements are not guarantees of future performance, and that undue reliance should not be placed on such statements. Our forward-looking statements speak only as of today's date, July 24, 2014. We undertake no obligation to publicly update or revise any forward-looking statements or to make any other forward-looking statements, whether as a result of new information, future events or otherwise, unless required to do so by the securities laws. Investors are referred to the full discussion of risks and uncertainties associated with forward-looking statements contained in the company's filings with the Securities and Exchange Commission.

Thanks, Dianne. I'm pleased to report that during the second quarter, BJ's continue to make progress against our key strategic and financial objectives, driven by the successful launch of our new menu and branding programs, our ongoing restaurant development and expansion and focused strategies to improve our cost structure. As we've discussed previously, these strategies are aimed at driving top line sales, while leveraging our industry-leading guest traffic levels, improving kitchen efficiencies and managing operating and occupancy costs. Our sales building initiatives focus on 5 key areas: improving affordability, speed of service, food quality and innovation, hospitality and then brand awareness. We advanced each of these during Q2 with sales increasing 10.5% to $219.4 million and our quarterly restaurant operating margin of 18.6%, representing the second consecutive quarterly sequential improvement in this metric. Looking at the menu, we've intentionally made minimal new introductions this quarter so that our operators could continue to settle in and manage their restaurant's day-to-day execution following the launch of many successful new items just this past February. At that time, we introduced 15 new menu items with a focus on delivering great value with many price points below $10, while also addressing heightened guest demand for lighter and healthier food choices. Judging by the popularity of these items and the ongoing success of our lower priced Brewhouse Burgers, which we debuted just last November, it is clearly evident that in today's environment, BJ's menu, in terms of both value and innovation, are playing key roles in restoring our traffic momentum. The success of these lower priced items has slightly impacted our average guest check, which declined by approximately 70 bps for the quarter versus an approximate 230 bps of growth for the industry, as implied by Knapp-Track data. While this large disparity is a drag on our current comparable sales performance, we believe the menu changes implemented this year are an important investment in rebuilding value and everyday affordability, which has always been at the very core of BJ's long-term success. Throughout our history, our value proposition has driven positive traffic and sales growth, and we think we're seeing value once again start to reignite positive guest trends as a result of this reinvestment. We plan to continue our menu value improvement by leveraging our new starter salads at approximately $4.95 each, along with new appetizer items, which will follow the playbook we have recently used with our burgers, sandwiches and salads, and that is lower price points combined with bold new flavors that will drive incidence, particularly during the upcoming fall football season. During the quarter, we also successfully launched our new BJ's mobile app, which greatly enhances speed of service by allowing our guests to order ahead for both take-out and dine-in, and also quickly and easily pay their checks on the mobile device of their choice without waiting for a server to bring them a check. We supported the launch with digital and conventional PR campaigns and offered an incentive for those downloading the app. We're very pleased with the initial installed base of the app and our current -- and are seeing steadily growing usage for both order ahead and mobile pay. Our TV advertising strategy during the quarter primarily focused on leveraging our spend in regions of concentration as opposed to driving awareness in newer markets. Reflecting this approach, we utilized TV in Q2 on a limited-market basis, which allowed us drive better-than-industry performance from several of our core California markets. For the second half of the year, we will continue to skew our marketing mix towards loyalty offers, digital campaigns and possibly selected TV end markets, where it has driven profitable traffic in the past. While progress in terms of top line is our most critical objective, we're simultaneously achieving success in bringing more of these dollars to the operating income line through efficiency, productivity and cost savings. Both our corporate and restaurant level management and operating teams continue to identify opportunities to leverage our industry-leading sales and guest traffic, as well as reduce cost. We're realizing the benefits of these efforts, particularly in the middle of the P&L restaurant cost, where our operating and occupancy cost declined about 5% year-over-year. Central to this effort to improve our overall margins is our ongoing reduction of back-of-house complexity through our Project Q initiative. Not only are we identifying opportunities in existing restaurants to improve our productivity, we also started opening some of our newer restaurants with an even smaller, more streamlined menu. We believe this new menu, which has about 120 menu items and is still significantly larger than most other casual dining operators, can provide us even better cook times, quality and consistency. We plan on selectively testing this version in several existing restaurants coming up this September. Notwithstanding our efforts to improve margins, we remain steadfast in our determination to maintain the quality of our guest experience, as well as the tremendous internal culture of our company. I continue to be thankful and appreciative for the high energy of our teams, as they take care of our guests every day and are driving this increase in efficiency at the same time. Last, but not least, we have been working hard to reduce the investment costs and improve the returns from our new restaurants through value engineering and returning to a smaller footprint of approximately 7,400 square feet from our previous 8,500 square-foot prototype. In the second half of '14, we are on track to open 6 restaurants with our new prototype, the first of which will open in just a few weeks in Oviedo, Florida. We are thrilled with the quality of the finishes and overall ambience of the new restaurant design. We're on track to deliver these restaurants at budgets of approximately $1 million less than our previous format. We know from our operating experience impasse that the bill -- sorry, we know that from our operating experience that we'll not only build this more cheaply, but that our labor and controllable costs will be more efficient as well as the result of the new prototype. We indicated a few quarters back that while we are embarking on a range of initiatives from new menus to new building prototypes, we were unable to predict how quickly these changes would take hold and benefit our operating and financial results and later, the macro environment and other variables out of our control. I'm the first one to challenge our great corporate and operating teams to drive our performance, our margins and returns to the levels we are capable of. And while we've made some solid progress, we are delivering tangible results. We all believe we can do more and accomplish more. Our organization life goal is to balance the pace of our development and expense and initiatives with the help of our core restaurant portfolio in a manner that creates the highest returns for our shareholders. I am proud of our team and the progress we reported today, and our ability to continuing generating guest traffic, fundamental satisfaction ratings and levels of repeat business that remain the envy of our peers. I'd like to thank our shareholders and analysts for their support, and look forward to addressing your questions after Greg Levin, our Chief Financial Officer, reviews the quarter and current trends in more detail. Greg?

All right. Thanks, Greg. As we noted in our press release today, second quarter revenues increased approximately 10.5% to $219.4 million, and net income and diluted net income per share were $8 million and $0.28, respectively. During the second quarter, we incurred approximately $900,000 in pretax charges or $0.02 of diluted share for professional fees related to the shareholder settlement agreement, which was announced in April. Excluding the settlement expenses, our second quarter adjusted net income and adjusted diluted earnings per share were $8.7 million and $0.30, respectively. Our 10.5% increase in second quarter revenues reflects an approximate 13% increase in total operating weeks, partially offset by a decrease in our weekly sales average of about 2.3%. Our comparable restaurant sales decreased 1.7% during the quarter, which compared with flat comp sales in last year's second quarter. The 1.7% decline in second quarter comp sales is primarily attributable to a traffic decrease of about 1% and an average check decline, which Greg Trojan mentioned, of approximately 0.7%, and that was driven primarily by mix and incident rates. In the second quarter, we had approximately 1.4% of menu pricing. As we mentioned on our first quarter call, the first part of the second quarter started soft due to the calendar shift for the Easter holiday. And much like the industry, we do not see significant improvements in our comparable restaurant sales through May. However, beginning in the middle part of June, as graduation season started through Father's Day and World Cup, our comparable restaurant sales improved. Over the years, BJ's has been a leader with dads and grads, and this year was no different. In fact, over the Father's Day week, we set 14 new weekly sales records and 10 new daily sales records. And while we are not a sports bar, our restaurants are designed to provide a great sports or viewing atmosphere for guests who visit BJ's to enjoy sporting events. As a result, we got a boost in our comparable restaurant sales during the World Cup, especially on days the U.S. Men's World Cup soccer team was playing. From a geographic standpoint, California was one of our stronger markets during the quarter, with positive guest counts and just slightly negative comparable restaurant sales. Our improvement in California was to some degree offset by softer comparable restaurant sales in the Texas market. As we indicated on the last call, during the second quarter, we were comping against mid-teen increases last year and comparable restaurant sales in the Dallas, San Antonio and Oklahoma markets from our TV tests last year that ran in March and April. These markets were not included in our TV run this year, as our analysis indicated that TV spending returns were better in our California market, where we have a greater number and penetration of restaurants. In fact, our restaurants in the Southern California market specifically, which benefited from TV and other multichannel marketing, have positive comp sales and guest counts for the second quarter. Our second quarter usually generates our strongest operating margins of the year, as we typically experience our highest weekly sales averages of the year in this quarter. The high weekly sales average allows us to leverage our fixed operating structure. As a result, we achieved four-wall restaurant-level margins of 18.6% this quarter, marking our second straight quarter of improving margins and at a level above what we discussed on the last call. We noted during our Analyst Day that our target is to get our restaurant level margins back to 19-plus percent on a consistent basis through a combination of sales building productivity and cost savings initiatives. Specifically, cost of sales was 25.1%, which was up 70 basis points compared to last year's second quarter and sequentially up about 20 basis points from the first quarter. The increase compared to last year and this year's first quarter is primarily due to commodity cost increases and some changes in our menu mix. Labor during the second quarter was 35%, which was up 80 basis points from last year's second quarter, and was the result of deleveraging from lower sales, primarily in hourly labor and taxes and benefits. Operating and occupancy costs were 21.3% of sales for the second quarter, a decrease of 30 basis points from last year's second quarter. Included in operating occupancy cost is approximately $4.8 million of marketing spend, which equates to 2.2% of sales. Last year, our marketing spend during the second quarter was 1.9% of sales. As such, the 30-basis-point increase in marketing spend was offset by lower operating and occupancy costs, driven primarily by our cost optimization initiatives. Excluding marketing spend from our operating and occupancy costs in both years, we averaged about $21,500 per operating week this quarter compared to $22,700 last year, which represents a decrease of a little over 5%. We continue targeting the reduction of at least 100 basis points from our operating and occupancy costs, and that's excluding marketing over the next 3 years. While many of our initiatives are just beginning, we were pleased to see a 60 basis points reduction in costs and the ability to gain some leverage on these costs, given the Q2 sales levels. We believe this positions us well to gain additional leverage in the year as our initiatives begin to take hold. One of our fundamental philosophies is to continually leverage G&A as we continue our national expansion. During the quarter, our general and administrative expenses were approximately $13.5 million or 6.2% of sales, in line with expectations and down 20 basis points from last year. Depreciation and amortization was approximately $13.8 million or 6.3% of sales, an average of a little over $7,000 per restaurant week, again, in line with our most recent depreciation and amortization trend. Pre-opening was $1.3 million during the quarter, and that represented the cost for 3 restaurants that we opened during the quarter. Our tax rate for the quarter was 27%, and our shares outstanding were approximately 29 million. Also, at the end of June, and upon expiration of its lease, we closed our Belmont Shore restaurant, which is located in the Long Beach, California area. Our Belmont Shore restaurant was one of our smaller format Pizza & Grill legacy restaurant. Before we open up the call to questions, let me spend a couple of minutes providing some commentary on the outlook for the second half of fiscal 2014. All of this commentary is subject to the risks and uncertainties associated with forward-looking statements as discussed in our filings with the SEC. As many of you are aware, with the July 4 holiday moving to a Friday this year from a Thursday last year, the restaurant industry and in particular, casual dining, had a challenging start to the third quarter. The casual dining industry reported negative comp sales of 5% for the first week of July. And our sales trends were consistent with the industry at large, as our comp sales for the first week of July were down a little over 5%. However, since the first weekend of July, our sales trends have been more consistent with June trends, that is positive guest counts being offset by many mix and incident rates as we continue to drive everyday affordability. As a result, comp sales over the last 2 weeks have been flat to slightly positive, but we are not yet where we want to be from a total top line sales perspective. Ultimately, the best way to drive top line sales is through positive guest counts, and we have seen that in June and in July. As we continue investing and making our concept even more affordable, I expect that our average check will continue being down year-over-year. Therefore, I am expecting our guest count increases to be offset against the lower average check, resulting in flattish comp sales for the quarter. And while casual dining overall continues to struggle with guest counts, I am cautiously optimistic that our initiatives are resonating well with our guests and believe we have a great opportunity to continue building our market share. We currently have around 2% of menu pricing, which we will not lap until March of next year. For this third quarter, we expect approximately 1,960 restaurant operating weeks. We expect our cost of sales to be in the low -- could be really just below 25% of range, positively a little higher than this past quarter as we continue to see some commodity inflation. We do have about 75% of our commodities locked in for the rest of 2014. However, the commodities that are not locked, including ground beef, steaks and cheese, are experiencing higher-than-anticipated pricing. Based on our more recent sales trends, labor should be in the low 36% range in the third quarter. However, as I mentioned before, labor is significantly influenced by comparable sales increases or decreases. During the third quarter, I'm expecting total operating occupancy costs to be in the range of about $24,000 a week, and included in this number is about $2,400 per week or $4.7 million in total related to our marketing spend. For comparison purposes, last year, our total operating and occupancy costs were $24,700 or so per week, and about $2,300 of that was related to marketing. I do want to remind everyone that we historically experienced our lowest weekly sales average of the year during the third quarter. As such, restaurant level margins in Q3 generally come down from Q2 levels when we get the benefit of strong sales from the Mother's Day, graduation celebrations and Father's Day in Q2 versus Q3. So while we have made some good progress on moving our margins upward this year, I would expect overall restaurant level margins in Q3 to be below Q2 levels. I would anticipate G&A in Q3 to be around $13.5 million and pretty consistent with the second quarter numbers. Our opening comp will be somewhere in the kind of maybe $1.5 million to $2.2 million range in the third quarter, and that's going to be for the opening of 3 restaurants, plus some opening costs for restaurants that will open later this year. I anticipate our income tax rate to be around 27%, and our diluted shares outstanding will remain somewhere right around $29 million. In regards to our liquidity, we ended the second quarter with a little over $32 million of cash and investments. Our line of credit, for which we have no funded draws is for $75 million and does not expire until January 2017. Our gross CapEx budget for 2014 before expected tenant improvement allowances and sale leaseback proceeds is expected to be approximately $90 million, and that's based on 11 new restaurants and the purchase of the underlying land for 3 restaurants. As we mentioned in the past, our expansion strategy and overall business model is predicated on leasing our restaurant locations. However, from time to time, we may purchase the underlying land for a 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 opened. In 2014, we expect to receive proceeds from tenant allowances and sale leaseback transactions of approximately $10 million. And therefore, our planned net CapEx expectation is in the $80 million range. Also, as noted in today's release, during the second quarter, we allocated approximately $10 million towards the purchase of about 300,000 shares of our common stock in the second quarter. This leaves approximately $40 million remaining on our share repurchase authorization. We currently expect to fund our expansion, capital expenditures and share repurchase plan from our cash and investments, our cash flow from operations, proceeds from our tenant improvement allowances and sale leaseback transactions, as well as the possibility of using our line of credit from time to time. Finally, while we are pleased with the quarterly sequential improvement in comparable restaurant sales and restaurant level margins, we remain confident that over time, we can get both of these key metrics higher. As Greg mentioned a moment ago, our menu is resonating well with our guests, and we are pleased by the progress we are seeing on guest counts. We continue to be excited about our sales-driving initiatives around affordability, speed, hospitality and menu creativity. At the same time, our holistic approach to strengthening our productivity is improving our operating efficiencies, helping us improve our financial results. We firmly believe that our initiatives to drive sales, improve productivity and increase efficiency, combined with the prudent management of our capital structure, is a proven formula for sustained long-term growth and appreciation of shareholder value. That's it for our formal remarks. Operator, let's go ahead and open the line up for questions.

[Operator Instructions] And our first question comes from Brian Bittner with Oppenheimer & Co. Michael Tamas - Oppenheimer & Co. Inc., Research Division: This is Mike Tamas on for Brian. You guys talked about getting back to the 19% restaurant margin. So can you talk about maybe what sort of comp you have to see to achieve that in 2015?

Well, I think in regards to the comp sales, and this is what we talked about even at our Analyst Day, we were looking at a kind of longer-term comp sales in that 2% range. I think we've made some tremendous progress in regards to our current cost structure, which might be able to lower that a little bit. There are certain things that are still out there in the horizon that we have to analyze and determine when we think about overall and getting back to that margin. One of those items will be something like the Affordable Care Act. And for those that are all of a sudden thinking, "Hey, let me ask a question on that," we have not gotten from our insurance company yet what the cost will be for that for next year. But based on analysis that we've done in prior years, we think we can handle that with a reasonable pricing from that standpoint. So ultimately, I think we're still looking somewhere around a 2% level or so to get back to those margins. I think we showed some pretty solid margins here in the second quarter in the mid-18%. Again, that's a little bit higher time for us in regards to weekly sales average. But I do believe overall and where we're making progress that we can get back to those margins somewhere in the 2% range and maybe a little lower.

And from Buckingham Research, we'll go next to Matt DiFrisco.

I was just wondering if you could talk a little bit about also the new stores and the volumes that you're seeing off them, if what you're seeing or if you're doing anything different as far as opening with them. It seems like you controlled your pre-opening. And then I think your guidance, if you said it was $1.5 million, $1.3 million for preopening, that also seems a little lighter than in the years passed. Is there concentration on reducing that cost as well?

Matt, a couple of things here. There was the many different questions, I guess. Taking the latter part there, there is an effort to try and reduce pre-opening costs. I'm not sure all of that has come through yet, but we always talk about pre-opening around $500,000, and we'd like to see that number come down if possible. I think our opening team has done a nice job this year in controlling those costs. I will tell you though, some of those costs are still going to come through here in July related to the first quarter. So that's why it's probably going to be a little bit higher in the third quarter versus the second quarter, especially considering that in the first -- second quarter, our last opening was in June and our next opening is not until August. So you get a little of bit if that spread, where that will be a little bit more compacted in the third quarter. So right now, we're still targeting about $500,000, but I do think there's the opportunity to bring that number down. And we've actually put that target and that goal out there for our opening team. In regards to the new restaurant performance, it's doing really well. I mean, like anything, and I take this over the last 18 months, the restaurants that opened last year, as well as restaurants that opened this year, when you've got 10, 11, 12 new restaurants. And there are going to be some that performed extremely well and better than others. But I think, overall, what we're seeing out of our restaurant is solid top line performance. Some of the restaurants that opened may be a tad softer than what we would expect are starting to grow. And we're overall really pleased, and actually very pleased with some of the newer markets we've gone into such as Shackleford, which is in the Arkansas market, in the Little Rock area, as well as into the mid-Atlantic up in Frederick and Gainesville.

And was that correct, though? You did say around $1.5 million for the preopening for this current quarter?

I said $1.5 million at the low range, and I think I said $2 million or $2.2 million at the high end. So I would expect that you're going to have 3 restaurant openings there. Maybe they're around $500,000. That gets you a $1.5 million bottom. And then we're going to see preopening rent and some of the other things come from the other restaurants. That's probably going to be a tad higher.

Understood. And then just also looking at the labor line, is there any cost initiatives going on there? I think you said 36% relative COGS and -- or 36% relative labor cost around that in 3Q. That seems a little high compared to the year ago and compared to an outlook for flat to maybe even slightly positive comps?

Yes, a couple of things there. We do have initiatives going on around that, especially around Project Q. But the way I've looked at it from just a base modeling, and I would be hopeful that maybe we can get some opportunity on that number, is starting here on July 1 of this year, is California minimum wage. So I went ahead. When I think about my numbers that's putting through the California minimum wage, which frankly is about 70 basis points or so to our numbers just on kind of a run rate. We then pick a little bit of pricing. If you've noticed from the formal remarks, we have pricing of about 1.4%. That pricing's going to be somewhere around 2% here in the second quarter. But that pricing should offset some of the California minimum wage, maybe let's say cut it in half or so. And then if you start to look at last year, I believe last year, we ran labor somewhere in the 35.7% range or so in Q3. I'm just looking at my -- trying to look at my numbers from the prior year of 35.7%. So if you think about minimum wage being worth 70 basis points, you get some pricing in there cutting it down to 30 basis points or so. That's where you're sitting at around that 36%.

Matt, sorry, this is Greg. I just wanted to add a couple of thoughts on the pre-opening side because I think in general, a good observation you're making and in terms of what's really driving some of the efficiencies that will continue to occur there, is one is the simpler menu. We made the decision to open our newer restaurants with a next generation of a scaled-back menu, which again is very diverse, still plenty of optionality on those menus. But starting with Shackleford and Little Rock, we opened with a menu that was closer to 120 menu items compared to the 150 or so, that's on our typical menu today. So the training implications for that and speed implications around getting up and going more efficiently are significant. So that's helping. And we're looking at the opening schedules itself and how many people are actually hiring and being more efficient on the front end and things like that, that are helping with the opening as well.

That's great. Greg, you also mentioned something about the price there. I'm sorry, I just picked that up now, but 1.4% in the quarter now going to 2%. But yet your relative food cost, I think you were saying could be in line with slightly higher than 2Q. Are you seeing underlying commodity inflation accelerate or wouldn't you see better relative COGS with a 2% price increase in the back half of the year?

We're still seeing that inflation there. We've also seen a little bit on the menu mix as we've rolled out the menu in February. That's kind of putting that number up a little bit.

Keep in mind, we're still running negative guest check, right? So...

And our next question comes from Will Slabaugh with Stephens.

I wanted to ask you a little bit more about sales trends. You've mentioned that the trends improved throughout the quarter. I'm just thinking back to the last quarter whenever I think you said that the trend line you felt like was roughly negative 1.5% and I know there was a bump around the Easter. So I was wondering if you could kind of help me put those 2 comments together in terms of progressing throughout the quarter and yet -- and so ending up kind of in the negative 1.7%. And then I think it gets better into July. So can you give us a little more detail around that?

Yes, it's a good question, Will, and that's why we're always cautious in regards to where do we think comp sales are going to be and give guidance from that standpoint. We saw, I think, better underlining trends, as we mentioned in April. And as we look through the months or as the month came on, we saw probably a little bit of a deceleration of that in May before it started to come back during the June timeframe. And I mean, I think the bigger part of that when I look through it from a detail standpoint, really was more centered around Texas and going over some of those pretty big comps from last year. And I think maybe as we've gotten through some of that now, the tail of the TV is just that much longer maybe because it's a little bit more of a benefit going into Q3 and Q4. But again, looking through the detail of things, that was probably the area that surprised us the most in Q2.

Got it, that's helpful. And then one quick follow-up, if I could. You mentioned the World Cup helped you out. I know this is difficult to do, but did you try to quantify that at all in terms of how much that helped out either in your comp for last quarter or for next quarter in the same period?

It's difficult to do because even prior and non-World Cup days, in coming into it, we are doing some decent comps there with graduation and Father's Day. When I do think about the overall quarter and try to get kind of a normalized number there, I would probably tend to think that Easter and World Cup kind of offset. And as a result, we kind of ended up with kind of the negative 1.7%. I think taking that aside and kind of even pull out World Cup, I would tend to frankly look a little bit more as our trends going into July. And our trends going into July as much as we're going to take a little bit of the hit as we work the affordability side of things. We're seeing those positive guest traffic into our restaurants. We've seen them in California. Now we're seeing them in some of the other areas. It's going to be offset a little bit to guest check, which is what we talked about, but it's something that we designed from a strategic standpoint this year. So yes, the World Cup gave us some help there, but those trends from the World Cup don't necessarily seem to be a one and done-type trend, at least right now.

And we'll go next to Sam Beres with Robert W. Baird. Samuel Beres - Robert W. Baird & Co. Incorporated, Research Division: I just wanted to ask a little bit, first, in terms of the occupancy and other operating line, I think, Greg, you had mentioned on the Q2 or Q1 call about kind of thinking that in the $25,000 per week range. And it came in at about $24,000. So I just wondered if you can maybe give a little more color on the progress you're making with the various initiatives you're seeing there, and kind of the amount of room that you still think you can go there on that line?

Yes, in regards to the progress that we're making there, I think there's a couple of things here. We've been talking about that line last year. And I think a lot of times people think that all of a sudden, we talk about it at an Analyst Day and the next day, we started implementing things. A lot of things we were doing were centered around Project Q that really began in 2013. And in fact, even at the first part of 2013, as we said we're going to hold off the menu development and look for efficiency. A lot of these things came about as we spent a lot of time looking at it and working them through. And when we look through some of the specific things, some of those are just better vendor management with our vendors, meaning working on contracts that were coming up for expiration, looking at how much we've grown, looking at changes in sales volumes and adjusting things. We've put in a demand management on utility side of things, working with a couple of utility companies out there that allowed us to buy electricity and gas at a lower price. And we're looking at some other things around the demand side versus the supply side in utilities. Most of our R&M today, we centralize through our facilities department, so we can make sure the scope is correct when a plumber or electrician or somebody else might come to our restaurant, we make sure our facilities department is on top of that and understands the scope to work with that vendor to make sure that it's the appropriate scope on those things. So it's still a lot of those areas. As we continue to work through it, I don't know where the end result's going to be there. I think there's still additional opportunity out there. I know John Allegretto, our Chief Supply Chain Officer, continues to work through those areas. As I mentioned, we're going to look at some demand management around utility. We'll continue to look at how we do facilities and work on more national contracts around repair and maintenance. So I think there's other opportunities. I can't tell you exactly how it's going to come through, but we did lay out at our Analyst Day that over 3 years, we are going to try and get at least 100 basis points there or $1,000 a week. And I think, frankly, we can probably get there sooner based on what we're seeing. Samuel Beres - Robert W. Baird & Co. Incorporated, Research Division: That's helpful color. And then maybe just a little more perspective, if you could, just on what you really think is driving these positive same-store traffic trends. Is it just the guests coming in and noticing the differences in the menu or are you seeing, really, this order ahead and mobile pay really having a difference in certain restaurants than maybe have a higher incident rate of it? If you can maybe just provide a little more perspective on that, that'll be great.

Yes, I'll try to help you there. And look, it's hard to scientifically break out all the things that we've been doing. But I would say in this environment, and we can't lose sight of the fact that for our core customer groupings, this is still a difficult environment from a disposable income and spending perspective. And we're still seeing that in retail, and I think continuing to hammer home the value and improve the value equation around our menu, but doing that in a way that's combining those new menu items with tastes that are memorable and more differentiated that people are talking about and coming back for. I think that's the most powerful combination, I'd say, value combined with some new news that is proving to be, given the performance of those new items, to be pretty compelling. The -- I'll talk a little bit about the -- our app rollout and order ahead. I have more described it as a really great foundation in terms of an installed base and the reviews and momentum that is building there is -- I'm very happy with. But I wouldn't call the numbers themselves are not needle-moving in terms of driving comps at this point yet. And then, frankly, it wasn't our expectation for it to be that. I do think we got a very positive halo around being the first to be out there with an order ahead app that really does work as well as this one does. So I think there are a lot of positive there, but the transaction numbers themselves are not a major contributor to driving comps at this point. And we don't expect them to be so for a while.

And from Wells Fargo, we'll go next to Jeff Farmer.

Just following up on the whole series of comp questions, you've obviously got some tailwinds from the new media campaign and the new menu, but have you begun to see, I guess, in your opinion, diminished headwinds from some of the things you've called out in recent quarters, stuff like the cannibalization, the competitive encroachment. And then you've also pointed out some of these new units. I know the comp base is a little bit of a drag. Have you begun to work through that as well? Has that also given you a little bit of a bump on the same-store sales front?

Yes, Jeff, that is. I mean, you're going to slap some of the cannibalization, and we're starting to see that. I will tell you though, we're going to run into the same honeymoon problem this year as we ran into last year to some degree. Meaning as I look through historically, the 2011 class is improving sequentially, which we'd expect it would. But as the 2012 class using kind of 18-month timeframe comes in, it's going to be a little bit of a drag. So I would say that's a neutral. But as we go through some of the cannibalization and AFOs from ourselves, as well as the competitive intrusion, we'll get some of that benefit out there. At the same time, to some degree, we continue to see that on restaurants. I mean, I think you can probably look out there and see the amount of new restaurants, both within fast casual and casual dining, maybe not necessarily at the national chain level, but at the kind of more regional players continuing to develop.

Okay, that's helpful. And then just a couple on sort of the media spend here. I know you outlined the dollars definitely at the Analyst Day, and I can't remember if you did it on the last call. But I'm just curious what the plan is for total media dollars in '14 versus '13?

I don't know. I'd have to get back to you on that because I don't know if I have that lined up from that standpoint. We talk about, obviously, the total dollars being $20 million. I just don't have the breakout on all of them. And the one thing we did do at that Analyst Day, and I think I've done this since, is to let people know -- we get this comment though that they think it's -- we're spending $20 million or $19 million that, and Greg Trojan is looking at me kind of laughing, that $18 million of the $19 million is somehow TV advertising, and it's really not. We continue to work the loyalty program, which frankly is what we used the most of in the second quarter driving some of our lower sales volume restaurants with some selective offers in those areas. And we've seen some nice hits from that in those markets. So it's a combination of things as we roll out menu costs, as menu costs go into marketing for us as well. So I can -- we can talk later on what's the detail between, you want to call it, media is versus some of the other line item spend.

Okay, that's helpful. I mean, just actually then switching topics on you then, final question. So look, you guys have made a lot of headways, it seems like already on that operating and occupancy cost line. You can see that dollar and cost per opening week going down. You've already commented on labor, but as we sit here halfway through '14, what do you see as sort of the greatest remaining opportunities to really drive some incremental efficiencies on this P&L as we get, again, the balance of '14 into '15? What's still some of the low-hanging fruit that's out there for you guys?

There's not that much in terms of -- low-hanging fruit makes it sound pretty darn easy. And we -- the more analysis and introspection we do around this area, in one way, it's gratifying to see that we're a pretty tightly controlled team out there. There's not a lot of low-hanging fruit in terms of people not executing the business pretty darn tightly. But what we are finding is given we're a bigger company now and have more scale is that there's opportunities to just -- to do things differently. And we call it moving the line. And as we've done a lot of this analysis and looked at performance across all of our restaurants on a regression basis, it's not -- there's not as much opportunity as you would like because in many ways it's easier to close the gap restaurant to restaurant on a performance perspective versus how are we going to actually behave differently and move the entire regression line itself. And to be a little bit more specific, the bigger area is how we can look at labor differently, and that is, of course, intermingled with the menu complexity and back of house and speed at the same time. But labor is the biggest opportunity when you look at, historically, how efficient we've been and where we are today. That's where the largest dollar opportunities lie, but we're going to be very surgical and careful about how we go after that because we're not going to sacrifice, particularly front-of-house performance levels and speed and levels of service to get there. So really [indiscernible].

And from Roth Capital Partners, our next question comes from Tony Brenner.

I have a question regarding the media advertising. Your advertising in Southern California through I believe the entire second quarter, and, Greg, you've mentioned that comps were higher in Southern California, but they were lower in the state overall. So I assume the increment was small-single digits. And I'm wondering why that was so much different than the effect you saw on Texas when you had, for the first time, media spend?

Well, I'm thinking through your question a little bit here, Tony. I don't think we were on media the entire second quarter. I think as we rolled out the new menu, we went on media in March, which would have been at the end of the first quarter. And then we hit, I think, 3 weeks in June with media here in the L.A. market. So really, with only 3 weeks of television or media in Q2 in California. So that's the first part from that standpoint. The second question was why aren't we expecting California to do as much as Texas did last year? I didn't quite understand that.

Well, no. I was comparing the spend in California as you began to advertise on TV to Texas. But you're saying that in Texas, it was for the entire quarter, and in Southern California, it was only for 3 weeks of the quarter?

Tony, sorry, we were overlapping TV a year ago in Texas, and we have not been on air in Texas during the quarter. But we are overlapping where we were a year ago. So that is the issue in Texas.

And just for...

No. I'm wondering why the gains in Texas, as you advertised there a year ago, were so much bigger than even in 3 weeks in June when you were advertising here. You got some bang for it, but not nearly as much as you saw in Texas?

I see. I think, and look, honestly, I don't know the exact answer to that. What we've noticed when we've done some of our television testing in general is Texas tends to respond more towards a marketing message than maybe California does. Whether we've done some loyalty testing, because that's how we try to drive some of the comp sales here in Texas more recently. We'll see the take rates on loyalty pretty solid in the Texas market. What we've also noticed is Texas might have had a little bit more opportunity because their weekly sales average or capacity in the past hasn't been as great as California. And therefore, when we've done some media there, you see some, a little bit more of an expansion at times. But when we did our second round of Texas TV earlier this year, it didn't have quite the impact that it had the first time we did it in Texas. So maybe that was it as just well. Meaning the first time you do it, you get a bigger lift, and then over time, it drops a little bit.

Tony, I think it also had a lot to do with the awareness levels in the markets, right? We grew up in California, as you know, right? So the incrementality of you're off a base of an awareness level that's already starting from a higher place in California. So when we're spending dollars driving awareness in newer markets, even though Texas isn't a new market, you're going to see more incremental lift when you're spending against awareness in those other markets.

Was your response sufficient to continue to advertise in California?

We've been very pleased by the momentum it's created. One of the drivers of the improved performance overall in traffic and sales is what's happened in California.

And we'll go next to John Glass with Morgan Stanley.

It's Courtney on for John. My question was just about the new menu items and what percent of your sales they are mixing? And then just secondly on checks, and I definitely was just curious to how much of the negative check is just from this trade-down to the lower-priced items, and if you were actually doing any discounting this quarter, whether it was part of the incentive for loading the app? And then I just had a couple more questions, follow-up on the adoption of the app in daypart usage and any tonnage you have there?

The mix or the guest check decrease is fundamentally mix and incidents. Our level of discounting is about flat to what it was a year ago. So it's around the menu engineering and the mix, Courtney.

Yes, and the majority of that, Courtney is really the mix. When we talk about incident rates, I think primarily there, we've just seen lower, I've mentioned this before, lower non, what is it, carbonated drinks, meaning lower Pepsi, Coke-type of incidents around that, which seems to be kind of occurring around the industry in general. So that's been an area that's been driving down our incident rates a little bit. But the majority of it has been the mix.

And we don't have -- I'm sorry, just to answer your question on the new menu items. We don't have a number of just corralling those new menu items, but we can tell you some of the best performers in the categories that they lie in are those new menu items. So many of the top 1/3 performing mixing items in entrées or sandwiches, et cetera, are the newer items. So they clearly are resonating from a mix perspective.

And then on the menu that you're testing, are you reducing old items, and it's all new items on the 120-item menu or are you just offering fewer new items?

There may be an exception here and there, but largely, I mean, these new items are working well. So it's items that have been on the BJ's menu for a long time that are going away.

But Courtney, real quick, just to make sure you understand. As we've opened new restaurants -- so as we've opened a new restaurant in a new market, they don't know what they don't know, meaning they didn't see a menu originally was 180 items. And now they're all of a sudden one day seeing a menu at 125 or 130 items. As we go to look at this test coming down the road here in existing restaurants, it's going to be a little bit of a combination of pulling off some old items, but we're going to add new items at the same time to keep it fresh versus somebody walking in one day and seeing just a bunch of items taken off. So it's a little bit of a hybrid approach there. I think that's very strategic in regards to the way we're approaching it.

Okay. And then just in terms of the app, I was just curious if you're seeing more people use it at lunch as a comp -- to kind of compete with the fast casual, and also if you're seeing any production in throughput times as a result of it?

We are seeing reduction in the times for those transactions that are occurring using the app, for sure, but it's not a big enough part of the mix yet to drive the total number down appreciably. But importantly, if you want to use the app to reduce your time, we're seeing meaningful, noticeable difference in duration times.

Yes, I don't -- Courtney, I don't know if it's higher at lunch or dinner in that regard. So I couldn't give you that right now.

What's interesting -- I think is interesting is the mobile app and the order ahead are pretty close. In fact, order ahead is probably growing slightly more quickly than the mobile pay element of it is. And they're both doing well. But the bigger paradigm shift is being able to order ahead and actually dine in, in a restaurant. And that's going, if anything, a little more quickly than I would have expected.

And our final question comes from Nick Setyan with Wedbush Securities.

This is Colin Radke on for Nick. I was wondering about the mix shift you're seeing. It sounds like you've been negative for the past couple of quarters, and it sounds like you expect that to continue. Is there a point that we should expect to see that to reverse? And then do you expect the new smaller menu to maybe benefit that in any way?

Let me take the first part real quick here. We introduced our Brewhouse Burgers in November of last year. So we have to get through the November timeframe where maybe some of that comes back from the mix shift standpoint. But at the same time, this new menu, which we rolled out, and we knew we'd have a negative mix shift. It's how we test it in the restaurants that we tested it out here. That rolled out at the end of the February, let's call it March 1. So realistically, I think we would continue to see kind of the negative mix shift over the next 9 months until we start to lap it in March of next year. And again, that's going to also depend on what other items we continue to introduce into the menu to drive guest traffic. I mean, ultimately, we want to be driving guest traffic. And right now, we seem to have some momentum around that.

Kind of, for example, we're working on the next category to do sort of a similar kind of trade-off that we've done in these other categories as our appetizers. Appetizers haven't seen significant new news in the core grouping in a while. We think there's a value opportunity to go after price points that are in the sixes, let's say, versus the nines. And we think we will drive bigger incidents by going after those kind of price points, items that are quicker, grab-and-go kind of items for our teams to get in our -- on the table tops more quickly and drive turns as well. So there's more work to be done, but what we've been thoughtful about adding items on the higher end too, to balance because frankly, a 70-basis-point decline is meaningful from a P&L perspective, for sure. But we've done things like add a bone-in rib-eye on the menu and even our starter salads to drive, to add to our guest check and build guest check while we're working on the value at the same time. So it's not all about singular focus on just taking down the guest check. We're doing some things to balance the impact on the value side to build guest check at the same time.

Okay, understood. And then just lastly, any updates on the loyalty program and maybe the adoption rates you're seeing there? And then also maybe what you see the opportunity in terms of integrating that with the mobile app?

Well, in general, the mobile app is integrated when the mobile app is part of being a loyalty member. So it is driving even incremental numbers of participation in and of itself. So we're continuing to see good growth in the loyalty program in terms of numbers. But more importantly, Greg made a quick mention of this, we're using it for a much more targeted approach to some of the promotional activity that we're using. And we're deploying that promotional activity where we need it the most, our most sales challenged geographies where maybe where there's more new competitive openings, et cetera, and using loyalty to drive some incremental traffic, and again, are very pleased with the end results we're seeing and the targeted efforts around loyalty. Okay. Thank you, operator. Thanks, everybody, for your time. We appreciate it.

And ladies and gentlemen, that does conclude today's presentation. We thank you for your participation.