Good day, and welcome to the BJ's Restaurants, Inc. Fourth Quarter 2021 Earnings Release and Conference Call. Today's conference call is being recorded. At this time, I would like to turn the conference over to Greg Levin, Chief Executive Officer and President. Please go ahead, sir.

Thank you, operator. Good afternoon, everyone, and welcome to BJ's Restaurants fiscal 2021 fourth-quarter investor conference call and webcast. I'm Greg Levin, BJ's Chief Executive Officer and President. And joining me on the call today is Tom Houdek, our Chief Financial Officer. We also have Kevin Mayer, our Chief Growth and Brand Officer; and Greg Lynds, our Chief Development Officer on hand for Q&A. After the market closed today, we released our financial results for the fiscal 2021 fourth quarter and year ended Tuesday, December 28, 2021. 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 Tom Houdek will provide some commentary on the quarter and the current environment. After that, we will open it up to questions. Rana, please go ahead.

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 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 17, 2022. 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. Greg?

Thank you, Rana. The pandemic has taught us to remain steadfast in our long-term strategy and operating principles, and to prepare for new scenario as operating restaurants during these periods requires innovative and agile teams to quickly respond to changes in the environment. In this regard, Q4 was no exception. So let me take a moment to thank the BJ's teams that once again proved we have the best team members in the industry by providing our guests the gold standard service they expect through the omicron's surge that is thankfully in retreat. For BJ's, we see encouraging signs in our business every day as our staffing continues to return to pre-pandemic levels, which allows us to expand hours, and capacity in our restaurants while serving guests the full BJ's menu. We have talked in recent calls about the impact that labor availability had on our ability to operate at capacity. And to that point, we've hired more than 7,000 team members since the start of the fourth quarter, and we are thrilled to have them on board as part of the BJ's family. Against this backdrop, BJ's generated record Q4 revenue, meeting our previous high set in 2019, even with the significant COVID impact from the omicron surge starting in December. During the quarter, our two-year comparable restaurant sales went from negative 1.4% in October to positive 1.8% in November. The top-line improvement occurred as the operating environment stabilized, and more than half of our restaurants were staffed at pre-pandemic levels by the end of November. In mid-December, as the casual dining industry began to experience omicron-related headwinds, our positive two-year comp trend turned negative, and we ended December down 3.3%. The sudden contraction in comp sales led by a pullback from guests, heavy rain in California in December,…

Thanks, Greg, and good afternoon, everyone. I will provide details of the quarter and some forward-looking views. Please remember this commentary is subject to the risks and uncertainties associated with forward-looking statements as discussed in our filings with the SEC. For the fourth quarter, we reported total sales of $291.3 million, our sales increased nearly 50% versus Q4 2020 and came in slightly ahead of Q4 2019, which makes it our highest Q4 sales ever. On a comparable restaurant basis, sales increased by 46% compared to Q4 2020. And while we were on track to meet or exceed 2019 levels, the impact of -- with the impact of omicron, Q4 2021 comparable restaurant sales declined 1.1% during -- compared to Q4 2019. The late quarter sales impact from omicron and continued inflationary pressures led to restaurant-level operating margins of 10.1%, which improved by 350 basis points as compared to Q4 2020 but trailed Q4 2019 by 580 basis points. Adjusted EBITDA was $13.7 million and 4.7% of sales in our fourth quarter, beating Q4 2020 EBITDA but behind Q4 2019 EBITDA. We reported a net loss of $4.7 million and diluted net loss per share of $0.20 on a GAAP basis. We started the quarter with October weekly sales per restaurant averaging $103,000 and comparable sales were 1.4% behind October 2019 levels. Encouragingly, our sales accelerated in November and as COVID cases declined and we added restaurant team members, we increased our weekly sales to $108,000 November, which was 1.8% above 2019 levels on a comparable restaurant basis. In November, on-premise sales were within 20 -- 10 percentage points of 2019 levels, and our off-premise sales were more than double 2019 levels. We maintained positive two-year comparable restaurant sales in the first weeks of December and sales continued to build…

Thank you. [Operator instructions] We'll take our first question from Brian Bittner with Oppenheimer.

Good afternoon, guys. Question on margins, I was wondering if you could perhaps talk about the store level margins that you actually did see in the month of November because that is a time frame where two-year comps did turn positive relative to the rest of the fourth quarter, it was really choppy. I know you talked about store-level margins being in the low to mid-teens as '22 progresses. But any color on kind of the actual margin experience in November, I think, would help frame for us how to think about margins if your two-year trends do stay positive. And I have a follow-up.

Yes, Brian. It's still hard on November because the amount of training that was coming into the business. I would say, in general, when we think about this year, and maybe this is a better way to kind of frame it up and think about it. One is cost of sales where they are right now is in this 27% range. Over time, we see that number moving down, whether it's through some of the menu pricing and supply chain getting back in line. So even in November, we saw the high cost of sales number there. And that's something that historically we've run in the 25% to low 26%. So there's 100 basis points there that, over time, I think we have the opportunity to continue to move that down. We're going to take it prudently from that perspective. And then we continue to have the high labor even in November. And that was really, again, more of the training and rolling out the new menu that we end up rolling out. We take the 1.4% pricing. But I would say, in general, it's about getting back into that lower to mid-teens. I think Q1 is going to still be, as Tom said, depressed to where we are today. I do call that a depressed number. But I think we have the ability to, again, move that back in the team, especially as we get into Q2, things normalize and our weekly sales average grows, and then the Project Q initiatives that we continue to work on.

And just my follow-up, based on the Project Q initiatives based on the supply chain normalizing your price increases, based on all those factors, where do you think that your average weekly sales need to be in order to potentially recapture those pre-COVID store level margins in that 16% to 17% range? Because I think that's what we're all kind of pinning the opportunity toward for store-level margins. And so thinking about the average liquid sales required to get there would be helpful.

I think that number -- and we -- I'm sure like you as well and us internally continue to run different scenarios and different levels on what the incremental flow through as our weekly sales average goes up. And we need to move our weekly sales average at least here in the shorter term into the $110,000-plus range to continue to grow those margins. I don't know the exact number. But that starts to leverage the manager leverage because that's more of a fixed number. It leverages a lot of the operating occupancies and other controllable costs. So we see, for example, this last week, which is a Valentines' Day week, mixed with a very slow Sunday, because Super Bowl Sunday, and we see weekly sales averages in the $116,000 range. We start to tend to see restaurant-level margins getting back into that kind of mid-teens range or so. It's still at that higher cost of sales, and that's that number that over time we want to work it down in the right direction. And that's probably going to be a little bit of lapping that and a little bit more pricing later in the year to move that down. So it's a little bit of a combination between that weekly sales average going, a little bit more menu pricing than where we have today. I mean, we're pretty conservative. We only take 2% menu pricing here despite California taking another dollar minimum wage as well as other states continue to see, I think overall food inflation at 10% and really take out 1.4% in November. So when I start to think about your question, some of your question also relates to how much menu pricing we want to lean into later in the year. And our goal right now is to actually drive that traffic, get that lunch daypart back and get that late night part coming back as COVID declines and offices open. I think you add the pricing on top of that, I think we can get there with probably sales again, maybe mid-teens but probably lower depending on the pricing in there.

Thank you, Greg.

Thank you. Next, we'll move on to Alex Slagle with Jefferies.

Hey. Thanks. I wanted to dive a little deeper just into what you're seeing in the business day to day with the staffing and consumer behavior and perhaps just anecdotal or certain metrics, maybe Beer Club tidbits or something, things that give you confidence in the trajectory for '22? And then also maybe within this, I'm just kind of curious, a little more color on like what the traffic looks like in the bar room, the bar room activity. I think you said the later hours were still tough because of staffing, but kind of wondering what the demand is like as well there.

Yes, Alex, a lot of great questions in there. I would tell you, looking at and seeing our guests day to day, we're seeing incremental nice improvement. December and January were tough months. I think it's pretty straightforward in our formal remarks. I think our team members did an unbelievable job managing through exclusions that were 6x higher than anything we've ever seen. And you start to put that in the context of what we are trying to do or doing in the fourth quarter. And that was hired team members roll out a physical menu and getting back to a full menu. If you remember in the October call, not all of our restaurants were at a full menu. So we got that into place in November. And actually we're making great strides we obviously have training with it and additional costs to roll those out, but really like to project the trajectory in regards to what we're seeing from our guests and what we see in our restaurants. And then it really took a turn -- 180-degree turn with the way the Omicron surge kind of came in, a little bit of weather in there, especially in California, and came through into the January month. As it starts to recede or has been receding, we're starting to see much more normal patterns, patterns that allow for us to optimize our business. And that's really important. As we look at our business, the ability to predict weekly sales allows us to prep correctly, allows us to par our food out correctly. It allows us to staff correctly. It allows us to buy controllables correctly and so forth and leverage all the way through the P&L. That's your optimization that happens when you have a very stable and predictable business.…

Helpful, and then just on kind of looking ahead, your thoughts on your ability to be fully staffed and get full dining room capacity as you look ahead? And do you anticipate like full hours versus calendar '19? Or do you trim some at the late night just based, I mean, I guess, staffing really? The demand doesn't sound like the biggest issue.

It's a little bit of both in regards to that, I do believe we will get back to full staffing. We're making great strides, and we're seeing just that change throughout the workforce. More people applying for jobs showing up for jobs and building that team member ranks at BJ's. And we're always going to have some pockets here or there, and we've always had that even pre-COVID in restaurants in more challenging areas. But I do see our levels really turn back to pre-COVID levels within our restaurants. And I commend our restaurant management teams are doing a great job of hiring people at the right pace that we can manage it within our business. In regards to late night, we've always been a place for late night, and it's an important differentiator for BJ's, and we want to get that back. It's going to be a combination of having the right people so we can add that back, but also making sure consumers are ready to go out late night as well. And I think we are seeing that. But that's our goal and our target is to drive that part of our business back.

Got it. Thank you very much.

Thank you. Next we'll take James Rutherford with Stephens.

Hey, thank you for taking the questions. I want to pivot over to unit growth for a moment. You guided to open as many as eight units in 2022, and that looks to be about right around 4% growth. And historically, you've grown much faster. I'm just curious, when you look at your pipeline out for the next few years and your plans, what's your thoughts on kind of regaining some of that historical growth? And will those units be would look much different than the one that you've built historically? And then I have a follow-up.

Yes, great question. So ideally, I -- or BJ's, we would like to be at 5% plus unit growth. And that was originally the target for this year as well, is to get back to a 5% unit growth. I think we can do that with high quality. I think you layer on top of that the ability to drive comp sales and then leverage the middle of the P&L. And I think that gets to a strong earnings cadence, going forward. This year, the reason we said as many as 8%, and originally, we were talking 8% to 10% is we are seeing a lot of challenges getting through the permitting and planning at a lot of communities. And frankly, you're seeing the same issues with kitchen equipment and other equipment. So we've taken a little bit more of a conservative approach the way things are moving around. That 8% to 10% is probably looking more like as many as 8%, or 8% on that as we continue to manage kind of the supply chains out there. I would expect like we're seeing on the commodity side, meaning the food and controllables in our restaurant that as things continue to open up and people work through the supply chain challenges that the kitchen equipment side will come back in line and be much more -- and HVAC be much more methodical like it's been in the past. I'm not sure where the city planning units are right now. That permitting, I think, and Greg Lynds is in the room, I think it's double. Does that sound about right, Greg?

Yes, depending on the area, definitely. Everyone is still working from home. So until people get back in office full time, that's going to make the biggest difference from a planned development and permitting standpoint.

So we -- so the goal is there to get back to 5% plus on unit growth. In regards to our restaurants going forward, they're going to be pretty similar to what we built over the last couple of years and what we call our Proto 2020. At the same time, we're continuing to look at ways to optimize the off-premise side of our business with some digital boards and easier ways for guests to come in and for us to run out the food. That's one area that we look at. And we do also know from some of our research with our most valuable guests that energy around the bar statement is so vital to the BJ's that we're going to continue to make sure that we have a best-in-class kind of bar statement that really shows energy within our restaurants. And it's interesting. Our guests that we saw did not necessarily say we love the bar statement because we want to just go and hang out in the bar. It was more about that bar statement and the energy it drove throughout the entire restaurant. And that's the real important aspect of it. We don't want to be a bar-only concept. We've never been a bar-only concept with alcohol about 20%. And but we love the energy and the visual that the bar provides for the entire restaurant.

Okay, and then my second question is on the recent sales trends. Thank you for all the detail that you did give us. I want to dig in a little bit on that $116,000 of average weekly sales here recently. Because I don't know what you were doing in that week two years ago, just level set us, what kind of two-year comp does that imply? And if you could split that out, what's your dining room doing versus -- and what's your off-premise business doing kind of compared to two years ago? Thank you very much.

Yes, I'll take the first part there and I'll let Tom hit the next. We said in our press release and our formal remarks, I think this is probably the best way to think about it. And that is our comp sales on a two-year basis have moved to trending slightly positive, is the way to think about it. When we take out the weather that kind of came through in that first week of February. And then we're still in a mismatch on President's Day weekend. So it's hard to be exact week for week. But if we normalize and take out the Monday related to President's Day week, we compare a Monday Valentine's Day to a Friday Valentine's Day and so forth, it gets us into kind of a slightly positive comp sales. I want to say somewhere is in the kind of 0.5% or so? I think that's right. Is that right, Tom?

That's right.

And do you want to take the rest there?

Yes, and that's through February. And to Greg's point, the $116,000, it's -- when we look at the 2019 numbers, it has the President's Day in there. So it's not a perfect way to compare. But it's probably better to look at the totality of February, as we said, which was modestly positive comp. And we do see -- I mean, you had a question too on just dine-in and off-premise as well. We're seeing continued strength on off-premise. We're still seeing double or more than double on the off-premise side. So we -- when we think of the sales recovery, it's -- on-premise is certainly the opportunity, and it's great to see these sales on off-premise staying where they are. So when we get re-staffed and able to build that traffic back up, we've got a lot of opportunity there.

Yes, I think Tom's comp is the one that we tend to look at internally and that is how that dining room business moving forward. And it was moving in a nice direction in November that we put up the 2% comp, and these are moving there, and take this real step back in P12 and P1 with the omicron. And if we can hold on to this off-premise, which looks like we're doing, and now starting to grow the dining room again as things normalize, I think there's a good amount of upside for this business.

Helpful, thank you.

Thank you. And we'll move on to Drew North with Baird.

Thanks for taking the question. I wanted to follow-up one more on the recent trend. I was hoping we could level set on the quarter-to-date comp overall in January and February on a two-year basis. It was helpful to hear all the perspective on the recent weeks on an underlying basis. But I think it would also help us all align on the full quarter-to-date period as we think about the model for Q1.

Sure. In January, we were down 9%, and this is on a two-year basis. So this is a stack now to 2020. So versus 2020, we were down 9%. And again, we're -- in February, we're still -- the laps aren't perfect, but we're -- if you net out you remove the impact from the President's Day as well as some of the weather from earlier in the month, we're slightly positive.

And would you be willing to share the underlying -- or I should say, the reported, comp -- two-year comp instead of backing out the weather and the shifts just where we sit today?

I think a better way to look at it is -- because this might help a little bit more from a modeling standpoint, trying to get through it, is we did, what? $97,000 WSA in January.

$96,000.

$96,000 and we're now at about $106,000 weekly sales average in February. And we're probably internally more focused on growing the weekly sales average because that's how we leverage that business. So you can kind of blend those two together in -- I think in 2012, it's hard to tell because in 2020, it's -- 2020, the -- I guess if you went back to '19, we did about $110,000 weekly sales average for that quarter. I think to date, if you kind of blend those two together, we're still probably down about five -- what are we down? About 5% a couple of weeks in?

Yes, that's right.

Yes, so it looks like it's about 5% that we're down on the weekly sale on comp all the way through February.

With a big impact from January. So that should tighten as we move through the quarter and --

Understood. Okay, I wanted to also ask one on margin. You mentioned expectations for the restaurant margin to progress to the low to mid-teens through 2022 from 10% in Q1. I guess, was that meant to signal the expectation for the full year or more so the exit rate on 2022? I think any perspective on kind of the cadence through the year while acknowledging the seasonality would be helpful.

Yes, it's a great question, actually. And we -- our goal is as we exit 2022 to be much more into the mid-teen range. That's where we're going after. As we see sales recovering. We see some menu development commodities and supply chain normalizing, allowing us to go after a little bit more from a Project Q perspective. And then continuing to figure out areas of additional pricing based on the inflationary environment. But that's kind of our exit trajectory and then building on that.

Perfect, very helpful. And lastly from me, just a question following up on unit development for the eight you're targeting for 2022. I guess what are you seeing in terms of development cost inflation? And how is that playing into the returns you expect from this class of units? It sounds as though new units are performing well from a sales perspective. But are these inflationary pressures out there in the environment making you consider anything different for the pace of openings in 2023 and beyond?

So we talked about this on the last call. I don't think anything has dramatically changed that our restaurants have moved from somewhere in the kind of $5 million, $5.2 million range to closer to $6 million to build. A lot of that's inflationary. Some of it we do believe is transitory, but I'm not sure we're going to be back down to $5 million or $5.2 million because I just don't think you're going to see deflation back to pre-COVID levels in the building. When we look at the restaurant level -- sales levels that are being produced out of our newer restaurants, our internal targets at a higher AUV so that our overall margins and returns are in the high teens for our restaurants. When we tend to look at it on a 20-year discounted cash flow basis, it's not going to make that much difference in regards to the cost of a $5 million, $5.2 million restaurant moving up to $5.8 million to $6 million from that perspective. So it hasn't changed our view on building new restaurants, but we'll continue to watch it. And if we didn't have such success out of our newer restaurants over the last couple of years, there's always that discussion like when we look at it differently, or is there something we need to change. But the new restaurants have performed well. And while we're aware of the current increased costs in our business, it's not changing our perspective right now. We will as we do look for ways to value engineer our building and figure out how can we bring this number down despite inflation. That's very important for us as we want to bring out all inefficiencies we can within our business.

Thanks for all the color.

Thank you. And we will now be taking our last question today from Joshua Long with Piper Sandler.

Great, thank you for taking my question. I wanted to see if we might be able to just confirm what menu price was in the 4Q period and then also what you have kind of in place for the 1Q period.

So as I said on the call, we got the 1.4% that we put in, in November. And then we just put 2% here in kind of early ish February. So the way I would tend to think about it is we're somewhere -- based on where the most recent inflation has come up, we're somewhere in that 3.5% with that. Now there was -- I want to say in July of last year, we put kind of 2%, 2.5% in there. So all in, there's probably closer to about 5%. But for our business, we really started seeing the inflationary pressure start to hit in -- really in Q4 of the year and into Q1.

Got it. That's helpful. And then when we think about some of the research that you did very interesting. And just curious how you're thinking about that from, obviously, protecting the price point and the value piece, but then a lot of the discussion was around just having that kind of focused menu. And so you've done a good job in terms of balancing the number of items on the menu as we went through the pandemic. You pulled that back a little bit. Just curious if now that you've done the research, if anything has meaningfully changed in terms of how you think about the size, scope of the menu, or if as you talked about in your prepared remarks, it's really about dialing in that kind of flavor profile and what the guest is expecting?

Yes, Josh, first of all, it's a great question. And I think there's a couple of different maybe answers or the way we are thinking about it. So going with where you're -- they may possibly thinking at first around kind of pricing and so forth. As the guys said in the formal remarks, the breadth of our menu allows us to have price points at all different levels. And right now, even in an inflationary environment, we're trying to kind of go after a little bit of an intro price point with the lunch menu also pushing the daily Brewhouse Specials and looking at also increasing some value or portions in certain areas. We kind of want to take a little bit of a different approach that we're seeing from other players out there using the term of inflation out there, maybe less wings or less size of something else. We don't think that's the right strategy for BJ's. That's not what our guests are coming for us to the restaurant. So we're going to continue to develop a menu strategy that's going to allow a really good entry-level price point, but we have this ability to allow our guests to indulge things like our prime-rib or our tri-tip or even like fish 'n' chips. And we're going to continue to create and craft menu items in that area that allows guests to up spend. The other side of it, and Kevin -- and our Head of Culinary, Kevin Mayer, who's here with me and our head of culinary working on is going through kind of a turf analysis from a category by category to see really what's the right amount of menu items. And I like our breadth. I think we probably lean a little bit too heavy in certain areas. I will probably see pull back, but we want to see what the kind of turf analysis says. So, I could see us kind of more dialing in what I would call the core or what we call familiar items transformed to Brewhouse fabulous. It's what we've seen in our data is our guests really recognize kind of the unique but very familiar offerings. And as a result, I think that's what we're going to see from a menu development perspective. I don't know. I'll look over here to Kevin, if there's anything he wants to add.

I think you covered actually.

He thinks I covered it. I think we're good there.

And last one for me. In terms of -- I imagine it's still early on the remodel perspective. You said you had some of the CapEx for the year, earmarks for that. But just curious on how you're thinking about maybe the size, scope or just what the initial path of stores might look like in terms of number or vintage that you might be targeting?

Yes, so we got probably about a third of our restaurants, from a vintage standpoint, that have the ability to kind of add some capacity into it, up to almost 24 seats in our restaurants. And those tend to be an older model, meaning an older version of our restaurants, so they need a little bit of an upgrade there to begin with. But they're high-volume restaurants. And every time we know we've added capacity in restaurants we're able to generate top-level sales. We haven't defined the full dollar scope yet on those, but knowing that we're adding capacity and getting seats in there, we know that they're going to have a high ROI just because, again, we're going to be able to generate top-line sales from them.

Very helpful. Thank you.

You're welcome.

Thank you. And that does conclude today's teleconference. We do appreciate your participation. At this time, you may now disconnect.