BJ's Restaurants, Inc.
Q2 2008 Earnings Call Transcript

Published:

  • Operator:
    (Operator Instructions) Welcome to the BJ’s Restaurants, Inc. Second Quarter 2008 Results Conference Call. I would now like to turn the conference over to Mr. Jerry Deitchle.
  • Jerry Deitchle:
    Hello everybody I’m Jerry Deitchle with BJ’s Restaurants and welcome to our quarterly investor conference call which we’re also broadcasting live over the internet as usual. Joining me on the call today is Greg Levin our Executive VP and Chief Financial Officer and Diane Scott our Director of Corporate Relations. Greg Lynds our Executive VP and Chief Development Officer is usually on our calls but he’s off traveling this week working our upcoming new restaurant openings so he’s not going to be joining us on the call today. After the market closed today BJ’s Restaurants released financial results for the second quarter of fiscal 2008 that ended on July 1, 2008, if you haven’t had a chance to see our press release today you can see it on our website at www.BJsRestaurants.com. Our agenda for the call today will be as follows
  • Diane Scott:
    Our comments on the conference call today will contain forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward looking statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results, performance or achievements of the company to be materially different from any future results, performance or achievements expressed or implied by forward looking statements. Investors are cautioned that forward looking statements are not guarantees of future performance and that undue reliance should not be placed on such statements. Our forward looking statements speak only as of today's date, July 24, 2008. 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.
  • Jerry Deitchle:
    As we indicated in our press release today’s our leadership team is very pleased with our solid overall financial results for the second quarter particularly after considering the current condition in the macro environment and the very difficult quarterly comparison we had to overcome. The key message that we continue to communicate internally to our team here at BJ’s is we can either let the events overwhelm us we can do our best to overwhelm the events. Our approach here at BJ’s is to do our best to overwhelm the events. As a result of that basic philosophy and mindset we believe that our restaurant, brewery and infrastructure support teams been a very good job of driving our business forward and controlling the parts of the business that are within our control during the quarter that despite the continuing challenges in the macro environment we’re all aware of that are currently impacting consumer spending for restaurant occasions in general and that are also impacting the costs that input to our business. Compared to the same quarter last year our revenues for the second quarter went up about 16% to $99.2 million. Our net income for the quarter was $2.9 million compared to $3.3 million for the same quarter last year and our diluted net income per share was $0.11 compared to $0.12 for the same quarter last year. As I previously mentioned our quarterly earnings comparison is a pretty tough one this quarter as we were up against a very strong 7.5% increase in comparable restaurants and a 40% increase in net income dollars in the same quarter last year. We should also point out that our diluted net income per share comparison for the quarter was impacted by about $0.03 per share due to asset disposal costs related to selected restaurant remodels in the current quarter in addition to reduced amounts of interest income and gift card breakage income which we record in the other income line item. All of that compared to the same quarter last year. On top of that the timing of our new restaurant opening costs also represented about another $0.01 per share of impact in the quarterly comparison. Finally since we have three of our four new restaurant openings occur during the second half of the quarter just ended we had to absorb all of their pre-opening costs in the quarter and didn’t get much of a benefit from their operations during the quarter. Even so, in the face of all of those factors we were very pleased that our income from operations before restaurant opening costs and asset disposal losses increased about 11% compared to the same quarter last year. Greg will comment in more detail on all of these factors later in the call today. Also, as we noted in our press release today not only did we achieve a positive comparable sales comparison for the quarter we also achieved a slight sequential quarterly improvement in our estimated four wall operating cash flow margins to 19.1% compared to 19.0% for the first quarter this fiscal year. We commented on our last conference call in April that going forward through 2008 our leadership team had never felt better about the factors in BJ’s business that we can control and we still feel that way. We believe that restaurant management team did a good job of managing our controls of costs and expenses during the quarter. Additional our infrastructure support and our G&A expenses were also well controlled during the quarter. To that point, G&A expenses were about 90 basis points lower as a percentage of revenues this quarter versus the same quarter last year and I think that clearly demonstrates our ability to begin to better leverage that necessary investment in our business. We also mentioned in our press release today that our 0.6% increase in comparable restaurant sales for the quarter was successfully hurdled to a 7.5% increase for the same quarter last year which also happened to represent our strongest quarterly comp of the sales comparison in the last four years. Additionally we also mentioned in the press release that our positive comparable restaurant sales metric for the second quarter compared pretty favorably to an estimated decrease of 1.1% for the June quarter in the Nat track benchmark of US same restaurant for casual dining chain. Greg will provide some additional color on our quarterly comparable sales metric in his comments a little later on the call today. As we mentioned on our last quarterly conference call while no one can accurately predict how the consumer is going to continue to react in this very volatile and slowing economy we here at BJ’s don’t believe that the current macro environment is likely to ease up any time in the near future. We don’t think that we’re that close yet to the bottom of this economic cycle. We made a decision last quarter to do our best to accelerate our planned schedule of 2008 key sales growing initiatives and to do our best to try to overwhelm the uncontrollable rents in the macro environment. We think that we’ve achieved some initial success in this respect. So far this year we successfully implemented our Curb-Side cashiering service, our Call-Ahead seating service, expanded delivery service, the Lunch specials, improved Happy Hour programs and additional print media support for new menu entrées. During the second half of this year we currently plan to promote our upcoming new online ordering service, some new signature menu entrees and updated buying program and some new seasonal beers all of which are currently scheduled to roll out later this year. Matt Hood our new Chief Marketing Officer and I’m sure that Matt is going to provide additional strong leadership for us in an overall merchandising marketing, culinary and branding activities going forward. In this tough macro environment we think it’s very, very important to continue to drive BJ’s top line awareness and constantly reinforce our points of quality differentiation to consumers and we believe that we can execute that at BJ’s without having to resort to excessive levels of couponing and discounting. We just don’t have to and don’t need to and don’t want to get into couponing and discounting game. Longer term we still remain very confident about BJ’s ability to capture additional market share in the estimated $90 billion casual dining segment of the restaurant industry. I would like to take just a minute and comment as to why we still believe that. In our view the casual dining segment is still an attractive segment of the restaurant industry and we don’t think that $90 billion of annual casual dining sales is going to disappear any time soon. Clearly depending on current pressures in the macro environment it may not grow as fast as it did in past year but it is still a very large highly fragmented segment that is populated with literally thousands of restaurants that in our view have gradually felt what we call a gravitationally pull downward over the years. In terms of the overall quality, their overall energy level and their overall points differentiation. As a result, we think that many of these restaurants are kind of gradually falling out of warranty with the consumer so to speak. I think this becomes particularly evident with the macro environment the consumer gets tougher and the consumer is economically forced to be even more selective when choosing their casual dining occasions. If you’ve got a restaurant that’s fallen out of warranty what’s going to happen next is that your vital organs can start failing. The most vital organ in our business is the overall quality of the people running the restaurants. Once your vital organs start to fail in our business its pretty tough to recover. We believe that not only are BJ’s vital organs in good shape today they’re gradually becoming stronger over time. We’re fortunate to have a middle of the fairway, higher quality and more differentiating casual dining restaurant concept in BJ’s and our investors know that we’ve worked very hard during the past three years to complete the concepts evolution to what we call the full casual plus positioning model and thereby improve BJ’s longer term competitiveness and its ability to take additional market share. We believe that BJ’s concept is more contemporary, it’s got more energy and also very, very importantly has an average guest check that is in the same range as many of our mass market competitors that have kind of lost their warranty with consumers over the years. Thanks to the quality upgrades that we’ve added to the concept during the past couple years we believe that we’ve improved BJ’s overall pricing power which is very important giving all of the costs pressures for key inputs to our operations. As far as our vital organs go BJ’s remains one of the casual dining segments leaders in guest traffic productivity per square foot of restaurant space. Our overall restaurant sight quality continues to improve our overall restaurant management talent base continues to improve our overall execution continues to steadily improve. Our estimated annualized restaurant manager turnover rate has now dropped below 20%. In the pool of qualified restaurant manager applicants has increased by almost 50% this year. Quality attracts quality in the restaurant business and our talent pipeline is the most critical of all the growth pipelines in our business model. Clearly the quality of that pipeline has dramatically improved and continues to improve over time. Our fundamental strategy at BJ’s remains pretty straightforward. We intend to continue to capitalize on the competitive strengths of our vital organs and continue to position BJ’s to gain additional market share over time. I think it’s important to keep in mind that BJ’s doesn’t even have one half of one percent of the casual dining market yet in terms of sales so we’ve got a long way to go. Obviously our primary opportunity is to gradually increase BJ’s market share over time. The best way to do that is to open additional BJ’s restaurants. We’ve only got 75 restaurants open today in only 12 states. We continue to believe there’s room for at least 300 BJ’s restaurants of various sizes and sight types domestically. Having said that we’ve got to maintain strong discipline in terms of executing our growth plan in a very carefully and controlled manner. We’re only going to do it with the right operational talent, the support infrastructure and modern tool sets in place. As I previously mentioned that Greg Lynds our Chief Development Officer can’t be on the call today so I’m going to give the update of our development plan and speaking about that plan we’re very, very proud that we’re doing an excellent job of managing and controlling the key component of our business execution. Our development team has worked very hard to put BJ’s in a favorable position to successfully execute our previously states restaurant expansion plan for 2008 which remains solidly in place and which calls for the opening of as many as 15 new restaurants in high quality locations this year. I think it’s also important for investors to keep in mind that our targeted 20% to 25% increase in total restaurant operating leads for the full year of 2008 it does represent the most significant component of our expected growth in total revenues and market share for the year. We’ve already opened eight new restaurants so far this year including four in the second quarter. We opened one in Kissimmee, Florida which is a suburb of Orlando on May 12. We opened another one in Greenwood, Indiana which is a suburb of Indianapolis on May 19. We opened a great restaurant in Baton Rouge, Louisiana on June 9 and tremendous restaurant in Torrance, California in our home court of California on June 23. To date in the current third quarter we’ve opened a restaurant in Peoria, Arizona which is a suburb of Phoenix on July 14 and we opened on in my home town of San Antonio, Texas on July 21. Tomorrow we’re going to open our first restaurant in the state of Washington at the recently expanded and remodeled West Field Southcenter Mall in Tukwila, Washington which is a suburb of Seattle. Within the next couple weeks we plan to open new restaurants in Pearland, Texas which is a suburb of Houston and in Modesto, California. All of our remaining 2008 projected openings are all under construction and are currently on track to open before Thanksgiving. It is important to remind our investors that the actual timing of restaurant openings is inherently difficult to precisely predict and is subject to a number of factors outside of the company’s control including factors that are under the control of our landlords, municipalities and contractors. Even with some of the current economic difficulties our home court state of California still represents in our view a very attractive welcome opportunity for future BJ’s restaurants. Our new Torrance restaurant demonstrates that fact very nicely as our sales met restaurant had been in the $150,000 per week range since we opened. California’s got about 37 million people and we’ve only got 40 BJ’s restaurants open in that state today. We still have significant growth opportunities here. Additionally we plan to focus additional development in the state of Texas although there are 24 million people and we really only have 12 restaurants only opened that’s a state where also our comparable sales comparisons have been running steadily positive in the aggregate for over three years. By elevating the BJ’s concept to the full casual plus level we’re now in a very exclusive restaurant club so to speak with a national mall and retail center order developers. As these developers reinvest their more productive projects with major facelifts and other upgrades that they often make room to had a few high volume restaurants to help revitalize and drive overall traffic at their projects and BJ’s is now solidly on that list. The major developers usually offer landlord construction contributions on recent restaurants. During 2008 we now expect to receive approximately $15 million in total landlord construction contributions that will help finance the development of our new restaurants. Going forward it’s our goal to secure an average of $1 million of landlord construction contributions per new restaurants. Some sights may have more dollars available, some sights may have less or none available depending on each sight and each landlord on average, that’s our goal to secure about $1 million of contributions per new restaurant going forward. Looking ahead to 2009 and 2010 our primary development strategy remains the same that is when we want to secure prime AAA sights in very densely populated more mature retail trade areas. We’re going to take pass for now of most the greener sights and greener trade areas although we may decide to develop a sight or two with some of those characteristics if it makes compelling sense to us to enhance BJ’s longer term positioning in a specific geographical area. During the past three to four years we’ve opened more BJ’s restaurants with some of the largest retail developers in America including Simon Property Group, General Growth Properties, Mesa Ridge, CBO, Westfield and others. These relationships are solidly in place and we’re going to continue to leverage these relationships to maintain the high quality of our new restaurant development pipeline. We believe that our sight pipelines for 2009 and 2010 are in good shape to date, in terms of the absolute number of sights in attractive geographical trade areas for our concept. Having said that, as many of you know, many retails and restaurant companies are cutting back their short term expansion plans in light of the current economic slow down. Where this could potentially impact BJ’s down the line is not necessarily in the number of good sights available to us but in the desired co-tenancies of the projects in which we want to open and the result and timing of our decision to develop the sights. Having the right mix of co-tenants with us in a retail project is pretty important to us as it is to most retailers and restaurants because of the synergies that all players collectively generate in terms of overall customer traffic and energy for the project. We would prefer not to open in retail project that are having difficulty getting fully leased up with their anchor tenants or that might open with less than half of their total project leased up. In addition to the co-tenancy factor there are some other retail projects for which we’re interested in opening in that have been postponed in their entirety for the time being due to the economic slow down. At this time we’re not going to adjust our targeted range of 20% to 25% growth in total operating weeks for 2009. We do need to very closely monitor the co-tenancy status of every potential sight that’s currently in our development pipeline for the next couple of years and we do need to be prepared if necessary to adjust the timing and the development at some of those sights based on how the retail environment continues to evolve. We’ll keep everybody advised on that. Before I turn the call over to Greg I’d like to update you a few other things. First, as most of our longer term investors know we’ve been intentionally strengthening our field supervision and home office support infrastructures for future growth during the past couple of years. As we mentioned on our last call substantially all of what we would call our catch up investment in that respect were completed last year and now we’re on more of normalized incremental G&A investment pattern going forward in our business. We will continue to make incremental G&A investments in our restaurant manager and talent recruiting, training, development, retention programs going forward because as I mentioned earlier that’s the most critical resource requirement and pipeline for growth in our business model which is a pure company and operation growth model. We can only grow our restaurant base as fast as we can recruit, train, develop and retail the very best restaurant managers available. As a result even having said that we still expect to achieve further gradual leverage in our G&A expenses going forward as time moves on. Also our in house brewery operation team continues to be very pleased with the high quality and consistency of the brewing of our two more popular beers by our new large scale contract brewing partner that we brought on in the second quarter. We’re well on our way with this new brewing relationship that’s very critical to our future growth. We’ve been using a smaller contract brewer for several years to support our Texas beer requirements and now we’ve been able to add one of the top 10 contract brewers in America to our contract brewing team. Previously our total beer requirement were frankly in the aggregate too small to attract the attention of the larger scale contract brewers but now that we’ve got 75 restaurants open with an annualized total beer requirement in excess of 50,000 barrels of beer per year we’ve been able to get the attention of the larger contract brewers. Last year about 15% of our total beer was contract brewed and we still expect this percentage to gradually grow to the 35% run rate range by the end of this year. Our longer term objective is to have large contract brewers that produce substantially all of our larger volume beers but we’ll continue to create and brew our smaller volume seasonal and specialty beers. That’s an update on our business and operations and now I’m going to turn the call over to Greg Levin our CFO for his commentary on the numbers for the quarter.
  • Greg Levin:
    Let me take a few minutes and go through some of the highlights for the second quarter and provide some forward looking commentary for the rest of 2008. As Jerry previously noted our total revenues for BJ’s second quarter of 2008 increased approximately 16.5% to around $92.2 million from $79.3 million in the prior year’s comparable quarter. This increase is the result of approximately 19% more operating weeks offset by slight decrease in our weekly sales average of about 2%. The operating week increase is due to 14 new restaurants that we have opened since the second quarter 2007 and that’s offset by the closure in the first quarter this year by one of our legacy small format restaurants up in Oregon. As Jerry mentioned our aggregate comparable restaurant sales for the first quarter was a positive .6% and we were able to achieve that despite rolling over a 7.5% comparable restaurant sales in the second quarter of 2007 and a softening, in what I’m calling more challenging economy for the consumer. While we don’t normally give monthly comparable restaurant sales numbers I would like to note that our comparable sales comparisons steadily improved as the quarter progressed. We’ve got a lot of questions regarding the stimulus check and what affect that may have had on comparable restaurant sales for the quarter. Our answer is we just have no way to determine that. While we did see comparable restaurant sales steadily improve during the quarter we believe that that was due to BJ’s competitive advantage to handle large parties. The majority of our restaurants are built with what we call dining room three that allows for flexible seating and can be separated from the rest of the dining room to accommodate large parties. As such, our restaurants tend to do well during celebratory periods when we have a strong comparable restaurant sales comparison on Mother’s Day, Father’s Day and during mid-June, Graduation week. As we mentioned earlier in an earlier press release in the second quarter we had our first BJ’s restaurant ever to achieve $200,000 in weekly sales and that was achieve during the Father’s Day fiscal week. That is twice our company average not to mention it was done on an average check of around $12. That’s a lot of guests coming through that restaurant and frankly, I think this is important to remember, two years ago we would not be able to handle that type of volume. Being able to do $200,000 a week in sales on a $12 check average really goes to the strength of the restaurant management team that did an outstanding job of delivering gold standard execution hospitality and to the quality fast tools sets that we have implemented in our restaurants over the last few years such as KBS labor scheduling and table management. As we previously mentioned in the first quarter the softness in our overall comparable restaurant sales metric is primarily isolated to the Sacramento, Central California region, the Inland Empire regions of California and the Phoenix, Arizona market. These are regions of high growth over the last several years and housing melt down in related slow down in overall construction activity are taking their toll on these locally economies. We hear the same sales trends from many of our other casual dining competitors in these markers. We have 10 restaurants in the Sacramento, Central California region and the Inland Empire area of California that were in the comparable restaurant base in both the first quarter of 2008 and the second quarter of 2008. These 10 restaurants in the first quarter 2008 as we previously said had comparable restaurant sales decreases in the 6% range. In this past second quarter these same restaurants had a comparable restaurant sales decrease in the 5% range. The average weekly sales for these restaurants improved to just of $121,000 per week. We have mentioned this before the absolute sales for these restaurants have remained pretty stable, in fact, in Q1 to Q2 you could say we have seen some improvement both in the WSA and their associated drag on comparable restaurant sales. Most importantly at $121,000 weekly sales average these restaurants well exceed our return on investment targets. We have also seen some slight improvement in the Phoenix, Arizona restaurants which we said in the first quarter of this year had an aggregate decrease in comparable sales of approximately 7% to 8% for the quarter. In the second quarter these restaurants had a decrease in comparable restaurant sales in the 6% range. Many of our other restaurants in different areas we continue to see solid increases in comparable restaurant sales. Our La Mesa restaurant in San Diego, California and our Laguna Hills restaurant in South Orange County, California area had comparable restaurant sales increases in the 11% and 7% range respectively. Our Texas restaurants continued to deliver solid comparable restaurant sales increases with both our WillowBrook and Clear Lake restaurants which are in the Houston market delivered mid-double digit comparable restaurant sales during the quarter. In our Summerlin, Nevada restaurant a suburb of Las Vegas achieved a comparable restaurant sale increase of about 9%. During the second quarter we opened four new restaurants as Jerry mentioned. Two of those were in new markets the Indianapolis, Indiana, and Baton Rouge, Louisiana markets. We are very pleased with the initial sales in both of these new markets. However, we do want to remind investors that many of our new restaurants particularly those opened in our home court market, California will often open with higher than normal sales volume due to the hiring period. These hiring periods last six to nine months depending on the areas and the developments that we open in. In many cases we may be opening our restaurants coinciding with the grand opening to a new development which will result in significant hiring period. On the flip side some restaurant openings in new markets for the BJ’s concept will open with initial sales volumes less than our average and will usually build over time with consumer awareness, trial and usage. During the second quarter our estimated menu pricing factor was in the mid to upper 4% range which is down from the mid 5% range in the first quarter. We do anticipate menu pricing for the remaining quarters to be in the low 4% range. As we mentioned before additional menu pricing is really the last place that we look when we consider actions to protect our operating cash flow margins. Our initiatives center on driving guest count by improving and differentiating BJ’s experience from the other dining choices facing our guests and by improving our efficiencies within the restaurant. Thankfully we do believe that BJ’s has additional pricing power. Thanks to the many quality improvements that we’ve made to BJ’s over the past couple of years in terms of better food, service, facilities and execution and thanks to our relatively low average check at present. Having said that we will continue to be very, very careful about our menu pricing in order to protect our principal competitive advantage against the mass market bar and grill competitors. That is, offering a better overall dining experience as BJ’s for about the same price as the mass market bar and grill restaurant chain. Before I move on the middle of the P&L I do want to elaborate on the quarterly comparison. As Jerry noted, in the quarter compared to the same quarter last year we reported an approximate $300,000 charge related to the disposals of certain assets as part of our continuing remodel and enhancement program. Also, last year we reported a one time benefited related to unredeemed gift cards since we implemented our gift card program in 1998 which was about a $230,000 amount that we recorded last year. We also had higher cash balances resulting in the higher interest income. The net of these items is about $1 million before taxes or approximately $0.03 for net income per share. In regards to the middle of our P&L our cost of sales of 25% that was 60 basis points better than last year’s second quarter. On a sequential basis was 20 basis points better than the first quarter. This decrease compared to prior year was principally driven by two components, menu pricing and a reduction in wage driven by our new theoretical food cost system which was offset by higher commodity costs. As we mentioned on our fourth quarter conference call we expect to see about a 3% increase in our overall commodity basket for the full year 2008. For most of the second quarter we have seen less than 3% increase we expected. This lower than anticipated increase in our commodities coupled with the efficiencies from our theoretical food costs system and menu pricing has allowed us to maintain our cost of sales percentage. However, we have seen recently an increase in certain commodities and fuel surcharges which I will comment on shortly. Labor and benefits during the second quarter decreased 20 basis points to 35.2% of sales from 35.4% of sales last year. This decrease is really due to productivity, efficiencies, gain and hourly labor, offset by higher fixed management costs due to the de-leveraging from softer comparable restaurant sales. Despite the softer comparable restaurant sales the majority of our restaurants continue to operate at such high sales volumes that our restaurant management team was able to continue to drive productivity and maintain their targeted productivity levels which are based on the labor hours for 100 guests statistic. Looking at labor on a sequential basis we saw a 10 basis decrease from 35.3% in the first quarter 2008. This decrease is primarily due to lower payroll taxes as a percent of sales since we incur higher payroll taxes at the beginning of each year as we work through many state and Federal minimum employer tax requirements. On an overall basis hourly wages were up in the 2% to 3% range compared to last year that’s due to California’s $0.50 minimum wage increase which took place this January and sequentially our hourly wages were flat compared to the first quarter 2008. Our operating occupancy cost as a percentage of revenues increased 150 basis points to 20.7%. This increase is due to a combination of higher costs related to the implementation of the previously mentioned hospitality enhancements which included upgraded china, glassware, linens and the new uniform program, just to name a few of the items. Higher absolute dollars for our utility costs and the de-leveraging of many of these fixed costs from the softer comparable restaurant sales. From a sequential quarterly perspective operating and occupancy costs increased 30 basis points due to an increase in marketing and energy costs. As we mentioned before our hospitality initiatives were rolled out at the beginning of the third quarter 2007 and in fact if you look sequentially at our P&L beginning in Q3 of last year you’ll see our operating and occupancy costs were 20.2% in Q3 of 2007, 20% in Q4 of 2007 and 20.4% in first quarter 2008 as I mentioned. While 20.7% is higher than we expected it’s really due to the de-leveraging of the softer comparable restaurant sales and the higher than anticipated energy costs for our restaurants compared to last year. While these hospitality initiatives cost more money and absolute dollars as we said before these changes are integral to our overall strategy of moving BJ’s away from the commoditized mass casual restaurant chain while still maintaining BJ’s broad consumer approachability for any dining occasion. We believe that these enhancements are directly related to the strength of our average unit volume which are close to $5 million on an average guest check of around $12. We can’t think of many other bar and grill concepts that are doing close to $5 million average unit volume on a $12 average check. We firmly believe that these tough economic times these high quality guest touch points continue to help differentiate the BJ’s dining experience and therefore give us competitive advantage over many of the commoditized mass casual players that are looking to save their way to success instead of prudently controlling what they can control and growing their way to success by exceeding the guest dining experience. Our general and administrative expenses in the second quarter 2008 decreased 90 basis points from prior year to 7.6%. Including G&A for both 2008 and 2007 is approximately $617,000 and $555,000 of equity compensation respectively or 70 basis points each year. Excluding the equity compensation G&A for the second quarter 2008 was $6.4 million or 6.9% of sales which is an increase of about $260,000 in absolute dollars from prior year. The $260,000 increase in G&A was primarily related to costs for our field supervision including wages and travel offset by lower costs related to our manager and training programs. In addition, during the second quarter we reduced our corporate bonus accrual by about $200,000. Sequentially from quarter one of 2008 G&A decreased about $400,000. This decrease is a result of less salaries and travel and lodging related to expenses for manager and training programs compared to Q1 2008 and the reduction of our corporate bonus accrual of about $200,000 as I previously mentioned. The decrease in our manager and training expenses is a result of lower manager turn over as Jerry mentioned thus reducing the number of new managers we need to hire to continue our growth rate. In addition, it also means a more seasoned manager for our new restaurants which is absolutely critical when executing a BJ’s restaurant which turns out higher guest traffic and more complexity to more of our peer restaurant companies. In addition to lower manager and training costs for the second quarter we were able to more effectively control costs related to legal, consulting and a variety of other general corporate costs. Depreciation and amortization was 4.9% which sequentially was flat compared to Q1 2008. Our restaurant opening expenses were $2.2 million during the second quarter 2008 which was the result of four restaurants that opened in the quarter plus pre-opening rent of approximately $300,000 for the restaurants expected to open in the next two quarters. As we previously mentioned we anticipate total pre-opening to be in the $500,000 range per restaurant. Our effective tax rate for the quarter was approximately 29% which is about 200 to 300 basis points lower than what we had anticipated. The lower effective tax rate is primarily due to our tax free interest on our option rate securities which I will comment on shortly. Our CapEx year to date is approximately $57.1 million net of landlord improvements allowances. We still anticipate our CapEx for 2008 to be around $60 million net of landlord allowances. Before I turn the call back over to Jerry let me spend a couple minutes commenting on our liquidity position and also provide some forward looking commentary on the rest of this year. As we have previously disclosed and discussed we currently own $37.1 million in stay per par value option rate securities that remain illiquid. The option rate securities we currently own are off student loan collateralized obligation. These student loans are public student loans guaranteed by the US Government under the Federal Family Education Loan Program or the FELP program. These securities were sold every seven to 35 days as part of the normal auction process which up until February 2008 have worked for over 20 years. However, beginning in February as a result of the credit crisis the auction cost of sales for these types of investments. We’re not alone here as many corporations and individual investors held over $300 billion of auction rate securities when the market failed in February. The interest we will earn on our auction rate securities is tax exempt. This so called penalty interest rate for investments we hold is primarily based on what is called the SIFMA municipal swap index which SIFMA stands for Securities Industry and Financial Markets Association plus an applicable penalty spread. From my understanding because we own the tax exempt student loan auction rate securities our investments continue to pay interest during the penalty period and do not reset at zero for any period of time unlike some of the other student loan auction rate securities. Because of the illiquidity of these investments at the current time in accordance with FASB 157 fair value of measurement we continue to obtain third party valuations for our investments. Because there is currently not an active market compared to like investments the valuation process is very subjective in which slight changes to the inputs used can have a dramatic effect on the valuation of each security. Based on these valuations we have recorded a temporary impairment in the value of these investments of approximately $2 million or about 5.5% through the second quarter 2008. This temporary impairment was recorded in other comprehensive income which is part of shareholders equity on our balance sheet and was recorded in accordance with FAS 115 which is accounting for certain investments and debt and equity securities. This temporary impairment does not affect current income or earnings however if circumstances change in the future and we determine that we have a permanent impairment in the value of these securities then we would be required to take a charge directly to our income statement. In regards to our liquidity, we currently have a $45 million line of credit with only $5 million outstanding at the end of the second quarter. This line of credit, cash flow from operations and our expected improvement allowances should be sufficient to provide us with the liquidity to execute our current restaurant expansion plans through 2009 not to mention that we also own four ‘c’ properties that we could monetize if we so chose. Let me provide some forward looking commentary on sales and margins for the remainder of this year based on information and expectations as of this date. All of this commentary is subject to the risks and uncertainties associated with forward looking statements as discussed in our filings with the SEC. Additionally I would also restate the obvious that if the economy continues to slow and gas, energy and food prices continue to be high and the outlook of these commodities remains uncertain. Additionally, being only three weeks into July the target ascertained that the economic stimulus checks had any real bearing on our sales in the second quarter as I already mentioned. As Jerry mentioned while no one can accurately predict how the consumer will continue to react in this volatile and slowing economy we do not believe that at the current difficult operating environment is likely to ease up in the near future. We don’t think that we’re close to the bottom of this economic cycle quite yet. Additionally, I want to remind investors that we need to take into consideration the structural changes in the local economies that have occurred and continue to occur in the Sacramento and Inland Empire areas of California and the Phoenix, Arizona area. These areas continue to have good overall population densities to allow us to achieve our sales targets and return hurdles on our restaurants in these markets. However from a comparable restaurant sales perspective we should not be looking these 13 restaurants in these particular trade areas to be positive contributors to our consolidated comparable sales metrics for the rest of this year. However, if we can continue to maintain the current level of guest counts for those restaurants which have been stable week to week since early January 2008 and we can get our normal pricing I do believe that these restaurants can be positive contributors to comparable restaurant sales next year as they lap the current time frame. With all that being said we believe it would be prudent to continue to expect flat as comparable restaurant sales for the rest of this year with our expected menu pricing largely offsetting expected guest traffic declines. We do anticipate opening as many as five new restaurants during the third quarter of which four are anticipated to open in July and therefore we estimate an increase in our restaurant operating weeks of about 20% to 22% during the third quarter. In regards to the fourth quarter, based on our current estimated opening dates, we anticipate our restaurant operating weeks to increase by about 17% to 20%. However, I do want to remind investors that the actual timing of restaurant openings is inherently difficult to precisely predict and is subject to a number of factors outside of the company’s control including factors that are under the control the company’s landlords, municipalities and contractors. Based on our openings scheduled to date we have only opened one new restaurant in California and that was in Torrance, California and we anticipate opening one new restaurant in California during the third quarter and three restaurants in California during the fourth quarter. As we mentioned before our California openings tend to generate higher absolute sales volume than our non-California openings due to absolute population densities in California and overall brand awareness of the BJ’s concept which started here in California. As Jerry mentioned, our Torrance restaurant which we opened in late June has averaged in the $150,000 range since its opening. Because our California restaurants are more back end weighted this year and represent about a third of our new restaurant openings I would continue to expect a decrease of our weekly sales average in the 2% range which has been the trend over the last few quarters beginning in 2007 as we started our nationwide expansion and reduced the amount of California openings as a percent of our growth to roughly one third of our new openings. In regards to margins, our restaurant operators did an excellent job of managing the areas within their control and in fact we were able to expand our restaurant level cash flow margins on a sequential basis by about 10 basis points to 19.3% if you exclude the equity compensation. However, as we mentioned on our fourth quarter conference call we anticipate needing about a 4% increase in comparable restaurant sales this year to match our four wall restaurant economics that we achieved in 2007. While our gross menu pricing will likely be close to our originally expected target of 4% for 2008 our guest traffic in comparable restaurants is expected to be negative this year which will likely have the effect of de-leveraging certain fixed costs in our business model. Based on our current commodity contracts and the productivity from the theoretical food costs system which was implemented in the fourth quarter 2007 we have been able to maintain our cost of sales in the low 25% range. Currently the majority of our commodities under contract which typically runs from January to December except for cheese which is about 8% to 9% of our cost of sales. We are beginning to experience some pressure on cheese which moved above the $2.00 per pound at May compared to about $1.80 to $1.90 per pound price that we experience in the first quarter 2008. Also, beginning in July this year we entered into new sandwich bread contract that was about 5% higher than our old contract. Sandwich bread makes up about 5% of our cost of sales and with the price of diesel increasing to around $4.80 per gallon we are seeing an increase in our fuel surcharge which in the past have been around 10 basis points in costs of sales. To try and offset these pressures we are taking many proactive steps including reviewing our case sizes and freight consolidation for some of our key ingredients. One thing we will not do is to cheapen the quality of BJ’s concept. We are not looking for less quality, smaller portions or a cheaper product. Consumers today are demanding even better value and better quality and therefore we believe the more differentiated higher quality concepts have a better chance of not only defending their market share but also growing their market share. However, we do understand the pressures facing the key inputs to our business and we will do everything we can to stay as productive and efficient as we can be. With that said, I would anticipate that based on the slight increases in our input costs such as cheese, bread and fuel surcharges to name a few, plus we will have some inefficiencies from the 16 restaurants that have opened in the past 60 days the cost of sales will likely be in the mid to low 25% range. Recently we’ve been asked to provide some forward looking statement on our expectations for commodity costs inflation in 2009. It is difficult for us to comment with a high degree of certainty on this subject because really three factors. First, the overall food commodity markets remain very volatile in general. Second, fuel costs played a significant roll in our FOB pricing from our vendors and fuel costs remain volatile. Thirdly, we are just beginning the 2009 negotiation process with many of our vendors so we really don’t have much of 2009 finalized as of today. With those factors in mind and based on what we know and expect as of day we currently believe that it would be reasonable to preliminary expect the overall costs of our basket of food commodities to increase in the range of 6% to 8% next year which is pretty consistent with some of the estimates we have seen from other restaurant companies with varied menus. Our current expectation is subject to significant risks and uncertainties in the food and energy commodity market. We should be able to comment more definitively on this subject when we have our next investor conference call in late October. I think one thing that’s really important to remember for BJ’s is we are starting with a relatively low average check compared to many other restaurant companies. In fact, if our market basked of commodities were to increase for example by 6% next year excluding any pressure on labor or other operating costs for us to be able to maintain our dollar profit in what we call our prime profit percentage which is cost of sales and labor we would only need to increase the average check about 2.5% or approximately $0.25 to $0.30. As such, our average check would still be in the $12 range and when we compared that average check to many of our peers in casual dining we believe we provide a much better value for the overall dining experience especially when you consider all the upgrades we have made to our concept over the last few years. Not to mention these upgrades give us the pricing power. If we choose to deploy it I think we’re in a better position than many of our peer restaurant companies. In this business we can’t just raise prices without improving the overall dining experience. The guests have too many options, too many to choose from and are too sophisticated to accept this strategy which may have worked five or 10 years ago for other concepts. In regards to labor we currently anticipate our labor will likely be in the low 35% range for 2008. We expect our operating occupancy costs based on current revenue expectations to be in the mid 20% range. As Jerry noted we have pretty much completed the requisite investments necessary for infrastructure as we build a national restaurant growth company. Therefore, we should continue to see leverage in G&A this year based largely on the incremental sales expected to contributed from new restaurant openings. For the first six months of this year our G&A has increased about 11% compared to last year as we’ve been able to gain sales leverage over the sixth portion of our G&A costs and we have seen lower absolute dollars on our manager and training program due to better retention rates than in the past. Therefore, we still anticipate from an absolute dollar perspective that G&A will grow mid to low teens as compared to last year. We currently expect opening costs to be about $500,000 for restaurants however we will incur pre-opening non-cash rent as much as five or six months before a restaurant opens and therefore pre-opening costs for any quarter many not be indicative of the number of restaurants that opened in the quarter. For this upcoming third quarter we expect to open as many as five restaurants plus we expect non-cash phantom rent for as many as four restaurants to be opened later in the year. I estimate that our pre-opening costs could be as much as $2.9 to $3 million in the third quarter. I expect an income tax rate for 2008 to be in the 29% to 30% range due primarily from the tax exempt interest expected to be received from our investments. We continue to expect that diluted shares outstanding for 2008 will likely be in the $27 million range. With that Jerry I’m going to turn it back to you.
  • Jerry Deitchle:
    That was one of the most complete and thorough financial reviews that we’ve had. We have a lot to say and I’m glad that we were able to take the time to do it. As a result of that we’ll keep our call live for a little bit longer to take as many questions as we have. Before we open it up for questions I want to take one more minute and reiterate our confidence that 2008 still offers a significant opportunity for BJ’s to continue to gain market share in the casual dining segment. Our leadership team has never felt better about the factors in our business that we can control. The vital organs of the BJ’s concept are in great shape. BJ’s concepts driven very strong warranty with consumers. I’ve been in the retail and restaurant chain business for over 30 years and through and been through a number of cycles. I can say with some certainty that tough times never last but well positioned concepts like BJ’s that are well managed and well executed by committed professional management teams do have a tendency to last. At BJ’s we remain fully committed to our longer term strategy to drive our concept and build our business. We’re going to try to do our best to position our business to really take advantage of the next economic up tick when it does come around. Until then we’re going to do our very best to drive sales, control what we can control and as I mentioned at the beginning of our call today we’re going to do our best to overwhelm the events. That concludes our remarks and at this time we’ll open her up for call.
  • Operator:
    (Operator Instructions) Your first question comes from Jeff Farmer - Jefferies & Company.
  • Jeff Farmer:
    You mentioned that same store sales steadily improved as the quarter progressed so two questions, did that trend carry over into July and the second part of that is there any particular top line initiative that you can point to as a driver.
  • Greg Levin:
    We really can’t comment on July. The only thing I would say is with July 4th moving to the Friday that really froze off the first couple weeks of July to get an understanding. Unfortunately you loose that weekend, you lose that Friday which is a strong Friday and people are doing something different for July 4th and you lose that Saturday. Being only three weeks into it it’s really hard to give a top line perspective in regards to that.
  • Jerry Deitchle:
    As far as the impact of specific sales building initiatives as we mentioned in our press release and in our comments we’ve got a number of things that are working in tandem out in our restaurants today. We have our curb side cashiering service, our call ahead seating service; we’ve expanded our delivery service. We have lunch specials in 22 restaurants and based on the favorable results of those lunch specials we will expand that program to all of our restaurants here in the third quarter and we will give that some media support. There are many, many things that are happening concurrently from the sales building initiative perspective in our restaurants and I think they’re helping us to protect our market share and frankly to get enough menu pricing to offset at least in the second quarter the decline in guest traffic that we experienced.
  • Jeff Farmer- Jefferies & Company:
    You’ve definitely provided a lot of detail on the initiatives I was curious if there were any stand outs for you so far in the early days?
  • Jerry Deitchle:
    The only thing that I would comment on is that a lot of these initiatives were going to take some time to build. We’ve been very pleased with our off premise initiatives the curb side cashiering initiative in particular we have seen about a half percent increase sales with respect to overall premise sales. I think that’s early results of what we’ve been talking about for a couple of years now in terms of the under delivered channel for off premise sales and BJ’s in general. What off premise can do for us given our menu. We also mentioned that we have our online ordering capability which will be completed from roll out perspective this quarter and we do intend to divest in external media before the end of the third quarter. I think we’ll be one of the very few casual dining chains of our size and scope of operation are larger out there that have rolled out chain wide online ordering and curb side cashiering which we believe should give us a bit of a competitive advantage.
  • Jeff Farmer- Jefferies & Company:
    Switching gears on you, I think your first two Florida units and I think the first Ohio market unit have been open for more than a year now. Looking back I know they opened pretty big but a year plus later are they still performing pretty well for you.
  • Jerry Deitchle:
    The answer is yes. We’re very satisfied with the aggregate performance of our restaurants in Florida. It still represents in our minds a very prosperous market that will be a very fertile development ground for BJ’s restaurant going forward in the future. Our intention will be to develop out Central Florida and Northern Florida before we take on South Florida which based on my prior experience it can be a very challenging market to develop. We do have perspective sights in Gainesville and Jacksonville as well as a few more in Tampa and couple more in Orlando that we would intend to put into our development plan over the next several years.
  • Jeff Farmer- Jefferies & Company:
    Final question for me, I might have missed it but did you give the average weekly sales number for the quarter?
  • Greg Levin:
    The weekly sales average was $100,900.
  • Operator:
    Your next question comes from Jake Bartlett – Oppenheimer.
  • Jake Bartlett:
    I have a question about your comp guidance. If you can give us some color about how you expect it proceed throughout the year, third quarter versus fourth quarter. I know year ago comparisons ease. I’m also wondering whether there’s an impact happening from stores coming into the comp base that might be dragging it down even through you’re getting easier year ago comparisons.
  • Greg Levin:
    We don’t give quarterly comp guidance. The way we look at it, which we said on the formal remarks is we’re thinking its going to be flattish for the rest of this year. That’s the best we can give at this time.
  • Jake Bartlett:
    Is there anything specifically that you’re seeing? On a two year basis it does decelerate that implies deceleration I’m just wondering whether there’s something that you’re seeing now that is leading in that direction.
  • Greg Levin:
    I think what it is, 13 restaurants that are in the Sacramento area of California and Inland Empire and Phoenix market. You’ve got 13 restaurants of 54 in our comp base that as I mentioned were doing negative 5% to 6% range, negative 5% in California, there’s 10 there and negative 6% in the three in the Phoenix market. Those are what have really brought us down and really that’s a macro picture. As Jerry mentioned we’re doing what we can to continue to drive sales in those areas and hold on to our guests and eventually get those positive again.
  • Jake Bartlett:
    One question about the remodel program, how many stores did you remodel and could you describe whether you expect that to be ongoing throughout the year, whether we might see some more charges.
  • Jerry Deitchle:
    There were a couple of restaurants, some of our older restaurants that we wanted to put our current interior and certain components of our exterior look on our new restaurants to gauge guests reaction and to gauge whether or not it was a reasonable return on investment profile for those particular investments. We’re a little bit early in that but overall we’re very, very satisfied with what we’ve seen so far in terms of guest reaction, in terms of staff reaction and in terms of our incremental sales performance and we’ll try to provide some additional metrics on that on our next call. We have not yet committed to any additional major renovations or remodelings, about 15 or 20 restaurants that frankly still have what we internally call the industrial cozy look from the early part of this decade and clearly the comps have evolved past that as we’ve added the casual plus interior and exterior look and energy and feel to the concept. Everything else being equal I think over time we would love to go back and get that group of restaurants that opened from the year 2002 through 2006 we might give them a little bit of a face lift and bring them more current to the current look of our concept. Obviously that requires a little bit of time and a little bit of money and we have to factor that into our plan. We did want to do a couple of experiments to gauge overall results so far they’ve been favorable and we’ll see where we go from here.
  • Greg Levin:
    One other thing that’s in there is we’ve gone through and will continue to go through and update our television technology. We’ve replaced some of televisions that were basically a 4x4 cube with a 103” plasma right in front of our bar that looks fantastic. It really gives a huge pop to our restaurants and we will continue doing that through the rest of this year and into next year.
  • Jerry Deitchle:
    That’s very important. I forgot to mention that. The whole video, television positioning of the BJ’s concept is one of the high quality points of differentiation of our business in casual dining. We’re not a sports bar, we are a casual dining restaurant that happens to have some of this great technology and one of the many reasons why guests visit us is because of our televisions and particularly the 103” plasma provides a video statement in casual dining we believe is second to none.
  • Operator:
    Your next question comes from Brad Ludington – KeyBank Capital Markets.
  • Brad Ludington:
    Has the percentage of to go sales increased at all with the delivery and curb side and all that yet or is it too early to tell?
  • Greg Levin:
    We have seen about a half percent increase on the sales. While they might have been 4% to 4.5% we’ve seen it bump up closer to 5%. Still a ways to go but it’s looking very promising for us.
  • Brad Ludington:
    When you look at the delivery what percentage of the store base do you think that could go to? I would imagine there are some markets that aren’t large enough to support the delivery.
  • Jerry Deitchle:
    We’ve rolled out either internal or outside third party delivery service to substantially 95% of our restaurants. The restaurants that we haven’t rolled it out to have a constraint generally because of where they’re positioned on the street to where we can’t get dedicated parking or dedicated curbs or have enough space for the cars to get in or out from the delivery service whether its ours or whether its an outside service. We have rolled it out during the second quarter to substantially all of our restaurants and that business will begin to gradually build over time.
  • Brad Ludington:
    What did you say the CapEx in the third quarter was?
  • Greg Levin:
    What I gave, we spent $37.1 million year to date. We still expect $60 million net CapEx those are net CapEx after tender improvement allowances.
  • Operator:
    Your next question comes from Destin Tompkins – Morgan Keegan.
  • Destin Tompkins:
    You mentioned the development target for 20% to 25% square footage growth that you guys weren’t going to change that for 2009. Can you handicap that as we look at 2009 and the potential that there may not be as many good sights available with the co-tenants that you would typically look for. Can you give us a little bit more color on maybe what could look like if things don’t turn out too good?
  • Jerry Deitchle:
    I think we’ll know more about that over the next three months. Right now if I had to comment on the overall pipelines and I’m looking at them right now, of the approximate 30 potential sights that we have in our current pipeline there are clearly at least 15 that do not appear to have any of these co-tenancy issues. There’s probably some other ones, again I’m not as close to it specifically as Greg Lynds is, that’s one of the reasons why he’s out this week. We’re really trying to get with all of our developers and understand all of their leasing issues and opportunities. The challenge as I mentioned earlier is not necessarily having enough satisfactory sights to pick from but trying to get them scheduled in, in a thoughtful manner. Give us another three months or so to get a little more information and then I think by our next quarterly conference call I think we’ll be able to give a much more fair handicapping of what we’re going to be seeing out there. Right now I think we’re pretty confident that in the aggregate we’ll have enough to execute that capacity growth for next year. It’s a very quickly evolving situation out there; we have to stay on top of it.
  • Destin Tompkins:
    Following up on that have there been any changes in terms of the development cost trends because maybe there’s less competition for some of these sights or has that really not changed too much.
  • Jerry Deitchle:
    I think it’s fair to say that there have been some very slight improvements for tenants like us in terms of some of the rent terms, some of the land work, construction contributions available. There hasn’t been any material favorable changes yet. The type of sights that we seek to develop are AAA sights with the major developers are highly desirable sights and developers have not yet begun to dramatically or materially reduce any of their lease economics on that particular collection of sights. What we have seen however is with the reduction of develop in a lot of the smaller concepts that require a couple thousand square feet for example the [John Bedusas] or the Starbucks where they have pulled back their development. A lot of these major developers used to take 10,000 square foot or 8,000 square foot spaces that were highly desirable on the point corners of their projects and they used to reserve them for that group of perspective tenants. Now that a lot of those tenants have pulled back their development we have seen some of those 8,000 square foot sights become available to us which obviously are very, very attractive to us. We have seen that occur but as far as any material improvement in lease economics I think it’s fair to say we have not yet begun to see that yet.
  • Greg Levin:
    The other would be the construction costs and right now much of our jobs are currently bid out for this year so we’re not really seeing much change there. That market is slowing and I think we’ll hopefully as we get into 2009 we’ll be able to get some general improvements in that area.
  • Destin Tompkins:
    On menu pricing you mentioned the 6% to 8% food cost inflation at your best guess for 2009 and the 2.5% of average check needed to offset that. Can you give us your philosophy on that menu price given that traffic has been a little soft here recently? Does that change your pricing decisions as you go into 2009?
  • Jerry Deitchle:
    I’m glad you asked that question. Our basic philosophy with respect to menu pricing is that that is the last consideration that we will give to our margin protection program. Just like all of the other great restaurateurs and high quality restaurant operations out there we will work harder on productivity and efficiency and execution and we will pull all of those levers before we will reduce the quality, before we will reduce portion size, before we will do anything to subtract from the guest experience. After we’ve worked all of those opportunities on our margin protection plan, only then will we consider menu pricing. As far as BJ’s is concerned however, this might be contrasted a little bit to some of our other restaurant chain competitors we believe we have everything else being equal a little more pricing power in the BJ’s model today than maybe some of our competitors do. First of all as Greg mentioned our average check is still in the $12 range so a 2.5% increase, a $12.50 average check is about $0.30 if my mental mathematics serves me correctly. Asking our guests to pay another $0.30 or $0.35 and taking our average check up and say $12.50 to $12.80 or so is clearly something that everything else being equal would be reluctant to do but then compared to our competitive set it does not dislocate our relative prices from those of our mass market competitors. I think what we have to do going forward, we have about 100 items on our menu. We’re not a 20 item menu offering where it’s a little bit harder with 20 items to camouflage your price increases, we do have 100 items. There is a bit of a science to it. There also is a bit of an art to. We’ll carefully consider menu pricing as a final component of our margin protection plan. That is our basic philosophy. I think we have a little more room than a lot of chains do to take a little bit of price. The other thing strategically I think that’s important when you’re running a restaurant business is that even during these challenging times most good restaurant operations, Friday, Saturday and Sunday they’re full, they’re running right. Where our business is hurt and where maybe some of our competitors have hurt more has been during the early week and particularly the lunches. Friday, Saturday, and Sunday where you typically get 55% of your sales and your on weight you want to get full menu pricing, you’ve got to get the benefit of your menu pricing. You may have to give back a little bit of that benefit, lunches Monday through Thursday in order to protect your guest traffic in this particular environment and I think with our new lunch program we may have to do just that. Never the less the turn in earn dynamics of our new lunch programs are such that from a gross profit dollar perspective we actually come out ahead based on the structure of the offering. That’s a number of different pieces to our overall menu pricing philosophy.
  • Operator:
    Your next question comes from Nicole Miller – Piper Jaffray.
  • Nicole Miller:
    On price you talked about 4% for the back half. In calculating that right it would be an incremental 2% to 3% on the fall menu does that sound right? Can you confirm the June price increase was?
  • Greg Levin:
    June was about 0.8%.
  • Nicole Miller:
    What’s planned, is it November is that the next one?
  • Greg Levin:
    It would probably be somewhere in October probably. Looking at it we’ve got, yes it would probably have to be somewhere in that neighborhood.
  • Jerry Deitchle:
    I think its going to have to be our objective we’d try to be to replace any pricing that’s rolling out of the comparisons.
  • Nicole Miller:
    On the depreciation can you just run through again quickly I think we understand it from initiatives that it’s higher year over year in the first half. My real question is will that trend persist in the second half?
  • Greg Levin:
    The way to look at depreciation maybe take it as a cost per week. I think we talked about this before if you have six the first quarter and how many restaurant weeks we had and divided in there its going to probably be your dollar amount. If I look at the depreciation quarter to quarter meaning Q1 to Q2 I believe we were sitting right at the 4.9% for both quarters. When I’m thinking about where depreciation is going to be and based on comparable restaurants sales it’s probably going to be right in that percentage.
  • Nicole Miller:
    The last question you talked about having gone through these cycles before. As you look back what are some of the key factors with hindsight being 20/20 you said okay that was the signal we’re coming out of it and/or what should we be looking for this time around just more broad based, not specific even to BJ’s necessarily.
  • Jerry Deitchle:
    Obviously the answer would be the consumer feeling a little bit better about their overall income levels and the level of fundamental costs of living in terms of food, energy costs, feeling a little bit better in terms of the over all asset values. As I think back in the late 70’s and early 80’s and I think back in the year 2000, 2001, I think clearly that the consumers got to start feeling a little bit better on all of those measures before you’re going to likely begin to see some of the top line improvements hit the restaurant industry particularly the casual dining industry. Your crystal ball is probably not better than mine on that respect as to when that’s likely to occur here given the current down turn. Again, as I think back off the top of my head I think those factors are going to have to be in place. I also remember back in the late 70’s when I bought my first house, took out my first mortgage it had a 13% interest rate. I’ve got to scratch my head on why I did that one. Obviously inflation was out of control right a the end of the 70’s and early 80’s and I think it took some changes in governmental monetary policy and fiscal policy to bring inflation under control and get the consumer feeling a little bit better about the overall predictability of the basic cost of living here in this country. I think our country has a lot of challenges in that respect. How that’s all going to resolve itself is anybody’s guess at this point in time. I do think those are the important factors.
  • Operator:
    Your next question comes from Larry Miller - RBC Capital Markets.
  • Larry Miller:
    Did you say that comps improved sequentially during the quarter and that was due to the easier comparisons is that what you said exactly?
  • Greg Levin:
    It wasn’t because of easier comparisons. We think that comps improved sequentially in the quarter really because I think BJ’s has a competitive advantage in regards to large parties. We saw some tremendous sales on Mother’s Day, Father’s Day and some graduation related week.
  • Jerry Deitchle:
    I would just add to that, that if you’re achieving any positive comparable sales in casual dining in this environment your having to fight hard for its, you’re having to work for it. For those comps that say we built it, they will come. That is just not likely to happen in this environment. When you look at all of our sales building initiatives and look at what we drove in our business from the large party perspective and what we got locked and loaded in for the second half of the year you’ve got to fight for this and we fought hard for it and we’re going to continue to fight hard for it. It was not a matter of easy comparisons on an absolute basis but we went out and fought for it.
  • Larry Miller:
    I’m curious what the comparisons look like in the next few quarters for the Sacramento, Phoenix, Inland Empire Group. I know you said that you lapped them in January but I remember that the restaurant market started rolling over in Q3 and maybe you don’t lap them fully in January but do they get sequentially easier in those particular markets and does that also explain what’s happening in it right now?
  • Greg Levin:
    No, not really, the reason I say that is there’s only two restaurants that we talked about at the end of last year’s third quarter which were in the Inland Empire they were in the Moreno Valley and Corona restaurants we saw softness in. For us specifically we didn’t see softness until the first quarter of 2007 even in those restaurants. Some of those restaurants that were really rolling over were some of the large volume restaurants that we opened up in 2006 and in 2007 that to some degree are rolling into the comp base. Those are some of the newer restaurants; they opened up with all the initiatives and through put value already in place so they were very effective and very efficient from the beginning. As they come into the comp base they probably come in more from a drag standpoint again because a little bit of the natural and the fact that they’re opening up with such high volumes.
  • Larry Miller:
    It’s certainly an achievement to have positive comps in this environment but how do you guys see the day to day volatility. You tend to see in these consumer cycles where confidence is being very volatile a lot of swings in the business. Are you guys seeing that and how do you guys prepare the team to meet that challenge.
  • Greg Levin:
    That’s a great question and I will tell you that through the second quarter and even here into the first few weeks of July it’s choppy. Its big surf out there where there’s some lulls then some huge surf that comes in for us California speak out here. With that in mind every Friday, you guys try and call me on Friday and I can’t return anybody’s call on Friday’s because we sit on a conference call going through our business metrics every Friday where restaurant operators literally schedule out how they’re going to do for the day. They schedule out their labor hours per 100 guests that are coming through and they try to be proactive based on how the shifts are coming. One of the tool sets that we’re working on is to give them a life scoreboard for lack of a better term, think of a 50” plasma TV when you walk into the kitchen it’s showing you all the key metrics of what’s going on in your business at that time so they can adjust accordingly. We spend good Friday going through all the metrics of our business and from there the restaurants have really some great tool sets that help them manage on a shift to shift basis.
  • Jerry Deitchle:
    Having said that, given the choppiness in the flow of business and sales from restaurant to restaurant some are much more predictable than others and its is a challenge for our operators to really nail their productivity and efficiencies, we call the PE statistics here which has a double meaning obviously. It makes it very difficult and challenging for them to hit their targeted PE statistics. It is a choppy environment for sure.
  • Larry Miller:
    With interest income it’s an unusual year can you give us an idea what a good number might be for ’08. I thought you said 28% to 29% tax rate is that right because of the ARS’s.
  • Greg Levin:
    Sorry, I missed your question do you just want to know what you think our tax rate is going to be.
  • Larry Miller:
    I thought you said 28% to 29% tax rate I wanted to confirm that and also maybe you can help us with an interest number for this year given the ARS has an unusual fact?
  • Greg Levin:
    I would think that tax rate would be close to 29%. In regards to the ARS’s the best way to think about it is $37 million in interest rate somewhere in the neighborhood of 3% to 5% depending on how the index moves up and down.
  • Operator:
    Your next question comes from Sharon Zackfia - William Blair.
  • Sharon Zackfia:
    I wanted to go over your new restaurant productivity because it looks like it’s dampened a little bit along with the comps over the past few quarters and I’m just wondering is that generally mirroring what you’re seeing with comps in regions that are having particular difficulty, can you walk us through what’s happening there.
  • Jerry Deitchle:
    That’s really a function of where we’ve opened a restaurant. If you take a look at all of our restaurants that we’ve opened so far this year you have brand new markets, Cincinnati, Louisville, our second restaurant in Orlando, our first restaurant in Indianapolis, a new market Baton Rouge so I think what your seeing there is what we expect to see in brand new markets where we first opened a BJ’s where we see their average weekly sales generally come in indexing 75% to maybe 80% of the average. Then over time as we build consumer awareness trial and usage we would expect those numbers to gradually move closer to the average. I really think that’s what you’re seeing for the most part over the last couple of quarters. We do have a handful of restaurants that have not hit the comp base yet. Stockton, PalmDale, a handful of them that are probably in the Central California, Inland Empire area that might be seeing a slight decrease as well reflecting general economic conditions.
  • Greg Levin:
    A shift of California openings versus non-California openings.
  • Jerry Deitchle:
    That’s really it and that’s and Greg also mentioned at the beginning of our call today that that shifts going to turn as we finish up the rest of the years development we’ve got more California and Texas restaurants coming on board.
  • Operator:
    Your last question comes from Paul Westra – Cowen and Company.
  • Paul Westra:
    I wanted to confirm the occupancy and another line item. Obviously your lapping most of the initiatives than you gave us mid 20% range for the year. Obviously the 100 basis point plus or more in the first half is going to only be modestly increasing going forward the year over year basis.
  • Greg Levin:
    That’s correct on a year over year basis because we start to hit that Q3 where we rolled them out. The thing I think was a little bit unexpected here in Q2 is really the energy costs. There was about 40 basis year over year on energy costs about 20 basis sequentially from Q1 to Q2. This thing to what’s going out there with commodities, fuel and so on natural gas seems to be going down but I don’t imagine that that energy costs might stay with a little bit.
  • Paul Westra:
    You mentioned the asset disposals there’s no one time stuff in that number all the asset disposal was put into the broken out line item right?
  • Greg Levin:
    There was no, hey we’re doing ‘x, y, and z’ catch up on a bunch of assets or closing or something like that it was things that were implemented during the second quarter.
  • Operator:
    That does conclude our question and answer session. I would like to turn the call back over to our speakers for final remarks.
  • Jerry Deitchle:
    Thank you all for being on our extended call today and if we can help you in any other way please call us at our offices here in California.
  • Operator:
    Ladies and gentlemen that does conclude our conference for today thank you for your participation you may now disconnect.

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