Good afternoon, and welcome to the BJ's Restaurants' First Quarter 2024 Earnings Release Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Rana Schirmer, Director of SEC Reporting. Please go ahead.

Thank you, operator. Good afternoon, everyone, and welcome to our fiscal 2024 first quarter investor conference call and webcast. After the market closed today, we released our financial results for our fiscal 2024 first quarter. You can view the full text of our earnings release on our website at www.bjsrestaurants.com. I will begin by reminding you that our comments on the conference call today will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that forward-looking statements are not guarantees of future performance and that undue reliance should not be placed on such statements. These statements are based on management's current business and market expectations, and our actual results could differ materially from the projections in the forward-looking statements. 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 will refer to the full discussion of risks and uncertainties associated with forward-looking statements contained in the company's filings with the Securities and Exchange Commission. We will start today's call with prepared remarks by Greg Levin, our Chief Executive Officer and President; and Tom Houdek, our Chief Financial Officer, after which we will take your questions. And with that, I will turn the call over to Greg. Greg?

Thank you, Rana. BJ's delivered another quarter of improving restaurant-level margins and overall EBITDA growth, overcoming the challenging January weather, which impacted guest traffic industry-wide. Our improving results reflect the benefits of the strategies we shared at our Investor Day in November. This strategy is focused on driving sales to our familiar made brewhouse fabulous culinary initiative, building our awareness over time, our people initiative around hospitality and gold standard level of operational excellence, and a welcoming contemporary ambience through our remodel initiative. Our holistic approach also addresses margin expansion through productivity and cost savings initiatives. Taken together, these strategies have established a foundation for future financial and restaurant growth and the enhancement of shareholder value. As we mentioned on our 2023 Q4 call in this February, comparable restaurant sales were down approximately 5%, 6 weeks into the first quarter due to impacts from the winter storms. However, as weather largely normalized throughout the rest of the quarter, our comparable restaurant sales improved, resulting in comp sales being down only 1.7% for the quarter. The improvement in comp sales throughout the quarter came primarily from improved guest traffic. Q1 '24 also marked our 12th consecutive quarter of beating the industry as measured by Black Box. Furthermore, our restaurant margins continue to expand and rose to 15%, representing an increase of 240 basis points from the prior year, despite the January weather impact. On a reported basis, adjusted EBITDA in the quarter rose to $29.4 million, inclusive of some onetime G&A costs, which Tom will discuss shortly. Excluding these onetime expenses, adjusted EBITDA would have been approximately $31 million or approximately 25% higher than the prior year and 9.2% of sales. Tom will discuss our margin growth initiatives that generated strong Q1 results in more detail in a moment. However, as…

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 first quarter, we generated sales of $337 million, which was 1.2% less than last year. On a comparable restaurant basis, Q1 sales decreased by 1.7%, including the impact from heavier than usual winter weather in January. From a weekly sales perspective, we averaged approximately $120,000 per restaurant. Our strong and efficient restaurant execution, as Greg just outlined, in conjunction with cost savings from our margin improvement initiatives helped BJ's again improve margins in the quarter. Our restaurant level cash flow margin was 15% in Q1, which was 240 basis points better than a year ago, demonstrating again the benefits of our ongoing initiatives to drive efficiencies and the solid foundation we are building for continued growth. The winter weather in January also weighed on margins, which improved through the quarter as our sales returned to more normal and predictable levels. Adjusted EBITDA was $29.4 million and 8.7% of sales in the first quarter. Q1 EBITDA beat the prior year by more than $4 million with a margin that was 140 basis points higher despite both more extreme winter weather and certain extraordinary costs in G&A that I'll outline later in my remarks. We reported net income of $7.7 million and diluted net income per share of $0.32 on a GAAP basis for the quarter, which were both more than double levels from a year ago. Now I'll provide more details on sales trends in the first quarter. Heavier-than-usual winter storms impacted industry-wide sales through lower traffic in January. Our comparable restaurant traffic declined approximately 9% in January before…

[Operator Instructions] Our first question is from Alex Slagle with Jefferies.

Congrats. Good momentum here. The margin performance really stood out, especially relative to the expectations we had in the low 13% range for restaurant level margins. I mean it was up and down, restaurant expense categories. So I just wonder if you could size up the contributing factors a little bit more. I realize it's not just one thing. I mean there's sales leverage and cost efficiency measures kind of in a lot of places, but just trying to get a better feel for what changed and how sustainable some of these dynamics are?

Sure. Thanks for the question, Alex. And it really was strong performance across the lines, as you mentioned. Sales did recover nicely. So we saw a pickup in sales, which was consistent. But with that, we also had a good quarter in terms of commodity stat. They came in a little under what we were expecting. So that did help some of the initiatives that we rolled out certainly offset and some of the inflationary pressures. Where we really saw some nice leverage as well is across labor. We operated really well in our restaurants. Once we got through the winter weather, we had some really strong restaurant operations that were very efficient in terms of the labor scheduling. So when we saw the sales became predictable, we really had a nice flow-through in terms of labor. And then finally, down to O&O, seeing the repair and maintenance expenses come down, we have been more conservative in terms of what we've been spending in terms of third-party delivery promotions there. So we've really refined what we spend on and where we're going to cut and find some efficiencies. So more to come, but no, I appreciate the question. It really was outperforming what -- see what our expectations were in terms of what we were able, our restaurants were able to operate at.

And so some of the labor scheduling, I mean, is there more to do there, like tech-enabled labor scheduling pieces that maybe you haven't rolled out? I just wasn't sure where you were in those things, but good job working through all the volatility to the weather.

Yes. Thanks. Last year, we had rolled out to our restaurants and AI-based sales forecasting tool, which helps both prepare their labor schedules, but also how much food to prep. So those that continue to be refined, and we're seeing better outcomes from those tools and getting our sales forecast even tighter at the restaurant level. So that is a continual process of refining and making that better and better. So yes, some of that wasn't included, if you think of Q4 into Q1, the benefits of that tool is just getting better.

So Alex, a big part of that, and Tom mentioned it really is nailing down your weekly forecast. We've said this before, and you and others understand that. If you have the right forecast in place, the ability to manage against that both on cost of sales because you're prepping correctly, work for you and is a huge benefit in food cost against your theoretical. And then the same thing for labor. As we continue to work labor, we right now want to continue to work our AI tool in regards to the in and out times and getting better around the shoulder. I think there's still opportunity in our restaurants to be more efficient, really around that shoulder period. As we mentioned on the call today, we are doing some changes, which are going to allow our servers to take care of our guests even better. But one of the big benefits on that is really getting more of our managers into the dining room area. And by being in the dining room area, we can see the shoulders of the shift and how they're transpiring through today. And that's a huge unlock for us. That's going to allow us, I think, some additional benefits over time, but it is a shift in our business, and it's going to take a little bit of Q2 and Q3 for us to work through that. But I do believe, over time, there's additional labor benefit in regards to efficiency, and that should also allow us to drive top line sales by being more efficient and more effective.

The next question is from Andrew Wolf with Loop Capital Markets.

I wanted to ask about your goal of getting to the 16% exit restaurant-level cash flow, which was 2019. And I just wanted to kind of point out sort of the obvious that like the 5-year period before that it was -- that margin was really more like 17% to 19%. So I just kind of want to ask, is there any structural reason post COVID for 17% to 19% to be or not be in play? I mean, I'm particularly thinking about indoor dining -- in restaurant dining versus off-prem is maybe a structural reason. The old margins may not be attainable if everything else wasn't equal. Obviously, you're doing a lot on the cost side. So I guess, maybe you could just help us think about a longer-term goal on the margin side from the restaurant level?

Yes. Andrew, great question. And where I would say we are today and I think businesses in general in the restaurant space, maybe limited service in California might have a little bit different model right now. But where we are today is the additional dollar of sales is going to flow through somewhere in that 50% range or so. We've always talked about that on the call. So we think about driving, and the reason for that today is we've gotten through all the inflationary pressures that came through coming out of COVID from '21 into '22. So we've kind of reset that basis there, and now we're dealing with, for the most part, more normalized inflation. So with more normalized inflation as we can drive that incremental sales, we should be able to get that incremental dollar and that incremental dollar should continue to move the margins up. And our first step is getting back to where we were in '19. And then from there, it's continuing to drive sales and getting our margins above that. The one area that is different today, it's about 130 bps or so, maybe give or take a little bit more in our P&L is third-party delivery charges. So when you look at our numbers in general, they're going to be 130 different basis points than maybe where they were in '17 and '18 and '19. But other than that, we should be able to drive higher sales from that and ultimately end up with greater dollars per restaurant week. That's one of the things that we've got our eye on is how do we get to our dollars per restaurant week being the same as where they were in 2018 or 2019. And that's what we take to the bank, but obviously, we want both of them. And where we are because of the initiatives that we put in place and the things we've done, it's allowed us to get back to a very leverageable business, which is, I think, what we saw in the first quarter. And even Tom mentioned it, it would have been interesting, frankly, to see how good our margins would have been with a normal Q1 or with a normal January and even into the first week of February because January is a big month for us. So a really big month for us. Same with February in regards to Presidents' Day weekend and Valentine's Day. So the 15% margin that we're happy with, we're not satisfied. I think we left them on the table because of weather related. And then going to Q2 I think there's opportunities to continue to expand that.

The next question is from Jeffrey Bernstein with Barclays.

This is Pratik on for Jeff. Just a bigger picture question on consumer behavior. We've heard a lot of companies report over the past week noting caution on spending, and there's a lot of check management going on, particularly with lower income consumers. Just wanted to see how you would respond in this environment. Obviously, you're seeing the promotional environment picking up a notable competitor of yours, just added a premium burger to their value platform. So just how do you kind of maintain your brand equity while also acknowledging that maybe the consumers are getting a little bit more cautious? And how do you kind of maintain your value proposition?

Yes. So just when we look through our segmentation of our guests and look at our data, it does tend to be that the lower income consumer seems to be doing a little bit more check management maybe than the other consumers. And we look at that around consumers around $50,000 of spend or less seems to be, again, a little bit different in their average check and how it's acting versus some of our other consumers. So there's a couple of ways that we're going about and I think you're seeing all the different companies do it differently. One is, as Tom mentioned, we are not adding as much menu pricing as we've done before. We think we are in a position today that we can improve traffic and drive margins. And I think the health of traffic is a greater importance today versus getting back to where margins were even in '17, '18, or '19. I think because of that, we can drive people in and leverage that part of our business. At the same time, in regards to our marketing and driving awareness, we do have our, what I would call, good price point out there, which is the affordability side of things, whether it's yesterday, Wednesday is our Loaded Burger day. So Loaded Burgers are $11 or $12, depending on where you are in the U.S. with unlimited fries. So it's a great deal that comes in. We have half off large pizza Mondays. We also have our lunch specials that start at $12. So we have areas of our menu that continue to have great price affordability, which we call our Daily Brewhouse Special. And then we'll lean into at times different promotional areas. We haven't leaned into it too heavily, but there might be…

The next question is from Aisling Grueninger with Piper Sandler.

Congrats on the results. My question is on the late-night daypart. I know on the last earnings call, you mentioned that the late-night daypart was your best performing with comp sales around mid-single digits for the quarter. I was just wondering if you could update us on this daypart? And also wondering if you expect with the remodels in the new bar area, if there's room for this daypart to continue to grow?

Sure. Thanks, Aisling, for the question. Yes, this is -- if we look across the board, both on premise especially, but even off-premise, just a great performing daypart for us. We did expand hours in the middle of last year, and it's continuing to pick up steam. So yes, a positive comp sales for the quarter, even positive traffic for the quarter in Q1, even with the weather in January. So yes, it's -- if you think of what's core to BJ's, it really is the bar business and having the great bar statement is where we're touching in all these remodels. And as we go through our new version of the prototype, it will have 130-inch TV. So this is a core attribute of BJ's. And great to see both even on and off-premise, it's a business that is really healthy for us right now.

I think to add to that, I think this is really important is you have to lean into areas that you have authority in your business. And that late-night and daypart business, that's something that's very unique and differentiated BJ's that a lot of other concepts can't necessarily talk about, especially in the casual dining space. So as we continue to think about our awareness amplification and what we do differently, those are areas that we're going to continue to lean into to drive that part of our business because, again, it's a differentiating factor. It's one of the reasons that guests come and use us.

My other question is just where marketing came in as a percent of sales in the quarter?

Marketing was 1.9%, 1.8%…

1.7%, actually.

The next question is from Nick Setyan with Wedbush Securities.

Congrats on the margin trajectory here. First question is really on the other OpEx. That had been an expense line item that has been pretty sticky. And it seems like even with the op marketing expense, I think you guys saw like 60 bps or 70 bps of improvement year-over-year ex marketing on that line. So what exactly are you guys focused on in that line? And is there more that can be done on that line to get to see even more leverage going forward? Because your Q2 guidance, even if you assume less leverage on labor, it would have -- I mean, we would have to assume a lot less leverage on other OpEx to get that mid-15%-ish type of restaurant level cash flow.

Sure. Yes, the O&O line, you're right. I mean, in terms of our -- especially our productivity initiative, this is one where we've identified ways to save, but they've taken some more time to implement. So we're starting to see some of those come through in Q1. We called out the changes that we had in our R&M planning for the year, and that's both on OpEx as well as CapEx. We've also -- we've made some changes that some outside services that we're now completing internally that it's -- we can do it for cheaper and it's a higher quality. But even coming into later in the year, we've got a new disposable distributor that is going to give us product at a lower cost that will be a nice savings in the second half. So we're continuing to find ways to just be more efficient in the core O&O line. And some of it has been stickier, that it has been sitting higher. But yes, this is -- when I think of where we're going to find some good cost savings this year, I want to find even more savings on this line. Going into Q2, we do have extra -- some extra marketing spent happening then. So our 1.7% that we just mentioned is going to be closer to 2%. So we will see a little uptick in the total O&O line because of a little extra marketing spend. We are seeing a little extra inflation as well on commodities for -- so cost of sales. So there's a few things that are also baked into the forecast for where margins are going to be. But yes, there's some nice tailwinds as well.

The other question I want to ask is not so much the value equation because it does seem like you got still a relative value to your peer set because of where your average check is. But what can you do to highlight that sort of favorable value gap a little bit more?

Yes. Nick, that's something that we continue to work on, and that gets down to really driving the awareness around that price point affordability. So as we lean into that, we lean more into our Daily Brewhouse Specials. As I mentioned earlier, talking about whether it's the Loaded Burger Wednesdays. It's the Slow-Roasted Thursday that come about the half off pizza. Those have been big areas for us. We continue to also begin work through our new menu and create new menu items that have a little bit better price points, let's call it, starting price points that allow us to trade up if they want. That comes in and it's going -- it's part of really the media side of it. The other is, as we rolled out our newer menu, we this year went back to what we used to do pre-COVID but have that spiral menu. It allows us to actually change our pages. So we are a little bit more flexible and able to push some of the value there. And in a couple of markets, while they're in test, I won't go in specifics, we do have a more value menu in certain specific markets that we continue to analyze the test. And depending on how it comes through for us, we may see us expand that.

And then just a [ molly ] question. In Q2, what is pricing going to be, menu pricing in Q2, all in?

Pricing will be in the 3% area.

The next question is from Sharon Zackfia with William Blair.

I was hoping you could quantify kind of more where traffic has improved to in the month of April?

[Indiscernible] on single digits, right?

That's right. Yes. So far -- yes. So we're through April now. So it's in the down about 3% area.

And then, Greg, I apologize if I missed this my cellphone cut out, but it sounds like you're making some incremental investments in hospitality. It sounded like maybe those are in specific regions. Can you talk about what you're seeing that causing you to make those investments? And has there been any kind of waffling I guess, and guest satisfaction that's leading you to think about investing more there?

Yes. By the way, I just want to think about your first part of question. Our dine-in traffic is actually less than the negative 3% kind of in the 2s% just from a negative standpoint. So we get a little bit of a drag from the off-premise. And we did talk about we're spending money wisely in off-premise, looking at other ways to drive off-premise overall. But when we look at the health of the business overall, we want to drive that dining room traffic. That dining traffic delivers an affinity for the brand and that then drives off-premise. So I just want to get back to that aspect of it. In regards to your other question from a labor standpoint, one of the things that we've been really looking at in our business is pace and the throughput in our restaurants and how we can be faster. BJ's has never been a fast restaurant. People like to come and spend their time there and enjoy their time at the BJ's. That's why we're more experiential from a dining perspective. We're not necessarily something that's complementary to something else, meaning when we go to BJ's and a movie, we are the event of the evening. But at the same time, we're looking at areas that we control, whether it's how quickly we get somebody seated, how quickly we get an order into the guests, how quickly we cook, how quickly it gets run out, and so forth. And as we looked at that, Chris Pinsak, our Chief Restaurant Operations Officer and his team really started looking at some of the pinch points in regards to how quickly do we get to a table to get that order into the kitchen because if it's into the kitchen quicker, it cooks quicker. And we started looking at that ratio at times between servers and food runners as well as how do we want to think about an expeditor in regards to quality, what we call a quality SaaS position. And we're making some tweaks to that. The net-net of that is it should not add any real labor dollars to our business. It's more of a shift from servers, from food runners and into more of an expeditor tech role that we didn't have that we used to have maybe 15 years ago. And we're doing that in more of the high-volume restaurants first to see how that works for us and how that drives improved pace and throughput. And then as we work through that, we'll look at that and determine the right cadence for the rest of the restaurants.

And just one last question. It sounds like you're seeing a little bit of commodity inflation pick up. Do you still expect flat to low single digit for the full year? Or has there been a change to that?

No, that's still in line with our expectations. It's looking like the low single digits, but yes, still a lot of year in front of us. But we had a really good Q1 in terms of where we were expecting commodities to come in. But some of the produce recently hired some of the meat. So it's more or less in line with the plan as it started. We had a little bit better Q1. Now we're seeing some of it pick up back up a little bit. So yes, we're still right in line with the original guidance.

And our last question today comes from Todd Brooks with The Benchmark Company.

Just wondering, Tom, within the guidance for slightly negative same-store sales in the second quarter, what are the assumptions that you guys are building in for the strength of celebration season here, Mother's Day, Graduation, Father's Day? Thoughts on how those should perform year-over-year given the macro background?

Yes. Everything -- when we look back to the recent celebrations, the Valentine's Day, when we're expecting people to come out, they have come out. So I am expecting. And the focus internally is how do we make sure -- yes, gracious hospitality is a focus, but also pace so we can get the table set and people fed and when they want to leave, they can leave. And so we were ready to feed the next group. So yes, we're expecting these to be big weekends for us. And we're putting all of the operational pieces in place to make sure we can -- everything we can control is being controlled and driving as much sales as possible.

But those weekends that you can actually grow year-over-year or it's more hold-to-hill because they were such high-volume weekends last year?

Our goal is always to grow and have more consumers come into our restaurants. As I mentioned earlier, Chris Pinsak, our Chief Restaurant Operations Officer, will go through with the rest of his ops team and look at ways to make sure we have the most flexible floor plans in place, how we increase reservations for those big weekends and reach out not only from Mother's Day and Father's Day, but also all the graduations that happened at that time during that season there. And we believe that by adjusting our floor plan and some of the changes we're making in the labor staffing, where we're doing some of our bigger restaurants that we have the ability to get them into our restaurants, fed faster, food into their table faster and that provides additional capacity. One of the things that we've seen in this business coming really out of COVID is just restaurants are seem to be busier at the front desk. And then if you look in the restaurants, they're just not operating as fast as they are. So I wouldn't necessarily call entirely false weights per se. It's more about how are we more efficient when people come into the front doors of our restaurants, so we get them fed sooner. And that's one of our big initiatives this year and that initiative will really prove itself out come Father's Day, Mother's Day and these graduation time frames.

And then, Greg, you had talked about without the impact of January, we probably really would have been even more surprised by the restaurant level margins than where we are now. And I know if we have a normal celebration season, typically, that's a big sequential lift that we tend to see in restaurant level margins kind of Q2 versus Q1. So Tom, I think you talked about less pricing, a little bit more commodity inflation, but just trying to get a sense of, is there a how high is up type of way that we should think beyond the 15.5% guidance if things do fall as expected in Q2?

Todd, it's interesting. Being in this business as long as I have been, people used to talk about this business around Q2 and Q4. If you go back historically and look at this business, it switched to a Q1 and Q2 business. It's just -- that first part of January, longer spring school breaks. You go into spring break in March, which is still in Q1. As I mentioned, Valentine's Day, President's Day had their long weekends. And when you go back and you look at BJ's margins over the time, the difference between Q1 margins and Q2 margins, they do bump up from time to time, but they're not like 100 or 200 basis points or 300 basis points more. You'll see anywhere from 30 to 100 play in there. So I think as we think about where we look at our business where we're trending, I think the mid-15s% is a solid improvement in where we are today and continues to move us forward. The sales come in significantly better. As I said earlier, the ability to leverage in this business, I think, is very strong.

And if I could squeeze one more in. Exciting to hear that you got the build cost down to $6 million in the new prototype. Just wondering what changed to get the build cost down that much? Is it front of house changes, back-of-house changes? I know it was a little bit more maybe "Simple construction, 90-degree angles versus curves and angles" and things like that, but that's a big drop from where you guys were running with the recent set of builds. I'm just wondering how you got there.

Yes. A big portion of that, Todd, and you were with us at our Investor Day and you saw our framing cameras on some of our newer restaurants. They have that island bar. That island bar takes up more square footage versus our more traditional restaurants that have what we call the classic bar statement against the wall where we could put that 130 -inch TV in. And that helped achieve a big amount of savings there. It then allows us to run that much more efficiently because you got the kitchen right behind the bar. So it's easier for team members to serve the people in the bar area, they're not driving as many steps. And then losing that island bar, you don't have to staff it with 2 to 3 bar tenders at different times because you have people on different sides of the bar. So that's where we get some of that operating efficiency. So that's a significant portion of it. There's also other things that we looked at within how we set up the kitchen, the different, as you just saw, undulations or right angles versus curved angles.

This concludes our question-and-answer session, and the conference has also now concluded. Thank you for attending today's presentation. You may now disconnect.