BJ's Restaurants, Inc.
Q2 2013 Earnings Call Transcript

Published: 1 Aug 2013

[Operator:]

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the BJ's Restaurants Inc. Second Quarter 2013 Results Conference Call. [Operator Instructions] This conference is being recorded today, Wednesday, July 31, 2013. And I would now like to turn the conference over to Greg Trojan, President and Chief Executive Officer. Please go ahead, sir.

[Gregory A. Trojan:]

Thank you, operator. Good afternoon, everyone. Welcome to BJ's Restaurants Second Quarter 2013 Investor Conference Call, which we are also broadcasting live over the Internet. I'm Greg Trojan, BJ's Chief Executive Officer. And joining me on the call today are Greg Levin, our Chief Financial Officer; Greg Lynds, our Chief Development Officer; and Wayne Jones, our Chief Restaurant Operations Officer. I am currently overseas on a family vacation that I committed to long before my decision to join the BJ's team back in December of last year. And unfortunately, the telecommunication infrastructure is a bit iffy here. And as such, I will be -- I may be disrupted during our call. If that is the case, Greg Levin will deliver my prepared remarks for the call. Hopefully, that won't happen, but just in case. After the market closed today, we released our financial results for the second quarter of fiscal 2013 that ended on Tuesday, July 2. You can also view the full text of our earnings release on our website at www.bjsrestaurants.com. Our agenda today will start with me providing an overview of the second quarter, followed by a brief update on our key initiatives for the year. I will then turn the call over to Greg Lynds, who will provide a summary of our development progress. Greg Levin will then provide a financial review of the quarter and some commentary on the rest of 2013. And then after that, we will open it up to questions. Before we begin with our prepared remarks, Dianne Scott, our Director of Corporate Relations, will provide our standard cautionary disclosure with respect to forward-looking statements. So Dianne, please go ahead.

[Dianne Scott:]

Thank you, Greg. Our comments on the conference call today will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the company to be materially different from any future results, performance or achievements expressed or implied by forward-looking statements. Investors are cautioned that forward-looking statements are not guarantees of future performance and that undue reliance should not be placed such statements. Our forward-looking statements speak only as of today's date, July 31, 2013. We undertake no obligation to publicly update or revise any forward-looking statements or to make any other forward-looking statements, whether as a result of new information, future events or otherwise, unless required to do so by the securities laws. Investors are referred to the full discussion of risks and uncertainties associated with forward-looking statements contained in the company's filings with the Securities and Exchange Commission.

[Gregory A. Trojan:]

Thanks, Dianne. As I noted in our press release today, I am very proud of how our team continued to navigate the difficult sales environment we are currently experiencing in the restaurant industry, particularly in the full-service casual dining sector. Our total revenues were up 10% to $198.5 million, driven primarily by a continued strong execution of our new restaurant development pipeline. Our comparable restaurant sales were actually up slightly at 0.03% for the quarter, lapping a 4.4% increase a year ago, our strongest quarter of last year, and a 6.9% increase for the same quarter back in 2011. I believe our comparable restaurant sales held up well when compared to the industry, even in the face of extraordinary discount tactics being employed by several of our larger mass casual competitors. I will comment on some of our going-forward sales building activities in a few moments. Our reported diluted net income per share for the quarter was $0.30 compared to $0.31 in last year's second quarter. During the quarter, we closed one of our small-format legacy pizza and grill restaurants in Eugene, Oregon and reopened that restaurant in a new location that could support our prototypical larger-format Brewhouse restaurant. As a result, we recorded a $326,000 charge related to the closure of this restaurant. Therefore, excluding this charge, our non-GAAP adjusted net income and diluted net income per share is $8.8 million and $0.32, respectively. Our restaurant operators did an excellent job continuing the productivity moments over the last 2 quarters. Our continued discipline and carefully managing the number of operating initiatives we are pushing down to our restaurant teams is paying dividends. In fact, despite the flattish comp sales, our mature restaurants reduced their food waste, increased their hourly labor productivity and also reduced what we internally call their controllable costs during the second quarter compared to last year. Just as important, our guest service, food cooking run times and other quality metrics also showed improvement over the same quarter of the prior year. While we're not able to match last year's restaurant level cash flow margins on essentially flat comp sales, we are encouraged that we have taken the level of comp growth we need to leverage our 4-wall restaurant margins down quite a bit over the last couple of quarters. Historically, we have thought we needed at least 3.5% of comparable restaurant sales growth to maintain 4-wall margins and offset the operating cost burden of opening new restaurants. Given our recent performance, we now think we could maintain our margins at somewhere close to half that rate. This is a good foundation for us and will help us deliver long-term ROI and value creation. Greg Levin will cover the financial results and margins in more detail during his financial commentary on the quarter. But in general, our new IPLH, or items per labor hour system helped us achieve another 40 basis points improvement in hourly labor. And our purchasing and better recipe and food waste management controls in our restaurants helped drive a 50-basis-point improvement in cost of sales versus the same quarter last year. Our performance versus theoretical improved by 10% from the quarter -- second quarter of last year. In summary, while our work is never done in driving better efficiency to our enterprise, I am pleased with the progress we have made and continue to make in terms of our core execution in our restaurants and work our support center teams are executing to drive scale efficiencies throughout our business. Our biggest challenge is clearly to drive more traffic and sales into our restaurants. In the interest of better understanding our camps -- or our comp sales trends, let me provide some thoughts and data relative to our past comp sale drivers. I do so in order that you will come away with a better understanding of the historical drivers of our comp performance and why we are focusing on the areas we are to drive future sales gains. Greg Levin will also provide you with some more detail on comp sales for the quarter and current trends later in the call. First of all, over the last several years, we have consistently outperformed the industry in casual dining comp sales. In fact, from 2008 through '11, we averaged almost 500 basis points better than Knapp-Track. Last year, so fiscal 2012, our comparable restaurant sales increased 3.2% compared to the Knapp-Track data of a 0.5% increase. That's 270 basis points better than Knapp-Track. This outperformance is driven through a series of 4-wall initiatives focused on capacity increases, eliminating service and production bottlenecks, applying technology to increase guest throughput and table turns and more thoughtfully deploying our labor in our dining rooms, increasing the overall quality of our management talent and driving menu innovation to increase both the number of items ordered per guest and to offer opportunity for our guest to spend more per visit, as well as building brand awareness through our new restaurant's cluster strategy. The 4-wall initiatives, starting back in 2005 and '06 as we identified several bottlenecks in our speed of service, resulting in us implementing a series of technology enhancements, including kitchen display systems and an automated front desk system. In 2010, we worked extensively to drive incident rates or items ordered per guest. This initiative was, of course, led by our Snacks & Small Bite offerings in 2010 and also by expanding our guest traffic trends [ph] in our restaurant, which began in earnest in 2009. In 2010 and '11, we've been in another round of capacity expansion by implementing our new seating program, which was substantially completed in 2011. This allowed us to help drive a 2% increase in guest counts for fiscal 2011 and we finished fiscal 2011 with comp sales of 6.6%. We also began introducing more specialty entrées to drive a favorable mix in 2010, which included items like our pork chops, Enlightened Entrées and later, our steaks and seafood items. As I mentioned, in addition to these 4-wall base initiatives, we also benefited from our opening strategy that allowed us to build out Texas and California and thereby providing brand awareness to drive comparable restaurant sales growth. From 2009 through '11, we almost doubled the amount of restaurants we had in Texas, resulting in comp sales that were about 300 basis points greater than our system average and 700 basis points better than the Knapp-Track data for Texas. As Texas has matured and our adolescent growth spurt in Texas is behind us, our Texas restaurant comp sales are still outperforming Knapp-Track data, but the spread has narrowed. At the same time, we continue to build new restaurants in California, while many other companies slowed their growth in California and even shut down restaurants due to the severe housing recession in our state. As a result, we not only benefited from less competition, but as those markets began stabilizing and growing, we were able to generate excess comparable restaurant sales. So what are the future drivers of large comp sales gap to the market? There are 4 areas we are focused on

[Gregory S. Lynds:]

Thank you, Greg. And good afternoon, everybody. Our 2013 development pipelines remain in excellent shape. And our real estate team is working hard to acquire great sites for 2014 and 2015 new restaurant opening. Our new restaurant development strategy has always been centered on securing AAA, quality sites within the strong retail projects in densely populated, more mature trade areas, and we will continue to maintain this discipline as we analyze and build our future real estate pipeline. To date, in 2013, we have opened 7 successful new restaurants. In the first quarter, we opened 1 restaurant at the South Hill regional mall in Puyallup, Washington. In the second quarter just ended, we opened 4 restaurants. Oklahoma City opened on April 22, then Redmond, Washington on May 6. Fort Collins opened on June 3 and then on June 24, we opened in Eugene, Oregon, which was a relocation of our smaller-format restaurant. So far in the third quarter, we have already opened 2 restaurants. Jacksonville, Florida opened on July 15. And just 2 days ago, we opened our seventh restaurant of the year at the Simon-owned Outlets at Orange right here in our backyard of Southern California. As we have said before, it's difficult to precisely predict the actual timing of our new restaurant openings due to many factors that are outside of our control. So with that in mind, we plan on opening 7 new restaurants in the third quarter. That includes the 2 we already opened. And we have 5 planned openings in the fourth quarter. As a result, we expect to achieve our previously stated 2013 target of opening 17 new restaurants this year, which includes a relocation of our smaller Eugene restaurant to our larger Brewhouse format. All of our planned openings for the remainder of 2013 are currently under construction. And again, our quarterly opening schedule can fluctuate and we'll keep everyone advised of all future changes on our quarterly call. Looking forward into 2014 and 2015, our growth goals remain the same and that is to achieve a low double-digit capacity increase per year as measured by total restaurant operating weeks in the approximate range of 11% to 13%. We have not yet announced the absolute number of new restaurant openings targeted for 2014 as we are still putting the final touches on our development pipeline for next year. We should be able to provide more insight on our 2014 capacity growth target on our next 2 conference calls. As Greg Trojan mentioned, we are also working hard on the design and the next evolution of our BJ's Restaurant footprint. This new design is a smaller footprint with a more efficient kitchen and will be engineered with the latest in technology and automation which should contribute to the reduced utility cost, simplified maintenance requirements, better productivity and an overall improved restaurant experience. These efforts should lead to even more attractive unit economic returns and will enhance our flexibility as we continue our national expansion. The smaller footprint design is not new to BJ's. We currently operate many custom-footprint restaurants that average significantly less than our 8,500 square-foot prototype restaurant. In addition, we're able to build upon the learnings from the BJ's Grill that we opened up a few years ago right here in Southern California. This has allowed us to fast-track this design and we plan to build this new prototype beginning in 2014. With our solid new restaurant growth over the last few years, we now have a stronger base of restaurants from coast to coast, and we are well positioned to continue building and leveraging the BJ's brand nationally. We continue to believe that we have room to open at least 425 BJ's Restaurants domestically that can perform at the current level of our unit economics. With only 136 restaurants opened in 15 states, we have plenty of runway in front us for longer-term expansion. Having said that, our team will always use quality over quantity, and we will continue to execute an expansion plan that's geographically balanced, which helps drive additional leverage for the entire business. Greg Trojan, back to you. Or how about Greg Levin? Back to you, Greg. Go ahead.

[Gregory S. Levin:]

All right. I'll take it from here. Thanks, Greg, and thanks to the other Greg. Let me take a couple of minutes I'm going to get through some of the highlights for the second quarter, fight some forward-looking commentary for the rest of 2013. And all such commentary subject to the risk and uncertainties regarding forward-looking statements that are included in our SEC filings. Additionally, my commentary may also refer to certain non-GAAP financial measures that we use in our internal review of the business and that we believe will help provide insight into our ongoing operation. As Greg Trojan mentioned, our revenues increased approximately 10% to $198.5 million from $180.7 million in the prior year's comparable quarter. This increase is due to an approximate 11% increase in operating weeks, offset by a decrease in our weekly sales average by about 1%. Our comparable restaurant sales were basically flat, as we mentioned, at a positive 0.03%. As you may recall, we started the quarter relatively strong primarily due to the Easter holiday flip-flop, in which Easter Sunday fell on the last week of the first quarter of this year. However, after a solid overall April, so April held up relatively well during the quarter, our comparable restaurant sales turned slightly negative in May. It continued that trend into June. As we have mentioned over the last year, we continue to see softer comparable restaurant sales during the Monday-through-Thursday time period as opposed to the weekends. Additionally, lunch in general is softer than dinner. We continue to see strong comparable restaurant sales in both the mid-afternoon and late night part of our business, so in those offpeak business hours. In analyzing our comparable restaurant sales this quarter and adding on a little to what Greg Trojan was talking about, we are experiencing a longer honeymoon periods than in the past, resulting in pressure from our newer restaurant as they come into the comparable restaurant sales base. Restaurants currently come into the comp sales base after 18 months of operations. And therefore, we are comparing month 19 of operations to month 7 of operations for newer restaurants. This longer honeymoon period, I believe, is due to the increased brand awareness of the concept as we build out certain markets. As a result, our class of 2011 restaurants impacted our comparable restaurant sales by about 60 basis points for the quarter. Said differently, if we pulled out the class of 2011 restaurants from our comparable restaurant sales calculation, our comp sales would've been a positive 0.6% for the quarter. Overall, we are -- we continue to be pleased with the sales volume from the class of 2011, which are achieving our internal targets, and we believe, as they get further away from their honeymoon comparisons, should have the ability to produce some nice comp sales for us. Just to give you an idea of the impact from our new restaurants, for example, our Pembroke Pines restaurant in the South Florida area, it opened in September of 2011. So it just went into the comp sales base during the second quarter of 2013 and it averaged $122,000 per week during this quarter. At the same time, last year, so months 7 through 9 after its original opening, the restaurant was averaging about $132,000 a week in sales. That is a decrease of about 8%, but as you can see, very strong top line sales for that restaurant. And without getting into every single restaurant or every single class here, I would note that our class of 2010 restaurants, which is now technically in their second year of comp sales, come positive for the quarter and also is positive year-to-date. We also continue to experience softer comparable restaurant sales in California as I mentioned. I believe there are few things that are impacting California. First, as we've said before, we have built out California, so most of our newer restaurants, while generating strong top line sales and therefore solid returns on shareholder capital, tend to slightly cannibalize nearby BJ's Restaurants. Secondly, in the second quarter, we experienced that moved in the graduation time frame for many of the California state colleges. This resulted in college graduations during the same week as many high school graduations. This shortened our graduation period and limited the amount of large parties we could serve due to capacity constraints during the important -- during this important season for our business. Also in California, we are seeing greater competitive intrusion than in the past. In fact, I would probably say that this is true throughout the entire United States. I think what most people forget about BJ's is during the recession years and really until recently, we were one of just a few casual dining restaurants growing. As a result, we continue building in California and many other states as others were shutting restaurants down and stopping growth. Now as the economy has stabilized and has been growing, albeit at a very slow rate, we are seeing many more new restaurants coming into our trade areas. In fact, if you have paid attention to the jobs report, restaurants have added about 52,000 new jobs in the last month, so in the month of June, which was approximately 26% of the growth in employment. While at the same time, according to the Commerce Department, food service sales declined 1.2% in June and have been growing at a rate less than in traditional retail sales over this last year. What this tells me is there is a greater supply of new restaurants, yet demand is not growing at the same rate that supply is coming onboard. In fact, based on some information we put together, we estimate that at a minimum, approximately 20 of our restaurants were impacted by new restaurants that have recently opened. Generally, this impact to our sales is transitory. And after the initial honeymoon from the new restaurants, our sales typically come back especially considering the higher-quality, more differentiated dining experience we are providing at a price point that is either generally the same or less than many of our peer restaurants in casual dining. Our flat comparable sales increase for the second quarter consisted primarily of a low 2% benefit from menu pricing, offset by an estimated decrease in guest traffic in the 3% range, and with a net favorable mix and incident rate. In regards to the middle of our P&L, our cost of sales was 24.4% of sales. Now it's down about 50 basis points compared to last year's second quarter and sequentially, was down about 10 basis points from our first quarter. This decrease from last year's second quarter was primarily due to menu pricing and reduced waste, offsetting a pretty benign commodity cost environment and cost increases due to menu mix. The decrease sequentially from the first quarter of 2013 is primarily related to a full quarter's worth of menu pricing that went into effect in February of this year. Labor during the second quarter was 34.2%, which was flat with last year's second quarter. We continue to see improvements in hourly labor from the new labor scheduling and productivity system that we implemented during the third quarter of fiscal 2012. Additionally, based on top line performance, our restaurant-level incentive compensation is about 40 basis points less in this year's second quarter compared to the same period last year when we achieved a 4.4% increase in comparable restaurant sales. The improved hourly labor productivity and lower restaurant-level incentive compensation helped offset increases in our management labor, workers' compensation insurance and food are raised in California and Florida. Our operating and occupancy costs increased by 110 basis points to 21.6% of sales compared to last year's second quarter. Approximately 50 basis points of this increase related to the planned additional marketing spend. As such, we spent about $3.8 million on marketing-related costs during the second quarter, which approximated 1.9% of sales as compared to 1.4% last year. The other 60 basis points is primarily due to higher general liability insurance and facilities cost for our restaurants. Our general and administrative expenses for the second quarter were approximately $12.6 million or 6.4% of sales. G&A came in about $600,000 lighter than what I anticipated as we reduced incentive compensation based on performance to date. Including G&A, it's $918,000 and $789,000 of the equity compensation for both 2013 and 2012, respectively, or 0.5% of sales and 0.4% of sales for each year. Depreciation and amortization was $11.9 million and it averaged about $6,900 per restaurant week, which is in line with our most recent trends regarding depreciation and amortization. Restaurant opening expenses were approximately $2.3 million during the second quarter, which was primarily related to the 4 new restaurants that opened during this quarter, plus some opening cost related to our restaurants that opened at the end of the first quarter and opening costs related to restaurants that are expected to open in the third and fourth quarters of this year. On average, our preopening costs continue to be around $500,000 per restaurant. Our cash rate for the second quarter was approximately 28.1%, and I would expect our tax rate going forward to be around 29%. Before I turn the call back over to Greg Trojan, let me spend a couple of minutes providing some forward-looking commentary for the rest of 2013. All this commentary is subject to the risk and uncertainties associated with forward-looking statements in discussing our filings with the SEC. Based on the industry data we have seen today and heard from many other public restaurant companies, July sales have been much faster than anyone anticipated. Our comp sales through the first 3 weeks of July are in the negative 1% to 2% range. However, as I mentioned, it's very choppy and very difficult to discern a specific pattern. Looking specifically at the first 3 weeks of July, we continue to experience the drag on comp sales from our class of 2011 restaurants as they comp against our honeymoon periods for the prior year. Geographically in July, California continues to be soft, pretty much consistent with its prior trends, and we have seen some increased volatility in many other locations. Based on the macro data we have seen, the economy and the consumers feel very challenged with sluggish growth and stagnant wages. The consumer appears to be allocating what disposable income they have towards bigger-ticket items that they may have deferred over the years, such as cars, trucks, homes and other big-ticket items, such as furniture, at the expense of eating out. Additionally, we do know that sequestration is now just starting to take place in July, and this may also be having an effect on some of our locations where we have large numbers of federal government employees in our guest base. What we continue to see is when there is a reason to celebrate, restaurants and in particular, BJ's does very well. We saw this in quarter 1 with Valentine's Day and in quarter 2 with Mother's Day and Father's Day. In fact, over the Father's Day week, we had 8 new restaurant records and all of those were in California. However, absent a reason to dine out, it has made it very challenging to drive sales in the restaurant space. Even though we will be going over some eager comparisons in the second half of this year, including lapping the opening and closing ceremonies of the Summer Olympics, the political party conventions, as well as the presidential debate and election day, not to mention the increase in our own marketing spend, we still believe for those of you building your models to err on the side of conservatism and build your models based more on our current comparable restaurant sales trends. Our menu pricing for the third quarter will be around 2%. We do have approximately 1% of menu pricing that will be rolling off towards the end of September, thus dropping our pricing to around 1% for the fourth quarter, absent any new pricing. Our next pricing opportunity will be at the beginning of November when we roll out our new fall menu. At the current time and based on the uncertain macro environment, coupled with better-than-expected commodity environment, we have not yet decided how much pricing, if any, we may take when we introduce our November 2013 menu. As we've said before, pricing is the last lever we pull to drive sales. Our goal is to drive sales by offering a higher-quality, more differentiated dining experience in a more contemporary facility, executed with sincere hospitality and gold-standard service. We will not try and price our way to success. Our pricing strategy is about preserving our unit economics and any pricing we take is considered only after contemplating the success of our productivity and sales-building initiatives on our 4-wall margin. For the third quarter, I would expect around 1,775 or so restaurant weeks. In the past second quarter -- in this past second quarter, our commodity basket increased less than 1% from last year. However, we are expecting our commodities to increase in the low 2% range for the rest of this year based on our latest forecast from our supply chain team. Additionally, we are currently promoting our barbecue specials through the end of August, and these protein-centric LTOs tend to have higher overall food costs. Therefore, based on this forecast and the success of the barbecue, I'm expecting our cost of sales to increase into the middle upper 24% range for the rest of 2013. As I mentioned before, labor is significantly influenced by comparable sales increases or decreases. While our teams have done a solid job of executing in the current environment and adjusting their daily labor based on our new productivity system, it is difficult to gauge labor productivity in this soft, but volatile environment. Therefore, based on current comparable restaurant sales trends, as well as the increases we are experiencing in workers' compensation and higher food and taxes, labor in the third quarter may be in the upper 34% to low 35% range. Again, this is based on current sales trends. We want to make sure our labor is set-up to take care of our guests because the bottom line is great food and great service and hospitality will ultimately result in improved top line sales. We have said this many times, the guest sees our brand through our team members that take care of them every day. Therefore, we must and we'll hold our line in labor so that we continue to provide good service to our guests and not make rash decisions on labor that could tarnish our brand going forward. At the same time, I do believe based on the improvement we have made this year from our labor system, that with some improvement in the casual dining sales environment, we are poised to show great labor leverage. In the second quarter, our total operating occupancy costs were approximately $24,900 per week, including marketing cost. Marketing was about $2,200 per restaurant week in the second quarter, which equates to about 1.9% of sales in the second quarter. Therefore, as Greg Trojan mentioned, we intend to increase our marketing in the third quarter to drive top line sales. As such, I am expecting total operating occupancy cost to be in the low-to-mid $25,000 range per restaurant operating week for the third quarter. This is based on total marketing spend in the $4 million range for the quarter. Obviously, operating occupancy cost will vary as a percent of sales based on top line comparable sales. And based on the results of our marketing tactics, it may increase or decrease during the quarter. Therefore, I think it is better to think about operating and occupancy cost on a cost per week basis versus trying to model it as a percent of sales. Our absolute G&A dollar spend in Q2 -- actually in Q3 should be around $13 million to $13.5 million. And that is inclusive of equity compensation. I do want to remind everyone, our G&A can vary from quarter-to-quarter due to the number of managers in our advanced management training program, travel and other related costs due to the timing of opening of new restaurants and other factors. So as I've already mentioned, we currently expect restaurant opening cost to be about $500,000 per restaurant. We will incur preopening, noncash rent as much as 5 or 6 months before a restaurant opens. And therefore, preopening cost for any quarter may not be indicative of the number of restaurants that open in that quarter. I therefore would expect preopening to be around $3.7 million to $4.2 million in the third quarter. We currently anticipate our income tax rate, as I mentioned earlier, to be around 29%, and our diluted shares outstanding to be around 29 million. In regards to our liquidity, we ended the first quarter with a little over $43 million of cash -- we ended the second quarter with a little over $43 million of cash and investments. Our line of credit is for $75 million. It does not expire until January 2017. Our total gross capital expenditures to date is approximately $60 million. We continue to expect our gross capital expenditures for 2013 to be between $115 million and $120 million. And we plan to receive TI allowances and proceeds from the sale-leasebacks in the $15 million range. Therefore, our planned net CapEx is currently expected to be in the $100 million to $105 million range. We anticipate funding our expansion and capital expenditure from our cash and investments on our balance sheet, our cash flow from operations and from the proceeds from our tenant improvement allowances and sale-leaseback transactions. With that, I'm going to turn it over back you, Greg Trojan. Greg?

[Gregory A. Trojan:]

Thanks, Greg. While the overall operating environment is challenging for restaurants currently, I'm very excited about the future of BJ's. The work we are doing right now is laying down the foundation for driving comp sales and expanding the brand nationally. Our brand research shows that we actually improved our performance gap in most key attributes, and that we have a tremendous propensity to convert first-time triers to loyal fans of BJ's at a significantly higher rate than competitive concepts. Therefore, we are excited to work on the messaging and media mix to tell our consumers about BJ's. At the same time, we continue to make solid strides in our cost structure and are poised to leverage future comp sales increases. Project Q is going really well in the eyes of our team members and guests. And this project will not only enhance our competitive advantage against our peers, it will allow us to improve our speed within our restaurants, and therefore increase throughput within our restaurants. Our new menu pipeline looks solid as we continue to create new crave-able menu items for our guests. And finally, the work on our new prototype should enhance future investors and give us more flexibility as we continue our national expansion. As we have mentioned before, BJ's is still just an adolescent. We have 136 restaurants, and we believe there is room for at least 425 restaurants domestically. The best days are still to come for our concept. So thanks for your time today. And operator, please open the lines for any questions.

[Operator:]

[Operator Instructions] Our first question comes from the line of Brian Bittner with Oppenheimer & Co.

[Brian J. Bittner:]

I guess, just talk about sales here. I mean, I respect the tough top line environment out there, and how it's obviously impacting you. But the performance against the industry seems to be moving a bit in the wrong direction versus history. And the torque in your model, it's really relying upon getting those comps in better shape from here. So I just want to address a couple of things. I think number one, why keep adding stores in California at this point? I just think the returns might be good on the new units, but it seems to arguably be pulling comps out of existing ones, pulling some returns out of existing ones when you got a lot of whitespace ahead of you. So I guess, if you could just answer that first, and then I have a follow-up.

[Gregory A. Trojan:]

Sure, I'll answer that Brian. I mean, fundamentally, we are going to be spending more of our development capital outside of California proportionately than we have in the past. But that being said, even in light of some of the cannibalization that we're seeing, some of these trade areas still represent great ROI opportunities for us. So you're right. We could manage our comp number if you will and be less challenged there from a comp perspective. But we're still -- we'd be missing opportunities which are still driving very sound financial returns overall. So we'll still look for -- in trade areas that are particularly difficult to develop in that we still think are great opportunities. But more and more of our development capital will be spent outside of California.

[Brian J. Bittner:]

Okay. And on the new units entering the comp base. It seems like they're entering the comp base in the down high-single digits. Is that something that is going to be sustainable, and we should expect going forward?

[Gregory S. Levin:]

Brian, this is Greg Levin, looking at the current trends, I do think that's -- I think that number is kind of the current trend. I would expect much like the class of 2010. That the class of 2011 will then start to hit its stride and comp up. That doesn't mean then that obviously the class of 2012 is going to have that same impact, which tends frankly to be what we're seeing right now. I don't see them turning in a different direction, meaning only 3 weeks into July. But the trends haven't necessarily changed on the class of 2011. In fact, I would probably say, some of them starting to improve as you get further away from that honeymoon.

[Brian J. Bittner:]

Okay. And then lastly, I mean, it seems as though the majority of the weakness is in the middle of the week. And it seems as though to address that most effectively would simply be marketing. And you mentioned marketing. I mean, can you just give us a little more better idea of what exactly is going to on with marketing from here on? How many test markets are you now going into? What exactly are you going to be doing?

[Gregory A. Trojan:]

Well, Brian, this is Greg. We will be using some -- an array of all the tactics I mentioned, which range from digital and local store marketing. Some of the broadcast media that we're expanding the test, particularly on TV. We're utilizing some radio as well in selected markets. So I'm not going to get into finite detail for competitive reasons. But the other opportunity that I talked about that we did see the effect, and particularly in that softer mid-week area that you mentioned is some of our loyalty promotions. And that allows us to be a lot more targeted. A few of those promotions we actually made affected just a Monday through -- on a Monday through Thursday kind of basis with a short window to redeem. And we saw some very encouraging results from that kind of offer. So that's the kind of stuff we'll continue to -- we'll continue to implement going forward here.

[Operator:]

Our next question comes from the line of Will Slabaugh with Stephens Inc.

[Will Slabaugh:]

I want to follow-up on some of the geographic commentary that you mentioned, Greg. You talked about some of the softness in California. And I wonder if you could talk about, if any of the trend that you saw across your geography from that period and if there are any other standouts there, either positive or negative?

[Gregory S. Levin:]

Actually, a couple of things. One is, California for instance put up kind of flat comps. California in general does not mean it's doing negative 6% comp and the rest of the industry -- or the rest of the BJ's Restaurants are doing positive 6%. In fact, California was slightly comped. It was actually, believe it or not, it did better in Q2 overall basis in regards to its comp than it did in Q1. Moved it a little bit, so it wasn't enough to really kind of call out from that standpoint. When I look at California, there is no real specific area. I would probably maybe say the Inland Empire area, an area that was, I guess, hit a little bit harder by the housing market. And now the housing recovery coming back. It's actually probably a more favorable area than some parts of California overall. What we can do though is when we go through California, I can look and see the amount of competitive intrusion that's hitting our California restaurants outside of maybe new BJ's Restaurants. So that's an area that has probably impacted us the most in California that we are seeing, where we had an area to ourselves maybe or there are a few existing older restaurants. Then all of a sudden, because the economy is starting to pick up here in California, 2 or 3 or 4 new restaurants come into that market. And as a result, there's no specific area, but it's very much more isolated on an individual restaurant basis.

[Will Slabaugh:]

Got it. And as far as Texas, Florida, the other regions fairly similar?

[Gregory S. Levin:]

It comes back and forth from them. Texas has more restaurants I think -- a few more restaurants that are just its honeymoon that had dragged it down, but its existing restaurants in Texas -- I'm sorry, in Florida continue to do well. In fact, the Orlando market, again, maybe an area that with tourists, people wanting to drive there, it was actually doing pretty well for us. The Scottsdale-Phoenix market doing a little bit better from that standpoint. So it's -- there's nothing that's coming out specifically market to market. It seems much more to be restaurant to restaurant, and we're still able to identify restaurant to restaurant because, frankly, we only have 136 restaurants.

[Will Slabaugh:]

Got you. And then just a quick clarification, you mentioned there was a positive mix in the quarter. Wondering if you can tell us just a little bit about where that's coming from, and how you expect that to trend going forward?

[Gregory S. Levin:]

Yes, the positive mix in the quarter primarily has to do with our LTOs, the limited time offerings. So we did a Seafood Celebration. I think that's what it was called, Wayne, right?

[Wayne L. Jones:]

Yes.

[Gregory S. Levin:]

During the second quarter. And that has scallops and shrimp and some other items, and that moved people toward that favorable mix. Frankly, the mix, while its favorable this quarter wasn't as favorable as it was last quarter when we actually did a steak celebration. And average check on steaks billed at higher than the Seafood Celebration. But the incident rates on our Seafood Celebration were very, very, very good. And that's where we get that positive mix from. I would tend to think that we're going to continue to see that with the barbecue that we've got here in the second quarter -- the third quarter that's doing well. And Wayne and the culinary team are working on other kind of limited time offerings to go into both the third and the fourth quarter, the holiday season.

[Operator:]

Our next question comes from the line of David Tarantino with Robert W. Baird & Co.

[David E. Tarantino:]

I wanted to come back to the question on your traffic trends relative to the industry. And at least according to our data, it looks like you've underperformed the last 2 quarters, and after an extended period of outperformance. So I'm just wondering if you could maybe parse through why you think you slipped from the outperformance to the underperformance more recently. I know you listed a lot of factors, but what's been more recent in that trend line?

[Gregory S. Levin:]

David, this is Greg Levin. And I'll see if Greg Trojan has anything afterwards or maybe even Wayne. But what I think I look at as we talked about on a couple of things here, one is the impact from the newer restaurants coming into the comp base. We're seeing restaurants that are opening up at pretty high volumes and are having a longer honeymoon period as they come down from that. So that impacting there. When you're down 7% or 8% in Pembroke Pines, Florida, as we talked about, it's still good top line sales. That's a pretty big decrease from a guest traffic standpoint, especially with only 2% or so of menu on there. As we mentioned, the competitive intrusion by new concepts in there. When they come on board, they're going to take their NIC [ph] over a short little period. I think our restaurants will come back. They traditionally have. But that's going to impact it as well. And then I think, as Greg Trojan mentioned, we're not as fast as we used to be. We've added a lot of things to our menu. It's grown a lot. They've given us tremendous movement from a mix and incident rate perspective, but it's time to take a look at how we do some of those things to speed up that process. And that, that speed is very, very important because a lot of times when guests leave our restaurants or you leave a dining experience, you rate that overall dining experience not only on the check average, but how quickly you were able to get in and out of that restaurant. As we've gotten a little bit slower in that regard, with everything that's come onboard, over time you start to say to yourself, "You know what, maybe I can't hit BJ's for lunch right now." Or "I want to go to a movie this evening, and I know BJ's is going to have a long line, so I'm not going to go to them." So I think some of those things applying into it, and I like what we're addressing. I'm actually really excited on Project Q for what -- how we're looking at our business to get ourselves a little bit faster where we were maybe a couple of years back. Greg Trojan, go ahead.

[Gregory A. Trojan:]

Yes, Greg, I think those are the right things you said. The only one I'd add is, the issue around Texas and the maturation of markets. And how those cycles are working. So Texas was driving a good amount of growth for us and still is a very healthy market and comping well. But as that market matures a bit from where it was, we're going to look to successive markets like Florida, as we add scale there to be, hopefully, the new Texas, right? And as we plant the flag in the middle-Atlantic later this year, we'll be starting sort of the embryo for that next market to be growing as well. So some of it, you got to recognize is just the cyclical nature of a business probably in a way that we are. And it's going to have those ebbs and flows as markets mature and we reach scale. And I think Texas is an example of that.

[David E. Tarantino:]

Got it. I guess maybe a follow-up. One thing that you haven't mentioned is value proposition. And at least according to our data, it looks like your average check growth has outpaced the industry in every quarter since 2007. So the gap between your check versus the industry has narrowed or widened depending on how you want to look at it. I'm just wondering what your data is showing in terms of value proposition and relative value that BJ's offers today, especially in light of some of the competitive activity that's going on out there?

[Gregory A. Trojan:]

Greg, let me start it. And then...

[Gregory S. Levin:]

Go ahead...

[Gregory A. Trojan:]

Sorry, our remote is causing some timing issues here. But Greg, I'm sure you have some more detailed data, but a couple of things that I just respond to there is. One is, you've got to recognize the menu changes that have occurred over the last couple of years at BJ's, where we've introduced some center of the plate protein items that have been very, very successful and impacted our guest check through mix. So I think the issue that we do pay a lot of attention to is, how we're comparably priced item to item. And I think we -- and our research has affirmed that in fact our values scores have gotten better.

[David E. Tarantino:]

Great, that's helpful.

[Gregory S. Levin:]

I was going to mention same thing. We just finished our, as Greg Trojan mentioned, our awareness trial and usage and some research. We literally just finished it. And our value scores from 2011 to 2013 were actually up. So I think we feel good about the value scores from that standpoint. Our overall average check, a lot of it has been moved because of mix. As we mentioned on the call, we did introduce steaks, seafood, center of plate entrées like pork chops beginning in 2010. And that helped drive comp sales in addition to guest counts and incident rates. So those were played out there just as much as kind of through menu pricing, David.

[Operator:]

Our next question comes from the line of Jeffrey Bernstein with Barclays Capital.

[Jeffrey Andrew Bernstein:]

A couple of questions. Just first on the unit pipeline discussion. Relative to the 13 that you're -- I'm sorry, the 17 that you're expecting in '13, which includes that relocation. I know you haven't finalized the '14 number yet, but would you expect that number to be higher than the 17 in '13? I only ask because, obviously, in the short term with the weak comps, you mentioned the competition for sites and that supply/demand analysis that you guys put together. I don't know if at all you ever contemplate whether now is the time to slow or make any kind of directional change to your unit growth pipeline over the next couple of years?

[Gregory S. Lynds:]

This is Greg Lynds. Our team is prepared, and our whole team is prepared. Not only our development team, to continue building at the same pace that we've been building. Not only this year, but really when you think about, we've doubled the size of BJ's over the last 7 or 8 years probably. And our team's ready. Our pipelines are strong, and we plan to continue our operating lead growth, which really translates to at least 17 restaurants for 2014.

[Gregory S. Levin:]

Yes. And Jeff, as I think about this, our new restaurants continue to drive strong top line sales and have a great return on investment in that regard. And I think as we continue to look at the prototype and the setup of it and maybe drive down those costs, the return on invested capital and frankly, the cash and cash returns, whichever way you want to look at it, only are going to improve. So we're right now continuing to move forward in regards to our continued expansion. We'll continue to always watch comp sales from that standpoint and make sure we're doing everything we need necessary. But frankly, there's too much whitespace for this concept that has worked anywhere from El Paso, Texas; Gainesville, Florida to Irvine, California and Century City, California to continue -- to stop right now.

[Jeffrey Andrew Bernstein:]

Understood. And then just from an earnings growth standpoint. I know you don't give formal guidance. But obviously, you give a lot of color on most other line items. So knowing what we know today in terms of the slightly negative comps, knowing the unit growth, which is weighted more towards the back half of the year, and the cost outlook, which you gave us some of the pieces, but not all. Just to avoid misinterpretation, I'm wondering directionally, I mean, it would seem fair to assume that in the back half of the year we should not be expecting earnings per share growth, is that fair to say? I know right now kind of consensus is for still some meaningful growth, but that doesn't seem to add up based on the numbers you're talking about at this point.

[Gregory S. Levin:]

Well, again, we don't get into the specifics from an earnings standpoint. I think as you work it through, Jeff, the different things that I'm giving commentary on, that's kind of what I see right now and how that falls in your model is going to be how it falls so to speak. Other people might have it differently in their model. But as far as earnings from that standpoint, again, we're not giving specific earnings guidance. We're giving kind of what we see out there currently. And if you want to take the assumption that you know what, "Hey, they're going over Olympics, more marketing out there, comp sales go to x, or you want to say comp sales go to y," that's going to make your difference in regards where you ultimately come out from an earnings standpoint.

[Jeffrey Andrew Bernstein:]

Understood. And then just lastly on the television advertising that you talked about. I'm just wondering, it seemed like as you ramp that up now, how do you measure the return on spend or maybe what kind of a sales lift are you seeing? And I don't know if we should be assuming closer to that 2% range going forward as you push into new markets? I'm wondering how you measure the return and/or what kinds of sales lift you've been seeing that's encouraging?

[Gregory S. Levin:]

Well, I think what we've mentioned, first of all, taking kind of a step back here. When we did our television testing that ended at the end of the first quarter, and we looked at kind of the lag period on it as well, so I think we were on for 3 weeks in this other one and then off for 3 weeks. We kind of measured a 6-week tail period. We'll compare that to at our controlled restaurants. So if we were doing it in the San Antonio market, which is one of our test markets at the end of Q1 and in Q2, we'll compare that to Dallas, other Texas markets. We'll also compare it, frankly, to the industry data coming from -- whether it's a Knapp-Track or a Black Box to see what type of lift we got during that period. And then from that lift, we can easily determine what the incremental profitability was in that sales lift compared to the cost to buy media. And frankly, to say, it's a 2% lift or a 5% lift doesn't -- and that's what we need for a return -- doesn't make sense because the cost of media in different markets is just that, it's very different. So Dallas-Fort Worth is much more expensive than buying in San Antonio. So a Dallas market might need an 8% comp. And I'm just throwing out a number, where San Antonio might only need a 2% increase in sales. But that's the process that we go through. And what we said about our last TV testing is that it absolutely increased top line sales. In fact, we were very pleased with how it drove top line sales. The issue was the fact that, as Greg Trojan mentioned earlier, we bought that media at the most expensive way possible. So some of the markets that we bought media in, in the first quarter did not have a return on investment that we'd like to see based on the cost of the media. This go around as we mentioned on the call in the formal remarks, we'll be able to buy our media 20% to 25% cheaper than when we bought in the past. And we think based on that, it obviously lowers our hurdle rate and gives us good opportunity to see what that next level of television can do for us at a lower media cost.

[Operator:]

Our next question comes from the line of Jeff Farmer with Wells Fargo.

[Jeffrey D. Farmer:]

It's getting late so I will try to keep this pretty brief. You guys did point this out, but I think it is fair to assume that at least part of the blame for decelerating industry traffic in same-store sales is from what feels like a pretty material acceleration of both chain and independent restaurant development over the last, whatever it is, 12, 18, 24 months. But specifically from fast casual, casual, polished casual, some of the concepts you guys would go up against. So assuming that, is there any reason to believe that the same-store sales would diminish in 2014 and '15? Isn't it sort of fair to assume that it's just going to continue, not only for you guys, but for a lot of other restaurant companies into 2014 and 2015?

[Gregory S. Levin:]

Jeff, interesting question, unfortunately, I can't give you a direct answer. What I would tend to say is a couple of things. One is, if the industry data that's coming out of both Black Box and Knapp-Track continues the way it is, I think you're going to see concepts across the board start to pull back like they did in 2006, 2007 and 2008. So again, concepts that are differentiated have a better mass appeal to the guest. Have a good price-value. And frankly, we have strong balance sheet. We'll be able to kind of maybe weather another storm if that happens. But I don't think, if the industry data continues the way it is, that you would continue to see new concepts wanting to grow at the rate they're growing. So I think there's that benefit out there. At the end of the day, we're going to obviously -- we want to increase comp sales, increase guest traffic. But we still, at least in bar and grill, have probably one of the highest unit volumes out there in the $5.5 million to $10 million range. So our restaurants are extremely packed, and they get a great return on investment when they're doing $110,000-plus in sales a week.

[Operator:]

Our next question comes from the line of Tony Brenner with Roth Capital Partners.

[Anton Brenner:]

I had a question on 2 topics. One is that, if the objective is to increase awareness and create initial trial, I presume that the advertising effort will be directed to your newer markets, not your more mature markets, is that fair?

[Gregory A. Trojan:]

This is Greg. Sorry, I dropped before. Can you hear me okay, Greg?

[Gregory S. Levin:]

Yes.

[Gregory A. Trojan:]

Look, well, the answer is, it will be both because we feel and we know from the awareness data, there's still room to drive awareness even in our mature markets. So that's something we're understanding through the testing process. It's not a correct assumption to say it will only be in new markets where it will make sense from an ROI perspective.

[Anton Brenner:]

Okay. And Greg Levin, you gave a figure of cost per operating week for operating and occupancy expense, could just repeat that number?

[Gregory S. Levin:]

Yes, let me -- so to tell you exactly what I said in the call here. So I'm expecting, if I was looking at operating occupancy from a model standpoint, I'd be thinking about $25,000 per restaurant operating week. And I think I said, we're somewhere in the neighborhood of about 1,775 or so operating weeks is what I'm kind of thinking of.

[Anton Brenner:]

Okay. And my other question had to do with the smaller footprint you're talking about. I presume you're not reducing occupancy, so the reduction is in the kitchen. And I wonder if you could talk about what changes are enabling you to reduce that in the way of equipment? And whether those changes can be retrofitted into your existing restaurants?

[Gregory S. Lynds:]

Yes, Jeff or Tony, we're looking at a fair amount of changes both in the front and the back. So that the overall footprint size that we're talking of reducing is about 1,500 and about half of it is in the kitchen and half of it is in the front. So there will be a little bit both of what we call productive sales space as well as kitchen space. That being said, the number of tables are the same. And I think as we pointed out many times, some of our custom footprints and some of our smaller footprint restaurants are just as productive in terms of top line sales. So even though we're a smaller footprint, we feel -- and based on the facts of our current restaurants, we feel we can generate the same top line sales.

[Gregory S. Levin:]

In fact, Tony, yourself being out here down the street from us, if you went out actually into the Inland Empire and looked at like our San Bernardino restaurant, our restaurant in Menifee. I think those restaurants...

[Gregory S. Lynds:]

Corona.

[Gregory S. Levin:]

Corona, those are all 7,200, 7,300 square feet. In fact, if you went up the road to Torrance, the Del Amo restaurant.

[Gregory S. Lynds:]

7,200 too.

[Gregory S. Levin:]

Yes, about 7,200, 7,300. So this is actually, believe it or not, something that we built a lot of back in, I want to say 2005, '06 and '07. And then we expanded the restaurants and we made some changes up into that 8,500 square foot range. So it's not that dramatic. And I think most of our guests won't notice the difference. And frankly, based on the sales coming out of Corona, San Bernardino Del Amo, the top line sales should be relatively the same.

[Anton Brenner:]

Okay. You did talk about more efficient -- more efficiency in the kitchen, what's changed?

[Gregory S. Lynds:]

We've taken on the line. We've moved some pieces of equipment on the line. We've changed them around. And I don't want to get into detail just for competitive reasons. But we've changed some of our -- the line positions or some of the equipment within the line. We've reduced some of the storage. We've reduced some of the -- in our dish area, we've reduced that area. We've taken some shelving away. The walk-ins are about the same, but overall, it's just been shrinking of footprint overall.

[Operator:]

Our next question comes from the line of Matthew DiFrisco with Lazard Capital Markets.

[Phan Le:]

This is Phan Le in for Matt actually. I just wanted to talk about loyalty. You guys have mentioned that loyalty is going to be one of the levers you're going to use to drive the comp there. And just wondering if you provide a little more color, does that mean you plan to spend a little more to recruit people to join the program? Maybe you're going to push out deals to members like buy a meal and get 20% off a weekday lunch meal where you guys are a little soft. And in addition to that, I think in the past you guys mentioned that the program, the loyalty program drove increased frequency and higher spending. I'm wondering if you're still seeing that as well.

[Gregory A. Trojan:]

This is Greg Trojan. We're in the range of over 800,000 loyalty members, and we're going to continue to work -- Wayne's team has done a really nice job of inviting guests to join the program. And I think we're providing value to those guests through the offers and the points program. So going forward, the focus is going to be on the more surprise and delight features of the program and giving people attractive offers that they are not expecting just from the points accumulation. And we are using it in a way to drive traffic where we have more capacity than -- so that means more midweek than weekend for instance. The key next step is to be able to slice and dice that database so that we can tailor the offers by restaurant, certainly by market, and even eventually by individual using even some software that we're adding onto our existing loyalty arsenal from an IT perspective. So we expect to be able to do that later in this quarter to target those offers even more than we've been doing to date. And I think the short answer is, we are seeing the -- continuing to see the increase in spend from loyalty versus our system averages.

[Phan Le:]

Great. That's good to hear. And then in terms of the timing of TV testing, I think you guys mentioned that you're going to do more testing in 4Q and then in 3Q? Correct me if I'm wrong. And then if that's the case, when you guys start testing in the back half of the year, do you have an idea of how many markets you guys plan to target? Is it going to be even more than you've been done in the past? And any intention to maybe play with the duration? I think you guys had been running it for a couple of weeks, would there be any value to running the programs longer to see if there's a bigger impact?

[Gregory A. Trojan:]

Really the answer is all of the above. The timing is late Q3 into early Q4 as its slated now. We're not going to get into the specific markets. But we also are looking at testing different versions of variations that we have in the first rounds of testing. So you're right about that as well.

[Operator:]

And our next question will come from the line of Andy Barish with Jefferies & Company.

[Andrew M. Barish:]

Hey, guys, I'll try to, I guess, throw out a new one or a quick one, hopefully, a last one. Anyway, I think you're working on some new restaurant opening kind of margin ramp up plans, and we appreciate the color you gave us on kind of new units entering the comp base and the drag. Are you seeing some abnormal margin drag on new restaurant openings as well or is there something more kind of preventative and just an update to make sure that doesn't happen going forward?

[Gregory S. Levin:]

Great question, Andy. The new restaurant ramp up trend as we call it, it's just preventative more than anything else. I mean, when you think about the drag on overall margins, taking comp sales out for a minute, you've always got those freshmen restaurants coming on board. And they always tend to have lower margins. And it's amazing sometimes how long they can get to mature margins. And that we've noticed in our business -- and Wayne could probably talk to it a little bit after I finish here is, once they get to efficiency, kind of like flying a plane, once it’s up in the air, it's amazing how easy it is to stay up there. But getting them there has been the tough part, and that's something that Wayne and his team have been working on. So Wayne, you want to make any comments on that?

[Wayne L. Jones:]

No. Greg is exactly right. The only thing I would add is that, we've added some incentive for our management teams to get there just a little bit quicker, focusing on really the big rock, the big chunks that will get us to that ramp up quicker. The other thing is, obviously, it's market by market and restaurant by restaurant depending on how long that honeymoon lasts. So in our more mature guest markets, we have a tendency to be a little bit quicker in restaurants where we may not open as strong as we have in some other restaurants. Actually, it takes a little bit longer, but we're very keenly focused on it. And we want to keep the business that's being offered to us, but at the same time, ramp as quickly as we possibly can.

[Gregory S. Levin:]

Andy, does that work for you?

[Andrew M. Barish:]

That's perfect.

[Operator:]

Ladies and gentlemen, we have time for one last question. And our final question will come from the line of Conrad Lyon with B. Riley & Company.

[Conrad Lyon:]

All right, 2 quickies here. Probably for Greg Levin, average weekly sales trending below same-store sales more meaningfully than historically. Should we expect that dynamic going forward into 3Q, maybe 4Q or was that more of an anomaly in 2Q?

[Gregory S. Levin:]

Looking at the opening schedule and just thinking about that in particular. We just opened up here, yourself being in California. We just opened here at the block at Orange, and that will be a big opening from that standpoint, thinking about how it lines up. Yes, I would tend, just looking through this, I would tend to think that, that's going to be case until we reach somewhere in the fourth quarter as I would expect, maybe Tysons Corner moving into the mid-Atlantic to maybe even that out. In general, though, I don't think that we're going to tend to see weekly sales average above the comp sales for this business. I think it will be more flat to always down a little bit, especially now that we've gotten through California representing a big portion of new restaurant openings. Except for our California open big, and that's the one I've always taken above the total company average.

[Conrad Lyon:]

Okay. And then I appreciate the comment about the kind of comp you need to leverage, really the P&L. So call it 1.8%-ish, what kind of check growth is embedded in that assumption?

[Gregory S. Levin:]

I'm sorry I missed that.

[Conrad Lyon:]

So the earlier comment about the fact that you no longer need a 3.5%-type comp to leverage really your business. It's more like 1.8%-ish, I think, or half that. Just curious what kind of check growth is in that assumption?

[Gregory S. Levin:]

From a check growth standpoint. Really, not much. When we take a look at that assumption, and we run it through, we look at it both on an incident and a guest comp perspective. And then we also look at it on a check average. The check average would probably be less from a flow-through necessary. That number is somewhere in that 2%, 2.5%. I know you kind of threw out that 1.8%. But I would think 2%, 2.5% can be achieved with leverage on both mix and incident rates. And then frankly, if you grew your average check by lower pricing, pricing below that 2%, 2.5%. So we saw the come through, I think we can get some leverage there as well based on some of the things we've put in place.

[Conrad Lyon:]

So yes, so that's kind of what I'm just driving at because I think historically you've said, you kind of want to grow, well, menu price, call it, 2%. And who knows where the mix is going to be, but basically it sounds like you could leverage your P&L even with flat traffic basically.

[Gregory S. Levin:]

I think so, based on where we are today and the things that Wayne and his team have worked on, I think that getting back to flat traffic and then we've got kind of that 2% of pricing, let's call it in there. I think based on what we've got in place and how we're operating right now, I think there would be some leverage there.

[Operator:]

Thank you. Ladies and gentlemen, that's all the time we have for today. That does concludes the BJ's Restaurants, Inc. Second Quarter 2013 Results Conference Call. We thank you for your participation today, and you may now disconnect.