Good day everyone and welcome to the BJ's Restaurants, Inc. Second Quarter 2020 Earnings Release and Conference Call. Today's call is being recorded. At this time, I'd turn the call over to Greg Trojan, Chief Executive Officer. Please go ahead, sir..

Thank you, operator, and good afternoon everyone, and welcome to the BJ's Restaurants fiscal 2020 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 President and Chief Financial Officer.

We also have Kevin Mayer, our Chief Marketing Officer on line for Q&A. After the market closed today, we released our financial results for the second quarter of 2020, which ended Tuesday, June 30, 2020. You can view the full text of our earnings release on our website at www.bjsrestaurants.com.

Our agenda today will start with Rana Schirmer, our Director of SEC reporting, providing our standard cautionary disclosure with respect to forward-looking statements. And I will then provide an update on our business and current initiative, and then Greg Levin will provide some commentary on the quarter and current environment.

After that, we'll open it up to questions and we expect to finish the call in about an hour. 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, July 23, 2020.

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. Good afternoon everyone. And while it's only been 11 weeks since our last call, it seems like we've lived through an equivalent of at least three business cycles in that short span of time.

I'm proud to report that our teams have quickly and effectively adapted our concepts, business model and practices over the last four to five months to respond to the many challenges and frequent and sometimes sudden changes in operating environments.

Throughout it all, the pandemic has served to confirm much of what we thought we knew about our guests and our concept. The appeal of BJ's to satisfy the basic human desires are dying and socialize with friends and family in an environment like ours continues to be quite powerful, despite all the barriers presented today.

But they also taught us new things and new ways to address evolving priorities and needs of our guests, many of which we believe will stay with us long path or demise as a virus.

So as we begin today's call, I'd like to acknowledge the entrepreneurial spirit of the leaders in our restaurants, and here in our support center, who are driving our flexibility and have that patient so BJ's can stay ahead of today's changing environment.

I will share a few of our learnings as we have navigated the evolving landscape of coronavirus, and Greg Levin will follow with more detail on the second quarter in the early trends as we begin Q3. Thus far there have been three distinct chapters in this story we're all navigating through.

The first of course is mid March through early to mid May, when all of our dining rooms were closed and we were limited to take out and delivery.

During this period, our primary objectives were to operate as cleanly as possible while maximizing off-premise sales in order to keep as many restaurants as possible open and have as many of our team members working as we could, and to maximize our cash flow position to allow us to prepare for the unexpected, and take advantage of the opportunities we see coming out of the pandemic.

We established new safety and sanitary procedures to create the safest environment we could for our team members and guests. And we greatly reduced the complexity of our menu from about 145 items to around 85, which enabled our managers to run our restaurants as efficiently as possible at greatly reduced sales volumes.

We added new off-promise friendly menu items at attractive price points and design new procedures both online and in our restaurants and make it easier and safer to access our food and beverage offerings.

During the course of this phase, we tripled our average weekly off-premise sales to the low $30,000 a week range and generated sufficient variable cash flow that we're able to keep all the four of our locations up and running. Our teams accomplished this pivot from regular operations in the span of about two weeks.

The second chapter, which began in early to mid May saw the steady reopening of dining rooms, which by the third week in June had resulted in over 190 of our 208 restaurants, serving guests in our dining rooms albeit have reduced capacities to allow for proper social distancing.

Coincident with these days openings, we returned some of our more popular center-of-the-plate protein centric items to our menu, such as our Slow-Roasted Tri-Tip to Double Bone-In Pork Chop and Atlantic Salmon.

Not surprisingly, despite the continued uncertainty of the world in which we live, people demonstrated the fundamental human desire to begin to return to a new type of normal, including gathering and sharing great food and drinks alongside friends and family.

By the way, they appreciated and demonstrated a desire to go along with all the safety measures and precautions that we have put in place in these extraordinary times.

The size of our dining rooms and available outside space, along with the pent-up demand for some of our best selling items served as well, as we reach weekly sales levels in the mid to high $70,000 range towards the end of June.

Our off-premise business continue to be strong during this period, helped by the addition of our new Family Bundles, which featured our craveable proteins such as Slow-Roasted Ribs, Parmesan Chicken, Atlantic Salmon, Rib-Eye Steaks at fantastic price points.

Off-premise sales remain more than double pre-COVID levels, while our dining rooms trended to approximately half of normal sales levels by the end of June, despite the significant capacity limitations, our reduced operating hours and no operating bars.

The strength of our off-premise operations, and the other changes I've just referenced, has established sustainability for this revenue stream and continues to be an important driver of our overall performance.

Our current reality and third chapter in all of this is characterized by dining rooms closing again in several states, but most notably in California, with increased capacity restrictions in many other markets. As a result, we are currently operating indoor dining rooms in about 70% of our restaurants, as compared to the peak of 95% in late June.

Fortunately, we had already begun adding and expanding outdoor dining in many of our restaurants prior to dining room re-closures, as we recognize that many guests felt safer and preferred BJ's outdoor dining experiences. We have added or expanded outdoor dining spaces in approximately 90 of our restaurants.

We partnered with landlords, local municipalities and liquor licensing authorities to obtain space and proper permitting to open and operate expanded outdoor dining at breakneck speed. We now have a total of 150 locations that can provide outdoor dining for our guests.

Our operating team undertook this endeavor with incredible entrepreneurial enthusiasm, and as a result last week, we drove approximately $26,000 per restaurant in incremental sales, where we recently closed dining rooms or added or expanded patios.

Together with strong off-premise growth, we have averaged weekly sales in the low to mid $60,000 range inclusive of dining room re-closers in California and several other localities. Maximizing safe dining experiences where we can along with continued growth in our off-premise revenue remain our highest sales growth priorities at this time.

Soon, we will have exciting menu news to help to fuel these efforts by a way of reintroducing more of our bestselling items. Our current plan is to bring back our popular Prime Rib for both dining-in and take-out in mid-August.

We're also building upon our Family Bundles with our very popular Slow-Roasted Tri-Tip that we recently added back to our menu and we're in the process of developing single-serve catering options, which will address the need to provide larger groups individually wrapped meal solutions, for party sizes of eight or more.

We know that in this environment, constant innovation and flexibility is our best strategy for maximizing sales, and there are still a large number of workplace and social interactions, which are looking for an affordable solution to these occasions, which we can address.

In addition to our outstanding dining reconfigurations, health and safety initiatives, ability to leverage our large restaurants footprint for social distance and restaurant dining and our variety of menu advantages.

We continue to press our proprietary and internally developed technology capabilities to address new opportunities, both in our restaurants and with off-premise.

We were among the first to utilize QR code technology for both menu browsing and mobile payment to provide a touchless experience, while dining at these days and mobile payment is now used for approximately one-quarter of all our dining transactions, further amplifying for our guests BJ's commitment to health and safety.

While one of our earliest initiatives was to offer disposable paper menus, the majority of our guests are now using their mobile devices for ruse and order from our menu.

Soon, we will enhance the menu experience to transition from the current PDF form factor to a dynamic HTML version, which will permit color and pictures to be followed quickly by dynamic promotions and guest-driven navigation. In addition, we have implemented an online reservation solution to accommodate a better limited capacity dining experience.

We also improved the quality and frequency of our off-premise order status and are in market testing two way testing capabilities, to further enhance the convenience of our guests, take out order experiences.

We anticipate permanent changes in consumer expectations and behavior, now that guests are accustomed to a digitally enhanced, more convenient dining experience both on and off-premise.

BJ's has been a consistent early innovator of dining room in digital consumer tech and our investments and capabilities in these areas are paying dividends, during this period of accelerated change.

Speaking for our entire management team and all of our stakeholders, we want to send our sincere gratitude to our team members on the front lines, in our restaurants and in our support center for their dedication and sales building mindsets during these challenging times.

As previously reported, we were forced to temporarily reduce staffing levels across our business when dining rooms shut in late March, and this impacted approximately 16,000 team members. As a number of dining rooms have reopened and sales have grown, we are glad to report that, we have now brought back over 10,000 of the impacted team members.

We look forward to inviting even more of the team back to support the business, as we move forward to regaining sales levels commensurate with the pre-COVID environment.

At the end of the day, we continue to be focused on the same objectives when the pandemic became an unwelcome reality to all of our lives in early March, maximize our sales by utilizing our unique strengths, the distinctiveness of our brand, concept and iconic food and drinks, the flexibility of our varied menu, the size and layout of our physical spaces to accommodate safe, social distancing.

Our technology infrastructure and innovation that support on and off-premise sales growth and the trust we have earned from our guests to do the right thing and never sacrifice quality in most of all, our amazing team members. As I noted when we started the call, we are leveraging our flexibility to address the current environment.

And based on what we've accomplished with the challenges we face, I'm confident that these days will be one of the true winners in our sector as a country in the world overcome this wicked virus.

So, Greg?.

Thanks, Greg.

As Greg pointed out, there are three distinct chapters of the story so far, and our results from the second quarter reflect the first two chapters of this story regarding the closure of all of our dining rooms in late March, and then making great progress, methodically reopening the dining room in 95% of our restaurants by the end of June.

We are currently going through the third chapter here in July with the recent state and local restrictions rolling back dining reopening and the satisfaction of our team to help mitigate the sales impact of these restrictions by expanding patios and new locations.

As such, my commentary on Q2 and Q3 today are really a reflection of where we are in the ever changing national, state and local restrictions regarding dining room limitations. Please remember this commentary is subject to the risks and uncertainties associated with forward looking statements, as discussed in our filings with the SEC.

From the Q2 perspective, as we noted in today's press release, our comparable restaurant sales were down 57.2% and we reported diluted net loss per share of $1.38 on a GAAP basis.

During the quarter we took a non-cash impairment charge of 10.9 million, of which 9.7 million was related to three restaurants and 1.2 million was related to a reserve for beer spoilage due to the sudden decrease in draught beer sales caused by the restrictions in our dining rooms.

Excluding these charges, our diluted loss per share would have been $0.99. Our comp sales improved throughout the quarter. They were down 74% in April, 63% in May, and 40% in June.

By the end of June, approximately 95% of our restaurant dining rooms were reopened with capacity limitations, and our weekly sales volumes improved for mix 70,000 a week range and nearly 80,000 in the week that included Father's Day, demonstrating there continues to be a strong demand for sit down dining.

Additionally, our off partner sales excluded over 30,000 a week in April, when our dining rooms were closed, we maintained about 80% of that business in June, when the majority of our dining rooms reopened. From a cost and margin perspective, a significant decrease in sales this sales deleverage, our Q2 margins.

Looking at a few highlights, cost of sales in the quarter came in at 25%. We experienced higher cost of sales in April and that was in the mid 25% range, as we transitioned our business to off-premise only, and worked through excess inventory in the restaurants.

After we worked through the excess inventory cost of sales for both May and June went to mid-24% rains, primarily due to menu mix from our limited menu, which focus heavily on our deep dish pizza, and our family sees menu offerings offset by lower alcohol sales.

As we look out towards the balance of July, and the rest of the quarter, I'm expecting cost of sales to be slightly higher in Q3, probably in the low to mid 25% range, as we have seen an uptick in commodity costs especially in protein.

Labor came in at 40.2% and there were significant deleveraging of the six manager labor costs and benefits derived from the lower sales volumes, and this was offset by left dining room and kitchen hourly labor of the majority of our sales needs to be off from this channel coupled with the efficiencies from our limited menus.

In April, when all of our dining rooms were closed, hourly labor for BJ’s within the mid range as a percent of sales. By June with the majority of our dining rooms reopened hourly labor was in the 20% range, which was still 300 basis points below last year's June hourly labor run rate.

Operating occupancy costs per week decreased by about 50% as our team's focus on managing costs. This was done despite incurring approximately $500,000 related for personal protective equipments and additional cleaning supplies necessary for our team members and our guest to dine safely in our restaurant.

Following our sales trends for the quarter, our restaurant level operating margins also improve sequentially throughout the quarter. The margin was negative for April and May due to the deleveraging mentioned earlier in my remarks, but turned positive in June.

We reached a 13% restaurant level margin in June, showing the amount of cost management and leverage we are able to deliver, with sales still well below pre-COVID levels.

Echoing Greg, I really admire our operators who did an excellent job in driving sales activities and off-premise only business, and then shifting back to dine-in business, with limited capacity, while at the same time managing our costs.

What we're describing to you this afternoon, in our very short commentary, radically understate the effort, commitment, innovation, finiteness of our teams and these qualities will serve us well as we continue to adapt to the changing environment and as importantly in the future as a nation overcomes the pandemic.

For the quarter, our restaurant level, cash flow was basically flat, which is significantly better than what we were expecting earlier in the pandemic, despite com sales starting quarter down 74% in April.

As a result, we finished the quarter with $86.7 million of cash in our balance sheet with another $50 million of availability, and others should be needed on our line of credit. This gives us over $136 million of access to capital to manage, protect and grow our business.

As a reminder, during the second quarter, we took decisive action to bolster our liquidity position by raising $70 million to a common equity offering and extending the maturity of our line of credit to November 2022.

Shifting forward to today, as Greg Trojan mentioned, the entrepreneurial spirit of our restaurant operators has resulted in the opening and expansion of approximate 90 patios around the perimeter of our restaurants under large and lighted signs in our parking lot. In total, we have 155 patios available to our guests.

These new seating accommodations have allowed us to continue to serve our guests and locations where indoor dining is currently permitted while increasing our seating capacity in markets where dining capacity is limited.

Additionally, our teams are continuing to make off-premise sales as easy as possible to view family bundle contactless curbside pickup including new SMS text and email technology to guest inform of their menu order and allowing guests to notify the restaurant when they arrive.

Reflecting these factors, and most importantly, the significance short term rollback of open dining rooms, our sales for the first three weeks of July are about 60% of last year sales levels. To put that in perspective, in last year's Q3, we averaged approximately $104,000 a week in sales.

If we maintain this current run rate, our average weekly sales would be approximately $62,000 for the current quarter. At this sales level, I would expect our cash burn rate of inclusive of restaurant level manager bonuses, rent, interest expense and CapEx to be in the range of $500,000 to $1 million a week.

Our CapEx the quarter is expected to be around $5.5 million, which includes adding glasses dividers to the majority of our restaurants to increase seat counts in our dining room, once they are permitted to reopen and CapEx to complete the construction of our restaurants in the Cleveland market in Orange Village, Ohio, which is scheduled to open later in the fourth quarter, as well as some CapEx for other sales and productivity initiatives.

We have the flexibility to pull back on these cash expenditures based on the operating environment as a significant amount of these expenditures are discretionary and our variable.

So to recap, before we turn it over to questions, a hard work and problem-solving creativity of our team members, the main key competitive advantages today and will be drivers of the future success as we reconnect with our loyal guests and introduce new the guests to our fantastic food and beverages, whether in our dining rooms, our outdoor seating areas or in the comfort of their homes with our takeout and delivery services.

From a balance sheet and income statement perspective, we have taken appropriate measures to further strengthen quickly as we entered the pandemic already possessing one of the industry's strongest sound sheets and at modified costs, operating practices, menu items and other factors to optimize sales and cash flows during this time.

Our leading edge investment in technology have enabled us to provide our guests with digital check-ins, digital menus and digital payment options and other contact-less optionality, but have not reduced the service level guest expect from BJ's.

While the current environment has brought unprecedented challenges BJ's improving its ability and maneuver quickly to preserve the food, drink and dining experience our guests have come to know and love, while adapting our business models and practices to drive cash flows during this time.

For these reasons, we remained confident that BJ's is poised to take advantage of the opportunities to prosper in the casual dining industry for years to come and deliver shareholder returns that reflect our industry leadership, brand strength and incredible teams.

With that operator, we finished with the formal remarks and we will open it up to questions..

Thank you. [Operator Instructions] We'll take our first question from Jeffrey Bernstein with Barclays. Please go ahead..

Great. Thank you very much. Two questions. First one, just thinking bigger picture, if we're trying to find a silver lining here in a very difficult time, but it does seem like you're getting a benefit from accelerating tech knowledge introduction, maybe consumer adoption to it. I'm assuming there'll be some potential real estate availability benefits.

I'm just wondering, if you would see similarly and maybe what you think has been the most favorable to your business or maybe what do you believe will be the greatest sustainable driver to long-term market share gains coming out of this crisis? And then I have one follow-up..

Sure, Jeff. This is Greg Trojan. Look, I don't say this, necessarily, totally happily, but I think the biggest benefit is going to be a fact that, from a capacity perspective, I think we're going to see meaningful and real reduction in the number of restaurants sees coming out.

So, I put that as the, as the number one driver of sales and market share opportunity. But, within the dynamics of the business, I think the, as you mentioned, the acceleration of adoption rates around, technology, which will I think, not just today but in the future benefits, the fundamental experience of our guests and our team members.

We view as a real positive, and that it's not just, the world of off-premise and third party delivery. I think it's also what we're seeing in terms of the speed and convenience of ordering in our restaurant and see the receptiveness or ability of our servers to have information of when our guests needs and wants etcetera.

So, I put that as a long standing sustaining benefit of the times before going through. And you mentioned it out of the one in terms of growth and, unit growth opportunities.

We are going to see and, I think, higher quality sites and availability across even some of the tougher markets historically to find quality real estate I think, there's going to be some vacant space take advantage of even in tight real estate markets like the Northeast..

I mean, you mentioned the real estate.

I'm wondering whether there's perhaps a different approach to you, as you think about your restaurant real estate, I know you're not doing much this year, but between real estate and design as you think about doubling your new account in this new world? Is there different real estate you'd be looking for different designs? How would you change things or look to the second half of your growth story?.

Yes, no, that's a good question. Clearly, accommodating eating or not we were already thinking about this and then made some investments in off-premise, and in making that easier to execute and more accessible to our guests, but I think this is -- this has taught us some things and have us thinking about doubling down in terms of true convenience.

And then in terms of off-premise, sales and curbside et cetera. So, I think that's where you'd see some of the bigger the bigger changes..

And I think, Jeff, everybody is getting used to delivering off-premise, there's a lot of discussions around how you make takeout area within the restaurant more convenient for people to come in and grab their food. I think as Greg mentioned, it's nagging me how do you make it more convenient to bring food out to the curbside.

So, that's a subtle difference there. But it does become a difference in the way we're thinking about designing restaurants in the future, where we're going to get to know long longer are going to be coming out of their cars to pick up their food.

And I think the technology that we worked on helps in that perspective and thinking about where you want to position, the maybe the solid for the cars to come for into maybe do you actually even think about it as a a drive thru type setups in regards to giving the food.

So, there's definitely changes or any timing, I think within BJ's and probably others within the industry as they think about how to really optimize the outcomes as part of the business..

I know you've talked about the June talk versus margin, which I thought was quite impressive. I think you are saying your costs are down 25% to 30%-ish and yet your restaurant margin was up 13.

So I'm just trying to assess whether it which line item generated ethical favorability or as we think of the back end for the year maybe, if you're consequently down in the 40 percentage range, how do we think about the margin for the third and fourth quarter based on that very impressive result you did in June?.

Well, it's a great question, Jeff. I think June gets the benefit still with some father's days and graduations and things like that, that helped drive up sales average up in that perspective.

I do think though, as we look at that, we're the benefit that we get in June, and thinking about this business going forward, is one year we were still doing and continue to do a large portion of your business in off-premise. So off-premise really allows you to leverage your labor. And as I mentioned in our call, you think about those margins.

I did say that our labor in June, hourly labor was 300 basis points better than it was a year ago. So, that's one of those leverageable areas in our business. I think our menu mixed up the time, so cost of sales relatively low in addition to that.

And then as we continue to do a lot of times, you just have a left, but I would call daily controllable costs within the four walls of the restaurant. So that gives you the biggest benefit there.

The challenge that we have, and even trying to think about margins and giving some guidance for you and everybody out there and even for our business internally, is it really comes down to consistency. So as we go started July there and all of a sudden had to go back from an off-premise business. That's a challenge for us.

It almost becomes a little bit like early or late March, early April, where we set our teams back up to take care of people in the dining rooms, and then 62 of our dining rooms get closed down in California, and we have to absorb some of that cost and work our way through it.

So when I think about our business, if we stayed in a steady state, I think we can optimize our margins. I don't know if they necessarily be where June was, because we're our sales levels were. But that's the challenge is really the ups and downs that go on in regards to the dining room and you lose that consistency.

So I don't know if that helps you, Jeff, or confuse you more, but really, it comes down to the ability to be consistent in regards to how the sales come in, because then we could think about really how you optimize the business..

We'll take our next question from John Glass of Morgan Stanley..

I wanted to follow up maybe on that theme on a longer-term basis.

How do you think about those profits, how much cost you have permanently reduced or eliminated from the business, if you think about if you normalize your AUVs over time, you think restaurants how much better, would you think restaurant margins are permanent better and buy how much? Some of your competitors have talked about rethinking things structurally, permanent reduction in menu, not just temporary.

How do you think about those topics?.

John. I can tell you there's, I think the significant benefits, if you will tailwinds going forward is one you mentioned is when I said this early on some rise of the pandemic here is, it's extremely unlikely and certainly not our objective to end up with the same level of fake items that we started. That we had in January and February.

We're being very careful about what we bring back and when and that, I think particularly for us where, clearly are varied menus is a really important part and a great part of our concept.

But the benefit of us taking that next level jumped if you will into complexity reduction, I think is truly significant, and it's something honestly, we're excited about. I think the other element here is, again it's a function of other parts of the economy that are not so great.

But is I think the amount of labor rate pressure in the industry and in our business is going to be very different and less than it was going into all of, all of this for quite some time.

And I think, what Greg was talking about, the mix between off-premise and on-premise is going to be another mix advantage here that will help profitability and margins as well.

So as much as you know, that is a benefit, I think, look, we're expanding in the number of occasions that people are willing and are going to continue to use casual dining so that's a good thing.

And as happy as we are about this, I don't want to lose sight of the fact that the core of our business will still remain dying, social experiences like where we're most differentiated is, not that we can't be great at off-premise.

But the fundamental, as I said in my remarks human need to gather with friends and family is our physical four walls of our restaurants and the vibrancy of how our bars interact with the rest of our restaurants eating, that feel, that emotion, that folks that when they're in our restaurants is something that's still going to be a towering strength of our concept.

So I think we all get looked at today's business and in many ways we viewed as a positive in an off-premise and we certainly do. And I don't want to lose sight of fundamentally we're in the sit down social experience business of dining..

Okay. Thank you. And maybe just to that point.

When you consider the additional patios that you've added, all the dividers that you're going to put in restaurants, what percentage seating capacity does that represent? What is the incremental seating capacity that you're being able to add through pieces?.

Yes. The divider is -- it's a great question itself. By putting divider in our restaurants, the way I have to preface it a little bit, John is, it really comes down to one ordinance allow dining capacity to be greater than 25%. That seems to be the benchmark.

So, when somebody says, you're allowed to seat up to 50% or 75%, there's still to some degree managed by the 60 of social distancing. So, dividers in our restaurants actually should get us somewhere in the neighborhood of 12 to 17 tables on average.

So, it's actually a nice increase there and that add would probably get us close to 75% capacity of being able to actually seat in our restaurants where with social distancing, we're limited, probably closer to 50% to 55%.

On the patios, we're getting probably patios -- we'll probably get about 45 seats on the union added patios that we've been able to put on there. It looks like years from 12 to 16 tables, depending on if they're two tops to four tops. So, you're somewhere in the 45 plus in the amount of seats that you're getting..

We'll take our next question from Chris O'Cull of Stifel..

Thanks. Good afternoon, guys. I've had a couple of questions.

One, Greg, how much deferred rent are you carrying on the balance sheet right now? And can you give us a sense of when maybe deferred payments will start to become due and how long you will have to pay any of those payments?.

Yes, it's a great question. I think on the balance sheet, there's two months worth which is probably two to three months or 710 million plus range on the balance sheet. We made full payments or whatever we negotiate with our landlord sir in July. So, we're paying rent going forward.

It's a combination of different payment plans on our different properties there. So, I would tend to probably about starting July going forward we are paying rent and some are being amortized this year some would be amortized next year, some will be amortized 12 months, 18 months it's just across the board..

Just a 13% cash margin in June does that include the actual cash rent payment you made or is it the normal straight line where any expense that you would typically book an occupancy?.

It is a 13%, a GAAP 13%. So, on the Generally Accepted Accounting rules, we're extending rent every single month, whether they pay it or not. So, that 13% is not necessarily a cash number if you think about it from your cash, but it's a generally accepted standard accounting practice in that standpoint.

So, rent expense in there and accounting for like we would get in town for our margins last year, or any other time..

Okay. I mean just given the big shift in business with a close out here, the California's -- the California dining rooms.

Can you can you provide an update on cash burn rate assuming those stores remain closed? And then maybe threat changes?.

Yes, I get on the boomer mark. I said, our cash burn rate in, assuming we make a 60% rest 60% of historical sales. So, a negative 40% comp. Last year in Q3, we get 104,000 on our weekly sales average. So, we're basically averaging what's called 62,000 leads to sales today, at 62,000.

We can sell say we're going to be burning cash anywhere from a half a million to a million a week, really depending on our CapEx.

Because we want to be providers and we need to have the ability as we just said, to increase sales dramatically for us, we could take our sales numbers up several high ROI from our perspective, and also includes the manager bonuses and other things that we're putting back into our business to continue to drive sales and our sales forward..

We'll take our next question from Drew North with Baird..

Thanks for taking the question.

I was hoping you could elaborate a little bit on what you're seeing in markets specifically that we closed in states like California? How consumers reacted following this second trip on the market? How is it different than the first time around if at all? And I assume there is a wide parity of recent trends depending on the market, so just any regional color you're willing to provide related to recent trends or consumer behavior would be interesting? Thanks..

So, Drew, a couple of things to note there because it is interesting second time around and we're largely talking about California, right. So there's a few other municipalities here and there but the lion's share of second time around dining room closures is by far California for us right.

And the biggest thing that's different is we're allowed and we're prepared in advance as we mentioned to provide outdoor dining capability for folks and I can tell you, you've probably seen the pictures on the news et cetera.

People are taking advantage of outdoor dining and they're going back into, spending their lives inside in their homes is not what people have on their mind. You will see the end of that being legislated or not, but people are out and about. They're being very careful as they do that in our restaurants, but outdoor dining is a big difference.

And then just the routine of off-premise, people are understanding the convenience more and more and I mean that is already at a higher level than when we started all of this at $10,000 a week.

I think the other thing of note, I think you're asking, but I'll answer regardless is we're not seeing a, at this point, a softening of sales in other states that, in some cases have increased the restrictions and in terms of social distancing or whatever, but just even the mental differential of where we are today versus four weeks ago, and I think everyone had a mindset of -- we're on the right path and opening more than going back to, to closing some restaurants that has not yet impacted sales levels in states like Florida and Texas.

We're still seeing, again that fundamental desire of people wanting to dine in..

We'll take our next question from Matthew DiFrisco with Guggenheim..

Hey there, I had a couple of quick questions.

One, it seems like there was either in bringing the transcript on or there was a contradiction here where was June 60% same-store sales? Or was it 70% of the year ago volumes?.

June was safely about 70% at the year ago volumes. So, I think I’ve been said in formal remarks that I get comps by quarter. So, you have to follow my formal remarks started 70. I think he said, two we were down about 40% in comps.

So again what we were saying though, I think what -- I'm sorry that this is not, I think what we were talking about there, 74, negative comps to negative 63 to negative 40, while we were talking about is by the end of June, when 95% of our dining rooms were open, is when we start to move ourselves closer to 70% of averaging the volumes.

So throughout the month of June, as you'd expect, comp sales got better..

So, it's the 13% restaurant margin associated with a down 40 comp or is it with 75,000 average weekly sales?.

To down 40% of the entire month of June..

And you're doing it down 40 now in July, correct?.

Right, but if July is again, July is going to be lower sales because it's going to be a nothing to happy about, your ability for leverage your fixed costs, whether it's managers, whether it's rent. The other thing that I was saying earlier is. We can only maximize margins when you get the consistency and predictability.

When already of the sudden on July 2nd, somebody comes out and says, your dining are now shut, that's going to take a little bit for us to absorb in the first couple of weeks of July, before we get back to being able to be a little bit more ability to be able to optimize our visits a little bit better..

I mean, the other way to think about is, the mid to late June, just forget about the comps and think about the sales now. The mid to late June, we were driving sales every week and reaching a level as we said in the last couple of weeks about 75,000 a week as a company, and now we're talking about being in the low sixties.

So forget about the comp sales, think about the actual dollars that might help you..

Well, that's I understand. Okay. But the 75, isn't what you were referring to. You were saying 40% down comp, which was lower than 75 from the year ago levels. But I could call you offline on this, and just walk through a little more.

With respect to June, does that benefits also from when the dining room opened, view your menu with the bundling looks very appealing, consumers migrating from delivery and doing more pickup.

Is that having a natural effect to your margins as well as our benefits, assuming if you look at sort of the three buckets, the best margin, restaurant margin be order ahead and pick it up, when would be dining in and when we'll be deliberate. So, I was seeing delivery comes down from those high levels..

So, it's not coming down. But in terms of rate of growth, we're seeing a lot more growth coming from takeout than we are in delivery, but delivery is growing as well. So -- but the fundamental answer to your question is, yes and yes. That's helping our margins.

We're seeing the highest growing elements of off-premise has takeout and then obviously the added sales volumes of dining and is helping to leverage the fixed cost what we saw in June, right? You got it..

What would be a benchmark for delivery in your current 62,000 average weekly sale?.

It's probably about a quarter..

We'll take our next question from James Rutherford from Stephens Inc..

Hey. Good afternoon, and thanks for taking the questions. First one is on oncoming comp trends. You talked about that runway to 62,000 as average weekly sales here of course to-date in July, which is about negative 40%.

I was curious if you could share the average sales levels to those units that are closed for indoor dining, so basically California? And when you think about 60 units and did the off-premise sales kick back up a little higher level as again those units close indoor dining there for the second time?.

Yes, we don't go through and give a unit-by-unit sales averages from that standpoint. But what I would tell you is, absolutely what you just said in second part is that, the dining rooms closed down a little bit. We do see an increase in the off-premise side of it from that point. I would generally say, California, where we did get a shutdown.

Obviously we got the most brand recognition. We got a significant amount of loyal guests, so they tend to do some really good off-premise volumes as well. And people here in California with the weather, the way it is, are enjoying our patios. So, we were able to actually move a lot of those guests to the patio..

Sure. Okay, great. And then at the end of June, you had regained around 70% of your product sales volumes according what you just said. And that's what 95% of units open again for dine in, just holding aside the second closure, the California indoor dining for a moment.

I'm curious what it will take to get back from that 75,000 the average weekly sale for something over 100 again is it doesn't sound like capacity restraints may be the biggest factor given the size of the restaurant.

So, is it a specific day party or is it just general -- generally lower demand given the change in consumer behavior and what do you think can be done to sort of counter those lost sales?.

There's a couple things. There is a good a good question James. Keep in mind capacity is a constraint.

I mean, when we were in those last weeks of June, I mean the 70s, we were thinking about our average dining sales volume was still about half of what it is normally, right? So, even though we are down, these are very broad numbers, as we said about 30% in cost, in those best weeks, it was the growth in off-premise overcoming still about 50% traffic numbers from dine.

So, yes, we need more effective capacity, even in a world of virus threats. We're putting up the barriers and increasing the effective capacity in our restaurants is going to be a near-term help, aside from restrictions, right. But the other big thing that needs to happen is we are operating without any late night business.

I mean, one of the great things about our process as we run to the restaurants from 11 in the morning to 11 mid 12 at night, right and we totally lost that though the late night aspect of our business A, and B, the alcohol centric element occasions of our business that rely on bar business in and of themselves have done great make compromises along with them, right.

So, I would say overall capacity. But in particular, those shorter periods particularly late night are going to be really important.

And then last but not least, is the return just sports in America is going to be helpful for lots of reasons mental health among them, speaking personally, but I do think, the occasions to gather in safety to be able to grab the gathering groups and go see, games and other events is going to be a part of the puzzle for sure..

We'll take our next question from Sharon Zackfia with William Blair..

Hi, good afternoon, actually just a follow-up on our last comment.

I know you've got the Family Bundles and they've been around for a few months is there a thought about doing something for off-premises game days bundles?.

I think we've done some, some promotional thinking and we have plenty like our wings like theirs.

We may not label them as such in particular, but we have been thoughtful about really using the wide variety of appetizers and pizza for instance to decide satisfy those occasions, I think one of the bigger opportunities Sharon might be just for the May have gotten lost in my remarks, that's similar, not exactly what you're asking is, individualized large group orderings, right.

So, think about catering coming in half hands and scooped in shared by, 10, 12, 15 people. There are a lot of occasions that's not going to be appropriate as it was just a few months ago.

So, whether it's a family gathering or an office event or etcetera, it's going to, the need for individual portions, versions of group gatherings is something that occurs to us as being a real need and something that we're working on, you could work for game days, but I think there's a broad number of kinds of occasions that we can even sell, our value in variety..

In just off hand, Sharon, digitally today we already have something out there origin baseball with pictures of our pizza, the pizza team, our beer, everything that travels really well. So, we're not letting open day go to so for much..

Especially since the dodgers are part of the ceremony, so..

I guess the question on the patios and the outdoor seating that you've implemented, I know you said you have about 150 locations now that have them that all of us live in Southern California. So I'm just curious what number of those would you consider seasonal, whereas the fall comes or is to get colder it's not as relevant.

And then Greg, just either Greg, are you still comfortable with what you’ve said on the last call, which is I think 65,000 average weekly sales for corporate breakeven?.

Yes. So let me take the second part for Sharon. I got to think about our patio the second. I still do, I think the real change, okay. I don't argue that never could have come down a little bit.

But we decided to be, at least at the time, aggressive, at least during the quarter about putting up the dividers, putting up the glass dividers, investing in patios and some other things that you think could really drive sales.

And as a result of my formal remarks that said that, we have the optionality on this part of our business to pull back if we need to, to manage our burn rate, and maybe bring it down a little bit, but I still think it's around 65,000. From that standpoint, and again, as I said before, my remarks is our business goes a different way.

If you don't like where we're going and we have that ability on certain variable costs and CapEx costs that we would pull that back and manage accordingly on that..

Let me follow-up on that while you're thinking through the, a lot of them are in California, said goodness. So, but Sharon just to reinforce a little bit what Greg said, because there's really two different things.

It's good to clarify this is I think, our burn our breakeven sales rate, if anything is great, so it might be a little lower than what we anticipated before in a pullback, every, most if not every discretionary expense, right.

So what was, I don't know I would say different, but we're anticipating I'll give you a prime example is we really anticipate paying our benefit managers bonuses in Q3. They're working hard, the key to our success here and in the original $65,000 breakeven.

It does not contemplate variable labor expense, right? So, our actual break even is something a little bit higher than $65,000 when you incorporate increased level of CapEx coming from partitions, manager bonuses, et cetera. But for me, if we have to pull back, it's probably got a little lower than $65,000.

But our anticipation in terms of expense rate sitting here today is probably something somewhat higher than that. That makes sense..

And then on the patios, we've got over 50% of our restaurants are in California, Texas, and Florida. Those are more mild weather states in that regard. I think we have about 110 patios that are in our original build out in our restaurant. And generally, when we build those patios out, they are going to be more of all-season patio in that regard.

When we talk about 150 patios in total, we probably added 40 additional patios. And then on the current 110, we continued to expand by putting tents out in the parking lot and in other areas. So, I think we've got, I don't know the exact number to show from patios from each location.

But I think we got maybe somewhere around 60% of our 200 restaurants that at least have what I consider patios build with the restaurant with harder lids and so forth, that could be used a little bit more year round..

We'll take our next question from Nicole Miller of Piper Sandler..

Thank you. Good afternoon. I appreciate update. I wanted to go back to the commentary around pizza. It sounded like you had, what was a fairly material cost benefit. Can you talk about what pizza mix was? I think the May-June timeframe and then it's just so reminiscent to the core DNA of the brand and seriously you had serious margin implications.

Understand that, BJ's has become much bigger and broader, but how do you think about that returned to the core, if you will?.

Nicole, first of all, we'd love and I always considered pizza as part of the core. I think in times like this, where I think it's hard to argue that value is not going to be more important than, than ever. Pizza gives us a great ability to deliver amazing value to our guests.

And for me, so above and beyond the double down with half off large pieces, I've said this, I think on the prior call around, we consider, we're going to continue that on and off-premise basis for the foreseeable future. It's been one of the stars of off-premise sales growth along with our $6 entrees and our family feast in bundles. So, we love that.

We love the value our pizza brings to our guests. And I think if anything improve that value and are definitely in the forefront of our mind is, what else can we do, even in a world where all of our dining rooms are open to continue to leverage pizza even in a bigger way from a value perspective.

But having said that keep in mind, we're making this point again on the last call is. We're not managing percentage margins we're managing dollars.

And there's no question either that when we brought back our center-of-the-plate proteins as part of our menu in what we call out it is to menu mostly in June and whatever that had a huge impact on shack and dollar sales as people were dying for things like our tri-tip and consistent salmon dishes in our restaurants.

So it's not an either or, but you're playing. Again, we really love the fact this is part of our arsenal particularly value sensitive time..

Yes, we definitely don't want to lose sight. I think that's very important dollars versus the percentages because you took the dollars to the bank. Can you just share the follow-up? I think how it moves in terms of mix. You didn't really move the needle. It seems like it must pass..

Yes, it doubled as a percentage. Again, we went from 145 while it's down 80 items, really emphasize it and so forth. So, the mix as a percent of sales doubled from our perspective..

We'll take our final question from Todd Brooks from CL King & Associates..

Good afternoon everybody just one question to wrap it up. I'm trying to think about and it takes capacity restrictions out of the discussion a little bit. But if you look at the $104,000 of average weekly sales in Q3 last year, if you remove that late night pizza, the mix and the bar piece of the mix.

Look, what's the right bogey that we should be looking? If you perform as well as you can against the available opportunity is.

Are looking at 85,000 on average weekly sales without those two opportunities? And if we're getting back to the mid 60s, we're really three quarters of the way back in the addressable periods that we're able to serve customers in?.

And it's a mixture I think in total -- I think on the, the actual day part of it, your question Todd. It's a good one, but it's also we need it's part a part and it's part bars being open in occasions that are more alcohol, friendly alcohol, right.

So, even at 6 o'clock in the afternoon, in the evening when our dining rooms were open, we weren't doing the same alcohol driven traffic. Now interestingly, alcohol mix and incidence was higher than pre-COVID. And I attribute that to just like people got a drink and there is a time like today.

And so, they were in our restaurants, they were drinking more. But it wasn't again, the traffic around the bars and the occasions to see sporting business centers weren't there in the same -- so again, the dollars of the whole spending were there, but yes, we need both, obviously to drive themselves. I don't know Greg, if you haven't guessed on..

I doubt it. I mean, I think you can factor probably 12% for late night by itself, because that part of our business is purely dropping off.

But to Greg Trojans comment and he's absolutely right, it's the fact of having people come into the bar in the middle of the afternoon and other types of events coming in that will drive your capacity up in your restaurants.

So if you want to take the 104 and multiply it by 90% or something, you can say okay 90,000 the bogie, just lopping off that part. But there's still a lot of middle afternoon and other things that drive people into the business, that we're just not getting today that you're getting a pre-COVID environment..

But just intuitively without looking at numbers, I think you're in the ballpark there. I think if your thought about us doing, low to mid 70s in those June time period, you probably somewhere in 80 to 85,000 a week about without those things in terms of like ultimate, full utilization in a compromise way that may bring sense, probably not far off..

Ladies and gentlemen, this does concludes today's question-and-answer session and today's conference. We appreciate your participation. You may now disconnect..

Thank you..

Thank you everyone..