BJ's Restaurants, Inc. (BJRI) Q2 2016 Earnings Report, Transcript and Summary

Please stand by. We are about to begin. Good day and welcome to the BJ's Restaurants Inc. second quarter 2016 earnings release and conference call. Today's call is being recorded. And at this time, I would like to turn the conference over to Greg Trojan, President and Chief Executive Officer. Please go ahead. Gregory A. Trojan - President, Chief Executive Officer & Director: Thank you, operator. Good afternoon, everyone, and welcome to BJ's Restaurants fiscal 2016 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. We also have Greg Lynds, our Chief Development Officer; and Kevin Mayer, our Chief Marketing Officer on hand for Q&A. After the market close today, we released our financial results for the second quarter of fiscal 2016, which ended on Tuesday, June 28, 2016. You can view the full text of our earnings release on our website at www.bjsrestaurants.com. Our agenda today will start with Rana Schirmer, our Director of SEC Reporting, providing our standard cautionary disclosure with respect to forward-looking statements. I will then provide an update on our business and current initiatives. And then Greg Levin, will provide a recap of the quarter, and some commentary regarding the remainder of fiscal 2016. And after that, we'll open it up to questions. So, Rana, please go ahead. Rana G. Schirmer - Director-SEC/External Reporting: Thanks, 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 26, 2016. 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. Gregory A. Trojan - President, Chief Executive Officer & Director: Thanks, Rana. While the second quarter proved to be a challenging sales environment for the casual dining sector, the strength and execution of our new restaurant opening strategy drove 7.9% topline revenue growth. And strong bottom line results displayed slightly negative comparable restaurant sales of 0.2%. Once again, with the benefit of our productivity and efficiency initiatives, we leveraged this topline growth and achieved record profitability, increasing diluted EPS by 19.5% and net income by nearly 11%. Our operators continue to effectively control what they can control in today's choppy and challenging sales environment, as we generated restaurant level margins of 20.6%. Our ability to continue growing our bottom line even in challenging times highlights a key advantage we have as a concept. Specifically, our ability to grow top line through our new restaurant development engine fuels strong earnings and cash flow growth over the long term. Of course, we're not satisfied with slightly negative comparable same-restaurant sales, but we again outpaced the industry average as calculated by Knapp-Track and Black Box by 100 basis points on sales and by approximately 190 basis points on traffic, both of which also mark an improvement versus the industry compared to our results in Q1. The biggest reason we consistently generate strong earnings and cash flow is our team's commitment to executing each and every day at continuously elevated standards of quality and efficiency. This quarter was particularly challenging as the day-to-day and week-to-week fluctuation in sales were more volatile than we have experienced in a very long time. This presented our operators with as difficult an environment to plan their labor and food prep as you can have. But once again, our operators did a solid job of battling back, and importantly they continue to search and find new ways of working smarter, cooking better, and delivering friendlier service. There is naturally a lot of speculation about what caused the incredibly choppy customer trends endured by the casual dining and other consumer sectors in Q2. Some of this choppiness was clearly driven by factors such as calendar shifts, weather, and other outside factors outside of our control. Some of our sales softness was also the result of reallocating TV media spend in Southern California a year ago to support a few of our less densely developed markets with digital, radio, and local marketing spend this year. While this drove solid lifts in those markets, it did not offset the slowdown in Southern California, where we continued to run positive albeit less significant sales growth this year. Despite the macro trends and the choppy consumer environment, our goal is to make sure we are building this business for the long term. Therefore, we are committed to controlling everything we can control, but at the same time preserve the essence of the BJ's experience in terms of guest service, facility maintenance, quality, and variety of our menu offering. Looking at the consumer environment in our early Q3 sales, it looks like the challenges around the globe, including violence in a number of our most significant markets, will present traffic and sales headwinds in the near term. It's evident that we and all consumer-facing companies are navigating through unusual times, characterized by a confluence of social and political issues at home, weakening consumer confidence and increasingly global uncertainty, as well as a very unusual presidential election cycle. The second quarter demonstrates that our concept has a great resilience in tough times for the consumer, and we are pressing hard to address all the consumer audiences that we serve to make sure BJ's is the go-to option for any dining-out experience. We are challenging ourselves and our teams to be as innovative and entrepreneurial as ever in this environment with initiatives including stepped-up hospitality efforts and increasing our sampling programs where we are offering complimentary samples of menu items for guests waiting and dining in our restaurant, thus reminding our guests of one of our biggest strengths, the sheer diversity of tastes and experiences on our menu. Operationally, we are upgrading our host hardware and software systems, along with streamlining our seating process to speed the time it takes us to seat our guests. We have also stepped up our promotional activity to incent trial of our powerful app, which when used to join our wait list, order ahead, or pay at the table, significantly speeds the BJ's experience for those who need to get in and out of our restaurants more quickly. We are also optimistic that our efforts to improve our already strong value offering will help drive traffic improvements. In general, we have stepped up our promotional activity utilizing media that we believe can be most incremental from a traffic perspective, meaning we are emphasizing offers to guests who have not yet made BJ's their destination of choice. A couple of examples in Q2 were our $10 off $35 promotion and our successful bundled lunch offering of grilled cheese or piadinas with fries and a free non-alcoholic beverage for $9.95. These two offers, for example, provide our guest with a great value and actually build guest check. We've also improved the value proposition of our happy hour offering in Texas, one of our most competitive happy hour states. Our fundamental strategy is to be a market share taker, and I'm proud to report that despite the environment, we continued to do that in Q2. As the environment has continued to get tougher – and Greg Levin will comment on our recent trends in a moment – we plan to increase our marketing and promotional spend in the third quarter. We have a tremendous opportunity to drive our brand equity and awareness in both our legacy and newer markets. Remember our overall top-of-mind awareness still lags our larger mass casual competitors by a wide margin. At the same time, our marketing team has continued to evolve our core brand messaging, and we believe their latest iteration is the best work we have done. It emphasizes our brewhouse heritage and the fact that we combine our contemporary atmosphere of a local craft brewpub, but without the beer geek snobbery. But we deliver a menu packed with unique flavors derived from craft recipes, not bar food, and that we are a great place to watch sports, but without the ambience of obnoxious fans. These elements are being featured in all of our marketing in September and we are planning several weeks of TV in select markets to drive home the fact that BJ's is a restaurant with a brewhouse soul and that we are resolute in making sure that our consumers know that to us CRAFT MATTERS and that we want every moment that guests spend with us to be special. Additionally, we remain focused on continuing to make our menu even more unique and craveable for our guests. This fall, we will introduce several new items in our Enlightened Menu category, which continues to be a big part of our menu mix and differentiating in terms of taste and overall quality. We will be adding items that answer the growing requests from our guests for more healthy choices in terms of gluten-free, clean labels, vegetarian, and more superfood options etcetera. Eating enlightened is much more than watching calories, as guests become more educated and demanding in terms of what they are eating. Having said that, what makes BJ's so special is our menu variety for anyone in any occasion. Our latest summer menu introductions include an addition to our Loaded Burgers lineup, a Monday through Thursday daily Brewhouse Special and a flatbread nacho pizza in which we deep fry our flatbread pizza dough. I'm also delighted to report that our Pizookie incidence continues to climb, this time as a result of our latest hit product, our Monkey Bread Pizookie. We'll also reinforce our place as an award-winning craft brew innovator, as we continue to rotate seasonal beers that are only available at BJ's. For example, starting next month, we will introduce a limited time only collaboration IPA brewed at our Temple brewery in Texas with the renowned team from Green Flash Brewery, known for their quintessential West Coast IPA brewed in Central San Diego County. Our collaboration brew features a rye based malt combined with all German hops and a dash of toasted caraway seeds. Finally, we are testing a new physical menu, which based on the layout and placement of certain items has shown in test to increase average check. We plan to have this new menu layout rolled out to all of our restaurants by the fourth quarter of this year. So, in addition to these operational marketing and menu initiatives, our strong balance sheet will continue to be a tool for us to drive shareholder returns. About a year-and-a-half ago, we crossed the threshold of not only being able to fund all of our organic growth from internally generated cash flow which we have done for many years, but in fact have reached a point where our cash generation exceeds the capital we need to grow at what today we believe is a prudent rate of approximately 10% increase in restaurant week. As we know, we have been allocating that excess cash to share repurchases, and as a result, during Q2, we leveraged our 10.9% growth in net income to earnings-per-share growth of over 19%. Our fundamental ability to grow our topline through solid new restaurant growth along with the work we've done to nearly double our cash flow generation over the past two years is a powerful combination to drive future returns even when comparable restaurant sales are difficult. This is very different from most mature casual dining concepts that rely solely on comp sales to increase their cash flow. At BJ's, our primary cash flow increases year-to-year are going to be from the tremendous white space growth opportunity that we have complemented by comp sales growth at our stable base of existing operations. In summary, I hope it's evident that even in tough times BJ's can and will continue to thrive. We have strategies and plans in place, menu, marketing, and otherwise, to do well in the current environment and the balance sheet operating practices and business plan to ensure that our key constituents, our guests, our team members, and our shareholders all benefit from the singular focus of every member of our team to become the world's best casual dining restaurant. While we are pleased to be able to continue our strong earnings and cash flow momentum, we are clearly in a more challenging environment for dining out occasions. Although these times present new and different challenges, they also present the opportunity to dedicate ourselves to being that much better in everything we do and to fight for each and every guest occasion. As we have in the past, we believe our concept will come through the fight even stronger in the competitive landscape and will continue our march of taking market share and growing our restaurant footprint. I will now turn it over to Greg for a financial overview of the quarter and some commentary for the rest of fiscal 2016.

All right, thanks, Greg. Our second quarter results benefited from the ongoing gains from our companywide productivity and efficiency initiative and continued double-digit new restaurant growth, while the strong diluted earnings per share growth also reflects our ability to return capital to shareholders through our share repurchase program. Our 2016 second quarter revenues increased approximately 7.9% year-over-year to $250.3 million while net income grew 10.9% to $13.8 million and diluted net income per share grew 19.1% to $0.56. The slight 0.2% decline in comparable restaurant sales during the quarter included an approximate 1.4% increase in our average check which was offset by an approximate 1.6% decline in traffic, as negative traffic counts impacted most of the casual dining sector for the quarter. After a positive comps and aggregate through May, our business saw a slowdown in June with sales off about 1% for the month. This slowdown was fairly widespread and not necessarily specific to any one region. And to preempt the question I know we will get, our Texas locations which remain soft for us, did not really see any noticeable change in business trends over the course of the quarter. However, we did experience several softer than normal days in Texas during the heavy rainstorms that occurred in April and May. Conversely comp sales in California were positive every week during the second quarter. Excluding Texas, comp sales for Q2 would have been positive about 1.2% and traffic would have been down approximately 0.5% negative. As Greg Trojan mentioned, though we had nominal menu pricing in the 2% range during the quarter, our average check was up about 1.4%, as we increased marketing promotions to drive guest traffic and continued to see tremendous success from our value priced piadinas and grilled cheese sandwiches which we introduced in Q1 of this year. Overall, this allowed us to outperform the industry in regards to guest comp sales and guest traffic. Our weekly sales average for Q2 is approximately $110,000, down about 1.6% from last year's second quarter. The spread between comp sales and weekly sales average is in the 1.5% range or so, has been pretty consistent over the last 18 months as we continue to build new restaurants away from our California base. Cost of sales for the quarter of 25% was 40 basis points higher than a year ago quarter. As we reviewed last quarter beginning this year, we changed the way we internally allocate promotional costs between cost of sales and marketing. Previously, we recorded to marketing a food cost charge related to promotional activity, which resulted in lower cost of sales and higher marketing expenses. However, given our efforts to increase promotional activity, particularly due to activity in our loyalty program, it was prudent to change this practice. On an overall basis, our commodity basket was slightly down for the quarter with year ago levels. Labor of 34.3% for the second quarter, represented a 30-basis-point increase from the year ago period, and was driven primarily by higher hourly labor of approximately 80 basis points, offset by lower workers compensation insurance of 30 basis points, and lower payroll taxes and benefits. The increase in hourly labor is primarily related to higher wages specifically here in California. Operating and occupancy costs were 20% of sales for the second quarter which was 50 basis points lower than the prior year quarter. Included in operating occupancy costs is approximately $4.4 million of marketing spend, which amounts to about 1.8% of sales. As I noted just a moment ago, we changed the way we allocate certain costs related to promotion and discounts which have been charged directly to marketing in the previous quarter. This resulted in marketing being about 50 basis points less than the prior-year period when it represented 2.3% of sales. Excluding marketing, operating occupancy costs in the second quarter averaged approximately $20,100 per restaurant operating week, compared to $20,400 last year. Our operating occupancy costs excluding marketing represented about 18.3% of revenue in both 2016 and 2015 second quarter period. Our G&A was $13.8 million in the second quarter, representing 5.5% of sales and down from 5.9% in the year-ago period. G&A was lower than anticipated as we reduced corporate incentive compensation by approximately $500,000. In addition, we continued to have lower than expected costs related to recruitment and training of our new managers. Depreciation and amortization were $16 million or 6.4% of sales and averaged about $7,000 per restaurant week, which is in line with our recent D&A trends. Pre-opening expenses primarily representing expenses related to the three restaurants that we opened in the quarter, plus pre-opening rent in as many as 11 restaurants under construction was $1.6 million for the quarter. Our quarterly tax rate of 28.3% was slightly below our annual targeted rate of 29.5% to 30% and that was due to some additional WOTC credits. Our total capital expenditures for the first six months of this year were approximately $50 million, and we still anticipate gross capital expenditures for fiscal 2016 to be in the $110 million to $120 million range. Our anticipated capital expenditures cover the construction of 18 new restaurants to 19 new restaurants, maintenance CapEx and other sales building initiatives before any tenant improvement allowances. While we did about $24.5 million of repurchases in Q1, we did not buyback any shares during the second quarter. However, as noted in today's press release and based on our continued strong cash flow and current line of credit, we increased our share repurchase program by $100 million. Since, authorizing our initial share repurchase program in April 2014, we have repurchased and retired approximately 5.5 million shares of BJ's stock for approximately $220 million. With the board's latest increase in our authorization, we've approximately $130 million remaining under our current authorized share repurchase plan. Finally, with regard to liquidity, we ended the second quarter with approximately $23 million of cash and $91 million of funded debt on our line of credit, which is in effect until September 2019. As of the end of the second quarter, our funded debt to EBITDA is very low at about 0.7% on a trailing 12-month basis. Our $150 million line of credit and strong cash flow from operations provide us with the flexibility we need to continue our national expansion program, while returning capital to shareholders through our share repurchases. Additionally, our line of credit does have what is called an accordion feature that allows us to increase the line to $200 million if we so choose and our financial institution agrees. Before we open up the call to questions, let me spend a couple of minutes providing some updated commentary on expectations for the rest of fiscal 2016, specifically the third quarter. All of this commentary is subject to the risks and uncertainties associated with the forward-looking statements discussed in our filings with the SEC and is based on the information we have as of today. As we began Q3, the industry-wide comp sales slowdown that we experienced in June has continued into July. As Greg Trojan mentioned, a variety of headwinds are weakening consumer confidence, causing continued declines in restaurant traffic. Unfortunately, around the upcoming U.S. elections including the recent Republican and Democratic national conventions, racial divide, public area shootings, and other macro events appear to be challenging the restaurant industry overall. As a result, our sales to date in July are trending at approximately negative 2%, which is comprised of negative traffic of around 2%, which appears to be better than the casual dining industry and means that overall we have a flat check as we continue to emphasize the value on our menu. Geographically, we have not seen any material change in our Texas restaurants. That said, we have seen some flattening of California comp sales in July, which is bringing down our overall comp sales to date. While the various sales building initiatives discussed earlier are being well-executed, they are just getting started. And at this juncture, we would lean toward conservatism in building comp sales forecasts for Q3 and Q4 until we see a change in the current sales environment. Moving past comps, I would expect approximately 2,315 restaurant operating weeks for the third quarter. Also, as we move further into new markets, I expect to continue to see a negative 100 to 150 basis point spread between comp sales and weekly sales averages. This has been pretty consistent over the last couple of years, as most of our restaurants are being opened outside of California. Investors should keep in mind that our lower-cost prototype and lower operating costs from our operating initiative, along with the fact that most of our newer restaurants are in states that are significantly less expensive to operate in than California, are leading to returns on these new restaurants that are at least meeting and in many case exceeding our internal targets. I actually want to reiterate this point. We are extremely focused at BJ's on driving return on invested capital at our company. As such, in many cases we are getting into new locations where BJ's net investment could be as low as $2.5 million. In those situations, we may only target average unit volumes of $4 million to $4.5 million, which is basically $80,000 to $85,000 a week. At those sales levels, with a net investment of $2.5 million, we only need to generate restaurant level cash flow margins of approximately 18% to achieve a 30% cash on cash return. Moving on to the rest of the P&L, we are seeing some pressure in commodities, primarily around avocados and salmon. Also, our increased promotional cadence and emphasis around value are leading to slightly higher cost of sales compared to prior quarters. As a result, I would expect cost of sales in Q3 to be in the low 25% range. This is also a little higher than our original estimate because, as I mentioned, we are no longer allocating a food cost charge to marketing. I want to remind everyone again that this change has no impact on our overall financial performance or restaurant-level margins. It's purely an internal allocation between cost of sales and marketing. I would expect labor to be around 35% or slightly higher in the third quarter as the benefits of Project Q continue to help offset some of the costs related to California minimum wage increases and other employee-related costs. However, I want to remind everyone that labor is highly dependent on comparable restaurant sales. As such labor may be significantly higher or lower as a percent of sales depending on comparable restaurant sales trends during the current quarter. We are targeting total operating costs to be in the low to mid 21% range. This total will include approximately $5.7 million to $6 million in marketing spend. As Greg Trojan mentioned, we plan to increase our marketing efforts in the third quarter to drive sales and awareness of our brand commitment and positioning as well as menu additions and other initiatives. We know we have solid procedures in place to manage cost of sales, manage our labor and manage our other operating occupancy costs. In fact, over the last two years, we have expanded our restaurant level margins by 200 basis points on relatively modest comp sales in the 1% range. As a result, we believe it is prudent to make this investment in our brand to drive top line sales so that we can continue to leverage our strong operational foundation. Our G&A expenses for the third quarter should be in the $14 million range, as we expect total G&A for fiscal 2016 to be closer to $58 million. Pre-opening costs should be around $2.3 million for the third quarter, and that's based on five planned new restaurant openings plus some preopening costs for restaurants that are expected to open in the fourth quarter of this year and the first quarter of next year. I'm expecting our tax rate in the third quarter to be around 29%. Our diluted shares outstanding should be in the 24 million range for the year, which reflects the return of capital shares repurchase activity I reviewed just a minute ago. Before I open the call up to questions I want to reiterate one of my last points, and that is our investment in marketing during this upcoming third quarter. We have proven through Project Q and other productivity and efficiency initiatives that we have solid controls over our business. Over the last two years, as I mentioned, our operating margins have increased over 200 basis points with comp sales in the 1% range. As such, we can easily cut back on hospitality programs like our menu sampling in our restaurants or cut our marketing spend to try and drive short-term earnings. However, trying to save your way to success only works for a quarter or two. Our improvement in the business has been predicated on top line sales growth over the last year and a half, and improvements in productivity and efficiencies in our business. Therefore, we believe it is important to invest in marketing to build awareness in our brand. We know from our most recent awareness, trial and usage study that when guests discover BJ's we have a high rate of converting these triers into frequent users. We believe this is a prudent investment in our business that complements our restaurant expansion and capital allocation strategies going forward. That concludes our formal remarks. Operator, please open the line up for questions. Thank you.

Thank you. At this time, we'll take a question from Will Slabaugh with Stephens, Inc. Please go ahead.

Hey. Thanks, guys. This is actually Bill on for Will this afternoon. Just one – could you give us a little bit more color on the promotions you guys have teed up for the back half of the year? What type of strategy you might be targeting with those, and I guess more specifically what kind of price points will they be at relative to your core menu? And then are they margin dilutive in any way or is more of that coming from some of the promotions as far as giving away food at the front of the house? Gregory A. Trojan - President, Chief Executive Officer & Director: Hey, Bill, we don't have all of the promotions entirely laid out because in the digital world we can be pretty quick on pulling the trigger on different promotional events out there. Generally speaking though, we look to do bundling. We've been very successful on our lunch specials which we mentioned on our grilled cheese and piadinas, which has actually helped increase the average check at lunch time by bundling that with unlimited fries and a soft drink. So that's one of the ways we look at it. As we go into the holidays in the second half of this year, we'll also have more bundling opportunities around higher-priced menu items. And that being said, we will always look towards times that makes sense in regards driving guest in, whether it $10 off $35 or if you spend a certain amount, maybe it's a free appetizer or free Pizookie, we used this in the past very successfully. When you look at the business overall, the impact tends to be sometimes around cost of sales, but if you can get the bundle where it drives average check up you make it up on labor and operating occupancy costs. I think a bigger part of what we're looking towards in the second half is actually more about increasing just the awareness of the concept and telling people about the different things we have at BJ's. As we move into a lot of these newer markets, we were surprised and we shouldn't have been, but the lack of awareness we have in a lot of our newer markets and based on that study on awareness, trial and usage we know that if we can increase the awareness of BJ's in these newer markets, we definitely drive trials which then drives the frequency of our guests.

Thanks. That's very helpful. And actually Kevin, I guess, along with that could you talk a little bit about the lunch daypart and whether or not you're seeing any outside strength there, or weakness or just kind of how you're thinking about that? Kevin E. Mayer - Chief Marketing Officer & Executive Vice President: Actually, Bill, a lot of the work we did earlier in the year in reinforcing value in the price points primarily through the grilled cheese and piadina products has worked really well. So, our lunch has actually held up. It's been a pretty strong part of our daypart mix. And the more recent weakness that Greg and I was describing in June into July has largely been dinner, which made some sense to us when you look at – think about the distractions of – whether it's be it world events and political campaigns, et cetera have been more focused on challenging in the dinner daypart.

Thanks, guys. Just one last follow-up if I could, could you clarify what the full-year G&A guidance was that you gave. I believe, it was in the $50 million range. That might be a little bit below... Gregory A. Trojan - President, Chief Executive Officer & Director: Yeah.

...where you were last quarter.

That's correct, Bill. I think, I said G&A would probably be somewhere in that $58 million for the year. I think, originally as we put together our targets for this year, we were thinking it'd be closer to $60 million, some of that's due to frankly a reduction in incentive compensation that we just talked about. And then the other thing is we have been very fortunate in regards to our retention rates for our managers. And even as we continue to build new restaurants and then the industry has gotten more challenging on the management within the managers within the restaurant space, we've done a nice job there and what we call our AMP program, which is managers in training is coming in lower than expected. Gregory A. Trojan - President, Chief Executive Officer & Director: And Bill, we're also going to be a lot more selective in challenging sales times like these in making the incremental investments with G&A when the environment is as challenging as it is, so it's a combination of all those.

Great. Thanks a lot, guys.

At this time, we'll move to Matthew DiFrisco with Guggenheim Securities.

Hey, this is Matt Kirschner on for Matt. Just to clarify if you could break out the pricing mix for the check in 2Q?

Matt, in general we have about – we said kind of the mid-two range as a total pricing. So if you kind of take that and said that our traffic was only one point, you kind of get with what the mix would be as the difference.

Okay. Thank you. And I guess just kind of looking forward obviously there has been some choppiness now the last few quarters and some more volatility in the two year same-store sales trend. How should I been thinking about it with the new menu changes, the impacts of Texas, some flattening in California, and the new stores dropping in?

Matt, that was a lot there – I think, we never really – and that could be right, we never really specifically stated what we're thinking comps are, et cetera. We give really where we are at the time that we report. In all regards, that's the best evidence that we have currently. I think, we've got some really good initiatives going on here, whether it's the new menu that comes into the fourth quarter. I think as we get through the conventions which have made it softer in the middle of the week, last week. We saw softness yesterday with the Democratic national convention. I think there is the ability for that to improve. But as far as an actual comp sales number right now as we said we're kind of a negative 2% and we're running traffic about negative 2%, which based on looking at Knapp-Track and Black Boxes seems to be significantly better than the rest of the casual dining industry.

Okay. And then just last thing if I can ask, have you seen any change or an increase in the percentage of take-out sales?

Take-out continues to be somewhat strong for us. It's a positive area in regards to comp sales. I think, really as Greg Trojan mentioned dinner has been the softer area being in June and going into July. And again, think about the conventions, taking place in the evenings, you think about some of the civil unrest and other things that have happened. They tend to be things where people go home and watch, they don't feel like going out in the evening.

Understood. All right. Thank you, guys.

Sure.

We'll move next to Chris O'Cull with KeyBanc.

Thanks, good afternoon, guys. I guess I appreciate that BJ's is outperforming the category, but really that's comparing the performance of the brand to some fairly mature and brands that just aren't growing. What gives you confidence Greg that there isn't a brand specific issue given the traffic decline? Gregory A. Trojan - President, Chief Executive Officer & Director: Well, I do think we're still the comparative set of what the industry is doing as we're doing higher volumes to the strength of our concept, Chris, and you look at our trends we're not where we want them to be, but there's no cause for concern that we're doing something – if we were out of step with those trends. You could make a good argument. We have headwinds in terms of the volumes; we're already doing in the busyness of our restaurants, et cetera, and the amount of new markets that we are going into. I could make a long list of factors that actually makes us more – makes it more difficult for us to drive comp sales and trends than others. So, I look at that comparison as a positive. I mean, we're not just squeaking by. We've got – our track record going back to last year and recent ones – the recent quarters have still been outpacing the industry by a good solid margin, you know, and as I mentioned in my remarks, we've even expanded in this quarter versus last even though we dipped into slightly negative comp sales. So I reject the theory that – look we'd like to be outpacing it by even more and we're working hard to do that, but this is not a concept issue. This is not something specific regionally – as you know and you know us well from – we measure every operational and guest metric more than I think any other concept out there, and have as good pulse on how our restaurants are performing and what our guests are saying about us through even our most recent market research and ATU studies. There's not an indicator that we're out of step here that we have a concept issue in any way, shape, or form. When you look at how our new restaurants are performing, those are very solid as well, so I understand the question, but I don't – that is not the issue here.

I think, Chris, the other thing, we talked about this before. I know, you've written on it in regards to Texas. We pulled Texas out of Q2, and I don't like going – put it specifically on Texas – our traffic was more or less kind of down 0.5% and we've said this on the call and I've said this many times that we don't – we can't count every single person in our restaurant. And when I look at 0.5% down in traffic to up 0.5% in traffic, to me it's basically flat in that regards, not that we're happy with flat. But if we can hold on to our guest traffic which we're kind of showing taking the Texas phenomenon regards to competitive intrusion, et cetera out of the business, we also take out the newer restaurants in there which again have about 0.5% impact on comp sales. You start to get yourself where we feel pretty good in regards to traffic being a relatively flat number in this casual dining industry. So, I think, it's showing that we're able to hold on to our guest traffic.

That's fair. And Greg, in the past it seemed like the company was trying to get away from TV advertising. And I'm not – I can't remember if it was because of a lack of return or just maybe not as effective as you would hope – or you wanted, but what's changed in your thinking because it sounds like you're going to be on TV more now? Gregory A. Trojan - President, Chief Executive Officer & Director: Not really. I don't know – we've never – we've always thought of – we've been very selective Chris about where we have run it because given our restaurant densities in a lot of the markets that it's difficult for us to make those returns work, so we're just not out there and saying this is brand building, let's go do it. So I think we've been pretty cautious about it, but there's definitely not been a feeling of we need to get less aggressive here. You may be thinking about some of the testing we've done in some of these smaller markets where we've said you know we know Southern California and a few of other are more densely populated markets is working and we've had trouble in some of those areas, and from test base, not trouble, but just it's been more challenging from a return perspective. But in general, we – what we've been – I've been consistent about saying TV along with digital it's not all about social and digital in combination is when it can really be very powerful in some of our markets where we've reached the critical mass to be able to make it work. So as I described in my remarks, we pulled back versus last year a rotation of media in Southern California because we felt like we had to get a little more balanced around supporting some of these newer markets, which frankly is a tough decision because we know where we have the most restaurants and density, and we can go on TV in Southern California. That's probably the best short-term return for our media dollars, but at some point, we've got to be balanced about it and be investing in some of these younger markets, so we don't plan on doing that versus the calendar of a year ago for the remainder of the year, certainly in those larger markets so that challenge is behind us from a headwind perspective.

Okay. That's great. And then just a last one, you look at the annual EBIT margin. It seems like it's around 7% which is 100 basis points to 200 basis points lower than some of the heavily owned restaurant companies, but the restaurant margin at the comparable BJ's units, the comp stores seem to be higher than most chain. I guess my question is whether the long-term EBIT margin? Whether you could see that to be in the 8% to 10% range, just trying understand how much opportunity you think you may have longer-term to expand the EBIT margin in the business?

We still think – we still think we have that opportunity there. I mean, when you look at our business, and you look at those margins, you've got to take into consideration two things that I think sometimes get missed in this business when comparing across more mature concepts per se is, one is pre-opening in that regard, so when you start to look at our business, we've got 70 basis points to 100 basis points in pre-opening that you don't see in restaurant – at a restaurant company. Gregory A. Trojan - President, Chief Executive Officer & Director: Well, and other forms of growth expense as well. I mean, when we're growing organically at 10%, those other concepts you're comparing against don't have 10% organic growth, and as you know, it goes beyond those pre-opening expenses.

So to that you've got the G&A growth element, which is about 40% of our G&A just related to growth, as Greg was just talking about. And then over time, we should continue to see depreciation amortization start to leverage, we got it a little bit in the last year or two years as we flatten out around $7,000 a week where it used to be in a $7,200, $7,300, we continue to build these restaurants at the lower cost, that number would go down and then with normal comps, it should go up. If you look at our income from operations right now including disposals because we have disposals in there which average about 20 basis points or so in our business, we just finished out at 7.8%, or 7.3% right now, so if you start to think about your 8% to 10% number, I don't think we're that far off actually, Chris.

Okay. Thanks.

We will move along to Brian Bittner with Oppenheimer & Co. Michael Tamas - Oppenheimer & Co., Inc. (Broker): Great. Thanks. This is Mike Tamas on for Brian. Just two quick questions and then real question here is, I missed the G&A and the pre-opening for the third quarter, do you mind just repeating those quickly?

The G&A is going to be right around $14 million and the pre-opening will be about $2.3 million. That's based on five restaurants. Michael Tamas - Oppenheimer & Co., Inc. (Broker): All right, perfect, thanks. And then can you just maybe talk about the comps for the quarter and maybe year-ago comparisons for the third quarter as we think about July, August, September here. Does it look like it's a little bit easier from here, or how should we be thinking about that?

Well, we don't give out monthly comps to give some guidance and ranges around it. Mike, what I would say last year, as we got on this call we talked about comps being about 1% and then they actually finished at 2.3% for the third quarter. So, to some degree, they do get a little bit more difficult from that perspective. I do think at the same time, though, as we get through some of the conventions and some of this other stuff that's been a little bit more I think challenging in the middle of the week, in one sense the macro environment could be easier from that standpoint, but that's kind of how it played out last quarter of last year. Michael Tamas - Oppenheimer & Co., Inc. (Broker): Got you. And then on the share repurchases, how aggressive do you guys look to be in terms of using your balance sheet in the cash? Is there a timeline for that incremental $100 million that was just authorized?

We don't have a specific timeline. We're pretty opportunistic. As you can see, we've been pretty aggressive over the last two years from that standpoint. We think there is an opportunity to return capital to our shareholders, because we think there was a good stock price out there, and we will take advantage of that. Michael Tamas - Oppenheimer & Co., Inc. (Broker): Great. Thanks, guys.

Thank you.

At this time we'll go to Nicole Miller with Piper Jaffray. Nicole Miller Regan - Piper Jaffray & Co. (Broker): Thank you. Good afternoon. In terms of the consumer trends that you're seeing, do you view that as a short-term attitudinal shift or more of a reality of the potential long-term operating environment? Gregory A. Trojan - President, Chief Executive Officer & Director: Look, I think, Nicole, hopefully in terms of the world events and challenges from that perspective, obviously we don't have a presidential campaign, thank God, for four straight years. So I do think they are more temporal. I actually, when you step back and think of a category you'd like to be in from a retail perspective, there's no duplicating or replacing a social dining occasion from a – particularly from a sit-down perspective. You can't do that online at the end of the day. And I actually think, and we saw this in the last Great Recession, BJ's actually did very, very well in the difficult times because people wanted to actually socialize and be with family and friends, and this concept does very well in those kind of times. So, look, I don't think sit-down dining is going away or going anywhere. I don't think this is even a medium- to long-term phenomenon. I think there's just a number of these events that have kept people in their homes a lot more than usual, and I don't see it going away tomorrow with the convention the remainder of this year, but I do not think this is a permanent condition where people have decided they're just not going to eat out as much. I don't think that's the case. Nicole Miller Regan - Piper Jaffray & Co. (Broker): That's very helpful. Thank you. In terms of your California commentary, are those trends a result of less mix or less traffic, and if it is less traffic, do you think they're trading down to limited service or they are just going home? Could you give us a little more color? Thanks.

You know, right now it's been a little bit less traffic. We have seen some changes in mix as we rolled out some Brewhouse Specials and some other things promoting some value, so I would actually say, thinking about a little bit, Nicole, it's both. And this is going to sound like an excuse and I hate to make an excuse, but for those that have lived here in California, last year, one of our big weekends of last year in July, we had El Niño rainstorms came through, and frankly it shut down the beaches, it shut down all activities from almost kind of all of California, meaning Northern to Southern California. And a year ago, we had really solid comps because of that. This year we didn't get those El Niño rainstorms, and that changed the pattern over one of the weekends in our business, so I kind of look at that as being a discrete item. I also look a little bit that conventions and other things seem to be discrete across our business. But taking that aside, we've done some really neat promotions that I think really have proved out well for us in certain markets, and we've rolled those out companywide and that's changed our mix a little bit. It's right now brought us actually down to this flattish overall guest check. When we're doing negative 2% traffic – and, look, we're not happy about that – right now, but you look at that and go 2% traffic is equating to 2% negative comp sales. That's because we're not getting any average check lift right now because some of the things we've done to drive value, and I think it's showing in the sense that we're outperforming the industry, but we like to get a little bit more maybe average check in there as well to offset some of these inflationary costs, let's call it. Nicole Miller Regan - Piper Jaffray & Co. (Broker): That's helpful as well. And just a final one for me. When do you think commodities would normalize? And if there is more inflation at some time in the future, what's the brand's commitment to value and promotions that you've been talking about as of late?

What's the – what was the last part? I missed that. Nicole Miller Regan - Piper Jaffray & Co. (Broker): I'm sorry. You're able to take the commodity deflation – I'll just call it savings – in this environment – I don't want to put words in your mouth – and use that against discounting promotions value. And so if commodities inflate can you still do that?

I think if commodities inflate, we would obviously look to see how we want to bundle things and provide value from that standpoint versus pure discount. We haven't got as caught up in the sense that commodities are flat or decreasing and therefore we're going to be out there more promotional in that regard. We're really thinking about it more about from a traffic standpoint than we are in the sense of, gee, ground beef's come down. Right now for us, as I just mentioned, we're going to see a little bit inflation here, not a lot in the third and fourth quarters, primarily due to some salmon, some El Niño things hurt the salmon industry a little bit, so we're seeing that increase here in July, and avocados until they can switch to, I think it's California, we're seeing an increase in avocados and we actually, believe it or not, use a lot of avocados in our restaurant. Nicole Miller Regan - Piper Jaffray & Co. (Broker): Thanks for taking my questions. I appreciate it.

My pleasure.

We'll move on to Sam Beres with Robert W. Baird. Sam J. Beres - Robert W. Baird & Co., Inc. (Broker): Hi, good afternoon and thanks for taking the question. Just want to have maybe a quick clarification, I know you guys have talked about revised marketing plans and focused on both driving frequency for guests in existing markets, but then also driving awareness for guests in new markets. So wondering if you could provide some perspective just on how the marketing approach differs for those two types of markets? Kevin E. Mayer - Chief Marketing Officer & Executive Vice President: This is Kevin. So I guess – first of all, we've got a baseline – somebody asked earlier about the television and channel strategy. No matter what market we're in, we think it's very important to lay down a baseline of local mass media, which would include digital video, digital, paid social as well as television to make sure we can reach the broad customer base that we have, and we would treat both mature markets and new markets similarly in that way. When you're looking at newer markets, it is very much about giving guests a reason to try you beyond your core concept. We have heard that from focus groups. And therefore, we have leaned into loyalty a little bit more there as well as call it targeted digital push media. So when we have – offers that we have right now in the market where we're doing buy $9.95 and get a free appetizer, we can use very geo targeted digital media around those restaurants to try to reach those guests out there in the Internet. So that's probably where we would layer on, on top of newer markets to try to reach guests as they are in markets searching for casual dining restaurants. Sam J. Beres - Robert W. Baird & Co., Inc. (Broker): Great. That's helpful. And then maybe Greg, you also talked a little bit about possibly some newer units with smaller and less expensive footprints, but then also lower unit volumes as well, so just wondering if you could provide some more perspective on that in terms of potential timing of when those types of units could open and what types of markets you'd be looking at for those. Is it more of an infilling California opportunity or looking to use those in newer markets?

I can't necessarily give you a timeline of this one is going to be lower; this one is going to be higher, et cetera, from that standpoint. You can generally look at when we open restaurants how those things play out, meaning when we open a restaurant in New York or we open a restaurant in what would be a higher cost area, generally speaking it's going to first of all have a higher menu pricing in there, and it's going to have to cover that cost which is usually going to be a little bit more expensive in those new markets. So that tends to play out, but I do want to reiterate the bigger point of that has to do with our focus on return on invested capital. As I mentioned on the call, when we can get into a location for $ 2.5 million, and we know there's solid restaurant sales in those markets, we will do that and at $80,000 to $85,000, 18% restaurant level cash flow we are generating 30% cash on cash return. We think that's the right use of shareholders' capital in regards to the investment of that excess cash flow in our business. Gregory A. Trojan - President, Chief Executive Officer & Director: And Sam, just to be clear because you may have been hearing something that wasn't intended from Greg that I heard in your question which is, there's not another – we're not talking about a different smaller restaurant than we're building elsewhere. This is not another – a new prototype, so to speak, but manages that number down for us. First of all, I don't know how long you've been following us, but we've done that through our current prototype where we took over $1 million out of our build-out from what we called our proto 6,000 version well over a year ago. So we're building what we call our proto 7,000 which has a gross cost of about $1 million less than previously what we were building. What we're able to do is – in some of these smaller markets is now that we're spending $1 million less to drive that ROIC, but also the fundamental cost from a real estate perspective is often times lower in those smaller markets, so that and through the kind of lease deals we are able to negotiate with Greg and his team that we're able to manage that investment down to at times even in those mid to lower $2 million range. But it's not a different footprint, it's not a different building. Sam J. Beres - Robert W. Baird & Co., Inc. (Broker): Great. Great. That answers the question, thank you. Maybe Greg Levin, just following up on kind of the buyback strategy, obviously you talked about where the line of credit could go. I guess what's your comfort level with taking on additional debt to buy back shares and if you are comfortable, kind of what type of leverage in terms of debt to EBITDA do you think you would be comfortable with on the business?

We continue to evaluate that all the time and we don't really have anything that in stone. We still think with the amount of white base that we have in front of us and ultimately opening up new restaurants and being a market share taker is the best use of capital from that perspective. And we want to make sure that overall we maintain a relatively conservative balance sheet that allows us to take advantage of opportunities to continue to build new restaurants. So that's primarily the way we look at it. Where we are today at 0.7% or so gives us a lot of room to go up on our leverage ratio. But we haven't necessarily put something in stone and said this is where we want to be. Sam J. Beres - Robert W. Baird & Co., Inc. (Broker): Great. Thank you. Gregory A. Trojan - President, Chief Executive Officer & Director: We like the flexibility of our balance sheet. Sam J. Beres - Robert W. Baird & Co., Inc. (Broker): Great, thanks.

At this time, we'll take a question from Sharon Zackfia with William Blair. Sharon M. Zackfia - William Blair & Co. LLC: Hi, good afternoon. Just a couple of questions on the conversation on ROIC. I know you look at it heavily on a unit level basis, but I'm wondering if there are any incentives on the corporate ROIC, which is kind of sub-10% and what you think about in terms of the progression there?

We do, Sharon. We've got performance shares that the executive team has. They received in 2014 and 2016. I think we disclosed that in our proxy. And as much as you talk about the sub-10%, I think – everybody does it a little bit differently, I think we might be a little bit better than that. But if you look at where we were three years ago versus where we are today, we've made tremendous strides in moving that forward in regards to the total entity level. Sharon M. Zackfia - William Blair & Co. LLC: Okay. And is that – well, I'll look at the information but is it based on the progression or an absolute threshold, the performance-based comp?

It's based on a three-year average over that timeframe that has to have progression to it. So, obviously, if you go up in one year but you got back down in another year, it's not at the end point as much as it's the progression over that three-year timeframe. And just to be perfectly clear, I don't know explained it there or not. It's a simplified ROIC, because it's very difficult to go to every executive and tell them about the tax shield and other things, but it does entail most of the factors that people use within ROIC calculation. Sharon M. Zackfia - William Blair & Co. LLC: Okay, perfect. And then a question on labor. I understand the volatility in the second quarter made it challenging, but I think if I just throw in a negative 2% comp and a 35% labor, it looks like 60 basis points of deleveraging on labor would be actually pretty good for a negative 2% comp. Is there something that you're doing in the September quarter that's different from a labor scheduling perspective, or some sort of efficiencies you're getting there that's helping mitigate that deleverage on labor? Gregory A. Trojan - President, Chief Executive Officer & Director: Just to be clear from the outset, we're not forecasting a negative 2% comp for the quarter. We're not forecasting any specific comp. What we said that's with the early weeks of July out there, right, so. Sharon M. Zackfia - William Blair & Co. LLC: No, I'm clear on that, but obviously when Greg says 35% for labor, we have to assume some sort of sales. So I would assume you're assuming negative but...

No, I think as we go through it and look at the way we've done our labor staffing set up for some of the things that we rolled out from Project Q that we've implemented this year whether it's volumetric prep and other things, we're still continuing to evolve our labor modeling and staffing based on frankly a lot of the initiatives that we continue to work in our business. Sharon M. Zackfia - William Blair & Co. LLC: Okay, and then last question on the Olympics. Any thoughts on that; good, bad, neutral to the business?

Yes, opening and closing weekends are always pretty tough. That Friday night of opening weekend, everybody wants to see them walk into the stadium. That always seems to be a little bit tougher. The rest of it, it's kind of a non-event in that regards. It's really not favorable from that standpoint. Again, people don't get together and say let's go to BJ's to watch Michael Phelps swim for two minutes. Sharon M. Zackfia - William Blair & Co. LLC: All right, fair enough. Thank you so much.

You're welcome.

We have time for one more question. This will be from Nick Setyan with Wedbush Securities.

Hey. Thanks, guys. Once you guys see the big leg down in Texas last year, I'm assuming it's kind of starting in Q3 and Q4 and obviously kind of anniversary that leg down, would you expect Texas comps to get any better?

Nick, when we look at Texas, it's very interesting. The restaurants that are going over a lot of the competitive intrusion, you start see some of their improvement. The problem is something else opens on another restaurant in that regards. We've just seen that like in Lubbock, Texas, we've seen it in couple other places where we're going, hey, there's a nice trend here. What just happened to that restaurant? Oh, the three, the four restaurants, this new shopping center just opened and we look at some of the other existing restaurants and they're starting to see their trend come back. I think looking specifically at Q2 and going into Q3, Q2 incrementally probably got better in the business overall. It had some whacky days of some of that weather that was unexpected. But I think overall, we're seeing some improvements in some of those markets from that standpoint. I get amazed at how many new restaurants and new developments still come online in that state.

Got it. And you did mention that some of these new restaurants as they come into the comp base they remain a drag. I know we've kind of gone out of building in California. I think 2015 we didn't have any California stores if I'm not mistaken. And I'm assuming they're kind of lower volume stores, so maybe perhaps they should build in year two. Are we not seeing that, are we kind of still seeing (01:01:02) periods early on, and so we should assume that these stores are still a drag on the comp?

So, we are. I mean, we've been in pretty consistent where anywhere from 30 to 50 basis points kind of is a drag on comp sales in the quarter. I think I mentioned in this call or on a previous conversation on this call that I think there was another 40 to 50 bps or something like that related to the class of 2014, which is now rolling into our comp. So you pull that out, you'd be at basically what positive 0.2%. You pull out Texas, then you're in the 1.5% range of comps for the quarter and you're at kind of flat traffic. Unfortunately, you can't necessarily cut and slice everything that way. That's what we see in our business right now. We've got the Texas drag and we've got the new restaurants. It's still about that 40 basis points. Even in new markets, generally speaking, you have a honeymoon, people want to see what is this new concept, let me go there, I've heard it and maybe have seen it in a different state and then opens up relatively big. Does it open up as big as California? No in that regards. We're not expecting it to, except occasionally in certain locations we get still some very big openings like McCandless opened up really big, Lexington, and so on.

Got it. And then just last question. Next year is going to be a – we're going to getting back to 52-week year. Are you guys talking about 10% operating week growth adjusted for the 53rd week this year, or do you think we'll just have some operating week growth inclusive of that extra week this year? Gregory A. Trojan - President, Chief Executive Officer & Director: Aside from the – if your question is on new restaurant development, Nick, we haven't gone through the planning process. In general, we're very confident given that we're at 177 restaurants. The double-digit restaurant week growth is a primary way to keep growing our concept, but we haven't settled in on a number and specifics this early yet for next year. I mean we are busy building – Greg Levin and his team is building that pipeline and that's going well, but we don't know at this point of what – we're in that range we will fall out yet.

Thank you. Gregory A. Trojan - President, Chief Executive Officer & Director: Welcome.

Ladies and gentlemen, this does conclude today's conference call. Thank you all for your participation. Gregory A. Trojan - President, Chief Executive Officer & Director: Thank you.