Good day, ladies and gentlemen and welcome to the BJ's Restaurants Incorporated Fourth Quarter 2019 Earnings Release Conference Call. Today’s conference is being recorded. At this time, I turn the conference over to Greg Trojan, Chief Executive Officer. Please go ahead, sir.

Thank you, operator and good afternoon, everyone and welcome to BJ's Restaurants fiscal 2019 fourth 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 President and Chief Financial Officer. And we also have Kevin Mayer, our Chief Marketing Officer on hand for Q&A. After the market close today we released our financial results for the fourth quarter of fiscal 2019, which ended December 31st, 2019. You can view the full text of our earnings and release on our website at www.bjsrestaurants.com. On our agenda today, we’ll 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 preliminary views on fiscal 2020. And after that, we’ll open it up to questions. And we expect to finish the call within about an hour and then I usually get to both, if not all, everyone in the queue, that if not, we’re around better today and tomorrow. So, Rana, go ahead please.

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 February 20, 2020. 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, Rana. The strength and growing awareness of BJ's brand combined with our successful sales driving and productivity initiatives, and the daily commitment to excellence from our team members resulted in positive comparable sales this quarter, even as we were up against strong year ago, same restaurants ago. BJ's positive fourth quarter and full year comparable restaurant sales up 0.4% and 1.1%, respectively, extended our long-term record of growing our casual dining market share, while marking another period of industry outperformance. As measured by Black Box, BJ's exceeded industry sales and traffic in 2019 by approximately 140 basis points and 70 basis points, respectively. Our strong 2019 performance successfully last 2018’s 410 basis points industry sales deal and 270 basis point premium in industry traffic. BJ's consistent market share gains are not a one quarter phenomenon or even one or two year phenomenon. In fact, for the past five years we have on average outpaced industry sales and traffic by over 100 basis points each year. In addition to our same restaurant outperformance, we continue to expand and diversify our geographic presence, as we opened 7 very successful new restaurants in 2019, bringing our system total to 208. We have opened 55 restaurants in the last five years, which accounts for roughly $275 million of incremental sales, or about a quarter of our 2020 sales expectations. Over the last five years, we’ve also expanded our brands at 10 new states. We’re are excited that next week we’ll mark BJ's entry into our 29th state, Massachusetts, as we continue to build out location in the northeast, in a manner consistent with our cluster development strategy. While we’re encouraged by our concepts ability to drive consistent growth, 2019 also provide a continuation of wage rate pressures, and higher than anticipated food costs…

Excuse me. Thanks, Greg. Before we get to the quarterly details, let me remind everyone that beginning with Q1 at fiscal 2019, we adopted the Accounting Standards Update 2016-02 the topic accounting to for leases and as you know that requires us to put the present value of our lease payments on our balance sheet as a right of use asset with the corresponding lease liability. This new lease accounting standard also requires us to make a one-time non-cash cumulative adjustment to retained earnings of approximately $29 million of sale leaseback gains that we were amortizing and operating in occupancy costs over the term of the existing leases prior to this accounting update. Overall, the new accounting standard increased our restaurant level expenses, and again, this is primarily an operating occupancy costs by about $2.3 million annually. So, specifically for the fourth quarter, the new accounting standard impacted our restaurant level margin by approximately $600,000 or 20 basis points, and reduced earnings per share by $0.03 for the fourth quarter. Additionally, during the fourth quarter, we completed two sale-leaseback transactions for restaurants that are opened in 2019. Under the new lease accounting rules, the gain on these transactions are now recorded in the period in which the gain occurred rather than amortize over the new lease terms. As such during the first quarter, we recognized a pretax gain of $4.7 million for the sale-leaseback of these two recently open BJ's restaurants. This gain benefited our operating margins by 160 basis points and earnings per share by approximately $0.24 for the quarter. A full reconciliation of the impact of the new lease accounting standards for both the quarter and full year is included in today’s press release. In regards to our fourth quarter, our total revenues increased 3.8% to $291.1 million,…

Thank you. [Operator Instructions] We’ll take our first question from Mary Hodes with Baird. Please go ahead.

Good afternoon. Thanks for taking the questions. I just had a couple of questions on the concept. Look I think, first I think you mentioned last quarter that it would take roughly a 3% comp to hold the margin structure flat in 2020. So I guess first of all, has that relationship changed? And then second, and what would be your degree of confident in getting to that level based on your planned average check and the initiatives that you have in the pipeline?

Yeah, Mary it’s Greg Levin, I don’t think anything has changed that much. I probably say, to kind of hold margins, it’s probably more in the 2.5% range, maybe versus a 3%. I think it’s, I think the algorithm’s somewhat straightforward in the business. And that is, if we can manage commodity costs in kind of the 1% to 1.5% range – as I mentioned, I still expect our labor to be in the 5% range. And then I think we have the ability to continue to manage the operating occupancy costs, especially this year, because we’re not going to be going over the new accounting update. So you start to look at that, it means, we’ve leveraged cost of sales, you probably get it back on labor, and then you’re going to be able to manage operating occupancy costs to get the margins somewhat flattish, we think around that 2.5% or so. I think we’ve got a really good set of initiatives at BJ's where we lineup things that allow us to grow comp sales. And I think as Greg mentioned on the call and I don’t want to necessarily speak for any right here, but I do think the items like our $6 to go on entree, the value lunch items are testing well, so I think we’re lined up well to go after that 2.5% comp sales.

Hey, thank you. And then just as a quick follow-up, what level of average check are you planning for the business for 2020?

You know, I think as we look at our business and we think about things like the $6 to go items, we look at work catering is and continuing to grow some of the slow roast items as well as what the Power Bowls is doing for us. We would like to see average check, frankly, in that 2.5% or greater level, things like the $6 to go entree, those are incremental to building that average check in our business. And facing the catering that you’re seeing some great success at. So, I think ideally, we’d like to be above that number. But again, we’d like to do it by mixing properly in our business, making sure we maintain that value quotient around things like the launch of the $8, $10, $12 and our daily Brewhouse specials as well.

Okay, that’s great. Thanks for taking the questions.

We’ll take our next question from Jeffrey Bernstein with Barclays. Please is go ahead.

Hey guys, this is actually Jeff Priester on for Jeff Bernstein. Just on the unit growth. Just one clarification, are you planning any additional closures this year in that 8 to 10? So what is on the fourth quarter? And then as we look forward, and you indicated the low double-digit unit growth number, how do you think about the distinction between new markets and existing markets and also in terms of the footprint of the unit, whether you’re going to try smaller or bigger units on these markets?

I can take a stab at that. First of all, we’re not planning any closures in the year, our closure last year is one of our small, you know, original we call our Beach and House restaurants on the Balboa Peninsula. But the lease expired there, but that we’ve been very fortunate as a concept not to experience any closure at all. So that’s the answer to that. In terms of where the growth will be generated from a market perspective. You know we’ll continue to open the lion’s share outside of our, you know, traditional core larger markets of California, Texas and Florida. As we said before, there are, you know, a few opportunities and we will open restaurants in those markets, but the lion’s share will be leveraging the base that we built in the Midwest Corridor or in the Northeast, where we’ve, you know, been opening with great success.

Right. And then just on delivery, you guys have mentioned previously that the productivity and economics of the professional delivery offers just hasn’t kept up with the environment. Some of your restaurant peers have mentioned that the delivery market maybe plateauing a little bit, I was just wondering if you’ve seen anything in terms of a slowdown in the growth of the promotional environment there? Thanks

Yeah, thank you for asking that. You know we pointed out, it’s still growing and we’re still you know, think that we have a lot of opportunity in both delivery and take out, but their rate of growth has slowed considerably. And you know, we have consciously dialed back on our level of promotions in that in that space. And the depth of promotions as we’ve seen, the level of competition and number of players in third-party delivery, because the incrementality of spending those promotional dollars as they make less sense than they did before. So, look, we still think it’s a robust growth area. You know, as I said, often consumers are voting and continuing to purchase from that distribution channel for sure. And we still think it’s highly incremental. But I think it’s fair to what you said is, you know, that growth is plateauing for all those reasons.

Appreciate it.

We’ll take our next question from Mathew DiFrisco with Guggenheim Securities.

Thank you. Just a couple of housekeeping questions here. First, did you guys disclose how much off-premise sales were or delivery within that?

We did not. It’s still – today it’s 12%, it’s about 10%, that is up year-over-year pretty evenly split between takeout and delivery. We did mention off-premise instead we heard but we’ve added a couple more delivery captains on board that we can see them tapering and freed our points-of-sale system, which is allowing us to continue to grow that channel. It was one of the reasons we’re growing that channel.

So you’re referring a 5% delivery, 5% pickup?

That’s correct.

Okay, thank you for that. And then also, I guess, if you were to look at the growth in the new markets and sort of your approach to advertising. I know you said it’s sort of in that 2% to 2.5% as far as overall marketing, but is there – are you getting to a tipping point in any markets, perhaps maybe some markets in Texas or some markets in Florida, that you could maybe use some more traditional advertising that maybe could drive a little bit more brand awareness?

Yeah, it’s more of a function around the mode of advertising and media flexibility in the world of core cutting that, you know, we’re, this year, go to continuous I mean, Greg Levin can talk a little bit more about it without getting into you know, too much competitive detail here. But we do think there’s an opportunity to advertise in certain markets in a more affordable targeted way that wasn’t available, you know, even a year or two ago. And, you know, our testing control around those programs have been promising. So the short answer is, yeah. That’s so much that because we, you know, our increased scale in that many markets to, you know, a significant degree. But combination of having enough restaurants and being able to target, I think affords us a real opportunity to get to some of these markets sooner than the traditional model of, you know, cable – national cable buys, et cetera yourself.

Yes, thank you. And then I just want to have a follow-up on the comp. You said that California is getting stronger, but it’s lagging the overall national average. Is that more so the national compassing a lift from just the weather benefit less – a more mild winter in the Midwest and the Northeast rather than sort of the delta is not being experienced as much maybe in California? And then Greg Levin, I just want also better understand the anatomy of the quarter-to-date comp trends versus what you did for the full quarter. So, if my math is right, it looks like you have a harder compare coming up in the back half of 1Q versus what you’ve already lapped in the first seven weeks? Thanks.

Yeah. First off, Matt. Your math is correct. And that would be the construct. It did move up a little bit from that standpoint over the quarter versus a year ago. And to your first comment, I do believe there’s some truth to that, when we look at it on an absolute basis. So California’s delta is improving year-over-year, but there’s definitely I think BJ's specifically, being a more California-centric company, we don’t get quite the benefit of rolling over the Polar Vortex and some of the other things from a year ago.

Then I would add though, that, you know, it is a general trend that we talked about the last couple of quarters here from last year. California which is typically, you know, more of a help than not it’s been lagging other markets weather aside, you know, we had the rains of last year in California. So seem to be benefiting, you know quite as much as the weather elsewhere. But in general, you’re taking away, you know, the weeks of weather, although we’re happy to see it improving, but California is still lagging. Pretty consistent you know, positive outperformance in all the other markets.

Understood. Thank you so much.

Welcome.

We’ll take our next question from Chris O'Cull with Stifel.

Yeah. Good afternoon, guys. Just a follow-up on that last line of questions. Can you tell how your system is performing relative to the peers in your footprint? I know you guys have stressed the importance of outperformance in terms of comps? And are you seeing that relative performance in the footprint that you’re – where you operate?

So, Chris this is Greg Levin. Yeah, we break down our restaurants, obviously by state and geography and can compare it against Black Box by state and geography. And, in general, we are outperforming in just about every other market out there, except for California. And when we look at California, we’ve said this before, it’s specific to a couple of areas, primarily the Bay Area, we tend to have big restaurants up there. And when they’re down a little bit, they can weight heavier on other restaurants within California, and they tend to be maybe a little bit more mall centric in that Northern California area. Now as you know, we don’t have a lot of inline restaurants. In total, we probably have about 20 inline restaurants. We just happened to have a majority of that 20 more in the California market and I think a little bit more in the Bay Area.

Okay, that’s helpful. And then great. How many stores with the company be testing the new beer subscription program? And what metrics are you evaluating during that test?

In 2020, we’re talking about California as the test market for a number of probably obvious reasons, brewing capacity, brand, et cetera high among the percent. And look, it’s really what we’re looking for the program to do is a, you know, the metric of success of we want people to be engaged and sign up, obviously, but really the end goal here is to activate them in a way that generates more traffic in the restaurant. I mean, we are – we think there’s a great opportunity to have, you know, a subscription revenue stream here. But we are we are thinking of this as, you know, an ability to access very unique award winning caliber of beers as being a part of the club, but there will also be in-restaurant benefits that drive folks not just to pick up the beer when it’s available, but also drive traffic in between release dates if that make sense to you.

You know that’s good. And then just lastly, it looks like the new unit volumes had been improving in the past few quarters. And if that’s the case, what are you guys doing differently I think to cause the improvement?

I don’t know if we have a complete answer for you on that standpoint, I mean, we used to take a lot of time diligently to make sure that we select what we consider to be the right spots for BJ. We’ve said a couple of times in the past couple of years that we really like going into some of these more secondary markets. And probably as I think about this, Chris when you talk about it, it is a little bit of insulin in those markets, so you start to build a little bit about that brand awareness. So as we you know, add our second and third and fourth restaurants in the Michigan, we start to build up that brand awareness. Same thing with Ohio. As much as North Attleboro the next week, the first one in Massachusetts, we’re slowly starting to build that brand recognition into the Northeast, with our restaurants in Connecticut, in Rhode Island –

I know, it’s only 20 minutes from work. So, Chris I think one of the common denominator is, we are opening in many of these cases, in trade areas where the overall competitive intensity isn’t quite the same as what it is in the core of, you know, the traditional Texas or California or some other markets, even though they bring high population density, you know, the Northeast is a good example. Just the difficulty of development in the northeast just again, using that as an example. You don’t see the same level of density in our price point that you see elsewhere in some other trade areas. And I think that’s one of the biggest things that we’re benefiting from.

Okay, great. Thanks, guys.

We’ll take our next question from Joshua Long, Piper Sandler. Please go ahead.

Great. Thank you for taking the question. Once if we might be able to dive into the average check, price mix and mixed influence of the quarter and then as we think about trends, both during the quarter and then year-to-date in the first part of the year, the geographic commentary was helpful, curious that what you’ve been seeing on either weekday, weekend or alternatively, by day part as well, noting that you get some initiatives around the lunch day part?

I don’t think we’ve seen any major changes from a day part perspective than we talked about. I mean, we talked in the remarks about lunch being generally more challenged for the industry and that’s true for us as well and why, you know, we’re focused around this value, speed and healthier alternatives that at lunch. So I don’t think there’s, you know – we haven’t seen any shift or new news from the general day part analysis, if you will. You know, we are seeing some nice check growth as a result of, and I’d say, you know, where in the past couple of years we’ve seen average check below where we’re pricing. Right now we’re seeing a bit more mixed benefit and overall check benefit from a few of the initiatives we’ve been working on and, you know, slow roast and Tri Tip and the entree popularity is probably an obvious one. You know, we’re very pleased even though it’s still early on, but it’s having you know, a material impact is our $6 entree take home meals you know, are very incremental to check and in helping us build check through the great value we’re offering on those to go items. So that with our off-premise is all what combining to provide some good check growth as we head into the new year.

Great, thank you for that. And then, thinking about the 8 units to 10 units this year and then looking to extend that up a bit, as in the out years. Can you talk a bit about your manager pipeline? You alluded to that in some of your prepared comments, but curious on what you’ve – what you’re doing, what you’ve done about strengthening that and really preparing the brand for that disciplined growth that you talked about focusing on quality, not just quantity?

Yeah, that’s a great question. And we’ve often said in the past, the biggest determinant of how fast we can go is that strength. You know, I just without tooting our own horn too much here is you know, we’ve proven through the years to know how to open restaurants well and still operate solid restaurants. And we’ve opened as many as 17 restaurants and done that pretty successfully in the past. So we have a, you know, a very, very disciplined training and NRO team and approach and most importantly, a lot of experience within the BJ's concept that I have been doing it for a long, long time. So, you know, we just feel good about the training. We’ve been at a slower growth mode for a couple of years now. So that gives us an ability to, you know, restock that training pipeline and feel good about the bench strength and that’ll enable us to open successful restaurants.

Yeah. The other side of that, Josh is as we went through our Gold Standard Kitchen Systems last year, which focused on as the main founder says, on the kitchen side, and that also took into account or [indiscernible] executive kitchen managers and kitchen manager duties to make things a little bit easier for them, to allow us to continue to bring in not only the talent, but to get them acclimated to BJ's in a way that allows us to grow. So, we feel good about our manager pipeline, we spend a lot of time on it. Frankly, we have a call on it every week, going through that pipeline and making sure that it’s primed and ready to go as we continue our national expansion.

Great. Thank you.

We’ll take our next question from Sharon Zackfia with William Blair. Please go ahead.

Hi, good afternoon. I may have missed this, but did you get traffic and tickets for the quarter?

I don’t know if we get or not. So we look at it for the quarter it’s – we were down about 4% in traffic and our ticket was up, whatever that difference is stay in the 5% range or so. When we look at the numbers through the quarter, it can be mentioned just on the end of the Q3 call, we flipped our $3 Pizookie month from October last year in 2018 to September in 2019. So as we look through the quarter, we had a pretty big average check in and [indiscernible] as we went up against the $3 Pizookie from 2018. And then our traffic came down in both, what I would call, November and December to where our traffic was in the negative 3% range. And then it’s been improving here even in Q1 or so. So as we think about, it all lined up but basically traffic down in the 4% range or so – tick it up in the 5% range, but it really got skewed a lot more by October.

Okay, that’s helpful. And then I haven’t heard you guys talk about rewards for a while, and I don’t know kind of where you stand on that in the program or how the pickup has been there? And also there’s any opportunity or if you’re thinking about tying in rewards with the beer club? That would be interesting to get any insight into and I guess lastly on your labor outlook after this year, I mean, is there any line of sight towards any kind of moderation in that hourly labor inflation?

Yeah, I’ll take the loyalty part of that question, Sharon and yeah, I briefly touched on it as calling it one of our value pillars along with Brewhouse special. So, thanks for asking the question, because it really has continued you know, since the relaunch which is over two years ago now, you know, we’ve just seen nice momentum around the, you know, growth in sales from and both members. But more importantly, you know, growth in transactions even, you know – proportionately from our loyalty program. So we’re very pleased with that. It really is a big part of us balancing this whole you know, check growth and maintaining value equation are really important part of that. So we’re happy to see that momentum continue. And we will use the infrastructure you know sign up and points tracking et cetera, communication infrastructure of our loyalty program to implement the beer subscription program, and we’ll also make it easy for beer subscription members to you know, track where they are in the elements of their subscription through, you know, one app and, you know, a seamless experience between the two programs getting from a rewards perspective. So, yeah think of it more as you know, a super add-on to loyalty in terms of guests’ experience.

And then the question on labor inflation after we get through this next round in California?

We’ve said this before, and I still believe that when we look at the data and analyze data, minimum wage is only, you know, 50% of the wage inflation that we’re seeing out there. Most of our kitchen is above as well, I guess most of our kitchen is above minimum wage from that perspective, yet, they’re still seeing the same type of pressures that we see in the dining room. So when I look at it, I play it a little bit to the unemployment rate being you know, sub 4%. And as a result, I still think we’ve got at least another year of wage increases. I do think it will moderate over time, but I still kind of see 2021 being another year outside of 2020 that will probably see labor inflation.

Thank you.

You're welcome.

Ladies and gentlemen, we have time to take one more caller. Our last question will be from Todd Brooks with C.L. King & Associates. Please go ahead.

Hey, thanks for taking the question. A couple of front. One, we just went through a holiday period in Q4. Can you talk to any sort of metrics or success around that recently we launched catering efforts and what you saw across the holiday period?

Yeah, a couple of things here. In big picture frankly, losing the one week in between Thanksgiving and Christmas I think did impact our business. We saw I think as we look at December, we saw a kind of kick in a little bit later in regards to the holiday parties. We are up, big on our gift cards I want to say in the teen year-over-year, which stood really well for us, I think it’s kind of helping a little bit with the comp sales, if you want most of those gift cards and related rewards for them or other incentives get redeemed usually in the first 60 days or so in the next quarter. Our catering actually has been doing really well. I don’t have the numbers in front of me, but I’m actually not only impressive what we did catering in Q4, but in Q1, the catering number continues to do really well for us, it seems some just great catering increases in sales, frankly, just about every day from our new packages. And I think, Todd, we talked about this a lot at BJ's, because we don’t have the marketing like that you might see in some of the larger capped restaurant companies. A lot of our initiatives take time to grow. We’ve even seen the $6 entrees that started in November. They’re actually probably at an all-time I should say, probably I know they are, at an all-time high in incident here in the January and into the February timeframe. And our catering actually, as I just mentioned, continues to grow into P1 or January and February has numbers above a year ago. So I like where we are from those initiatives. I would also say and I’ve mentioned this before, that the New Year’s Day, you know, flip flop did kind of impacted comp sales in Q4, probably by about 20 basis points. It’s probably helping Q1 by about 20 basis points, because January 1st, is a big day. And getting that in Q1 and kind of helps us a little bit in Q1 huts us a little bit in Q4.

Okay. And then just two quick follow-ups. One, where you talked about 5% ticket in Q4 is catering. Is there enough activity, the chunk of that left Kentucky was catering related and can that be measured? And then the other follow-up is just around the openings as we’re a little further into the year now? Do you have a cadence for kind of a scheduled openings throughout 2020? Thanks.

Yeah, let me take on the first one. No, on catering, it’s still a small number for them to have much of an impact on average check. Our average check as I mentioned, was really impacted in October with the flip of the $3 Pizookie month, I think as a move after that the average check kind of came back down into kind of the 3% range or so maybe a little bit higher. And I think that as we mentioned, kind of $6 entree from that standpoint, and frankly, even though we didn’t mention it in detail on this call, the slow roast with the Tri Tip has been really beneficial for us and continue to help mixing positively in our business. So that’s really, I think in the fourth quarter, not so much on the catering just because of such a smaller amount of our sales. In regards to the cadence of new restaurant opening, right now it looks like we’ve got the one restaurant opening in Q1, which will be in North Attleboro, out there in Massachusetts. It’s looking like three restaurants will open in Q2 and then some of the neighbor probably 2 to 3 in Q3, probably 2 in Q3. And so that’s the count in Q4.

Okay, great. Thank you.

You’re welcome.

Ladies and gentlemen, this does conclude today’s question-and-answer and conference call. We appreciate your participation. You may now disconnect.

Thank you, everyone.

Thanks, everyone.