Rana Schirmer - Director, SEC Reporting Greg Trojan - President and Chief Executive Officer Greg Levin - Chief Financial Officer Greg Lynds - Chief Development Officer Kevin Mayer - Chief Marketing Officer.

Matthew DiFrisco - Guggenheim Securities Mike Tamas - Oppenheimer & Company Jeff Farmer - Wells Fargo John Glass - Morgan Stanley Jeffrey Bernstein - Barclays David Tarantino - Robert W. Baird Nicole Miller - Piper Jaffray Andy Barish - Jefferies Chris O’Cull - KeyBanc.

Good day and welcome to the BJ’s Restaurants, Inc. Third Quarter 2015 Earnings Release and Conference Call. Today’s conference is being recorded. And at this time, I would like to turn the conference over to Greg Trojan, President and Chief Executive Officer. Please go ahead, sir..

Thank you, operator. Good afternoon, everyone and welcome to BJ’s Restaurants fiscal 2015 third quarter investor conference call and webcast. I am Greg Trojan, BJ’s Chief Executive Officer. And joining me on the call today is Greg Levin, our Chief Financial Officer.

We also have Greg Lynds, our Chief Development Officer and Kevin Mayer, our Chief Marketing Officer on hand for Q&A. After the market closed today, we released our financial results for the third quarter of fiscal 2015, which ended Tuesday, September 29, 2015. You can view the full text of our earnings release on our website at www.bjsrestaurants.com.

Our agenda today will start with Rana Schirmer, our Director of SEC Reporting, providing our standard cautionary disclosure with respect to forward-looking statements. I will then provide an update on our business and current initiatives.

And then Greg Levin, our Chief Financial Officer will provide a recap of the quarter and some commentary regarding the remainder of fiscal 2015 and some of our initial thoughts on 2016. After that, we will open it up to questions.

And as usual, we will try to keep the call to around an hour, but as always we will be around after the call for any additional follow-up. So, Rana, go ahead, please..

Thanks, Greg. Our comments on the conference call today will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the company to be materially different from any future results, performance or achievements expressed or implied by forward-looking statements.

Investors are cautioned that forward-looking statements are not guarantees of future performance and that undue reliance should not be placed on such statements. Our forward-looking statements speak only as of today’s date, October 22, 2015.

We undertake no obligation to publicly update or revise any forward-looking statements or to make any other forward-looking statements, whether as a result of new information, future events or otherwise, unless required to do so by the securities laws.

Investors are referred to the full discussion of risks and uncertainties associated with forward-looking statements contained in the company’s filings with the Securities and Exchange Commission..

Thanks, Rana. So, Q3 was another very solid quarter for our company. Excluding the one-time gain on our Century City restaurant, our net income increased 58% versus Q3 of last year and by 70% on a per share basis.

Year-to-date, net income is up 54% and 67% on a per share basis when adjusting for Q3’s one-time gain and the shareholder settlement charges incurred in the first nine months of last year.

Our strong performance was driven by solid comparable restaurant sales of plus 2.3%, which combined with 10% growth in restaurant operating weeks, drove a healthy top line sales increase of over 11%.

This is our fifth consecutive quarter of positive same-store sales and this trend reflects the benefits of our investments in better, more unique food and in our core value proposition.

BJ’s healthy revenue gains, combined with the continued excellent work by our restaurant operators, field support and home office support, continue to drive cost savings efficiencies resulting in consistent and impressive margin gains.

Our income from operations, again excluding the one-time gain related to the Century City restaurant lease termination, is up 70% for the quarter, far outpacing our 11% increase in revenues and is a testament again to the significant leverage of our operating model.

Our comparable sales gains in Q3 was driven by an increase in our guest check from menu pricing in the upper 2% range as well as favorable menu mix in food incident rates. This was offset by a slight traffic decline of a little over 1%.

We are able to drive favorable item mix in food incidence in the quarter as we benefited from the popularity of our summer rollout of the Enlightened Keema bowls, Barbacoa Chicken and North Beach Mahi and Shrimp, followed by our tremendous new line of Loaded Burgers in July.

In September, we promoted new appetizers, including dry rub chicken wing flavors, Root Beer Glazed Ribs and some chips, dips and sauces, which led to growth in our appetizer incidence. We were also successful in making several strategic menu design changes, which drove incidence for a few of our best tasting and higher margin, more profitable items.

All of these factors contributed to average check growth either from a trade up to our new Loaded Burgers or an increase in items per check, or what we call incident rates coming from the new appetizers.

This contrasts to last year where our net guest check remained essentially flat as we invested in lower-priced menu items in our core middle of the menu.

With our investments last year, our everyday value platform is in good shape and we are now able to create new and exciting menu items, that provides favorable menu mix or become guest check building add-ons.

All of these new items offer great value to our guests as our value scores have actually improved by a measurable margin year-over-year, as measured by our NPS metric. In fact, I am very pleased to report that all of our key guest metrics, including overall recommend scores, have improved nicely.

In addition, we recently completed a thorough menu item survey in our restaurants with the help of a third-party agency. It showed meaningful improvement in the scores of our food quality and value versus two years ago, the last time we undertook this study.

And although we saw improvements in nearly every menu category, the larger gains came from pizza, burgers and enlightened entrées, which as you know have been the focus of much of our culinary attention over the past two years. Also of note, as we just want two more gold medals at the Great American Beer Festival, a few weeks back in early October.

And we were competing against some of the best brewers in the world there, again showcasing our commitment to quality and it’s making a difference. Continually improving the uniqueness in the quality of our food and beverage offerings is core to our long-term strategy.

These fabulous new menu items have given our marketing team a lot to talk about and they have been effectively improving our brand messaging, leveraging our expanding loyalty database and refining our media mix over time.

Our new Craft Matters marketing positioning has created an excellent messaging platform to accentuate our quality story for our food, our beer and for everything we do in our restaurants.

Our loyalty guest database continues to grow impressively, with steady growth in the percent of transactions coming from our loyalty guests as well as the growth in the number of transactions per loyalty guest.

Our loyalty programming – program is proving to be agile, very effective and a powerful weapon to drive full brand building from – brand building promotions like our Free Pizookie Day, where it stimulate trial of pizza and other offerings in newer markets.

In fact, during the third quarter, we had a Free Pizookie Day, which was entirely launched and promoted using loyalty, social and digital assets. And it proved to be a highly successful 1-day promotion as we served over 4x our normal number of signature desserts than normal driving a big double-digit comp sales day.

And at the same time, we continue to be pleased with the performance of traditional media, TV in particular, in a number of our core markets as we have driven efficiency in our buys and in our targeting.

We are also seeing early, but encouraging results from our expansion into more markets in the digital video space, which would enable us to target specific trade areas at levels of spend and TPMs far more affordable than traditional TV in our less penetrated markets.

So, looking forward to Q4 and into fiscal 2016, we expect the combination of compelling food and continued improvement in our marketing and messaging to continue to drive our top line growth. In Q4, we will be introducing our new fall menu, which will include updates to our pasta lineup with some powerful innovation.

There has been a while since we brought new news to this profitable category and we look forward to introducing our rendition of some classics like deep dish BD, along with our new [indiscernible] chicken and bacon mac and cheese.

We will also be adding the most popular new appetizers from our September promotion to the menu as well as our perennially successful holiday beer brand crew as well as some seasonal center of the play specials to drive check average.

We will also be rolling out a new beverage and dessert tabletop with menu, which we look forward to driving incremental add on during the holidays.

Last but not least, our marketing, culinary and operation teams have developed a large party catering and special event menu, which simplifies the sometimes difficult task of organizing large party gathering, both at home and in our restaurant.

Our menu pipeline is very robust and the work we did last year under Project Q is allowing us to continue to create new menu items in a very efficient and productive manner. I am both excited and optimistic regarding items we have in test that will be added to the menu in fiscal 2016.

They include extensions of our Pizookie desserts, center of the plate entrees as well as salads, sandwiches and more better-for-you item. While this is an extensive list, we will continue to prudently balance new menu items under the lens of Project Q, so that we can execute with a quality first mindset and goals - and that goals standard level.

In fact, even with all the exciting new menu items that I have been talking about and introduced this summer and beyond, our item count today remains steady at about 135 items compared to over 180 items almost 2 years ago. While our menu innovation and the progress we have made in marketing are exciting in terms of the results they achieving.

I am equally excited about our new restaurant opening momentum. We opened in four new states this year and are planning several more in 2016. Our new restaurants in places like Huntsville, Alabama; McCandless, Pennsylvania and the Pittsburgh market, Murfreesboro, Tennessee near Nashville have opened our sales levels above our expectation.

And guests in these new markets have quickly embraced the BJ’s concept. Our new 7,400 square foot prototype is performing well. This lower investment cost has been instrumental as we penetrate new markets outside of California and our Texas core. And as expected the prototype is delivering very solid returns.

Our overall operating results are demonstrating our ability to open new restaurants at double-digit rates, while continue to leverage margins, a feat not often seen in our industry and I believe noteworthy for our investors and analysts.

As we head into the home stretch of 2015, I could not be more proud of the progress our team has made towards our goal of being the best casual dining concept ever. We clearly have a lot of work ahead of us. But in 2016, we will continue to focus on the playbook that we laid out almost 2 years ago.

We will leverage our broad menu to continue to execute great, unique food at an extraordinary value. We will continue to pursue savings in our cost structure to enable us to price at a modest level, on average below our competition. And we will drive awareness through our brand messaging and improved ability to target our numerous customer segments.

We will continue to open strong and contemporary looking new restaurants, which will not only expand our physical footprint, but grow our brand as well. The fundamental strength of our concept is appeal across such a wide range of guests.

And the momentum our team has created makes me look forward to the next several hundred BJ’s Restaurants to be built with great excitement. With 169 restaurants in 22 states, an estimated national capacity for at least 425 BJ’s Restaurants, we are very excited that the majority of our growth remains ahead of us.

Greg Levin will now do a financial review of Q3 and offer some perspectives on the balance of 2015 and some initial expectations for 2016.

So Greg?.

Alright. Thanks Greg. As Greg mentioned, revenues for the 2015 third quarter increased approximately 11% year-over-year to $229.4 million, while net income and diluted net income per share increased to $12.4 million and $0.48, respectively.

As we noted in today’s press release, the third quarter included a pretax gain of $2.9 million related to a lease termination fee that will be paid to us by the landlord of our Century City, California restaurant as a result of a major mall renovation occurring at the Westfield Century City Mall.

As a result of this mall redevelopment, we will have to close this restaurant as we were not able to agree on a suitable replacement location at the renovated mall. And as a result, we currently expect to close that restaurant in January of 2016.

Excluding this one-time item, our net income is $10.2 million, a 58% increase over last year’s $6.5 million. And our diluted net income per share is $0.39, an increase of 70% over last year’s $0.23. Both net income and diluted net income per share were third quarter records for us.

And the net income and diluted EPS excluding the gain as well as the third quarter revenue were well ahead of our internal projections at the time. As Greg Trojan noted, our solid operating results were driven by positive comparable restaurant sales and our productivity and efficiency initiatives.

This led to a 19.7% restaurant level cash flow margin, which is 210 basis points better than last year’s third quarter. I will also remind you that included in our restaurant level cash flow is approximately 2.2% of marketing spend, which many peer companies include in their G&A.

Therefore excluding marketing spend, our four-wall restaurant level margin for Q3 was 21.9%, which we believe are among the highest in casual dining. The third quarter revenue increased reflects an approximate 10.4% increase in total operating weeks and 0.7% increase in average weekly sales.

Comparable restaurant sales rose 2.3% during the quarter compared with an increase of 0.3% on last year’s third quarter. Quarterly revenues benefited for menu pricing in the mid to upper 2% range and positive menu mix and food incidence rates, as Greg Trojan mentioned.

And that was offset by a traffic dip of a little over 1%, which is pretty consistent with the overall casual dining traffic trends for Q3. As we look at comps through the quarter July, August and September were all positive. September was our strongest month and benefited from slight acceleration in comp sales over the last few weeks of the month.

Our Q3 cost of sales of 24.5% was a little lower than anticipated due to lower commodity costs, primarily in cheese and seafood and continued benefit from our initiatives around menu mix and menu pricing. In fact, our commodity basket as a whole for the third quarter was down slightly year-over-year.

Labor of 34.4% for the third quarter represented 110 basis point reduction from the year-ago period and also came in better than we anticipated. This decrease resulted from improved hourly productivity, largely due to our Project Q initiative, as well as leverage from better than anticipated comparable restaurant sales increase.

Operating and occupancy costs were 21.3% of sales for the third quarter, a decrease of 40 basis points from last year.

Included in operating and occupancy cost is approximately $5.1 million of marketing spend, which as I noted earlier in my review of restaurant operating margins, equates to 2.2% of sales by – by comparison, marketing spend in last year’s third quarter was $4.5 million, which also amounted to 2.2% of sales.

Excluding marketing, our operating and occupancy costs in the third quarter averaged approximately $20,400 per restaurant operating week compared to $20,600 last year.

Remember, just to put this in context, at our February 2014 Analyst Day, we set out our strategy to reduce operating and occupancy costs excluding marketing by $1,000 a week, which we expected would allow us to tick up about 100 basis points in this line item.

As a point of reference when we began this initiative, we had just finished fiscal 2013 averaging $22,400 per week and that again is excluding marketing cost. By comparison for the first nine months of this year, we have averaged about $20,400 per operating week.

As such, our overall operating and occupancy costs including marketing spend, have gone from 22.4% of sales in fiscal 2013 to 20.9% for the first nine months of this year through a combination of cost savings initiatives and also leverage from positive comparable restaurant sales, another top line initiative.

G&A was $13.6 million for the third quarter, representing 5.9% of sales. G&A was lower than expected due to a credit in our deferred compensation plan of about $300,000 and less than anticipated manager and training costs.

Without getting into all the technical accounting around non-qualified deferred compensation plan, I would note that the credit in G&A gets offset with a light charge to other income and expense.

So if you look at our release today, you will note that our other income and expense line item shows an expense of $257,000 and that is really the offset to the credit in G&A. As such, the net impact to BJ’s is virtually zero from an earnings perspective.

It is just that accounting rules make us record one portion of this charge to G&A and the other side of this charge to other income. Depreciation and amortization was approximately $15.1 million or 6.6% of sales and averaged about $7,000 per restaurant week, which is in line with our recent D&A trend.

More importantly, depreciation and amortization per restaurant operating week was down about 2% from last year’s third quarter and highlights the progress we are making with our new restaurants that cost us about $1 million less to build than our prior prototype restaurants, which we transitioned to about a year ago.

Pre-opening expenses were $2.3 million. This primarily represents the cost of six restaurants we opened during the quarter plus opening cost for restaurants that we plan to open this quarter.

Our tax rate was 23%, or about 23%, for the quarter and that was below our targeted rate of around 29% due to the additional utilization of FICA tax tip credits during the quarter. Our tax rate was slightly higher than the year ago third quarter when our tax rate was 21%.

In terms of capital allocation, we continue to use our strong cash flow from operations to execute on our national expansion plans by opportunistically repurchasing shares. Total capital expenditures for the first nine months of this year were approximately $63 million.

And we continue to budget gross capital expenditures for fiscal 2015 of approximately $100 million, which includes construction of 16 new restaurants this year as well as maintenance CapEx and other sales building initiatives.

Included in this year’s gross CapEx is approximately $2 million and that’s for the construction of our new brew publication in Temple, Texas, which opened in late June and is supplying all of our Texas locations with BJ’s proprietary, award winning craft beer.

We also continued our program of returning capital to shareholders, allocating approximately $19 million towards the purchase of 400,000 shares of our common stock in the third quarter.

Since the authorization of our initial share repurchase program in April 2014, we have repurchased and retired approximately 4.2 million shares of BJ’s stock for approximately $165 million. This leaves us with approximately $35 million remaining under our current share repurchase authorization program.

With regard to liquidity, we ended the third quarter with approximately $27 million of cash and $68 million of funded debt on our line of credit and that’s compared to $75 million at June 30, which is in effect – our line of credit in effect until June – until September of 2019.

And our line of credit is $450 million and that really does provide us the flexibility to continue both our national expansion program, while returning capital to shareholders through our share repurchase program.

Before we open the call up to questions, let me spend a couple of minutes providing some commentary on our outlook for the remainder of 2015 and some very preliminary thoughts on fiscal 2016. All of this commentary is subject to the risks and uncertainties associated with forward-looking statements as discussed in our filings with SEC.

As I mentioned, the last few weeks of September were strong for us, but as we have heard already from other restaurant companies as well as recent industry trends from both Black Box and Knapp-Track, October have started out choppier and softer than expected.

Our sales for the first few weeks of October are slightly positive, with the first 10 days of the month being the softest. More recently, we have seen our comparable restaurant sales begin to pick up, but the day-to-day choppiness still persist.

Much of the weakness continues to be in the Texas markets, which have been soft for us this year and with the San Francisco Giants baseball team not making the playoffs this year, we have had some softer days in Northern California, primarily on the days that Giants weren’t making – weren’t playing as compared to last year when they were making their run to the World Series.

Menu pricing in this Q4 should be again in the mid to upper 2% range. And while we remain optimistic about our advantages we have created for BJ’s and our shareholders through our operating cost and management disciplines, we remain guarded on comp growth until we see clear evidence that the consumer is back on a consistent basis.

Even though comp sales seemed to have picked up slightly in the last 1.5 weeks, the Q4 calendar shift of Halloween, moving to a Saturday night and Christmas Eve and Christmas Day moving to Thursday and Friday, respectively could impact Q4 comp sales by a total of 50 basis points or more.

Therefore, from a modeling perspective, I will continue to lean to our conservatism in building comp forecast. Moving past comp sales for the fourth quarter, I would expect approximately 2,210 restaurant operating weeks and that marks an approximate 9.7% increase from the 2,105 weeks in last year’s Q4.

Also, as we continue to move into new markets, I would expect us to continue to see a negative 150 basis points or so spread between comp sales and AUV. This has been pretty consistent over the last couple of years as most of our restaurants are being opened outside of California.

Investors should keep in mind that our lower cost prototype, along with lower operating costs from our operating initiatives and the fact that most of our newer restaurants are in states that are significantly less expensive to operate in than California, is leading to returns on these new restaurants that are meeting or exceeding our internal targets and the prior returns on investments on our older prototypes.

I think this is pretty evident in our operating results and that our newer restaurants have not had an abnormal drag on our margins, which you tend to see as companies embark on their national expansion programs and begin building restaurants away from their home court advantage.

Moving on to the rest of the P&L, I would expect cost of sales to be in the upper 24% range as we tend to see a shift in the menu mix in Q4 towards higher cost center of the plate protein dishes, especially around the holidays. I would expect labor to be in the mid 34% range in the fourth quarter and probably fairly consistent with Q3’s numbers.

Operating and occupancy costs should also be pretty consistent with Q3 in the low to mid 21% range, which includes 2.2% to 2.5% of marketing spend. This marketing spend will be slightly higher than last year’s 2.1% of sales.

Our G&A expenses for the fourth quarter should be in the $14 million to $14.5 million range, which is slightly higher than Q3 as we will not have the deferred compensation credit in Q4.

And I am anticipating higher G&A related to additional managers in training as we build our manager pipeline for anticipated openings of 18 to 19 new restaurants next year. Pre-opening costs should be in the $1.5 million range for the fourth quarter based on three restaurant openings.

And I am expecting our tax rate in the fourth quarter to be in the 29% range. And this assumes the – that the WOTC credits for 2015 are still not reinstated and that in this case we will get normal quarterly receipt of our FICA tax tip credit.

As the weighting and benefit of recent repurchases begin to be reflected in our share counts, I anticipate our diluted shares outstanding will be around the 26 million, fairly consistent with Q3 for the fourth quarter versus just under 29 million when we embarked on our repurchase program.

Again, I remind you that we still have 33 million available under our current share repurchase authorization.

I think we can all agree that the share repurchases are benefiting our shareholders from the standpoint that while net income grew a robust 90.7% in Q3, our share repurchase activity leveraged that to 108.7% rise in diluted net income per share.

Looking ahead to 2016 and we are currently putting together our financial plan, which we presented to our Board for approval in December. Therefore, I do not have an approved plan to review today. Let me provide you with some of management’s preliminary expectations for next year.

As we mentioned in today’s press release, we are targeting 18 to 19 new restaurant openings. We currently anticipate 2 to 3 new restaurants in the first quarter and as many as 5 restaurants in the second quarter, with the remaining restaurants scheduled to open in the back half of next year.

As many of you know, opening new restaurants is not an exact science. And things such as weather, delays in permitting or other construction-related issues may cause our openings to move from one quarter to another. As in the past, we will keep investors apprised of any movement of new restaurant openings.

We also note on today’s call and in our press release at our Century City restaurant is expected to close by the end of January 2016 impacting our overall sales weeks for next year.

While we have not finalized menu pricing for 2016, based on our current thinking, I would expect it to be similar to this year, which is for menu pricing in the 2% to 3% range to offset any inflationary pressures. Please note that this is as of today and is based on anticipated commodity pressures, labor and other inflationary factors.

Since we tend to rollout new menus in the winter, spring and fall, menu pricing could change at these times. Also, our forecast is not taking consideration any discounting, mix shifts or promotional activity, which could offset some of our menu pricing.

With regard to our very preliminary commodity basket for 2016, we currently anticipate the cost of our aggregate basket to increase around 1% next year.

We tend to lock in most of our commodities for next year over the next couple of months and we will therefore have a better idea of our commodity pressures when we report our Q4 results in February of 2016. With regard to labor, we will absorb an increase in California minimum wage as well as additional minimum wage pressures in other states.

Separate of state minimal wages, we have seen an increase in wage pressures in the restaurant business for hourly positions and managers. While we have been able to manage some of these pressures with good results, I am expecting this to become more challenging next year.

Low cost capital for restaurant expansion has allowed for significant new restaurant openings around the country, a trend we can expect to continue. Therefore, I expect to see additional upward pressure on both hourly and management wages.

That said, based on preliminary planning, we believe we can manage labor expenses through prudent menu pricing, menu design and cost savings initiatives currently underway. We also believe there is some potential for additional labor savings and improved productivity as we continue implementing new ideas through our Project Q initiative.

With regard to operating and occupancy costs for next year, our cost saving initiatives significantly reduced these costs in 2015. And our goal is to hold the line of the savings and use additional savings to offset some of the normal inflationary pressures we face each year.

While we have not finalized our marketing plan for fiscal 2016, I expect marketing to be similar to the last several years in the 2% to 2.5% of sales range. Again, this is very preliminary and I note that we do not target marketing from a top-down perspective.

We build our marketing plans with a bottoms-up approach and therefore marketing may ultimately be lower or higher than our expectations at this time. On the G&A line for 2016, our continued goal is to gain leverage as we grow.

As such, we will strive to ensure that our G&A for 2016 costs grow at a rate that is less than our expected revenue growth, which will benefit from an expected 10% increase in total restaurant operating weeks, plus expected modest comparable restaurant sales increases for next year. Our income tax rate for 2016 should be in the 29% range.

And we expect that diluted shares outstanding for 2016 will likely be in the mid-$25 million range. Also we are assuming debt levels that are fairly consistent with where we are today and anticipate around $1.5 million in interest expense for next year. Our CapEx plans for 2016 has not yet been finalized or approved by our Board of Directors.

But at this time, I would expect our gross capital expenditures for next year to be in the range of $110 million to $120 million for the development of 18 to 19 new restaurants, maintenance capital expenditures and other sales and growth initiatives before any tenant improvement allowances or sale leaseback proceeds we may receive.

As with 2015, we anticipate funding our 2016 capital expenditure plan from cash in our balance sheet, cash flow from operation, our line of credit, landlord allowances and sale leaseback proceeds. One last note, fiscal 2016 will be a 53-week year.

As a result, we tend to get some additional leverage in operating and occupancy costs for that 53rd week in quarter four.

Finally, while we are pleased with the quarterly sequential improvement in comparable restaurant sales and restaurant level margins, we are equally excited about our company wide commitment to building the best brand and best company in casual dining and our substantial progress against this goal is establishing a tremendous platform for continued near-term and long-term growth.

As Greg mentioned a moment ago, our menu is resonating well with our guests and we continue to be excited about our sales driving initiatives around value, hospitality and menu creativity. At the same time, our approach to strengthening our productivity is well-established and driving improved operating efficiencies and financial results.

With 169 restaurants in 22 states and estimated national capacity for at least 425 BJ’s Restaurants, we are excited as the majority of our growth remains ahead of us and we remain confident that our initiatives to drive sales, productivity and efficiency combined with prudent management of our capital structure is a proven formula for sustained long-term growth and appreciation of shareholder value.

That concludes our formal remarks. Operator, let’s go ahead and open the line up to questions. Thank you..

Thank you. [Operator Instructions] And at this time, we will take a question from Matthew DiFrisco of Guggenheim Securities. Please go ahead..

Thank you so much. Gentlemen, I am just wondering if you can sort of comment on the new stores, I know you were saying how it is impressive you are opening up more stores, yet they are not weighing on the margins.

How about looking at that as far as a comp contributor when I guess the next couple of quarters, you are going to start to get some of those newer openings as you return to more substantial double-digit growth.

As they roll into the comp base, what’s the ceiling like as far as what’s the sophomore year of these stores looking like as far as growing and starting to come off of those lower opening volumes, how do they sort of progress as a sales contributor.

And then would it be aggressive to think that even though they open up at good margins, with those comps, presumably they are getting comps in the sophomore year, they would also get better margins?.

Yes. Matt, this is Greg Levin. We mentioned this on the Q2 conference call and it’s the same trend into Q3. And that is our new restaurants as they drop into the comp base at 18 months, are negative to us from a comp sales perspective.

We mentioned at the Q2 time in July that our comp sales then would have been 50 basis points higher, taking out basically the Class of ‘13, which after 18 months are kind of dropping in as well as some of that early Class of ‘14.

And that’s 50 basis points to our overall comps is consistent even in this quarter, meaning we would have been closer to 3% comp this quarter frankly if we did a 24-month comp perspective.

We don’t not at this time are we contemplating changing comp sales metric or anything, but generally, as I have said, I think the last couple of years have been pretty consistent on this that had 18 months as our restaurants going into comp base they do go in negative.

After about six months or so in the base, so as you start to hit months 24 and greater they start to comp positive. In fact, I would say that over the last two quarters of this year, every single class of our restaurants had been positive.

So meaning that Class of 2006 and prior, Class of 2007, class of 2008, 2009, ‘10, ‘11, ‘12 were all positive here in Q3. And the Class of ‘13, as they go into the comp base, has been negative. So I think we will continue to see that drag on our business.

To your second part of your question now, even though they may be negative from a comp sales perspective, it just seems like we have a longer honeymoon. Our margins do get better in that second year. The fact of the matter is your restaurant team is just more seasoned. They have got theirs sea legs under them and we see nice acceleration in margins.

I would tell you specifically that our restaurants like Oviedo, which is now basically 12 months old, is not in our comp sales base yet, but it’s the first proto-7,400 that we ran, that we opened last year. Now it finished with margins in the 19-plus percent range. So we are seeing that nice improvement.

And that includes the 2.2% or 2.3% of marketing on there as well. So we feel confident that we are going to continued to be able to move margins on those newer restaurants, but there will be that drag from comp sales for new restaurants..

That’s great color. I really appreciate that.

I guess if you could just – should we understand then when you, let’s say ‘17 or late ‘16, is there going to be an inflection point where you are 10% on top of 10% or 11% growth on top of 11% growth, rather than 11% growth on top of 7%, which you seem to be at now, when the new stores coming in the comp base, I recognize there will be a drag, but maybe that you become less of a drag as you are lapping comparable years in openings, over even the – well, comparable years in openings like I am trying to open the model here and think of one that actually – when you drop to the high single-digits and now you are coming back to double-digits?.

To your point, I don’t know the exact data, we are double digit over double digit, and it starts to normalize, I think you bring up a valid point, since that last year we didn’t open as many restaurants. We don’t have quite I would the drag. And now as we start to build more restaurants again, you got more coming into newer comp base.

So I can understand what you are saying there, I just don’t know the exact timing..

And then just a follow-up question as far as when you are giving the commentary on the guidance there, it sounds like you definitely have a very good tailwind in the commodity front, yet you are still taking a decent amount of price plan too for ‘16.

So I would assume then, you are sort of looking at your prime costs in a basket as far as potentially what you might get hit on the labor pressures.

It sounds like it’s going to be a complete offset on the commodity cost environment or at least manage to keep sort of this 58% to 59% prime cost total rather than losing that leverage?.

Yes. Matt, when we look at it and really over the last, I would say 18 months or so, we become much more selective in how we take menu pricing and have many more tiers than we had a few years back. So when we think about taking menu pricing, you might see greater menu pricing and like California that’s taking an increase in minimum wage.

So net, it will be somewhere in that percentage range or so and we will continue to evaluate that based on some of the other prime costs. But as we go in, knowing that we are going to have inflationary impact here in California specifically, we know that that’s going to result in a little bit higher of menu pricing per se in select markets.

And that’s kind of how we look at it and that’s where we kind of come up with that range of 2% to 3%..

And our range is of course, given our concentration in California Matt, it’s going to look higher than folks out there that are more geographically distributed, right..

Of course, okay. Last question the – with respect to the prior years, you actually have made maybe even like 5 years or 6 years ago was you used to breakout the same-store sales when the Inland Empire of 13 stores or so. We are going through some significantly, regionally tough comps.

How should we look at Texas as far as on a level playing field versus the rest of the country for you? Is it at the point where maybe we start extrapolating out those stores and what the comp would be versus what it is in Texas or is it too close still and you just want to call it out as yes, it is weaker than the rest?.

I think it’s the latter there. We will continue to evaluate if there are some pocket effects that tend to do a little bit better.

Even I think when you look at it, Texas overall, we talked about this year that’s been softer for us, but we are not necessarily at that point where I do think as we look back 4 or 5, I guess more like 6 or 7 years ago, there were some very specific restaurants that were dragging us down.

And frankly at that time, 13 restaurants on our base had a different impact maybe to Texas..

Excellent. Much appreciate it. Thank you..

And this time, we will take your question from Brian Bittner with Oppenheimer & Company..

Hi, great. Thanks. This is Mike Tamas on for Brian.

Just a question, if you do sort of like a 1 to 2 type comp, what sort of leverage do you think you can get in the business as we think about it going forward?.

Mike, I think, well, short-term meaning this next quarter, I think we still have the ability to continue leveraging our business. Going forward, I think if we can get into that upper 2% range or in closer to 2%, I think there is continued leverage with some of the initiatives and things we are doing going forward.

Your 1% becomes a little bit more challenging. I would say this so. It depends on how you get that 1%. 1% coming from pricing should allow maybe a little bit more leverage versus 1% coming from traffic. Obviously, pricing allows you to leverage cost of sales, labor, etcetera, a little bit better versus traffic from that standpoint.

We will have a better idea on some of that as we finalize our plan for 2016. But generally, one of the things that we have talked about in our business really over the last two years is if we can consistently put out numbers around 2% or so, we think we have the ability to manage our margins and improve our margins..

Got it. Thanks.

And then just on the labor, you sort of touched on that a bit, but outside of your productivity initiatives, what sort of labor inflation rate are you seeing either today or what you expect to see going into ‘16?.

I don’t have a specific number for you right now. I would tell you though in general, we have been able to manage that over the last year, year and a half. And I think you see it in our numbers in the sense that our labor cost per operating week, have been flat, if not down over that.

But as we experienced Q3 and it’s one of the reasons I guided a little bit higher for some G&A in Q4, we are seeing pressure in regards to managers and line cooks that we really hadn’t seen over the last 18 months.

I don’t have in front of me what I think that that labor inflationary pressure is, but it is seeming to get more intense as we are seeing a lot more new restaurants open up in some of our markets that we currently exist.

And you are seeing, I wouldn’t necessarily call it the bidding war that you saw in the early part of 2000s, but you do see pressure in regards to holding on to managers and hourly team members..

Particular the kitchen side..

Okay, great. Thanks guys..

At this time, we will take your question from Jeff Farmer with Wells Fargo..

Thanks.

Just a line up on Matt’s earlier Texas question, I am just curious of that same-store sales underperformance gap for the state, has It stabilized or is it still growing at this point?.

You know what Jeff, it’s been kind of looking at it right now, it’s been choppy this year. And if anything, coming out of September, it started to grow a little bit. So, I would tell you looking at it from a trend standpoint, it seems like it’s been going up a little bit, definitely moving into September and into October..

Okay. Then again just sort of going back to the October same-store sales trends, I am just curious looking at that across transaction, you saw a nice mix benefit in Q3.

Is the makeup I am understanding that it’s a little bit softer in October, but is the makeup similar, meaning you have negative transaction then a little bit of mix tailwind working for you?.

I think the general dynamic is still the same deficit to softer traffic..

Yes, so that will be next area. And well, we don’t – and we always say that we never want to be a forge dependent concept. It’s about the creativity of unique food, great social place, great year and so on.

Looking specifically getting into October, some of the softer days in Northern California are definitely days that the San Francisco Giants were playing last year, and this year, they are not. They are not in the playoffs, not going to World Series.

And I think it’s something like 16 games they were in last year that we are not going to see this year and when we look at our numbers across by being soft as we see some of this volatility in our business..

And they are very consistent about losing..

Yes. Unfortunately, they have not just lost the first round of playoffs in the last three years. So that hasn’t helped it..

Understood.

And then just a final question and Greg you might have touched on this in your prepared remarks, but just looking at the relationship between same-store sales growth and average sales growth, is there a potential for that to maybe get to 2 points in 2016 meaning that same-store sales outpaced average sales growth by a full 2 points?.

I don’t know the answer to that, Jeff. We are happy with our new restaurant openings. It’s just and I think you kind of can see it in that 18 months comp, so to speak, in the sense that as they come into the comp base, they come in negative. So, what you are seeing is that honeymoon or that decrease in new restaurant sales can last a little bit longer.

And that gives you that little bit of a different spread per se than maybe 5 or 6 years ago. So, it’s just kind of a steeper decline.

I would tell you while we don’t go into specifics, but things like Huntsville, Alabama, Murfreesboro, moving down our McCandless, Greg Trojan and I all talked about, those restaurants are all opening up in the mid 100 plus thousand range, but they will settle down closer to our average unit volumes of 100 plus thousand a week.

So, we are very happy with where a lot of our new restaurants have opened up. I think as any business when you opened up 17 or 18 you have got some that performed better than others, but we are excited. We like where they are opening up. We like the returns that we are getting out of them.

We are just seeing a little bit longer honeymoon than what we have seen before. And as I mentioned earlier, every class of our new restaurants, meaning taking out the class of ‘13 has comped positive. So, it just seems like it takes a little longer to get to that comp positive state..

Okay, thank you..

At this time, we will take a question from John Glass from Morgan Stanley..

Thanks very much. I had two questions. First, Greg, just on your traffic this quarter, so traffic this year has been better than last year, but at least the way I look at it, it’s been a little bit lower than the industry. And last year, you were above the industry.

Maybe what do you think your gap was to or however you look at the industry this quarter Black Box or Knapp? And how do you understand why that is the case when you have made so many improvements, your traffic seems to be now lagging more than it did a year ago, let’s say?.

Actually, John, my take on it would be this quarter we are pretty much in line. The Knapp and Black Box numbers were more different than typical we would be. Black Box, by a reasonable margin and we are just behind on Knapp. So, I call – we think of that in the margin there of being about where the industry is.

And you have to remember, we were beating traffic starting particularly in the last part of last year, really I think three quarters of last year pretty heavily. So, our two year traffic growth rate is candidly. I think our average is over 100 basis points of traffic premium to the market even this year.

So, that’s really more the dynamic and that’s been incredibly consistent even through this year. So, my argument is the way we think about it is look, we always want more traffic and we want to be positive traffic, which we weren’t this quarter, but versus the industry and the dynamics of the industry were faring pretty well..

Yes, John, I got, I mean, without getting into – I guess I am getting the specifics. But when I look at our numbers here, I have got a feeling Knapp-Track and Black Box and maybe I am off on different things every quarter of 2014 we are up in 2013. We made some of those changes in here.

And I have a feeling really, Black Box and Knapp in Q1 of this year we are off a little bit in Q2. And then as Greg Trojan said, we are kind of better than Black Box, a little bit behind Knapp in Q3. So, maybe I got different data than what I recorded. I doubt it in that regard, but I don’t see that quite the comment you just made..

Well, you used – you did say you used to be bidding and now you are let’s say pride, my only question was why weren’t you accumulating greater momentum just given the changes, but that was the comment. Can you maybe – go ahead….

Maybe that has to do with the restaurant in our Texas market, while we still have that, but have some pretty good comps this year with some of the movements in regards to mix and so on. We do have 32 restaurants, about 20% of our base in Texas and that’s been kind of a tougher market.

I don’t have the breakout of regionally between Black Box and Knapp in front of me here, but maybe that’s kind of diving it down a little bit..

Yes, that’s helpful. That was the kind of intent I was looking for. And then just on your margins, right you are now cycling all the improvements, the big step up improvements you made last year, you are still seeing some improvement at the restaurant level.

Do you, and you are ahead of kind of what your target was I think you said out a year and a half ago where you should be or wanted to be.

So are you now at a point where you think you can forecast the new let’s say run rate restaurant margins or is this going to be sort of smaller increases just depending on comps that was do you think you can target 20% restaurant margins or do you think you have a new goal that we will be able to have a new goal soon on operating – overall operating margin?.

We are going to go after a new target, that’s part of our mindset from there. I don’t exactly know where it is. It obviously gets more challenging as we continue to move up that ladder. In that regard, I think one of the things that we mentioned specifically at our Analyst Day was our plan kind of centered on a 2% comp.

And here we just put out a 2.3% comp and it shows the type of leverage that we can get in our business. And I still think we have that opportunity and we have got other things that we are continuing to work on, to frankly hopefully move it above the 20% range in that regard. But I think it becomes more challenging as we go into Q4 and into next year..

Got it, okay. Thank you..

At this time, we will take a question from Jeffrey Bernstein with Barclays..

Great. Thank you very much.

Couple of questions, the new units you are talking about for 2016, I was wondering you gave us kind of the quarterly progression, I am just wondering new markets versus existing markets, I think you said there are a couple of new states, but as we are trying to assess how many of these stores are I guess at the different dynamic from a comp and a margin perspective and I am just wondering what that breakout might be?.

Yes. Okay. Jeff, I am kind of looking at this as we speak here. We are going to jump into the Carolinas next year. So that will be a new market for us..

I think in general, I think the big part of the story is in terms of California and Texas openings, I am remembering correctly. Greg, I think we got two in California and I am not sure we have one in Texas. Virginia, Maryland, we have continued Pennsylvania, Indianapolis, Indiana..

Those are all states that we are already in. It’s really – as we mentioned before, we try to build out that mid-Atlantic hub and it started to build from there. And we are going to continue to go after that those areas. Frankly, our Akron, Ohio restaurants have done really well over the last couple of years.

So we are excited to get back into the Ohio Valley market. So really, as I think I mentioned, the Carolinas tend to be only two new markets..

Got it.

And just as a follow-up on the last questions with regard to the cost saves, as you said now it’s going to be a little bit harder going forward to once you effectively lap that, I am just wondering are there still big buckets of opportunity where other than the leverage you will get from the 2%-plus comp, what are the big opportunities might there be, just from a pure cost reduction standpoint?.

Well, Jeff, the general comment I would make is our level of effort and the process we put in place was really, you have heard me say this before was ground-up in nature. And they were driven by ideas coming from our restaurants and field operators in large part.

So in terms of the process and the important level of effort going against it, we are not treating this is like we are done and we are going to stop looking in fact at anything, it just gets more and more important as level of competitive intensity and labor pressures and all that continue to way out in our business.

So – but just the fundamental law diminishing returns is we are not going to get to the same level of dollars that we had when we were 18 months or 24 months ago. But we still think there is – I mean we still continue to find some good buckets and some good ideas out there that we have in place that will help us next year.

But you guys have been following us long enough to know it’s not going to be the same yield, but they will still be important and still help us particularly as we continue to try to take less pricing than our competitors out there..

Got it. And then just lastly, Greg or Greg Levin I should say, you gave tremendous detail in terms of the outlook for 2016. And I know you said some about the modest comps in the units and otherwise give a lot of those line items, just to avoid confusion as everyone models this out, I mean nothing was really missing from that.

I mean ballpark, I mean restaurant margin and/or earnings, I mean is there any directional color you can provide on that, just to kind of keep us all on the same pace?.

Jeff, not yet, I mean as I started off the commentary in general, we haven’t built up our plan in that regard. And that we are right in the middle of building that plan. And we get the information from our operators what we are looking at and those initiatives.

And that determines sometimes if we have to take pricing what that marketing strategy might be, etcetera to kind of manage the margins in that regards and see what we can do. So unfortunately, I don’t have that as much as I say modest comp, I really can tell you if modest comps meant 1% or 3% next year in that regard.

We will tend to look at it how the trends are going and what comes back from our operators and what we decide to be the right target that we are going to go after and fill the plan accordingly..

Understood. Well, thank you for all the detail..

My pleasure..

At this time, we will take a question from David Tarantino from Robert W. Baird..

Hi, good afternoon and congratulations on the great results. My question is really – I got a couple of questions about the unit growth.

And first maybe you mentioned that you are very pleased with the return metric versus some of the new locations with the new prototype, I was wondering if you would be willing to share what type of volumes and margins you are getting an average in those recent classes and maybe what the cash on cash return profile is shaping out to look like for that prototype?.

Yes. Well, a couple of things. First of all, David the restaurants are so new that it’s hard to talk about them and whether they are shaping up from that standpoint. And as you know, as we just talked about, we have got this 18-month timeframe for them to go into comp sales. And they go into comp sales negative.

So when we talk about a restaurant I think we mentioned it last year like Oviedo, we talked about our first new prototype. And I think it did up to 150,000 its first couple of weeks coming out of the gate, which not only proved that we can do that at 7,400 square feet, which we know we could because of our existing restaurants.

We also made the comment that that’s honeymoon sales volume and it’s going to come down. So it’s hard to sit here and say well, this is where it’s going to exactly come down to because we know they come down.

I would tend to say that album come off the honeymoon, in that regards our operating margins ramp-up of all of our restaurants has been better than historically what we have seen.

So as it might have taken in the past, taken about 90 days to 120 days to hit food costs, you can get 180 menu items in there and more complexity in regards to how we manage the kitchen per se that 90 days to 120 days has been shrunk down to 60 days or so.

If labor used to take basically in this case 240 days or six months, we have seen labor come a little bit more in line maybe somewhere it’s in the 150 days or so. So we are seeing much better improvement all around in regards to our internal productivity measurements.

Trying to understand where the sales volume has really been a challenge as they go through the honeymoon perspective.

The one thing I would tell you though is as we would look at our numbers and while we don’t have them in all the new states, I would say that our restaurants that we opened in a pace like in Florida and compare them to our existing prototype restaurants in Florida are opening at the same levels of volumes in that regards and they are doing the same sales level.

Our Avon Restaurant, Avon, Indiana is opening up at the same as our Greenwood, Indiana restaurant. So we are not seeing any real change in regards to top line sales volume. We are just seeing improved productivity out of those restaurants.

I think as maybe we get into next year, we have now got restaurants more under our belt, closer to the 18 months to 24 months. I think you can see that kind of mature run rate, maybe we can give a little bit more color. But frankly right now, we just don’t know except we like where they are going..

Great.

And I guess as a follow-up, the sales volumes are tracking similarly and the Box is smaller and more efficient, is it reasonable to think that the margins will settle into a level that’s higher than what you have averaged previously?.

Yes. We believe that will be the case..

Right, okay, thank you. And then last question on unit development outlook, as you push up the number of openings, I think 18 to 19 will be your highest ever in the history of the company.

And I just – I guess bigger picture, how are you feeling about the infrastructure to handle that pace of growth? And then secondly how long do you think you can keep push that number up and delivering kind of that 10% type unit growth?.

Yes. Look, we made the comment on the – of Greg and I in different forms. I think one of the things is I wouldn’t say unique, but we are through our operating expertise and our development team have prudently can do is grow this number at this kind of growth in our model and still not take big picture on margin perspective and actually expand margins.

So, look, we are not growing – you don’t hear us talking about growing our expansion plans and opening 25 or 30 restaurants next year for that reason, because we start outrun, outstrip the runway, so to speak if we were to do that.

But within the ranges we are talking about of those low double-digit restaurant week growth we are very comfortable that we are able to both do a good job of operating our existing restaurants and open what we have. And it doesn’t – we have been doing this as a company for quite sometime now in this level of growth.

And we have gotten pretty good at it. And we are very comfortable where we can continue at that level of growth without sacrificing quality and margins in our existing restaurants. And it doesn’t require a step function from a G&A or other infrastructure point of view, if that’s your question..

That makes sense. I guess the nature of my question was as you approached 20 a year or more that’s pretty given the complexity of your operations, that’s a pretty big number. And I am just wondering how you are feeling about your ability to keep pushing that number up as you look at 2017, ‘18, ‘19.

And it wasn’t more a comment about this year or next year, more so for the out years just think about the numbers?.

That’s a good question. No, no, no I hear you. And look, the biggest limitation we have often said is really at the restaurant management level is making sure that we can attract and develop, but we just don’t put a General Manager from another concept to run a BJ’s and open a new restaurant. So, that is the biggest limitation as people.

We have capital and great returns to build more restaurants than we are today. We think Greg Lynds and his team could even find more real estate, but that is the limiter.

And so you are right, on an absolute basis, that’s true, but you have got to keep in mind the number of restaurants as the base to promote people into those jobs increased it as well. So, the percentages actually do make some sense, not even though those absolute numbers get up or going to get bigger..

Yes. And David, one of the things that we always do is we try to continue with that cost of strategy. And it does become challenging at times, but that does help us as we continue to try and grow our business to make sure we are not just sprinkling onesies or twosies scenarios, but have basis to promote from as Greg just mentioned it at the end..

Great, thank you very much..

At this time, we will take a question from Nicole Miller with Piper Jaffray..

Thanks. I just want to clarify couple of things and then I had a quick question, if I may.

Greg, for 4Q G&A, are you saying higher in percent or dollar terms, please?.

Dollar terms. I said specifically I think $14 million to $14.5 million. I think we just finished at $13.6 million..

Thank you.

Couldn’t write to play fast enough and then pre-opening that one side, that’s also a dollar amount, right?.

That is correct..

And then big picture, I just wanted to comment the comp a little bit in different way. I mean, the comp is good and the pull-through is unreal. I am trying to think about not even the context to succeed, but just long-term, because you structurally change your business and improved the operational efficiencies.

What might be an achievable flow-through rate on incremental comp as this is the model moving forward?.

Well, I think a different way to state your question is what’s your baseline comp, because once you get above your baseline comp, your flow-through should always be somewhere in the neighborhood of $0.50 on the dollar.

Granted, that, that flow-through is going to be dependent on is it traffic, is it pricing, or is it mix? But the general rule of thumb that we tend to use around $0.50 on the dollar, but taking a step back there, it really comes down to what is the normalized base comp that you need to manage your general inflationary pressure.

And if I look at like our operating occupancy costs and talk about that line a lot, it’s been pretty consistent this year at about 20,000 – 420,500 per restaurant week.

And that’s going down a lot in the past, but I don’t know how much more it’s going to come down, but the question is if you start seeing inflationary pressure there, what’s your normalized comp that you are going to need to offset that? And I do think as we start looking to next year with some of the minimal wage increases and other things, we are probably indeed somewhere close to 2% to kind of manage around the comp sales numbers.

So, then you can start getting above that. I do think we have got the ability to have that flow-through. And you talked about we should get back more to a normalized $0.50 on the dollar or so..

Okay. And then the last one – sorry, I did have one more, G&A for 2016 I can definitely understand growing less than revenue to the dollar amount.

I want to make sure that would include the extra week, so we model that appropriately, is that still the same out of that?.

Yes, it should include the extra week. If you think about it the big portion of G&A for next year is personnel cost. So, you pay personnel cost by the week, so that you are going to have that entire cost there for next year. So, it will be one for one, so to speak..

Alright, thank you..

You are welcome..

You’re welcome..

And at this time, we will take a question from Andy Barish with Jefferies..

Hey, guys. Just two quick ones. On pre-opening, actually it looked really good in the quarter with a bunch of new market openings.

Have you made some changes there? And then secondly, on California development, we haven’t heard that in probably year and a half or two or so, what sort of changed to get you more comfortable with putting a couple of new California stores in the pipeline for next year?.

So Andy, we haven’t talked about it a lot, but we definitely have been able to reduce our pre-opening cost in our business, where at times, it ranges in the $500,000 plus range. We have seen that number coming down into the kind of low $400,000 range or so.

So, it depends on that pre-opening phantom rent, but frankly, opening a little bit smaller restaurant and so on, you are going to have less personnel cost and other things and it’s been a big benefit for us. And it’s sustainable whether in California or other markets, it is sustainable.

You will have bumps and things like that when you go into certain markets that are a little bit higher. But overall, we have made some of those changes that I think are good for us.

As far as California goes, one of the new restaurants for next year is going to be in La Jolla, California and it’s just a replacement the La Jolla one we closed this year, because in this case again, it was the landlord redeveloping the property.

In this case, we hope to get a site that we like and that property and the landlord and us we are able to make an agreement that works for us. And then we still have onesies and twosies in California and when is the right spot, we will take it, but that’s really what’s happening for next year..

Today, we have already been – we have been pretty consistent around there are still trade areas that frankly some of them we have been trying to get into for 10 years plus that when we find right real estate, we will still do, but as we have been consistent about we are not looking at California to drive most of the unit development going forward..

Thank you..

Thank you..

And our final question today will be from Chris O’Cull with KeyBanc. Please go ahead..

Thanks. Good afternoon, guys. Greg, it seems like you are developing in areas like Murfreesboro, Tennessee, Huntsville, Alabama, smaller towns than maybe for many of the other growing casual diners are focused.

What are you guys seeing in those markets or what is – what about the brand makes those markets good targets for you guys?.

I am glad you asked that question. It’s one of my favorite things about our concept is I often use these words, the breadth and appeal, but it’s that flexibility that you can do in California where we do as well in Montebello as we do in Huntington Beach and Irvine.

And that’s what really works in some of the markets you were just choosing as examples, Chris. And so it’s really that the breadth of the menu enables us to do that. So we do see regional differences in areas of our menu that are more popular and by geography.

But we still we have pretty much something on that menu that’s going to appeal to somebody in a wide range of demographics and geographic and that helps us a great deal. Our fundamental value just works in a lot of different t places as well.

And one of the things we just briefly mentioned in our comment, but it gives us a lot of optimism when we see some of the put in the brand new market categories like the Pittsburgh and Murfreesboro that we are off to a good start there. Because there, people think we are a wholesale club more than a restaurant in some of these markets.

But that we are doing as well as we do – said a lot about the strength of the concept..

I would think the investment in like Murphysboro or Huntsville is going to be a significantly lower than what you guys have been spending the past few years in some of these other markets, I mean is that true, are you getting to $4.5 million – $4 million, $4.5 million in total investment in these markets and are you still seeing sales...?.

Sorry felt like we are done..

Well, I was just saying are you still seeing sales that are – sales to investment ratio is 1.2 or more?.

I think we will frankly, I think we will do better than that. And look, our goal is to build these on average and we have been meeting it at $4 million, right. So that’s the $1 million that we have been saving here. And in some of those, in some of the markets you are referencing, we are able to do it or even less than that.

But I don’t know what your definition of significantly is. The cost of materials aren’t going to vary all that much. So when you look at the labor content in our construction, etcetera, we do save. And there is more of a premium when we have built in places in the Northeast like our New York unit restaurants and etcetera.

But to answer your question, we are building these restaurants closer to $4 million and achieving that $1 million savings goal. And we are able to do a little bit better in those markets, but the gas probably not as big as you think..

Chris, one – it’s an interesting comment that you made about the 1.2 to 1 sales ratio, so do you think about what Greg Trojan just said that, we can build these restaurants for $4 million. A 1 to 1 sales ratio is only 80,000 a week of sales average, because $80,000 times 52 gets you to $4 million.

Now we are doing better than $80,000, but it does get you to think about the fact that everybody gets on the whole weekly sales average versus comp versus non-comp.

When we get it at $4 million or we get it at $3.5 million we can generate a healthy 1-plus to 1 return on average and generate those margins by not having to do California weekly sales averages.

And that said, part of the strategy in regards to the right use of return on invested capital for us going forward and it’s working out really well and we are pleased with where we are going..

That makes sense.

And then my last question is just typically, Greg when you reduce the number – or when restaurants reduce menu items, the number of items in the menu, it has a difficult time of improving comps, do you have any consumer data that shed light on maybe how frequency or repeat usage has changed since you have reduced the number of menu items so dramatically?.

That’s a good question. We are actually refreshing that data plans and are in the process of starting that process, Chris. So it’s a really good question. We do know in our loyalty base, which is we have greater visibility on frequency of those gaps, right? So we are driving frequency among our most loyal folks and that is improving nicely.

And so that gives us comfort. And we do see that I mentioned earlier, we are seeing significant increases – improvements in our food quality scores overall. So we think that is a key driver in all of this. And it’s paying dividends.

But the other thing – dynamic that I think you know but I would remind everybody is, the lion’s share of the reductions occurred last year. So we are still pruning as we are adding for this last menu or this latest menu coming out next week, keep a flat menu count in the 130 range. So we are taking items off as we add them.

I still – we are still pushing the envelope and seeing if we can get lower overall net. But it’s not going to be like 180 to 130 kind of change going forward. But we are staying disciplined to make sure we don’t leak our way back into 140, 150 plus items, that’s the difficult restaurant to manage..

Great. Thanks guys..

Okay. Well, thank you, everybody for joining us today. We appreciate your time. And like we said, if you have any follow-up questions, don’t hesitate to grab us. Operator, thank you..

Thank you. And again this does conclude today’s conference call. Thank you all for participation..