Good day, and welcome to the BJ’s Restaurants First Quarter 2019 Earnings Release and Conference Call. Today’s conference is being recorded. At this time, I’d like to turn the call over to Mr. Greg Trojan, Chief Executive Officer. Please go ahead, sir..

Thank you, operator, and good afternoon, everybody. Welcome to BJ’s Restaurants fiscal 2019 first 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 President and Chief Financial Officer.

We also have Kevin Mayer, our Chief Marketing Officer and Greg Lynds, our Chief Development Officer on hand for Q&A. After the market closed today, we released our financial results for the first quarter of Fiscal 2019, which ended Tuesday, April 2nd. You can view the full text of our earnings release on our website at www.bjsrestaurants.com.

Our agenda today, we’ll start with Rana Schirmer, our Director of SEC Reporting, providing our standard cautionary disclosure with respect to forward-looking statements.

I’ll 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 balance of 2019, 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 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 April 25th, 2019.

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. While the start of the year was characterized by an unusual level of weather disruption our Q1 comparable sales of 2% and positive traffic of 0.7% continued our impressive trend of materially outpacing the industry and continuing our methodic share capture in every one of our major markets.

Measured on a calendar year basis, our sales outpaced the competition as measured by Black Box by a 180 basis points and traffic by 280 basis points. We have now outperformed Black Box sales over the last 21 months on average by 290 basis points and 260 basis points per period in traffic. We’ve also grown our guest counts in 19 of the last 21 months.

While restaurant level margins declined from last year’s levels, I’m encouraged that thanks to the excellent group (3:25) work of our operators. We were able to control our costs in the face of continued labor pressure and lower sales and average check growth in we were planning.

Enabling us to deliver results that exceeded our expectations for total revenue comp sales, net income and per share earnings. One of our goals for 2019 is to drive 2.5% to 3% check growth through effective menu mix, prudent discounting and nominal pricing.

We believe that check growth in this range should enable us to roughly maintain our restaurant level margins and leverage our company level G&A and other fixed costs.

As we indicated on our Q4 call, we started the year below this 2.5% to 3% average check target, as our promotional discounting came out of the gate a bit harder than we anticipated, due to the enthusiastic guest redemption activity on our loyalty rewards, coupled with some higher check rates on several of our offers.

Since then, we’ve seen a marked improvement on guest check growth. In March, our sales actually benefited from lower overall discount rates than a year ago. Largely as a result of modifications we made to our marketing and promotional calendar.

Most notably, we chose to market our Brewhouse Specials in our TV, digital and loyalty messaging, in lieu of more traditional, deeper discount offers and we are still able to drive positive guest traffic for the month.

This is a good example of how we can use our loyalty program, our Brewhouse offers to drive traffic and sales, yet moderate our net discounts. As always, our menu initiatives are a big part of our average check and traffic building strategies and we continue to be successful on this front.

We recently followed up our tremendously successful launch two years ago of our initial slow-roast proteins. With the introduction of tri-tip sirloin entrées and combination plates. Along with a Philly cheesesteak sandwich and Tri-Tip Sliders.

While we’re only about six weeks into our launch, these items have been greeted with incredible enthusiasm by our guests and restaurant team members.

Our order incidence levels are exceeding our expectations and provide another opportunity continue to – for us to continue to differentiate our food quality advantage, while leading to productive check growth as well. Another key traffic and checking initiative is the work we continue to do to keep our off-premise business growing.

We set an all-time high in Q1, as off-premise made up 10.1% of our sales. For those of you who have followed us over the past several years now, we started our off-premise journey with about 5% of our sales coming from delivery and takeout. We established 10% as our initial goal consistent with about the average industry penetration level at the time.

Since then we’ve seen leaders in this space achieving about 15% of their sales in these channels and we see no reason BJ’s can’t achieve similar levels over the next few years. Our current initiatives to grow our large party and catering off-premise business are critical to achieving this goal.

We see this as an opportunity to tap into a new guest occasion and category, as well as another important way to grow our average check and profitability. Our June large party channel launch should start to deliver another off-premise boost in the second half of this year.

Progress on these top line growth initiatives is critical to our ability to continue to offset the wage and labor availability pressures we are facing.

However, at the same time, we remain equally committed to looking inwardly to continue our Project Q journey to simplify our operations and optimize our efficiency and make BJ’s an even better place to work. In the past few years, we have made important strides by reducing menu items and changing many prep and line cooking procedures along the way.

This month, we began to roll out of our Gold Standard Kitchen Systems initiative. This effort is focusing on how we organize, set up and prep our kitchens for successful shift execution.

We’ve evaluated every aspect of our kitchen value chain from how and what food, when supplies we order, our order quantities, to how we physically receive and store, to who and when we perform prep for our kitchen lines.

While maybe not as attention grabbing as some of our new menu introductions or marketing campaigns, I think it’s as important as anything else we are accomplishing this year.

This will improve our fundamental kitchen operations and perhaps more importantly will enable us to retain our best kitchen team members, as it makes our kitchens even better places to work.

As we continue to seek ways to improve our ability to attract and retain the best restaurant professionals we can, it continues to be clear how important our organic growth is to our new and our veteran team members. As a result of our growth, they know they have a great opportunity to grow their careers in almost unlimited ways.

Our track record of opening new restaurants and the large remaining wide space to grow our concept speak for themselves and are a resounding advantage we have, compared to most other casual dining companies we compete against.

The 15 restaurants that we’ve opened over the last two years, all of which are outside our core California, Texas and Florida markets, are averaging approximately $5 million in annual sales right now. This gives us a great confidence as we continue on our road to 425 plus restaurants.

While the cost pressures facing our business and our fellow competitors are real, our focus is to drive traffic and check in a way that does not hurt our tremendous value equation, and in fact keeps strengthening it.

We have the right momentum and initiatives to get there and are fortunate to have 22,000 dedicated team members, who work every shift, every day to deliver the guest experience in our restaurants to make that happen.

We have supreme confidence in our concept and we have the right balance of initiatives and a still large untapped opportunity for years of further expansion.

Now on top of all these strategic and operational pillars, we have very low financial leverage and a balance sheet that allows us great flexibility to deliver value to our shareholders through a combination of our organic growth share buybacks and dividends.

Our board is confident in the success we are achieving, in executing our sound fundamental strategy, our consistent share gain progress and our outlook for growth. And as such, they’ve approved an expansion of BJ’s share repurchase program by $100 million.

In closing, I remain optimistic about the growing strength of our brand and our ability to utilize our ongoing learnings and collective experience of our team members coast-to-coast, to build greater value for our shareholders.

So now, I’ll turn the call over to Greg to add some detail on the quarter and further comment on the outlook for the remainder of the year..

Alright. Thanks Greg. Before we get into all the details of the quarter, let me remind everyone that as we noted in the press release today.

Beginning with Q1, we adopted Accounting Standards Update 2016-02, Topic 842 for Leases, which requires us to put the present value of our leased assets on our balance sheet, as a right to use asset with the corresponding lease liability.

The new lease accounting standard also required us to make a one-time non-cash cumulative adjustment to retain earnings for approximately $29 million of sale-leaseback gains that we were amortizing into occupancy and operating costs over the term of the existing leases, resulting in an annual increase in our operating occupancy cost per year of approximately $2 million.

As a result, this new accounting standard impacted our operating and occupancy costs by approximately $500,000 in Q1 or 20 basis points, and that equates to about $0.02 a share for the quarter. There is a reconciliation of that in the back of our press release today.

Accounting changes aside, we had a very strong quarter with all of our key performance metrics exceeding consensus estimates. Total revenues increased 4.3% to $290.6 million, driven by our 2% comparable restaurant sales growth and a 2.5% rise in operating weeks.

And as Greg Trojan mentioned, our comparable restaurant sales increase was driven by positive guest traffic of 0.7% and average check growth of approximately 1.3%. We have now driven positive guest traffic for six consecutive quarters.

From a monthly trend perspective, comparable restaurant sales improved throughout the quarter with March being the strongest month and we successfully hurdled last year’s first quarter comparable restaurant sales increase of 4.2%. Looking below the top line, our cost of sales was 25.2%, which was up slightly compared to last year’s first quarter.

The slight increase reflects the higher discounting that occurred in the first part of the quarter, which we discussed on our Q4 2018 earnings call back in February, in which Greg just mentioned on his update.

As well as we had some commodity cost increases and some menu mix, related to the continuing success of both our Daily Brewhouse Specials and in March our new tri-tip sirloin.

As expected, a labor of 36.2% for the first quarter rose 10 basis points from a year ago, due to higher hourly wages and investments in labor for the slow roasted tri-tip sirloin. These factors were partially offset by lower incentive compensation and taxes and benefits compared to the year ago quarter.

Hourly wage growth in Q1 was in the mid-single digits and I would expect it to be in that range for all of fiscal 2019. Operating occupancy costs increased 60 basis points to 21.2% from last year’s first quarter.

The increase was primarily related to higher delivery fees and maintenance costs related to our handheld server tablets, as well as the 20 basis points impact related to the new lease accounting standard that I reviewed earlier.

Included in operating occupancy cost is approximately $5.2 million of marketing spend, which equates to 1.8% of sales and is pretty consistent with last year’s first quarter. Excluding marketing, our operating occupancy costs in the first quarter averaged approximately $21,500 and that’s compared to $20,400 per restaurant operating week last year.

That increase was primarily due to the higher delivery fees, the maintenance costs and the accounting change. General and administrative expenses of $16.9 million, were within our expectations and increased by 40 basis points to 5.8% of sales compared to the same quarter last year.

Included in Q1 G&A is an approximate charge of $900,000 or 30 basis points related to our non-qualified deferred comp plan. Now without getting into all the details of deferred comp accounting, basically when the equity market goes up, as it did in Q1, we have an increase in our deferred comp liability and that gets recorded as a charge to G&A.

At the same time, we have a corresponding gain on the investments we own for the deferred comp plan and that is recorded in other income. Bottom line is the two offset and have no material impact to our business.

In terms of capital allocation, we continue to use our strong cash flow from operations to execute our expansion plan, while opportunistically repurchasing shares. Total capital expenditures for the first quarter were approximately $17.7 million.

And we continue to expect gross capital expenditures for fiscal 2019 will be in the range of $80 million to $85 million. During the first quarter, we allocated $11.9 million to the repurchase of approximately 250,000 shares of our common stock.

We have now repurchased and retired a total of approximately 10 million shares of BJ’s stock for approximately $390 million, since the authorization of our initial share repurchase program in April of 2014.

And as Greg Trojan mentioned, and we noted in our press release today, our Board of Directors approved a $100 million increase in our share repurchase program, giving us approximately $110 million available under our current share repurchase authorization.

During the quarter, we also returned an additional $2.6 million to shareholders through our quarterly cash dividend. With regard to liquidity, we ended the first quarter with approximately $25.7 million of cash and $102 million of funded debt on our $250 million line of credit, which is in effect until November 2021.

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 fiscal 2019. All of this commentary is subject to the risks and uncertainties associated with forward-looking statements as discussed in our filings with the SEC.

For those that follow BJ’s, I’ve always said that March and April are the toughest times of the year to determine the trends of the business. These two months are always impacted by the shift of spring breaks, Easter and tax refunds, as well as the possibility of a late winter weather.

That being said, our sales initiatives that Greg Trojan reviewed, continue to drive positive comparable restaurant sales for BJ’s and to-date in Q2, our comparable restaurant sales are up in the mid-1% range.

However, in trying to identify underlying trends, the first week of April was flattish for us and that was going up against some earlier spring breaks from a year ago and then the last two weeks, which were pre-Easter weekend, we were trending in the positive 2.5% to 3% range.

Obviously, Easter eve and Easter Sunday were negative days for us and therefore pulling out these two days, our comp sales for April to-date would be in a 2.5% range.

Therefore, trying to come to conclusions from all of this, it appears that our underlying comparable restaurant sales trends continue to be in the mid-2% plus range, which is on top of the comparable restaurant sales increase of 5.6% in the year ago second quarter.

With regard to restaurant operating weeks, we are looking at approximately 2,652 weeks in the second quarter. Moving onto the rest of the P&L, I would expect cost of sales to be in the low to mid-25% range for the second quarter.

This is up slightly from Q1 as we have seen increases in commodity items, specifically avocados and we are anticipating some increases in pork. Additionally, like two years ago, when we rolled out our slow roasted prime rib, we expect there to be some pressure on cost of sales from the success we are having around the tri-tip sirloin.

Like our prime rib , the protein-centric tri-tip sirloin specials have a higher cost of sales percentage, but also generate a higher average check resulting in greater gross profit dollars. Also, in Q2 we tend to have a higher menu mix for the celebratory time frames around Mother’s Day in May and Father’s Day and graduations in June.

Right now, we have locked in about 60% of our commodities for fiscal 2019. With regard to labor, I continue to expect total labor to be around 36% for the full year. Specifically in Q2, I would expect labor to be in the mid-upper 35% range.

As Greg Trojan mentioned and we note in the press release, our new kitchen systems are being implemented in all restaurants in the second quarter. As I mentioned on last quarter’s call in February, to get this implemented in our restaurants, I expect each restaurant to invest about 125 hours in training.

I would then expect some additional learning curves for these new systems over the following several weeks, taking us through the end of the second quarter. We are targeting operating occupancy costs in the low 21% range for Q2 and that’s going to include $7 million in marketing spend.

In last year’s Q2, our marketing spend was only $5.4 million, which equated to approximately 1.9% of sales. The increase in marketing in Q2 of this year is primarily for increased media, specifically TV in Los Angeles, as well as some increased digital to help launch our new large party catering offers.

However, for the year, our total marketing spend will still be in the low to mid-2% range and this is consistent with the last several years. The Q2 increase is really just a shift around quarters to message our specific initiatives.

Please remember that both labor and operating and occupancy costs as a percent of sales are highly correlated to weekly sales averages and comparable restaurant sales growth. Our G&A expense for the second quarter should be in the low $16 million range, as we expect total G&A for 2019 to still be around $65 million or so.

Pre-opening costs should be around $1 million for the second quarter and that’s based on two planned new restaurant openings, plus some pre-opening costs for restaurants that are expected to open later this year.

I expect our tax rate in the second quarter to be in the 10% range and that should be more in line with our annual effective rate, unless there be any significant discrete items. Our diluted shares outstanding should be in the low 21 million range for the quarter as well.

In closing, our ongoing positive sales trends reflect the progress we continue to make in elevating the BJ’s concept.

We’ve elevated the awareness of our higher quality, highly approachable, polished casual dining position through strategic marketing and our concept is resonating well with consumers, as is evident by our six consecutive quarters of positive guest traffic and our continued positive comp sales to-date this quarter, despite the Easter calendar shift and going over a 5.6% comp from last year.

We are excited about the success of our new menu items and expect to become even more efficient in our restaurants as we roll out our new Gold Standard Kitchen Systems.

This focus on driving sales, while being maniacal on productivity and efficiency, combined with a balanced approach to new restaurant growth, are fundamental to our near and long-term operating success.

These factors coupled with prudent management of our capital structure and capital allocation policies that return capital to our shareholders is a proven formula for sustained long-term financial growth and a further appreciation of shareholder value.

We remain confident that the plans and initiatives we have in place have established a solid foundation for further success, as we continue taking market share in the casual dining space, further elevate the awareness and attraction to the BJ’s brand and concept, and pursue the still massive expansion opportunity before us.

This concludes our formal remarks. Operator, please open the call up for questions. Thank you.

Thank you. [Operator Instructions] We’ll take our first question from Alex Slagle from Jefferies..

Hey guys. Thank you. Just wondered if you could touch on the prior year second quarter day comparison, sort of what the cadence looked like on the same store sales last year in 2Q. It feels like you started off a little higher than the [indiscernible].

Just wanted to get an idea of how that played out?.

Yes, Alex, I would – and we don’t generally give obviously comps by each period. But I would tell you last year’s second quarter where we finished at 5.6%, each period last year, meaning April, May and June had comp sales all in the 5% range..

Okay. And then in terms of check growth in 2019, is there anything different about how you plan to build that 2.5% to 3% ticket versus how you did it in 2018? Whether it’s – the growth in catering I imagine is one piece and appetizer add-ons, maybe some of that picking up versus moderating growth in the slow growth, if that’s even the case..

Well, that’s the idea around the tri-tip launch, how to utilize this platform. Look, check growth in this environment is important, but as importantly in the medium to long run is we just think this is a high quality differentiated item, like our other prime rib and turkey and pork were a couple of years ago.

So – but that will be – we are seeing it start to help check from a mix perspective. A lot of it is really fine tuning the balance between our Brewhouse Specials and think of that as you know everyday low prices and our promotional spend and we got that dialed in a bit better as the quarter progressed.

So I think both of those are important elements, in addition to what you mentioned, is if we can get these larger tickets from an off-premise perspective with our large group catering offerings going, and that’s going to take some time and build from a pretty low base, but we think that as I said in my remarks, is really important part of tapping into, first of all, an important untapped market for us, even comparing competitively or particularly comparing competitively.

But again, another tool for us to grow check in a way that again doesn’t harm our value reality, much less perception, out there..

Thank you..

You’re welcome..

Thank you. And next we’ll go to Brian Bittner with Oppenheimer and Company..

Hi, thanks. This is Mike Tamas on for Brian.

You’ve talked about average check a bunch here and I know you don’t want to give exact guidance on this, but I’m just curious, do you expect to drive positive traffic for the full year?.

Well, hey Mike, this is Greg Levin. We always want to drive positive guest traffic; that’s just everything we do and what we put in place. So we might talk about something like tri-tip sirloin as Greg Trojan just mentioned.

We think it’s a differentiated product and we want that differentiated product to drive people into our restaurants, just as much as we want to have some average check.

And I think always in this business our goal is to drive traffic, as well as drive unique products that continue to drive traffic and the things we do around the marketing, from Kevin Mayer and his team are traffic driving initiatives. And ultimately we want to have that right balance there.

We even look at things like the catering as we just talked about here as one of our initiatives for later in the year. The fact that we have such a menu variety to be able to do whatever – a pasta bar to a pizza bar to frankly you could use tri-tip sirloin for catering.

All of those items gives us another channel to grow sales, which technically is traffic and we can use that both within our restaurants, because we do a lot of large party special events within our restaurants, as well as catering. So, the – I understand your question makes sense with regards to how we look at our business.

But everything we do is a combination of how can we drive traffic, as well as right now, in this inflationary environment, make sure we get an average check as well..

Great, thanks. And just one other quick one.

You talked about reducing discounting in the first quarter, is that something you plan on doing the rest of the year, more toward that everyday value versus discounts? And then if you start to see your sales slow down or the industry starts to slow a little bit, is it something you can or would pivot back to doing some more discounting, or how do you guys think about that for the next few quarters? Thanks..

Yes, in general, we generated a good benefit last year from – at the end of the day reducing our discounting from – particularly on a depth or dollar basis and a little bit on a frequency of deal basis. We look at it both ways. And I’d say, we look to this year as flat to slightly positive.

I don’t think we’ll see the same kind of tailwind that we had last year, since we made a lot of the adjustments, adjustments meaning emphasizing Brewhouse Specials and our loyalty, the value of our loyalty program to make that happen. So, yes, the bottom line is, we look at it to be flat to maybe a bit positive.

But as you mentioned, it all depends on how the market conditions shape up as the year goes on. It’s one of those things that we adjust and talk about every week, almost every day and we’ll see what the back half of the year looks like. But in general, our goal is what I mentioned there..

Great. Thanks guys..

You are welcome..

Thank you. And our next question will come from Will Slabaugh with Stephens..

Yes. Thanks guys. I had a question on delivery. Wonder if you could give us an update there, how that growth may have turned it in the first quarter versus prior quarters, and if you have any updated thoughts on either thinker mentality or broader delivery strategy with regard to partners or whatever else may make sense..

Yes, well, I – look, we – as I mentioned, and I think Greg did as well too, our total off-premise growth reached an all-time high in the quarter. So, it’s obviously continuing to grow and as you know, we’re starting to lap significant growth rates from a year ago and a little bit of the back half of the previous year, right.

So we are seeing – actually the momentum really not slowed down even from a growth rate perspective, really much at all. And we’re seeing some growth in takeout.

I think I’ve mentioned in the last couple of calls, initially we saw takeout slightly cannibalized by our growth in delivery; that started leveling off and now we’re seeing some growth in takeout as well, which is helping our off-premise check as well a little bit. So that’s kind of the fact side of it.

And as we’ve been talking a lot about, we think this large party element of the off-premise business is very untapped as it relates to BJ’s, so that’s why you hear us and why we’re spending as much time as – reconfiguring menu items, making it – and just in general I describe it a lot easier for people that aren’t catering-posed to really understand what to order for how many people and just make that process a lot more seamless, both online and in our restaurants.

So that’s the emphasis there.

And then last but not least, you mentioned third-party – I don’t think we’ve changed our – anything you know strategically around our thinking there, other than we continue – I think we and our partners are getting better at understanding what’s worked and not worked in driving off-premise traffic and I think we’re collaborating and joint marketing more effectively and that’s keeping – a lot has to do – that has a lot to do with keeping our momentum going.

And last but not least to your question is, I haven’t changed – our view hasn’t changed at all in terms of the incrementality of off-premise to our on-premise business.

We still – we updated the analysis we look at pretty regularly on the correlation between our on-premise comparable sales growth throughout our system or our number of restaurants and off-premise and we continue to see no correlation between the two..

Got it, thanks for that. And one more question if I could, it’s around – a broader question on technology. Can you give us an update first on how the server handhelds are doing? I know in the past you’ve talked about those benefiting, I think, beverage shelves lightly and then just modestly throughput as well.

I’m curious, also you mentioned some things in the press release in terms of front-of-house technology and equipment that you’re installing. You talked of that in the past [indiscernible] et cetera.

What are the other opportunities there around sort of, I guess equipment and technology in general and just sort of what is the efficiency opportunity looks like around that?.

Well that’s a big – broad set of technology. I’ll try to give you the summary, but thanks for asking that question, because it’s really important to us.

In terms of handhelds specifically, what you said is still our experience is that we’re really happy with them from a guest experience perspective and our team members ability to provide the kind of front-of-house experience, both – helps speed, as you mentioned.

Particularly from that first item to the table perspective, which we think is really important given the busyness of our restaurants.

And then the interactivity around particularly our loyalty program is greatly enhanced and improved, like right on the handheld if a person is a member, where their point status are if they have redemption opportunities, we highlight those, we want people to take advantage of offers that they’ve earned.

So there are a lot of – those are all real positives there. The thing that we’ve struggled a bit with and Greg made mention of, is the maintenance cost of that technology has been higher than it was when – frankly when we tested it a bit, as the broken screens and other elements of the technology.

But look, we’re knocking those down with the help of technology partners and learning along the way, as we’re pioneering a bit in terms of hardware and a little bit of software there. But I think we’re confident that the medium to long-term visibility around making those more cost-effective or less costly is in sight.

So we’re very happy with the fact that we’ve gone in the handheld direction. In terms of other technology, I won’t get into a lot of detail here, but we are spending time around our operations group and our IT folks. So making it easier to access our menu and make mobile pay easier to access.

One of the – we have found hurdles to higher adoption rates with – as you know our app has been around for quite a while now – is the requirement for most of the functionality to download the app itself.

And so what we’re looking at is testing some capabilities around, going right to mobile ordering or mobile paying without having to have – be carrying around our app in your handheld – in your phone. So, yes, we’ll see where that takes us, but we are still very interested in making our dining experience very personable from a server perspective.

We’re not interested in technology taking over the fundamentals of a dining experience, but we do think there are some specific ways we can get people to more quickly reorder the second beer or a Pizookie, et cetera, and make the paying part of the transaction a lot more seamless as well, we view as real opportunities.

I think those are the most important. There are some back-of-house things that we continue to refine in terms of our kitchen management systems and our communication to our team members using our, what we call, our orders board, which are big boards in the back of the house.

But I think there’s a whole team member aspect of technology that we’re still – we’re just starting to give some thought to as well here, given the – we have a good base of fundamental technology in our restaurants to leverage off of. So, that’s probably the next frontier..

Great. Thanks for all the color..

Welcome..

Thank you. And next we’ll go to Mary Hodes from Baird..

Good afternoon. Thanks for taking the questions.

On Q4, can you just quantify the headwind that you think you saw from weather during the quarter and then if you did see a headwind from the Easter shift, would you be able to quantify that as well?.

Yes, Mary, we talked about that on the Q4 call. I think it’s somewhere in the neighborhood about….

I think you’re talking – you mentioned in 1Q..

Q1, right. But on our Q4 call, we talked about where we are seeing some of the weather and we thought that was around 100 basis points or so at the time.

So, thinking about where we were in the quarter, it’s probably somewhere in the neighborhood of about 70 basis points, we’ve had a few weeks after that call, kind of finish up and there are still some weather conditions that came through subsequent..

The other thing I just want to emphasize, because unlike some other weather events and we said this in the Q4 call, it’s really hard to quantify, because it was less about closing restaurants and events that were very discrete, like hurricanes or whatever.

They were – just like the amount of cold weather and rain in California didn’t result in – I can’t think of a restaurant closure per se. So it’s a little tough to quantify, that was our best guess back then. But just know that there's not a lot of precision when we're looking at those impacts..

Understood. Thank you. And then, on the quarter-to-date trend, can you just break down how that mid-1% range looks in terms of contribution from traffic versus average check? And then maybe just elaborate on your degree of confidence in driving traffic in upcoming quarters as you cycle more difficult year ago comparisons..

It's hard to get through to the details of it. It's been a little bit all over the place. Last year at this time, meaning in 2018, we had a – there was a national deep dish pizza day and we gave away deep dish pizza from that days that drove a lot of traffic and therefore we didn't have it this day.

We decided not to do it, because of the amount of deep discounting, so trying to be a negative day from that standpoint. Then as we net – net over our Pizookie days, we're on the positive traffic side of things.

I would tend to think that where we are today with Easter rolled in there, knowing that Easter was a slow weekend for us, worth – as I mentioned, probably worth over 100 basis points today where we are – we're on a negative traffic perspective.

But I do think as we get away from that and get more normalized, we'll see our trends that we saw earlier in the year in regards to where traffic was or has been over the last, I guess, six quarters..

Thank you, and then lastly on the unit growth outlook, there's some encouraging commentary on the sales volumes for the recent openings in the prepared remarks.

Is there any update to provide on how the pipeline for 2020 is shaping up or how you might be thinking about the number of openings for 2020 at this stage?.

I mean just it's too early in the year for us to dial in from a numbers perspective. Greg Lynds and his team are out there building the pipeline and I think we continue to see the kind of quality of sites that present a lot of opportunities for us.

So again, the limitation isn't going to be sites per se, it's going to be more on the human capital side and our ability to open up our restaurants with quality and in the right folks in place there.

So, yes, we're very pleased with our openings and the only general comment I'd make is, if we continue to see the kind of momentum in the business, particularly from a top line perspective, as we're seeing, we'd like to do more rather than less..

Sounds good. Thank you for taking the questions..

You're welcome..

And next we'll go to Sharon Zackfia with William Blair..

This is Julie Shodh [ph] on for Sharon. I have kind of a follow-up to that.

I'm wondering if you guys expect mix to turn back into positive territory for the second quarter as you lap those tougher comparisons? And within that what would you anticipate to drive that positive mix?.

Julie, we have continued to see such strong success out of our Daily Brewhouse Specials. There's something that we put in place in 2017 that's kind of on the value side of our business that we've talked a lot about to drive traffic in there.

And it amazes me, two plus years into it that they continue to grow, whether it's the 50% off large pizza Monday, the $3 Pizookie Tuesday and so forth.

And then, we continue to add to it, really right now with our tri-tip sirloin that when we look at our business overall, I think you're going to tend to see some of that Daily Brewhouse Specials offset some of the other things we've done in regards to tri-tips and other things and therefore, kind of keep more of a flattish mix.

Ultimately, adding some of these, we're doing around the menu and other things is to drive that up a little bit. As we talked about, the 2.5% to 3% average check is a combination of menu pricing and mix there.

But the success that we're seeing on the Daily Brewhouse Specials, which brought traffic into our restaurants and we're really receptive to that and working with changes to those programs, I think will help mix a little bit for 2019..

Great. Thank you..

And next from Wells Fargo, we'll hear from Jon Tower..

Great. Thanks. Just two questions from me. First, I was wondering if you could dive a little bit more into the kitchen upgrades. Specifically, how the equipment upgrades might help address the quickly growing off-premise business, especially with the new focus on the catering platforms that kind of push off in June. That's the first one..

The – hey, Jon. This is Greg Levin. The GSKS or Gold Standard Kitchen Systems are actually putting in place are not necessarily directly related to the off-premise that frankly we have a separate initiative on in regards to off-premise. Some of that is very simple.

I think we might have talked about in past of putting up some shelves behind the off-premise person, so we can line up the food ahead of time and have it packed ahead of time.

We are putting some technology into our off-premise side of things, so that when you walk into our restaurant to take out individual – we'll know where an order is, if it's still being cooked and what items have been finished and what they're waiting on to move that system forward.

As Greg Trojan mentioned a little bit earlier, we're trying to make the payment side of things and the – I guess letting our team members and you as a guest, when you're coming to our restaurant, better.

So, sending you a text back, we've got your orders being cooked, when you arrive at the restaurant, using geo-fencing to allow us to know that you're at the restaurant and things like that. We're working on in regards to making the off-premise side a lot easier.

The GSKS that we are working on is really about day to day kitchen execution in regards to how we, as Greg Trojan mentioned, organize the kitchen, prep, cook et cetera from that standpoint..

The only other thing I'd add to that Greg is the – we are changing where the off-premise orders are assembled and in stage and we are adding – again it sounds simple, but space and storage area in our kitchens for that assembly to occur in the kitchen and not ask our front of house takeout folks to be dealing with the kind of volumes they are dealing within assembling at the same time, which has been a big improvement.

And Greg mentioned, we're installing terminals that are linked to our kitchen management system. So both sides of the off-premise equation in the kitchen and in the takeout areas can see the status of particular orders..

Okay, thank you. Thanks for the clarity on that. And then just going back to the promotions in the first quarter that – that seemed to drive down your check a little bit, the loyalty, thank you bonuses and then the gift card bounced back promotion [indiscernible] promotion, but the bounce backs.

Obviously they were successful in driving some traffic to your stores, but clearly it came at the expense of check.

So can you discuss how you plan to use these levers potentially in the future, but also ensure that you're not necessarily degrading the check growth, because obviously that's something that you're focused on, that 2.5% to 3% growth in the future, so if you don't mind kind of diving into that balance will be great..

Those are season – there are a couple of – you touched on both of them, Jon, and you have a good recall. We don't know how we'll change those plans, we have some ideas. We're actually doing some testing around the gifting period here in May and June that I won't get into the details on for obvious reasons.

But we are looking at some alternatives that we think will still be as compelling, without being as deep in terms of discounting. So yes, more to come on that, but you – we’re on – we're thinking the same way you are in terms of how we moderate that a bit seasonally..

Jon, one other point, so I think we tried to say it in our formal remarks, is even as those programs expired or were used up earlier in the quarter, our traffic actually improved throughout the quarter. So there's a lot of thought out there that gee, B.J's started the year off with this heavy discounting that's driving all the traffic in there.

And as Kevin and his team got more into the loyalty analysis and look at the segmentation, which is part of our big initiative this year is how we use our segmentation better, we realized that to some degree, offering a, let's call it a $5 gift card to a heavy user does not necessarily incent that heavy user to come more often.

It just gives him a discount, which is some of the things that we are looking at how do we incent those users or give them something different. But believe it or not, as those programs started to expire, we got more into a normalized discounting momentum.

Our traffic did not suffer during the quarter, in fact, in this case it improved and kind of improved because of weather and other things, but it wasn't necessarily tied one-to-one to the discounting..

Right, cool. Thank you guys very much. Appreciate it..

Welcome..

Thank you. And next we'll go to Stephen Anderson with Maxim Group..

Good afternoon. I wanted to zero-in on your alcoholic beverage purchase instance and certainly, with the increase in the off-premise sales.

Have you seen any change in the last couple of quarters with regard to the percentage share of your alcohol beverage purchases?.

We have in total, because the incidence levels of off-premise are obviously much lower than our in-restaurant. So, if you're asking on a global per 100 checks, which is how we look at it, yes, we're going to see – we're going to see some decline there..

Okay.

And by the way, can you quantify that?.

We can. But that's not the data that we'd normally share Stephen. But we have talked about how the off-premise check in general is in total a bit lower than our on-premise, and that is one of the reasons why and we actually – it's still baby days here.

But third-party delivery of alcohol is permitted in certain geographic areas where we're doing business and we're looking at some product offerings that we think can grow check in that way. But at the end of the day, the biggest way to grow check in on-premise is to attack this large party business that we've been talking about.

But alcohol in the medium to long-term is an opportunity by making it more convenient..

Thank you..

Welcome..

And we'll have time for one more question from Matt DiFrisco with Guggenheim Securities..

Thank you. Just had a couple of bookkeeping questions. First, with the comp, it sounds like you said mid-1% quarter-to-date but that had Easter in it. And then I think a follow-up, you said about 100 basis points was quantified from Easter or so.

So, I guess, is a normalized run rate post Easter around 2.5% or so it appears?.

That's what we said. That’s again Matt, three weeks in. I always preface that, that we don't have a backlog. I wish to God I had a crystal ball, but that's the trend now we've seen three weeks in..

Excellent, okay.

And then is there any disparity you're seeing regionally or with those new store openings or the last couple of years of pretty good openings in the Ohio Valley and the Northeast have you – are those stores comping equally or are they comping higher, or are they struggling to comp, because they open up a big volumes? Can you give us some color of the – how the portfolio is comping?.

In general – it's a good question. The first point that I mentioned, but I think is worth emphasizing Matt is, we're opening – really as I said all of the restaurants in the last 15 months outside of our core markets, traditional markets anyway.

So we're not seeing any cannibalization impact meaningfully at all, where a few years ago I think we could point to certainly meaningful 30 basis points to 50 basis points of cannibalization at certain points in time.

So that is helping us and we are seeing some nice – now that we've been at this in the mid-Atlantic and expanding those Ohio markets for a few years now.

We are seeing, I would say, the typical curve, where we're seeing some positive comps coming from those areas, where before we had such a new – almost every restaurant in the mid-Atlantic was headed into the comp group and comping against their honeymoon periods negatively.

Right? So it's nice to have some balance in these new geographic areas, where restaurants in that – cumulatively we're seeing positive comps in those newer markets, so that's – again that's good to see..

Yes, Matt, I think our comp sales curve isn’t same as it's always been and that is newer restaurants at 18 months still come in there. You have the honeymoon from that standpoint. At summer is around 24 months to 30 months they start to widen out and go positive.

So, as Greg was saying, we're now into years three and four in like the Mid-Atlantic area, Maryland, Virginia and some of those other areas as well. Last year we spent some additional awareness in those areas and that's driving the comp sales from those areas.

But when I look across the board, it doesn't mean that a Maryland or Virginia, the Mid-Atlantic is comping any better than a Texas or a California or an Arizona. It just means it's come through its honeymoon period and now it's settling into its normal comp curve that we expect within our business..

Understood. And then I guess just to carry that through on the dayparts, obviously there's been numerous – a lot of growth coming over the last couple of years from the quick casuals that seems to be a meal or an occasion that's going after the lunch daypart more, which was historically a very big daypart of yours.

Are you seeing still somewhat stronger growth on the comp side from dinner, is it balanced across the board?.

No, we're still seeing what we've been talking about, I mean, what you were describing there Matt, where dinner – mid-afternoon dinner and late nights are stronger than lunch. And so, yes, that's still an opportunity and something that – we're giving some thought to strengthen the lunch relative to those other dayparts.

But again, we've got to be careful how we approach that as – for obvious reasons the dinner daypart is more profitable for us, given the add-on sales. So – but we have some opportunities there to drive some traffic at lunch..

Excellent, thank you so much..

Welcome..

Welcome.

And that concludes today's conference call. Ladies and gentlemen, thank you all for joining..

Thank you..

Thank you..