Gregory A. Trojan - BJ's Restaurants, Inc. Rana G. Schirmer - BJ's Restaurants, Inc. Gregory S. Levin - BJ's Restaurants, Inc..

Will Slabaugh - Stephens, Inc. Michael Tamas - Oppenheimer & Co., Inc. Jeff D. Farmer - Wells Fargo Securities LLC Jake Fuller - Guggenheim Securities LLC Mary L. McNellis - Robert W. Baird & Co., Inc..

Good day and welcome to the BJ's Restaurants Incorporated Second Quarter 2017 Earnings Release Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Greg Trojan, President and Chief Executive Officer. Please go ahead..

Thank you, operator. Good afternoon, everyone and welcome to BJ's Restaurants fiscal 2017 second quarter investor conference call and webcast. I'm 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 second quarter of fiscal 2017, which ended Tuesday, July 4. You can view the full text of our earnings release on our website at www.bjsrestaurant.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 will provide a recap of the quarter and some commentary regarding the remainder of fiscal 2017 and after that we'll open it up to questions. 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 guaranteed the future performance and that undue reliance should not be placed on such statements. Our forward-looking statements speak only as of today's date, July 27, 2017.

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 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. At the time of our first quarter earnings call in late April, we discussed that the second quarter is off to a solid start with comparable restaurant sales slightly positive. However, beginning in mid-May our sales softened as we noted in today's press release.

Ultimately, the headwinds in the general retail and restaurant categories we've previously discussed resulted in comparable restaurant sales of negative 1.4% for the quarter.

While we are disappointed with these short-term results, we made important progress during the quarter in moving BJ's forward and continued to see initial encouraging signs from these medium to longer term sales building initiatives.

Specifically, the roll out of our new slow roast cooking platform and menu additions, our new server hand-held devices, training for our new takeout and delivery offerings and new lineup of weekday Brewhouse specials are all off to good starts and our confidence remains high on the return we expect to generate from these investments.

For example, the new slow roasted menu items are boosting average check, while the hand-held rollout completed ahead of schedule has already improved the time it takes for food and beverage to arrive at our table and has increased sales.

Notwithstanding the benefits we are starting to see, our rollout of these programs impacted our margin performance and also our shorter term guest traffic in the quarter.

We indicated on the Q1 call that we anticipated short-term impacts from these initiatives and in a moment Greg Levin will provide more details where we saw pressure on food and labor cost during the quarter.

However, besides the cost of additional training, food sampling and our overall learning curve inefficiencies, the concerted and comprehensive level of activity our operators undertook in such a short amount of time likely came at a cost to our usual level of focus on sales building within our restaurants.

Our marketing messaging in Q2 was primarily focused on the introduction of our new slow roasted menu, including great new slow roasted protein dishes such as our prime rib dinner, double bone-in pork chop and our prime rib and turkey dipped sandwiches, all of which are being offered at tremendous value.

In today's highly competitive restaurant environment, where our industry is discounting at a rate nearly 2.5 times as much as BJ's and spending at higher media weight than last year, marketing higher price menu alternatives, even with a promotional message attached, diluted the visibility of our promotional efforts.

As such, we believe our focus on marketing our great new slow-roasted product and our daily Brewhouse specials probably made it more challenging to also convey a more direct value message for our less frequent and more deal-dependent guest segment.

Ultimately, we believe our slow-roasting technology is a powerful and differentiating cooking platform, and we are seeing that in the high levels of guest incidence for these new items.

So while there was definitely an impact from the rollout of this new platform in the second quarter, when we look at the expected near and long term benefits from this offering, it's a trade we would make again. Our guests have responded very favorably to these new products.

And this helps drive incidence levels that have outpaced many of our other product launches over the past number of years. These new products help drive healthy check growth during the quarter, particularly during the graduation and holiday periods.

Most importantly, they allow BJ's to offer an even higher level of quality and value in product categories we think we are positioned to own in our competitive segment, and as such, will drive word of mouth and repeat traffic over time.

While this is an entirely new cooking platform and menu offering for BJ's, we have established a tremendous record of success in the past with the introduction of new higher quality items. We have proved this with our center of the plate entrees like salmon and ribeye steaks for quite some time.

Successes such as these have led our loyal guests to trust our ability to execute these higher-priced higher value items.

And it this brand equity that we have established with our more loyal guests that we believe led them to order a disproportionate amount of these new slow-roasted products in the second quarter as is evidenced by the increase in loyalty guest check growth at a rate that was over 50% higher than non-loyalty guests.

Our job now though, and one we're keenly focusing on, is to drive trial and traffic into our restaurants for those guests who don't know us quite as well or perhaps not at all. Clearly, traffic remains our priority. In this environment we believe having some kind of always-on value message is an absolute necessity.

While I believe dollar-off and buy-one-get-one kind of deals are here to stay across all corners of the restaurant world and more broadly, even for retail, our objective is to substitute some portion of dollar-off promotions with more brand building value offerings that showcase important product categories for us while building repeatable guest traffic.

We have rolled out and expanded our daily offers and bundled them into a collection we call our Brewhouse Specials. These include Half-off Large Pizza Mondays, $3 Pizookies added to our Wine Down Tuesdays, $10 loaded burgers and $4 craft beers on Wednesdays; and amazing rib deals and call drinks on Thursdays.

It is important to understand that the solid check growth we are seeing from the success of slow roasted products along with appetizers and NA beverage innovation is enabling us to invest some of that check back into our value initiatives, most importantly, our Brewhouse Specials and other compelling promotions.

We're able to invest in this value initiative while still maintaining net pricing to offset today's cost challenges. We also made solid progress in the second quarter on our other two major sales building initiatives, hand-held ordering devices and expanding our promising takeout and delivery businesses.

We completed the installation of our handheld ordering devices in all of our restaurants about two weeks ago, ahead of the timetable we had in place. It takes four to five weeks for our restaurants to adjust and settle in with these devices, as well as the changes we are making to our service model.

As I noted earlier, since the rollout of the handheld ordering devices, we've seen a significant reduction in our order time and the time it takes for our guests to receive those first drinks or appetizers. This turn is driving higher guest pace (9:07) scores as measured by our NPS scores in our restaurants.

Again, while we don't expect immediate sales gains, we know that improving our speed of service and our overall guest satisfaction is fundamental to our long term ability to drive sales.

While the transition to handheld probably challenged our operators as much as they helped them during Q2, we look forward to the benefit from having a fully installed and trained fleet of restaurants fully utilizing this service capability in the second half of the year.

In addition, we also expect to begin rolling out a credit card payment capability for these devices later this year, which will further improve the service levels and speed for our guests. Next, we expect to complete the rollout of our new order taking, menu and service offerings for takeout and delivery over the next several weeks.

We have reconfigured our takeout menu to be easier to select the right menu items and appropriate quantities for large parties at an even more compelling value. We've also re-engineered our online ordering interface to simplify what can be a daunting challenge for the non-professional, i.e., mom or dad.

As many of you probably saw, last week we announced the delivery partnership with DoorDash. DoorDash is one of the leading on-demand delivery platforms today as it serves more than 500 cities nationwide with lunch, dinner and late night delivery.

As a result, guests at 64 of our restaurants now have access to our entire menu of food and beverages that can be delivered directly to their doorstep as late as 1:00 AM. And just to remind everyone, we're starting from a relatively low level in regards to off-premise sales compared to the industry.

Today our off-premise sales average about 5% of our total sales compared to the overall casual dining industry, which is closer to 10% or 11%. As such, we believe there's a tremendous opportunity for us to build this part of our business.

We're also working with a number of other delivery partners to maximize geographic coverage across our restaurant network and to cultivate our learning in this developing space.

We have strategically taken a deliberate approach to this sizable takeout and delivery opportunity in a manner which our current proprietary online and app ordering guest interfaces are integrated with the new portals being developed by the world of third-party delivery entities.

Said another way, if a guest orders from our website or app, their order will automatically be transmitted to a third-party delivery entity and then delivered. New guests not familiar with our brand or our online ordering capability can discover us on these growing third-party portals, which will help us expand our overall new guest trial.

While I believe our top line initiatives I just discussed are the right ones, we're not resting complacently in the face of these tall industry challenges. We continue to what we call innovate and evaluate.

Innovate to create new ways to further differentiate our concept and evaluate to ruthlessly measure and test our way to become even better restaurateurs. We will utilize our three biggest advantages to succeed in these pursuits.

First, we have one of the best concepts in our space as is evidenced by our exceptional restaurant traffic and sales level, in addition to our new restaurant volumes and strong overall four-wall economics.

We are driving our contemporary positioning by the food we serve from our compelling and growing enlightened offerings to our slow roasted prime rib, through our app, online and in restaurant ordering technology and lastly by the cutting edge new restaurant openings reflecting guest trends in terms of bar design, as well as large group and community dining among other design features.

Secondly, our solid balance sheet has allowed us to drive impressive new restaurant growth, invest in new sales building initiatives and return capital to our shareholders in the form of stock buyback.

As I look forward, although we won't firm up our development plans for 2018 until later this year, in these market conditions I would expect us to continue to take a conservative position on new restaurant openings. While we know there's an opportunity at minimum to double the number of BJ's Restaurants, we'll do it at a prudent pace.

Deploying our best operating personnel to drive sales in existing restaurants by continuing to improve our execution and guest satisfaction is our top priority and one which we can bring the most immediate value to our shareholders.

We're also committed to taking advantage of our ongoing cash flow generation to remain opportunistic around buybacks at value levels we believe deliver and evaluate solid shareholder returns.

We will continue to redouble our efforts to drive our cost efficiencies throughout our company, something we have a strong track record in doing in order to minimize overall pricing and maximize our ability to invest in our business.

Lastly, our third and most important competitive weapon are the BJ's team members at our restaurants and our support center who every day are submitting killer ideas, as we call them, to suggest how we can be better, those whose passion is to serve our guests an amazing experience at an amazing value. Without them, our best strategies are worthless.

They ultimately execute the food and service that has made BJ's a leading growth concept in casual dining for many years. So now I'll turn the call over to Greg Levin to give a financial recap of the second quarter and some commentary on the rest of the year.

Greg?.

Hi. Thanks, Greg. As Greg Trojan mentioned for the quarter, our revenues increased 6.2% to $265.8 million. Our sales increase reflects a 9.7% increase in total operating weeks and that's partially offset by a decrease in our weekly sales average of about 3.2% or so.

Our comparable restaurant sales decreased 1.4% for the quarter compared to a negative 0.2% in last year's second quarter. As we noted in today's press release, we started the quarter with solid sales and finished April with positive comparable restaurant sales. However, the trends in mid-May softened and continued through June.

From a geographic standpoint, the softening trend was pretty widespread and was not the result of one region or geography. During the quarter our comparable restaurant sales were comprised of approximately 2.8% of average check growth consisting of menu pricing of about 3% while traffic was down about 4% for the quarter.

Cost of sales for the quarter were pretty much in line with our expectations at 26.2%, or about 120 basis points higher than the year-ago quarter. The increase from the prior year was primarily due to increases in commodity costs, menu mix related to the new slow roasted items and daily Brewhouse Specials and higher discounting from a year ago.

As we mentioned on the last call, our new slow roasting items generally have a higher cost of sales percentage but generate more gross profit dollars to offset labor and operating and occupancy costs.

For the quarter we have seen some continued pressure in seafood and produce primarily avocados resulting in an increase in our commodity basket of around 1.8% or so quarter-over-quarter from the prior year. Labor of 35.4% for the second quarter represented 110 basis point increase from the year-ago period.

The majority of the increase was due to higher hourly labor, both in the kitchen and in the dining room due to the investments we made in hourly labor in the second quarter to rollout our major sales building initiatives, coupled with higher hourly wage rates in the 4.5% range, plus the de-leveraging impact related to the comparable sales decline.

Our operating occupancy costs increased by 60 basis points to 20.6% from last year's second quarter and this was again in line with expectations and due to the lower operating leverage related to the Q2 comparable restaurant sales. Included in operating occupancy costs is approximately $5.3 million of marketing spend, which equates to 2% of sales.

Excluding marketing, operating and occupancy costs in the second quarter averaged approximately $20,000 per restaurant operating week, which was consistent with last year's operating and occupancy cost per week.

Our general and administrative expenses of $14.2 million decreased by 20 basis points compared to the same quarter last year to 5.3% of sales. Second quarter G&A came in lower than anticipated primarily due to lower incentive compensation.

Depreciation and amortization was approximately $17.1 million, or 6.4% of sales and averaged about $6,800 per restaurant operating week, which is slightly lower than recent trends. Our pre-opening expenses were $1.3 million and were primarily related to the cost of opening four restaurants in the second quarter.

Our tax rate for the second quarter was about 16.5% and was lower than expected resulting from the lower than anticipated pre-tax income.

As we noted in today's release, we incurred a non-cash pre-tax net charges of approximately $1.4 million during the quarter, or $0.05 per diluted share related to the write-off of the remaining net book value of convection ovens and point of sale terminals following the recent rollout of our new slow roasting ovens and server handheld tablets.

Excluding the impact of these charges, non-GAAP adjusted net income and non-GAAP adjusted diluted net income per share were $10.7 million and $0.49 respectively. In terms of capital allocation, we continue to use our strong cash flow from operations to execute our national expansion plan while opportunistically repurchasing shares.

Total capital expenditures through the first six months of this year were approximately $45 million and we continue to expect our gross capital expenditures for fiscal 2017 to be in the range of $80 million to $85 million. This CapEx will cover the construction of 10 new restaurants, as well as maintenance CapEx and our sales building initiatives.

During the second quarter, we allocated approximately $2.9 million towards the purchase of 73,000 shares of our common stock.

Since the authorization of our initial share repurchase program in April 2014, we have repurchased and retired approximately 8.3 million shares of BJ's stock for approximately $322 million, a reduction of approximately 25% in shares outstanding.

As of the end of the second quarter, we had approximately $78 million available under our current authorized share repurchase program. With regard to liquidity, we ended the second quarter with approximately $23 million of cash and $173 million of funded debt on our line of credit.

Our line of credit is for $250 million and provides us the flexibility to continue our restaurant expansion program and fund our sales building initiative while returning capital to shareholders. Before we open up the call to questions, let me spend a couple of minutes providing some commentary on the outlook for the remainder of 2017.

All of this commentary is subject to the risks and uncertainties associated with forward-looking statements as discussed in our filings with the SEC. With respect to sales, Q3's run rate is off to a better start than our May and June trends. The movement of July 4 to Tuesday this year resulted in a very slow first week of July.

In fact, Wednesday, July 5, the first day of the third quarter for us and Thursday, July 6 were negative 20% and 8% respectively. However, we rebounded and finished the first week of July with negative comp sales of 4%.

We then saw an improvement in sales in the second and third week of this month with the second week sales being down 1.7% and our sales in the most recent week are up a positive 0.5%.

As a result three weeks in, our sales are down approximately 1.7% but on a trend basis, taking out the first two days of the new quarter, we are trending closer to negative 1%.

While our current sales trends appear to be moving in the right direction and we're pleased with last week's sales, we are still seeing the initial pause results from the initiatives we put in place to drive our sales over the medium and longer term, I would still suggest that for those building models take a conservative approach given the choppiness we have seen from consumers over the year.

Additionally during the third quarter, I'm expecting about 30 basis points negative hit to comp sales in Q3 related to the McGregor/Mayweather fight on Saturday, August 26. This is based on the impact our business saw in Q2 2015 from the May 2, 2015 Mayweather/Pacquiao fight. As we have said before, BJ's is a great place to watch sports.

However, we are not a sports bar and do not rely on sporting events to drive our business. We are a family friendly, higher quality, casual dining business first that is a great place to watch sports if the guest chooses. As such, we have never shown pay-per-view fights, neither boxing nor MMA in our restaurants.

In regards to restaurant operating weeks for the second (sic) [third] (22:51) quarter, I would expect approximately 2,520 weeks marking an approximate 8.5% increase from the 2,320 weeks in last year's Q3. Moving on to the rest of the P&L, based on where sales currently are trending, we expect to see increased food and labor costs.

Specifically, I would continue to expect cost of sales to be in the low 26% range as our teams continue to get up to speed with the new menu items as well as the fact that these new items are more protein centric and, therefore, have a higher cost of sales percentage but also a higher check average resulting in greater gross profit dollars.

With regard to labor, I continue to expect about 20 to 30 basis points in training labor related primarily to the server handhelds as our team members become proficient with this technology.

As Greg Trojan mentioned, generally after about four to five weeks our restaurants ramp up their proficiency with the tablets and begin adjusting their staffing models accordingly. We also continue to expect to see hourly wage pressure in the 4.5% range.

Therefore, based on sales trends to-date plus the additional training costs for our sales building initiatives, I would expect labor to again be in the mid-35% range for the third quarter. We are targeting operating and occupancy costs in the low to mid-22% range, which includes $5.4 million in marketing spend.

This marketing spend will be higher than last year's $4.3 million, which equated to 1.8% of sales last year. Please remember that both labor and operating and occupancy costs as a percent of sales is highly correlated to weekly sales averages and comparable restaurant sales growth.

Our G&A expenses for the third quarter should be around $14 million, as we expect lower incentive compensation for the rest of the year. As such, total G&A for fiscal 2017 will be closer to $57 million.

Pre-opening costs should be approximately $900,000 for the third quarter based on two planned new restaurant openings plus some pre-opening costs for restaurants that are expected to open later this year. I'm expecting our tax rate in the third quarter to be in the 24% range and diluted shares outstanding to be in the $22 million range.

As we look to the back half of 2017, we believe our experienced team and sound strategic plan, focus on sales building initiatives, margin growth, productivity gains and appropriate restaurant expansion will help us overcome the challenges impacting the overall industry.

While early, our sales building initiatives are clearly beginning to deliver their anticipated benefits despite the temporary impact to operations.

We've also demonstrated prudence, discipline and long term vision in the current environment by tempering our restaurant expansion program, which has allowed us to better capitalize on the potential of our new oven, menu, handheld and delivery initiatives.

With our ongoing commitment to delivering higher-quality foods, service and hospitality to our guests, BJ's already strong concept and brand is growing stronger.

With our constant focus on quality menu options, a dining experience that exceeds guest expectations for service, hospitality and enjoyment and in an atmosphere that is always welcoming and approachable, BJ's has always weathered challenging periods while remaining focused on building shareholder value.

While our approach this year is somewhat differentiated from the past, we are taking every measure available to us to overcome the current industry headwind and remain confident that our restaurant level success will translate into new long-term growth. That concludes our formal remarks. Operator, please open the line to questions..

We'll go first to Will Slabaugh with Stephens..

Yes. Thanks, guys. Wondering if you could expand on the comment you made around things softening in mid-May and into June.

Is there any other sort of macro data points you could point us to or any other sort of color just around what you saw either in mall-based properties or other restaurants that happened once we got into that period?.

Yes. Looking at the data and taking a close look at it maybe versus April let's say and even March where the trends were, I think we saw more of a softening in the middle part of the week around lunch and middle week overall in regards to kind of the comp sales.

But it didn't seem very geographic specific as I mentioned in our formal remarks in that regard.

As Greg Trojan mentioned and we kind of mentioned a little bit on the call, I think with the slow roasted items that tend to have a little bit more of a weekend plan to them that helped drive that part of our business, getting a little bit greater average check growth from that.

I would say if you look at the business year-over-year, we probably were a little bit more lunch marketing last year but that was all through the first and second quarter of last year with our Piadinas and some lunch promotion. And by the way, that did go through like end of Q1 last year into all of Q2.

So it was interesting to see it kind of happen mid-May. There was obviously a little bit of a calendar shift. That mother's day moved to week two of May this year versus week one of last year. We also had Cinco de Mayo move to a Friday but all that's kind of at the first part of May.

So our only conclusion looking at it was not mall versus free-standing dependent but really more of a slowdown in the Monday through Thursday traffic. Lunch seemed to be a little bit slower than dinner..

Got it. Thanks for that. And as far as the color you give quarter to-date, which we always appreciate, it looks like your comparison gets easier throughout the quarter.

So I don't know if you could remember the commentary maybe from last year around if it eases sort of as the quarter goes along or if maybe there's a month that's easier if there were some shifts maybe that caused that comparison to ease last year..

Yes. Last year I think really September for us, which we called that out specifically on the call, was a very soft month for us. Some of the things we saw last year specifically, which I think is beneficial for us in that regards is you did have the Olympics that were in prime time here on the West Coast.

You had the political events going on last year, whether it was the conventions, which seemed to play a little bit more on the West Coast as well. And as a result it does get easier from a year-over-year comparisons going through the quarter.

But specifically for last year, September was a real challenging quarter for us and was the softest of the period and we generally don't comment on individual comp sales period-by-period but we did mention that last year we saw a softness in September that kind of drove the overall Q3 of 2016..

Got it. And one more quick one if I could. Just curious on the last few weeks and not to read too much into just a couple weeks of data, but I think they've been getting just a little bit better.

Does it feel like the consumer is acting more "normal" a little bit less week-to-week and day-to-day volatility or there's anything else to call out there?.

It's tough to say in a matter of a few weeks, Will. What we know is helping a bit is remember if all the sales initiatives we're working on here, time is our friend as they really are in place to impact the business.

If you think about Q2, really the one that was more in place than not was the introduction of the slow roast products, which were very successful in terms of driving check, right. But all the other ones are really just getting to a point where they should be impacting the top line. So it's certainly our hope.

It's tough to control what the consumer is doing so we can more control that we're executing those initiatives well and having them start impacting the top line more significantly than they did in Q2..

Great. Thanks, guys..

You're welcome..

We'll go next to Brian Bittner with Oppenheimer & Company..

Hi. Thanks. It's Mike Tamas on for Brian. Just wonder if we could talk about all the sales building initiatives that you're doing.

When do we get to see some of the profit flow through from that? In other words, the training costs, are those constrained to the third quarter? Will we get to see some benefit in the fourth quarter? Does that kind of get pushed to 2018?.

Mike, I'll take some of that. I think Greg will talk to it as well. As we kind of mentioned in today's call, we rolled out a lot here in the second quarter.

And, obviously, as we mentioned, that makes it always challenging in regards to leveraging that part of your business when you're training things like handhelds, you're training the slow roasted items, et cetera, from that standpoint and as we're rolling out the delivery and training all of our team members. The majority of that is behind us now.

So it should start to flow through really in getting into Q3 and really into Q4. But, frankly, at the end of the day, we want to make sure we're executing at the highest level so when guests come in, they have a great experience. But you've got to train and you've got to put those things in place.

As much as we'd all love it to work on a one-for-one basis, it sometimes doesn't work that way. And that's why we always talk about these being investments into our business. But ultimately, things like the slow roasted oven are in place now. We've gone through that training and will continue to get better and better on it.

We still got a little bit of a handheld to go. But the things that we're seeing on our pace (33:05) score is coming from our NPS, from our Net Promoter Scores, all look better from there and we should start to adjust from that. So I think mostly, as we start to get into Q4, we'll be able to leverage those things better than where we were in Q2.

Frankly, even better than where we are in Q3. Like anything, you get your sea legs over time and we're getting our sea legs there. But these are investments that we are making into our business to drive the long-term sustainability of BJ's. And, frankly, nobody out there can do prime rib and what we call large format proteins like we can.

That really differentiates us and puts us, I believe, in a different level going forward..

Mike, the only thing I'd add to that is I don't know if the underlying your question is are you – we want to make sure it happens, that these actually are successful from a top line perspective. But when they are, they will drive incremental profitability. There's not a margin overriding concern in my mind on any one of these initiatives.

Some of them add margins, like slow roast should help us leverage and some are lower. But incrementally, if they're driving top line, given our cost structure, we'll leverage the fixed cost in our business. And if they produce the sales, we'll flow through the profit..

Awesome. Thanks. And then just really quick just a clarification.

You said that the comps quarter to-date, excluding some of the first week negativity, would have been down 1% and it's actually down 1.7%? Is that right? So 70 basis points?.

That's correct..

All right. Thanks very much, guys..

You're welcome..

You're welcome..

We'll go next to John Glass with Morgan Stanley..

Hi. This is actually Brian (34:45) on for John. Just a quick question. You had mentioned that pricing was 3% but ticket was only 2.8%. So, I mean, you had talked about how the slow roasting was mixing in more.

Can you just talk about the dynamic that's driving that negative mix with slow roasting come online?.

Yeah. No, that's a great question because there were some bigger moves than normally on check. So it's worth understanding.

Keep in mind before we get to some more of the details, the strategy behind balancing of these initiatives is to take the advantage of check growth on slow roast and invest some of that back into our Brewhouse Specials and (35:40) to be more promotional as we see fit.

And that's really what happened in the quarter is – as I look at it we really had net pricing of a little over 1% and the increase in discounting and Brewhouse Specials took us down from that nominal pricing level of about a little over 3% to the a little over the 1% range.

And then slow roast and some of the other menu work that we've done around beverages and size had a very meaningful upside to that number to help in effect subsidize some of the investments in value there..

Got you. Okay. Thank you. And then, I guess, two things. First, kind of you had mentioned that you were trying to maybe switch the messaging away from the premium so that you're not scaring away that traffic.

How are you going to change that messaging moving into the 3Q to kind of promote some of that traffic coming back?.

I wouldn't really describe it as switch. What I was just trying to point out there, Mike (36:51), is look, we've launched a whole important new platform that we think is really significant from a differentiation perspective and it made sense to talk about that, right.

And listen, given our limited marketing resources from a dollar perspective is we've got to stay pretty much on message the bigger news of the quarter, right, and that was really these new slow roast items. And even though a lot of our messaging had a promotion attached to it, it's just not the same.

It's not as effective in our mind in terms of having a lower priced item attached where the deal really signals value. And at the extreme, we're talking about prime rib, which gets really high value scores but nonetheless it's a significantly higher price point for us.

Even though there's a deal attached to it, it's not screaming value to that price point sensitive guest the same way as an $8.95 Piadina plus a $10 off $35 coupons together is at the end of the day a more powerful overall value message. So it's not a sea change for us.

It was frankly, these slow roasted items, I wouldn't say that they sell themselves, but we're very encouraged the mix that we're seeing there.

And as we move to I would say more of the traditional combination of value messaging of product and price point and deal that that will help us attract that more value conscious consumer at the end of the day..

All right. Thanks. And then just last one real quick. You've given in the past what percentage of your sales are on discount.

Would you be willing to give that?.

I think for the quarter we were somewhere around 10% or 11% of check that had a discount on them or had a deal on them. I don't have that in front of me, but I think that's what the number was..

That's right..

All right. Perfect. Thanks very much..

Okay..

We'll go next to Jeff Farmer with Wells Fargo..

Thanks. Good afternoon, guys. Greg, I think you said you had seen roughly 4.5% wage rate inflation in the quarter. I think that's a – couple of quarters you've seen that level of wage rate inflation.

Any reason to expect that that might moderate as you move into 2018 and get a little relief from that?.

I think, Jeff, it's a great question. By the way, nice article on the wage rate inflation that you wrote as well. As I think about going into 2018 versus where we are this year, a lot of it's still being driven by the kitchen and not necessarily entirely minimum wage from that standpoint.

However, you do get the compression as minimum wage hits higher numbers, the people in kitchen or non-tip positions want to see some of that increase, and that's what we're experiencing. As I think we go into next year, I think it will come down a little bit.

We're not seeing quite as large of an increase in certain areas as we saw beginning in this year with some of the big hits, but I still think wage inflation is going to be challenging within the industry until restaurants overall maybe slow down growth a little bit. And I'm not sure we're entirely seeing that.

I think we are in certain areas but I still see a lot of new restaurants coming on the pipeline, especially more kind of maybe independents that have unbridled enthusiasm towards what their business can do..

Okay. And then it looks like your debt level did fall a little bit in the quarter. But your leverage ratio looks like it was roughly flat, but still near a peak level.

Just curious how should we be thinking about your leverage moving forward or your willingness to use the balance sheet to potentially pursue share repurchase with the share price at this level?.

I think there's a couple things out there, Jeff. One is, as we look towards the back half of this year, we've gotten through most of our major sales-building initiatives that were probably more capital-intensive on our business, whether it's the slow roasted ovens or the handheld devices.

We have three more restaurants to build this year, and as we continue to evaluate our pipeline for next year, I tend to think that we're going to be generating more cash in the second half and going into next year. That gives us more flexibility to go out and buy back shares, if necessary, if we think that's the right call for our business.

So I think we have some flexibility there. We're at somewhere in the neighborhood of 1.5 times or so on a debt-to-EBITDA standpoint. And I still think there's flexibility there, especially knowing that we're going to be generating cash in our business in the second half. So we'll continue to be opportunistic as we think the timing's right..

All right. Thank you..

You're welcome..

We'll go next to Matt DiFrisco with Guggenheim Securities..

Hey, guys. Thanks for taking my call. This is Jake on for Matt. Just a quick one. I don't know if you'd be able to quantify kind of the playoff from this quarter as opposed to same quarter last year with San Jose missing the playoffs and then two less NBA finals games. And then a quick follow-up..

That's tough for us to do. I mean being an NBA fan in particular, I think until the finals, in general, there was a lot less suspense and enthusiasm through the series with so many sweeps. We would like to have seen more engaging series leading up to the finals for sure..

The other thing, Jake, and you mentioned San Jose. I gather you're a hockey fan, like Matt, your partner there, from that standpoint. I do know our operators complained about it that work in the Northern California area, basically said last year we had the Sharks going further, et cetera. And that really helped us. We don't have it quantified though..

Okay. Great. Thanks for that. And then just lastly real quick. If you could kind of provide some color on the pace of your roll-out for delivery.

Does it almost become exponential in the next few years? Or are you guys going to take a more methodical approach to it?.

Well, look, the good news is we've been working on this for quite some time and the marketing of our newfound delivery capability in a lot of our restaurants is just getting started, right. So we're in, Greg, I think just a little over 100 restaurants with some form of delivery capability at this point.

So the growth is going to come from A, marketing that capability and over time creating awareness around our ability to deliver. And also, by the way, we think just as large an opportunity is to tell people about our compelling carry out and big catering large takeout business.

So it's not just delivery but in both of those cases it's a matter of building awareness, trials just like the rest of our businesses, and with our menu and breadth of our menu, we think we're really well-positioned.

So it's both, so it's sort of like the development pipeline is new unit growth in terms of getting more restaurants online and through the expansion of our third-party delivery partners, that will happen, so we'll be closer to our full network over time given that we're only at 100 restaurants right now.

But really the most important growth is on a comp sales perspective per restaurant as we market our capabilities there and with our partners execute well, we think those sales will continue to grow for several years. I mean we're not going to make up a gap between 5% to 10% in six months.

But we think it can start to be a meaningful driver of comp sales for us as we go across that and shorten the gap between us and the industry there..

Okay. Great. Thank you, guys..

Thank you..

And we'll go next to Mary McNellis with Robert W. Baird..

Hi. Good afternoon. Thanks for taking the question.

Just coming back to the trends you've seen here in early Q3, do you have any sense of whether the improvement you've seen in the last two weeks or so has been driven by something company specific, perhaps some of the benefits of your sales drive and initiatives starting to inflect or whether the industry has been seeing a similar trend as well?.

The only thing I can tell you is we are seeing a change versus our comparisons to the industry in the last few weeks so, look, it's only a couple weeks. So we are hesitant to draw any conclusions there, but there are some indications that it's our initiatives given our performance relative to the industry..

That's helpful. Thank you. And just one quick follow-up.

When you think about all the initiatives, the slow roast ovens, server handheld value, off-premise, which of those do you think is going to be most impactful as you sort of drive back towards flat traffic moving forward and as you kind of stack those up, which do you think will be most important?.

That's strategically doing different things. So it's a difficult question to answer. And it's also relative to the timeframe of if you're talking about a couple of years or the next six months, but in general I'll comment on a few of them.

Just one reminder again is in terms of those weapons helping drive sales, really slow roast is the only one that was fully engaged, if you will, right. So, I think if you just really look at the numbers of the industry on a pure quantitative basis, it's the off-premise part of the business.

If you look at it from a guest satisfaction what's going to make the biggest difference, you could argue our handheld and speed of service is going to have the biggest impact because our fundamental – I think consumers have less patience than ever before, less time during lunch.

And if we can close that gap and make a dining experience at BJ's speedier and we know already it's helping our guest scores, over time that could be as impactful if not more. I mean, it's tough to say.

But if you just look at the gap of channel, the channel opportunity we have in off-premise, that's probably the easiest to quantify and would result in the largest number..

Okay. That's helpful. Thank you very much..

Okay..

And we'll take our last question from Brian Bittner with Oppenheimer & Company..

Hey, guys. Thanks for the follow up. Just a quick question on the gap from average weekly sales to same-store sales. I think it was about 1.8%, which is fairly consistent with what the first quarter was, but I thought it was supposed to kind of get better from here.

So I was just wondering any thoughts on that? Is there anything to read into that? And how do you think that trends in the back half of the year?.

Yeah. Great question. I was myself a little surprised on that and what I realized as we look at the data is, our quarter this year ended on Tuesday, July 4.

So you had that July 4 week in there versus last year it ended on Tuesday, July 8, and what I ended up noticing looking at the difference between those two weeks through July 4th week is a slow week for us. People do barbecues, they go to the beach, they go on vacation and that's worth about 30 to 40 basis points in our weekly sales average.

So your 1.8% would compress probably down to 1.4% or 1.5% in that regard. Still a little bit higher than where I was expecting in that regard, but that was the big difference on it. It was really the fact that we ended July 4 versus June 28 a year ago..

Got you. Okay. And so for the rest of the year you think it's probably more normal than 1 8%-ish, right..

Yeah. I really do..

Okay. Perfect. Thanks, guys. Appreciate it..

You're welcome..

That concludes our question-and-answer session. And that concludes our call for today. Thank you for your participation..

Thank you, everyone..

Thank you.

Operator, are we off?.