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00:07 Good day, ladies and gentlemen, and welcome to the BJ's Restaurants, Incorporated Third Quarter twenty twenty one Earnings Release and Conference Call. Today's conference is being recorded. 00:16 At this time, I turn the conference over to Greg Levin, Chief Executive Officer and President. Please go ahead..

00:23 Thank you, operator. Good afternoon, everyone, and welcome to BJ's Restaurants fiscal twenty twenty one third quarter investor conference call and webcast. I'm Greg Levin, BJ's Chief Executive Officer and President. And joining me on the call today is Tom Houdek, our Chief Financial Officer.

We also have Kevin Mayer, who has taken on the new role at BJ's as our Chief Growth and Brand Officer; and Greg Lynds, our Chief Development Officer is also on hand for Q&A.

00:50 After the market closed today, we released our financial results for the third quarter of fiscal twenty twenty one, which ended Tuesday, September twenty eight, twenty twenty one. You can view the full text of our earnings released on our website at www.bjsrestaurants.com.

01:10 Our agenda today will start with Rana Schirmer, our Director of SEC Reporting, providing our standard cautionary disclosure with respect to forward-looking statements. I will then provide an update on our business and current initiatives and then Tom Houdek will provide some commentary on the quarter and the current environment.

After that, we will open it up for questions. 01:27 Rana, please go ahead..

01:30 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 nineteen ninety five.

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. 02:00 Our forward-looking statements speak only as of today's date, October twenty one, twenty twenty one.

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..

02:32 Thanks, Rana. As discussed on our Q2 call back in July, we entered Q3 with optimism, as the country showed several signs of emerging from the pandemic. Our weekly sales average during the four weeks of July surpassed one hundred and seven thousand, which was one point four percent higher than sales levels from the same period in twenty nineteen.

We noted that labor was our biggest near term challenge to realizing the true sales potential of our overall platform. 03:02 Realizing the strong demand for an appreciation for the BJ's concept, our teams were focused on ramping up staffing levels, so we could accommodate even more guests as the third quarter progressed.

However, beginning in August, with the spread of the COVID-19 Delta variant, casual dining industry comparable sales took a step backwards and declined approximately three hundred seventy basis points in August from July's comparable sales level versus twenty eighteen as measured by Black Box.

03:31 During the same period, BJ's outperformed the industry, as sales declined approximately two hundred and sixty basis points over the same weeks.

In addition to consumers pulling back on their dining occasions, staffing levels became more challenging in August and September, as increased team member exclusions related to COVID cases resulted in reduced seating capacity and limited hours.

03:54 During the quarter, over twenty percent of our restaurants were placed on limited menus due to both staffing and supply chain shortages. Throughout this time, our goal was to make sure our team members were taken care of and that we delivered gold standard level of execution to our guests.

We understand that at times these conscious decisions sacrifice short term sales by limiting restaurant seating and capacity, as well as menu items. However, in doing so, we know that the guests that are in our restaurants are getting the service, hospitality and food quality that they expect and will keep choosing BJ's over other concepts.

04:33 As a result, third quarter comparable restaurant sales finished down zero point five percent compared to the same period in twenty nineteen, which reflects the deceleration from one point four percent of positive comps in July to negative one percent in August and negative one point seven percent in September.

04:53 At the same time, supply chain is already stressed before the summer felt more acute pressures from staffing and transportation that caused certain foods to increase further, particularly fresh meats. This caused a rapid rise in commodity food cost mid-quarter, which resulted in lower than anticipated restaurant operating margins.

05:14 In addition to the industry wide sales pressures, excuse me, BJ's also lapped a period with heavy promotion in twenty nineteen. We promoted a three dollar Pizookie deal throughout September twenty nineteen with TV support.

Because of the capacity limitations related to current staffing levels, our meat to spend per restaurant was forty percent lower in the third quarter of twenty twenty one as compared to the same period in twenty nineteen.

05:43 As we said on the Q2 call and as I just reiterated, staffing remains our number one opportunity to drive near term sales growth. We continue to see a direct benefit to our comps at restaurants with higher staffing levels.

Towards this goal, our restaurants nearing their twenty nineteen staffing levels increased to approximately half of our system at the end of Q3, that's a ten percentage point improvement since the end of the second quarter.

06:09 Importantly, restaurants that were close to twenty nineteen staffing achieved comparable restaurant sales of more than five percent over twenty nineteen levels and continued to drive positive comparable restaurant sales into October.

Conversely, about a quarter of our restaurants were twenty percent or more behind twenty nineteen staffing levels and have high-single digit percentage comp sales decline in the third quarter compared to the same period in twenty nineteen.

06:42 Excluding those restaurants, our comparable restaurant sales for the quarter would be positive low-single digits.

I'm sharing this data and perspective because while our typical growth drivers revolve around menu, sales building initiatives and new sales channels such as off-premise and our Beer Club, our current number one priority and the one that will quickly reverse the margin percentage impact on labor and other cost had on Q3 is sales.

It's fully rebounding our staffing, as this challenge posed a more significant headwind on traffic and sales during the third quarter than it did during the first half of this year.

07:22 Additionally, our restaurants that were closer to fully staffed and able to drive positive comparable restaurant sales in aggregate had restaurant level margins that were over one hundred fifty basis points better than our understaffed restaurants.

So despite the current pandemic induced inflationary pressures on our business, the restaurant business still has a high degree of fixed and semi fixed costs that are very leverageable by driving top line sales.

07:50 Looking to the future, I remain incredibly confident in BJ's ability to return to industry leading results because of four key factors.

One, our differentiated concept and ability to execute at the gold standard level; second is our team members and the BJ's culture; third is our guests affinity to our brand offerings, value and hospitality; and fourth, our very significant near and long term restaurant growth opportunity.

08:18 First, our differentiated concept execution, we are unmatched in the industry, given our polished casual positioning best-in-class bar statement and AUVs approaching six million dollars on an average guest check in the mid- to high-teens.

The way our concept is designed allows guests to visit BJ's for lunch, mid-afternoon, dinner and late night. There are not many casual dining concepts or for that matter restaurants in general that have the ability to drive sales throughout the day.

08:50 With that in mind, we have invested in productivity and technology initiatives so that we can execute on what we internally call the gold standard level of execution.

This includes refined marketing and guest loyalty programs, internally developed technology that gives us ability to rapidly iterate compared to our peers, including our own internally developed app and QR code linked digital menu and our server handheld tablets.

09:15 We have large and flexible kitchens that allow us to have a broad and innovative menu to stay current with food trends. And we have craft beer authority that is unparalleled in the industry. In fact, just last month, we won another gold medal at the Great American Beer Festival.

We also have many sales building initiatives and opportunities, including continuing to grow off-premise sales through takeout and third-party delivery, building out our catering infrastructure, which is in its very early stages and growing our Beer Club subscription service, which no one can replicate at the scale that we can at BJ's because of our internal brewing capabilities.

The bottom line is, we are clearly a differentiated concept with strong competitive advantages and tremendous future opportunities to grow our weekly sales average. 10:02 Next, our team members. We continue to bolster a first class operations team to lead the execution in our restaurants, while readying for the next stage of BJ's growth.

We are fortunate to have cultivated a deep bench of talent and can promote from within to maintain our leading high performance culture and standards, while undertaking the expansion we see ahead to drive future growth.

10:27 In order to get ready for new restaurant growth, we recently added the role of Senior Vice President of Operations to our executive team and this individual is solely responsible for leading day-to-day restaurant operations, thus allowing our Executive Vice President of Operations to help guide and integrate our longer term strategy over the hiring, training, development and retention of our new managers and team members.

10:51 We also made some other changes during the quarter, including a new Vice President of Operations to oversee much of the East Coast and six new Directors of Operations and several new General Managers to lead the day-to-day operations of our regions and restaurants.

We have high expectations for all of these newly elevated leaders to make a major positive contributions to our business in the coming quarters as we build back our staffing levels.

11:15 Additionally, we've added talent at our restaurant support center to drive the next phase of our weekly sales growth as we emerge from the pandemic, including a new Senior Vice President of Culinary, a new leader of our e-commerce and digital experienced team to help build our technology to better serve our guests, a new leader of our beer subscription services to advance our Beer Club initiative, as well as a new leader to drive marketing and a newly created position to drive quick prototyping ideation and innovation at BJ's.

11:48 Next, our guests. This quarter, we completed a seminal project to develop a deeper understanding into why our most valuable guests choose BJ's above all other concepts. The team has spent countless hours speaking with and listening to our best guess.

And I love what we heard, BJ's differentiated position is defined by an environment that energizes the sensors with an inviting bar at the core and a menu with familiar offerings made with the Brewhouse twist.

12:18 Guests raved about our gold standard level of service and the value and breadth we offer across our menu with food quality that rivals restaurants with much higher prices. Our most valuable guests view BJ's as an escape from their ordinary day and they come to BJ's for all types of social dining occasions.

Armed with a deeper appreciation of our best guess and our attributes that attract them, we can more effectively target and drive even more brand affinity and traffic to our restaurants. 12:48 To that end, we are beginning to develop our own internal guests personalization platform to better engage with our guests in a one-on-one manner.

We are in the early innings, but we are already using the learnings and the significant guest data we have been capturing to help guide decisions across our business to best serve our guests. 13:08 Last, but very importantly, our significant near and long term restaurant growth opportunity.

I'm a firm believer that a key indicator of the future success of the brand is the performance of its new restaurant openings. Our recent openings in Lansing, Michigan and Merrillville, Indiana continue to perform strongly and above our system average sales.

13:27 Communities are excited to welcome BJ's and it shows what these restaurants opening and remaining fully staffed. Looking ahead, we have a terrific pipeline of sites identified for new BJ's Restaurants in twenty twenty two and beyond.

We have been unwavering in our real estate standards for top sites and premier trade areas, and we believe our openings in the next few years will be some of our best yet. And remember, we have a clear path to at least four hundred and twenty five domestic locations, which is about double our current footprint.

13:59 These opportunities, plus other initiatives such as catering and our Beer Club will be instrumental in BJ's long term strategic plan. We are rigorously analyzing other potential sales opportunities, given our differentiation in the casual dining industry.

Additionally, we are using our learnings from our best guests in prioritizing our investments for twenty twenty two and beyond. After we present our plan to our Board of Directors in December, I look forward to sharing more about these initiatives with our investors and analysts.

14:29 I'd like to finish by taking a moment to acknowledge every one of our team members. I’m incredibly proud of our team's grit and devotion to delivering gold standard experiences to our guests despite the significant challenges across the restaurant industry.

When considering response to current pressures, we remain steadfast in our approach of prudently making decisions that are ripe for BJ's over the long term and to best position us to continue to lead in sales, unit growth and shareholder returns in the years to come.

15:00 Now let me turn it over to Tom to provide a more detailed update from the quarter and the current trends.

Tom?.

15:07 Thanks, Greg and good afternoon, everyone. I will provide details of the quarter and some forward-looking views. Please remember this commentary is subject to the risks and uncertainties associated with forward-looking statements as discussed in our filings with the SEC.

15:22 For the third quarter, we reported total sales of two hundred and eighty two point two million dollars. Our sales increased forty one point nine percent versus the third quarter of twenty twenty. Compared to the third quarter of twenty nineteen, sales decreased zero point five percent on a comparable restaurant basis.

The seasonally lower sales also pressured by renewed pandemic concerns and higher cost pressures, resulted in restaurant level operating margins of eleven point two percent, which improved by one hundred and seventy basis points as compared to Q3 twenty twenty but trailed Q3 twenty nineteen by two hundred and thirty basis points.

15:58 Adjusted EBITDA was sixteen point four million dollars and five point eight percent of sales in our third quarter, beating Q3 twenty twenty EBITDA, but behind Q3 twenty nineteen EBITDA of twenty four point five million dollars.

We reported net loss of two point two billion dollars and diluted net loss per share of zero point zero nine dollars on a GAAP basis.

16:21 As Greg just outlined, we started the quarter with July weekly sales per restaurant averaging more than one hundred and seven thousand and comparable sales were one point four percent ahead of July twenty nineteen levels.

Encouragingly, our on-premise sales were within ten percentage points of our twenty nineteen levels and our off-premise sales remained approximately double twenty nineteen levels.

16:46 As we entered our seasonally slower months of August and September, we and the rest of the industry at large faced added headwind from the Delta variant surging in communities across the country, impacting both guest demand and our ability to staff restaurants given renewed COVID exclusions of our team members.

17:04 Our weekly sales averages declined to one hundred and four thousand in August and ninety seven thousand in September as our sales per comparable restaurants declined to negative one percent in August and negative one point seven percent in September as compared to twenty nineteen driven by a pullback of dine in sales more than offsetting modest off-premise gains.

17:25 In terms of dayparts, lunch in late night remain the most impacted, which -- when combined, weighed on our comp by more than three percentage points in the quarter. We expect launch to rebound once more employees return to offices in the New Year, a more delayed timeline than we expected before the delta spread.

17:44 Our reduced hours due to staffing shortages is directly impacting late night. Our restaurants closed one point three hours earlier on average through the third quarter as compared to pre-pandemic hours due to staffing limitations.

Overall, we lost approximately twenty five thousand operating hours across the system in the third quarter versus the same period in twenty nineteen or approximately ten percent of our hours concentrated in the late night daypart.

18:13 As Greg mentioned, in Q3 twenty nineteen, we spent approximately two-thirds more in media dollars, promoting BJ's brand across channels, including television when compared to our Q3 twenty twenty one spend levels.

We also utilized more discounting to drive traffic, including a three dollar Pizookie special that was promoted throughout September twenty nineteen.

18:34 Making the conservative assumption that our media investment just breakeven, the incremental media spend in our twenty nineteen base sales translates to approximately one hundred basis point of comp headwind in the current quarter. 18:46 Moving to expenses.

Our cost of sales in the quarter was twenty seven point two percent of sales, which was unfavorable to the prior year and to our third quarter of twenty nineteen. Cost of sales was pressured by food cost inflation of approximately ten percent, driven by our popular meats including ribs, prime rib and dry chip and salmon.

19:07 We serve only fresh meats to maintain our quality standards, which have experienced some of the highest impacts from inflation. And because they are fresh, not frozen, many of these meat products cannot be contracted for long periods of time.

19:21 Labor and benefits expenses at thirty seven point two percent of sales in the quarter were favorable to both prior year and our third quarter of twenty nineteen.

The line includes a three point one million dollar employee retention tax credit in conjunction with the CARES Act, which if excluded would result in our labor and benefits being unfavorable to twenty nineteen and twenty twenty.

As a result, our labor and benefits expense tend to deleverage in the third quarter when sales are seasonally low than leverage again in the fourth quarter when sales levels pick back up. 19:55 Our training and overtime hours remained elevated in the quarter due to increased hiring.

And compared to Q3 of twenty nineteen, our training and overtime hours impacted labor by seventy basis points. As we continue adding more team members to our restaurants, we expect the additional labor cost dollars to be more than offset by the incremental profit from the increased sales we can generate.

20:19 Occupancy and operating expenses at twenty four point four percent of sales in the quarter were favorable to the prior year, but unfavorable to our third quarter of twenty nineteen.

Occupancy and operating expenses remained elevated due in part to our continued high level of off-premise sales, which carry the added cost of third-party delivery commissions and to go packaging.

We also added back certain outside services and invested on refreshing certain restaurants to like new first class as we welcome back more guests into our restaurants and get ready for the busier Q4 sales period. 20:53 Looking ahead to the fourth quarter, our sales continue to build in October.

For the most recent week, we generated approximately one hundred and five thousand dollar average weekly sales per restaurant, which is eight percent higher than our average weekly sales in September and represented comparable sales of positive zero point two percent as compared to the same week in twenty nineteen and an improvement over recent weeks.

21:19 On staffing, as Greg mentioned, we finished the quarter with about half of our restaurants with staffing levels close to twenty nineteen levels, and we continue to make strides in hiring so we can fully capitalize on what we expect to be a busy holiday season.

We are also going to test some additional marketing targeting approximately quarter of our restaurants with the best opportunity to take advantage of the guest traffic based on current staffing levels. Our messaging is centered on brand building and promoting our everyday value including our Daily Brewhouse specials.

21:53 In regards to restaurant hours, we lost more than twenty five thousand hours in Q3 twenty twenty one versus Q3 twenty nineteen. However, with our recent staffing level improvements we've been able to extend hours at a number of our restaurants.

Our restaurants now closed one hour earlier on average improving from closing one point three hours earlier through the third quarter. 22:17 We intend to continue adding back hours when staffing levels are adequate to execute at our high standards.

Returning to pre-COVID hours is a one thousand to two thousand weekly sales average opportunity for our late night business.

22:30 Finally pricing, as inflation started to pick up in Q2 twenty twenty one, we implemented a two point five percent of pricing in July, which was at the high end of our historical pricing round but still below inflationary levels.

With food cost reaccelerating starting in mid-Q3, we are set to take an additional one point four percent round of pricing in the coming weeks. This level of pricing is still below the recent inflationary pressures we have experienced. However, the number one way for BJ's to protect and leverage margins is to improve our staffing levels.

We know that fully staffed restaurants drive positive comparable restaurant sales and leverage the fixed cost in our business. 23:13 Therefore, we plan to protect our traffic through price affordability and value at BJ's, as we continue building our staffing levels.

After our November menu update and pricing round, our next menu rollout is scheduled for February, at which time we will determine the magnitude of additional pricing to be taken, based on how commodities and labor have trended as our economy gets on more settled ground.

23:39 With regards to the middle of the P&L, we expect these commodity headwinds to hold our cost of sales in the low twenty seven percent area for the fourth quarter, consistent with Q3 and taking into account our planned November pricing rounds.

From a labor perspective, we expect labor in the mid thirty seven percent range in the fourth quarter accounting for modest sales growth, current wage trends and the labor investment as we continue to hire and train team members. 24:06 We expect an increase in labor efficiency, once we are past the short term investment in hiring and training.

Ultimately, the sales we generated in the fourth quarter will be a key driver of our ability to leverage labor costs. 24:20 For operating and occupancy costs, including marketing, we expect to remain around twenty five thousand per restaurant operating week average for the balance of the year, consistent with Q3 levels.

This spending level includes the additional marketing discussed earlier. 24:36 G&A for the third quarter was seventeen point three million dollar.

I anticipate G&A to be in the eighteen million dollar to eighteen point five million dollar range in Q4, which includes recent investments and talent that Greg outlined and to account for general inflation in certain G&A costs and to return to more normal levels of business activity, including travel.

24:58 We are now targeting G&A of around sixty eight million dollar for twenty twenty one, which includes six million dollars for incentive compensation compared to less than five hundred thousand booked in twenty twenty due to the impact of COVID on the business.

As always, depending on results, the six million dollars of incentive compensation may vary. Our G&A budget also includes approximately seven million dollar related to equity compensation, which is about in line with twenty twenty.

25:26 Additionally, I'm expecting our diluted shares outstanding to be approximately twenty four million for the fourth quarter, which will reflect options and warrants in the fully diluted share count, once we return to a net income position. 25:40 Turning to the balance sheet.

We repaid an additional ten million dollar of debt in the third quarter, reducing our debt balance to seventy one point eight million dollars. We ended the quarter with net debt of about twelve million dollar.

We continue to use our strong liquidity and cash flow to fuel growth with construction now started on three new restaurant scheduled to open in early twenty twenty two, with another location where we will break ground in the coming weeks.

26:06 Our new restaurant pipeline is robust and filled with high potential sites that are a mix of infill in some of our most successful markets and expansion into adjacent new markets.

We are very pleased with the strength of our balance sheet and will continue -- and we will remain consistent in our approach of prioritizing growth driving investments to build new restaurants, improve our existing restaurants and fund sales driving initiatives.

26:31 Looking ahead to twenty twenty two, while our planning process is still underway, we anticipate growing comparable restaurant sales above twenty nineteen levels as staffing is rebuilt across our restaurants and dine-in traffic continues to recover.

Wage rates will have some inflation, as the tight labor market continues, and we take the last one dollar step to fifteen dollar minimum wage in California. 26:54 However, we expect to be able to leverage the additional sales to effectively manage labor rate -- to manage labor increases.

We expect food costs to remain high, but moderate somewhat, while our ongoing pricing actions regain margin, while we maintain our leading value proposition. Of our eight or more new restaurants opening slated for twenty twenty two, we expect to be in position to open four of the locations in the first half.

27:25 In summary, we know the best way to grow margins is to grow sales. And data from Q3 clearly indicates that by fully restaffing our platform, we can accelerate top line momentum. We have a clear path to sales growth and margin recovery and our long term strategy remains intact.

While we have seen new challenges present throughout this pandemic, we continue to meet the challenges head on, manage our business for both near and long term objectives and remain steadfast and are focused on delivering our guests the best experience, which will allow us to continue delivering outside growth in years to come.

28:00 Thank you for your time today. And we'll now open the call to your questions.

Operator?.

28:08 Thank you. [Operator Instructions] We'll take our first question from Alex Slagle with Jefferies. Please go ahead..

28:34 Thank you.

I had a question on the new units you've opened up, if you could talk a little bit more about those and remind us sort of the square footage and features those builds and how those sales metrics you provided compare to previous classes at this early stage?.

28:56 Alex, hey, it's Greg Levin. I'll probably let Greg Lynds touch on some of those as well. But those restaurants are what we call our Proto 2020 restaurants, and they've got kind of more of a circular bar versus our, what I'd call our Proto 7000 and Proto 6000 or prior generation of restaurants.

From a square footage standpoint, though, they're pretty much in line with our prior restaurants. So there is not much difference between that. However, that circular bar they end up having a patio that they can roll out to, which helps us from that standpoint and it's just actually adds for a more inviting feeling within the restaurants.

When you look at the overall weekly sales average in both those restaurants, they are really, really strong in that regards and they're holding up really well. 29:43 When I look at like Lansing being the Michigan, which has been a good market for us as well, those sales levels are in line, if not better than other restaurants in the Michigan area.

And I think the Merrillville one which is more of a suburb going into the Chicago area, excuse me, is also a leader within that industry or within that area and also holding up better than traditional restaurants.

I don't know, Greg Lynds, anything different on those restaurants?.

30:10 No, that the class of twenty twenty one, which is Merrillville and Lansing is pretty much like twenty twenty, twenty nineteen in terms of square footage and number of seats. So as Greg mentioned, the indoor, outdoor patio that we have in the class of twenty twenty one is a little different has a few more seats.

But other than that, they're very similar to the other classes..

30:30 Alex, the one thing I would say, though, being a little bit newer to this position, obviously, been at BJ's for a while, is the core and the difference in that restaurant versus some of our older restaurants is obviously, it's a little bit lighter in that regards.

We like the way the round bar looks, some of the art work is more contemporary and feel of the Brewhouse void a little bit more that I think is sometimes missing some of our older restaurants.

And as we go into next year that work with the team here and put together a plan, I think we'll see some remodels being done in some of our existing restaurants to get them to look a little bit more like some of our Proto 2020 restaurants..

31:10 Got it.

And the patios, you had closed those down, right? I think after the second quarter or so the temporary ones?.

31:19 Yeah. The temporary patios have been closed down in the majority of restaurants. We do have a few here in California, a couple of other places where we’ve kind of kept some of that additional patios. But for the most part, they have been closed down.

Just off hand, we found when we left them open even during Delta variant because we kind of brought some of them back. Guests really want to get inside the restaurant. Some of it might have been to heat in the summer time. But on soon as those restaurant doors were open, they really flocked inside the restaurant..

31:50 Okay. And then just a question on the restaurant level margins, and you gave a lot of good details I know, I guess it's all sort of changing as we move through this.

But I mean on your longer term restaurant level margin views, I mean, is there anything you've seen in the third quarter in terms of permanent cost increases or structural changes that would really alter your view on eventually being able to get back to the levels of twenty eighteen that you had seen when your volumes can fully recover?.

32:21 Yeah. So we spent a lot of time looking at that, looking at our positive restaurants versus our negative restaurants and so forth. And I generally think looking at this business, and then the restaurant business in general, there is still a lot of fixed and semi fixed costs that get leveraged when you drive top line sales from that standpoint.

32:42 When we look at the commodity side, and we weren't expecting a ten percent increase in that regard.

And we look at frankly the mix in our business, guests are really gravitating much more towards kind of the comfort food, more in the red meat that had an outsized impact on us and the fact that we used fresh and makes a little bit more challenging to contract.

33:01 Taking all that aside and thinking about where we are from a pricing today, which everybody is going to have to take some pricing.

I think the ability of adding some pricing over time, and we want to do it right because that value and that price point affordability and that price point is key to us is really, really important in regards to driving additional sales.

33:21 But as we have that, we continue to drive the off-premise sales in our business and the fact that there is so much fixed and semi fixed costs in this business. We have the ability and the opportunity to get back to more historic margins. So I still see that in our game plan.

I don't think anything has changed from a longer-term perspective, I think it's going to be a little bit more challenging here, as we just saw in the third quarter in regards to training and the fact that the delivery companies shows up at twelve o'clock in the middle of a lunch shift, that's a real challenge for us in that regards and it pulls people off, we have to pay overtime and everything else.

I think as our country works through some of these supply chain bottlenecks, and we get back to a more even business so to speak, or more settled footing on the economy, I have no doubt that we can continue to leverage our business and move it forward to historic margins..

34:13 Got it. Thank you. I'll pass it along..

34:18 We'll take our next question from Drew North with Baird. Please go ahead..

34:23 Thanks for taking the question. First, I wanted to ask about trends in October. Thanks for sharing the perspective on the various cohorts and the most recent week.

But taken together for the month, how are trends tracking for the system relative to twenty nineteen? I think it'd be helpful to better understand where you're tracking earlier in the quarter and get us all on the same page..

34:44 So, if I had to look at it from the quarter standpoint and Tom can chime in here as well. The quarter started off a little bit more challenging, as we went over our free Pizookie day and then we went over a ten off forty marketing in twenty nineteen.

And as a result, I think that first week or week and half, we were down in the kind of three percent to four percent range, since that time we flattened out.

35:09 We finished last week, as Tom said on the call, we finished out at positive comp sales at plus zero point two, not a lot there from that standpoint, but still we like the way that trend is going.

And on top of that, we've moved our weekly sales average back into the one hundred and five, one hundred six range and at one hundred and five, and one hundred six allows us to be a little bit better in regards to managing the margins or getting leverage within our business.

35:32 So if I look at that and look at how twenty nineteen shaped up, October is generally your lowest weekly sales average of the fourth quarter.

So I would expect our weekly sales averages still to move in the same -- in that direction, meaning the weekly sales averages go up, especially as we hire more people and assuming it was not a new variant out there of COVID. But overall, I think we're probably about down two percent, but we've kind of moved from more recent to a flattish number..

36:03 That's helpful. And then, I wanted to also ask about the outlook for labor and commodity inflation in twenty twenty two. I know it's early and you provided some directional color.

But based on what you're seeing out there, how are you thinking about the level of labor inflation and commodity inflation next year? And then how are you thinking about pricing against that inflation? Do you expect to take an additional pricing beyond the November price increase you mentioned?.

36:31 Yeah. Drew, we mentioned in our formal remarks and Tom’s that come February is our next general menu rollout, and we will take some menu pricing at that time. We've got another dollar of minimum wage hitting here in California.

And then, I think we're going to be in a really good position from that standpoint in California going forward in regards to just annual increases, which have been about five years in a row moving from about ten to fifteen from that perspective.

37:00 As a result, I think you're still going to see inflation probably or labor inflation probably kind of still in the mid- to high-single digits even though it does seem to be abating a little bit, I think what we're seeing differently is, we're seeing people show up for interviews and then show up for their jobs for the first day.

We didn't really see that at the very beginning, as the economy opened up.

37:25 We saw people that would kind of book an interview, but they didn't show up for or we find people that might not have shown up for a job, so as Tom mentioned, we've got about seventy basis points right now and over time and training and that's a lot for us, seventy basis points over twenty nineteen.

That's because we're actually getting close to maximum training that we can do in a restaurant. If we're down thirty people in a restaurant just throwing a number out like that, we can't train all thirty of them in one week. We can probably train at max six to seven people per restaurant, so it takes a while for us to get through that.

37:57 The good news is, we're getting through that now. We're seeing people show up. We're seeing people really want a job and come back and we're also seeing higher retention rates or lower turnover going into September and October across the board.

So really seen within our business that kind of going into August and September -- August was really kind of the apex and then from there, it's come down. 38:21 On supply chain, we're starting to see that abate a little bit as well. And I think as we go into next year, it will start to flatten out.

I do think over time, we could see cost of sales one from pricing and other things, starting to get below twenty seven percent and getting back to more of our historic norms over time.

Tom, you got anything else?.

38:42 Yeah. And I think to Greg's point, when we think of the cost of sales and inflation next year, we're looking at it both on overall inflation basis, as well as just a rolling basis. And as we think of the recent cost in our especially these fresh meats, we've seen some of the prices start to tick down modestly.

So we still expect some more cost of sales inflation on an absolute basis next year, but it seems like at least in some of these meat categories that at least we will be moving in the right direction there. And to Greg's point with pricing, it's all helpful to margins..

39:20 And Drew, to your first part of the question was about pricing next year which as I mentioned, we will take in February, we don't know the amount of pricing. We're not going to take pricing right now in what we consider to be kind of this pandemic induced bubble in that regards.

Once you've taken pricing and you've lost that price point affordability with your guests, you don't get it back.

39:41 And we've got so much opportunity to grow this business for the long term that we understand what's going on right now, we'd rather see supply chain start to normalize, get a better understanding where labor is going and some of these other things around supply chain and then take the appropriate pricing at that time and frankly have that pricing powder still inside BJ's to deploy as we need it..

40:05 It all makes sense. Thank you..

40:08 We'll take our next question from Nick Setyan with Wedbush Securities. Please go ahead..

40:16 Thank you.

So first, I guess appreciating all the detail you guys gave around the staffing headwind, but just all-in-all, is there a way to quantify what staffing headwind was to comps in Q3? I mean it sounds like it's in the five percent to six percent range, is that correct?.

40:35 Yeah. That's correct. If we look at limited hours, we look at the restaurants that had below ninety percent staffing level for the most part and in fact that we had to put a lot of restaurants on a limited menu. When we look at all those things, Nick, they kind of come into the numbers that you just talked about there.

40:55 Our limited menu restaurants they end up with an average check of about zero point thirty five dollars or less or zero point thirty five dollars or more than restaurants that had full menu from that perspective. They're also closing their doors of more than one to two hours greater, so we lose that late-night business.

And then, obviously we're not seating all the tables. So and we look at those deltas on the things we see that. 41:18 The other thing that we just recently did is we finally got physical menus back in front of our guests. One of the things we heard from our guests is they love having a physical menu.

And I think we are all really excited this business to get to HTML menus because everybody is thinking we're going to eliminate printing costs and so forth from that standpoint. But we've seen our guests like a physical menu. We've seen other restaurants with the physical menu, but there's a sense of normalcy that we hear from our guests.

We know the physical menu, which we able to rollout here in November is also worth about zero point seventy dollars more per average check. 41:52 So there's a lot of good things we have going in the right direction, moving the business forward.

It's just Q3, the way it kind of started and then what came through from really the Delta and our exclusions in our restaurants really put a challenge in front of us.

And frankly, we would rather look at the business from a long-term perspective and make sure we're taking care of our team members, taking care of the guests that come to BJ's and no doubt, we'll build it over the long term..

42:22 And then on the labor side, I think you said you went from forty percent to fifty percent fully staffed at the end of Q3.

I guess given just the recent trends in terms of hiring, where do you expect to be at the end of Q4? And then I guess, what percentage of the understaffed stores can you say maybe each store that's understaffed on average we still need about ten percent more employees, five percent more employees, just to give us some context?.

42:51 I don’t know if I can give you that context. I think what I would tell you is, when we get to close to twenty nineteen, which you could probably think somewhere in the neighborhood of upper eighties to ninety percent or close to twenty nineteen levels, we can generate full restaurant sales in that regards.

So I can't tell you thinking about it, what we're -- how much each restaurant is missing and is it ten or twenty employees from that perspective. That's kind of not part of it there.

43:27 And Nick, look, if you had and we said this before, we’d love to be staffed yesterday in that regard and our goal was to be staffed up at the end of the third quarter, and I think us as well as we heard from other companies got a little bit challenged as the hiring didn't pick up as much as people might have thought early on in August and September.

I think a lot of that was due to the Delta variant. I think that's also due to the fact that people have pretty solid balance sheets and might not need to come back to work right away. 43:56 But as I mentioned, just a few moments earlier, we're seeing key members show up or new employee show up, I should say.

We're seeing that number as we just mentioned get better throughout the quarter and it looks like it's getting better here into Q4.

Our goal and I think Tom mentioned this on the call was to get every restaurant back to a full menu by early November and to get restaurants back a full menu by early November means our goal is to have all of our restaurants staffed up by early November..

44:30 And would that also imply full hours, so like not the one-hour less at night?.

44:39 Our goal would be to get there. I'm not sure on that one. I think that's going to be the last move for us is extending some of that hours.

I think certain restaurants were already extending the hours because we know we have the capability, but as those team members get trained, and we can put the full menu in place, that's going to be the first step. The next one then would be to additionally close the gap on the hour..

45:07 Okay. And then just last question, I think we talked about two point five percent pricing plus one point four percent pricing and then Q1, we still have the February -- pricing through February.

So that puts us in Q1, it would put us with somewhere in that four percent to four point five percent range?.

45:28 That'll be correct kind of going in at two point five percent and one point four percent that put to us, call right at four percent and then some time in, kind of, I would say mid to early February or early to mid-February will be when our next menu rolls out..

45:43 Got it. Thank you very much..

45:45 You're welcome..

45:47 We'll take our next question from Todd Brooks with CL King & Associates. Please go ahead..

45:53 Hey. Good afternoon, folks. A quick question for you on the top line side across, and we're very focused on the expenses in the quarter and the headwinds. But as we're emerging from the pandemic and I know Delta caused a wiggle in some traffic, but it seemed like it was more of an operational curtailment.

Greg, is there any change in your thinking about AUVs really building back to a substantially higher level, as we normalize coming out of the pandemic as far as success that you're still seeing with off-premise revenue retention, return of dine-in demand when the situation is a little bit more normal and some of the other incremental drivers of revenues, just your thoughts on when we get to a new normal where AUVs could be tracking towards?.

46:46 There is nothing that has me changed -- there is nothing that has changed my mind where BJ's can go from a weekly sales average.

I think not only what you just talked about there in regards to holding off-premise in fact, frankly, growing off-premise, knowing the fact that we brought somebody on board to lead Beer Club, which has drove an increased frequency of our current guests from that perspective, knowing that we've got catering that we've really haven't even rolled out from that side of it and the other initiatives around off-premise, as well as the fact that as guests have come into our restaurants, we're growing that weekly sales average in many of our existing restaurants that are fully staffed.

47:28 So I still look at the fact that we can get off-premise from what's right now and that kind of, let's call it twenty thousand to twenty five thousand range depending on seasonality, I think there's another five thousand there in total, off-premise, if not more.

And then I think we have that ability still to drive the dining room, which frankly is kind of running in the mid eighty five percent range. So, getting the dining room back and holding on the off-premise, I think our weekly sales average goes above where it's been historically. We have not seen, as we kind of settled into where we are right now.

We have not seen the trade-off anymore between off-premise and dining room. 48:07 I think that happened as dining rooms opened up and guests started going back, but now that all your dining rooms are open, off-premise has held really well in that regards.

I think we haven't done a lot of promotions around off-premise, but it's held from that standpoint. And it's about getting our restaurants staffed and growing that dining room and those together are going to I think put our weekly sales average above twenty nineteen levels..

48:31 That's great. And then you guys talked about the relatively fully staffed cohort and the performance in Q3.

Can we talk about just the performance in Q4? Is it still kind of that group of stores running up in that mid-single-digit type of range? Any change there? Is that actually inflecting higher as we come out of that seasonal slow period, August, September?.

49:00 Right now it's still primarily those same cohort of restaurants that are driving that. This last week, those restaurants started to go up in regards to weekly sales average as we got through the free Pizookie day and some of the other thing, and we've seen our overall weekly sales average move into one hundred and five thousand plus.

So we have seen those restaurants move forward. We actually set a record just last week at one of our restaurants. So we're seeing those moving forward.

49:27 Where we're seeing the challenges, we've talked about this before, so this is not anything new, but it's still the Bay Area is a challenge, and we are expecting office buildings to come back, or people come back in their offices in originally around September and October and that's going to be pushed to twenty twenty two.

So I think we've got that opportunity there to grow that part of it. 49:50 And then the kind of some of our restaurants on the Eastern Seaboard just are not as staffed as we'd like to be.

And they're slowly moving in the right direction, but as you kind of pulled back from some of those restaurants are ones that are fully staffed are doing what we expect them to do in driving positive comp sales..

50:08 Okay. And the final one for me and then I'll pass it along. If you talked about seasonally average weekly sales would build kind of from here on out through the end of the year just as we get into the heart of the holiday season.

Is there anything to be aware of from a fiscal nineteen type of compare from other promotional activities that might not allow it to maybe a, grow in a linear fashion and b, make the comparison tougher than we might realize over kind of the November, December window?.

50:41 Not to the same degree, but I will say, we spent closer to and I've got to pull up nineteen’s here, but I think we spent in marketing closer to eight million, that's if I put my nineteen numbers here, nineteen, we spent almost eight million dollars in Q4 in marketing and our marketing here is going to be somewhere in the kind of five, five point five range.

So it is less marketing dollars being spent right now that ten of forty was probably a big one in the free Pizookie Day that we did at the beginning of October and the three dollar Pizookie in September. We're probably the highest hurdles we had to go over.

51:20 But we're not at a point, frankly, we're not at a point yet because our restaurants are fully staffed to lean all the way into marketing. As I said on my part of the call, I would love to do other sales initiatives, some of things we learned from our best guests and things like that that are coming forward next year.

But really, we know that right now if we drive staffing into our restaurants. We can drive top line sales and then we can leverage the fixed and semi-fixed cost within our business..

51:45 So if you get the staffing goals hit for November, you would expect to see average weekly sales kind of grow from this latest week in October where you’re in that one hundred and five range just seasonally?.

51:57 That's correct..

51:59 Okay, great. Thanks a lot..

52:05 We'll take our next question from Nicole Miller with Piper Sandler. Please go ahead..

52:10 Thank you. Good afternoon. Can understand I think and definitely appreciate that you're almost fully staffed like at your ideal matrix.

But when you think about what you've learned from the employee, how do you think about whether any of this is transitory and if it's not, what measures would you take and when I'm thinking about well beyond higher wage rates, but you over staff certain shifts, knowing that there is pressure when people call in or whatever, what -- how do you think about that and frame it up, I guess if it's not transitory? Thanks..

52:48 Nicole, that's a great question. I think everybody in the industry continues to figure out how to deal with the employee challenges out there.

And I'm not sure anybody has come up with the magic pill yet, and we hear all the different initiatives out there, and believe me, we do them as well from that standpoint, maybe don't celebrate them publicly as much as other companies do in that regards.

But we do things like team member appreciation, we do raffles, shift raffles, referral bonuses and so forth in that standpoint.

53:23 I think what you might end up seeing in this business over time is more around predictive scheduling or from that standpoint where team members and we try to do this, make sure they get guaranteed shifts versus if the sales are slow or if the sales are going -- or the sales are stronger, keeping people on from that perspective, I think that's one that I think everybody in the industry is probably looking at because a lot of team members would like to have more predictability and be able to work around certain parts of their schedule.

I think that plays an important aspect of it. 53:57 And then frankly, and I've always been a believer of this is, it's about the culture within the four walls of those restaurants. And we spend a lot of time with our general managers, teaching them to take care of the team members from a culture standpoint.

People aren't running away from one job to the next, for zero point ten dollars more in pay or zero point twenty five dollars more in pay, et cetera, from that standpoint.

It's about the balance within the restaurant, both within the kitchen and within the dining room and giving some time better predictive scheduling can play into that from that standpoint and how our general managers take care of our team members.

54:36 All of that plays into, frankly, providing a better experience for our team members, and those are things that we continue to work on, as well as all the other things in regards to offerings that could be used out there..

54:49 That's it from me. That's the color I was looking for. Thank you..

54:53 You're welcome..

54:55 We'll take our next question from Sharon Zackfia with William Blair. Please go ahead..

55:02 Yeah. Hey, guys. This is Alex on for Sharon. Just a couple of quick ones.

So maybe could you just quantify where the overall staffing level is right now versus pre-COVID? And what your line of sight may be to be returning to full staffing? And what could underscore your confidence in restoring those hours and menus by early November?.

55:27 Well, you kind of answered your question by saying the menu rolls out in November, because that's when we'd like to be there in that regard. So that's our timeline that we're going after. I do think changes in COVID could play into that from that standpoint.

I'm trying to pull up and see if I've got like kind of the staffing levels -- do you have it Tom?.

55:57 It's sitting on average at about ninety percent across our system. Some have more staffing than we did in twenty nineteen, but obviously some a bit less. So just looking at the average, it's right around ninety percent..

56:11 Okay, great. Thanks.

And then just one more, so in those restaurants that are staffed below twenty nineteen levels, is there any kind of underlying common thread between those? And what tactics do you guys plan to use to bolster those staffing levels?.

56:30 So I think it's actually an interesting question. And when we look at that, I think there was a couple of things, here in California, maybe Texas and some of the other markets where we've got a lot of brand recognition, have been around there for a while, it's easier to get team members back, but it's also easier to borrow team members.

So if we've got restaurants in California that are eight to ten miles away, we can borrow team members, which can make that work really well.

56:59 So when we start to look at some of the areas that are more challenges, it's some of our newer markets, it's somewhere maybe the restaurants don't have a sister restaurant close to that maybe the sister restaurant is two hours away or three hours away, so it's much more difficult to borrow team members.

So that's one of the common themes that we see in that regards when we look at kind of the staffing levels, it's not, I wouldn't call it a hundred percent like with the -- I wouldn't say it's an R-squared of one in that regard, but it's a common theme that we see on some of our restaurants.

57:35 And then as I said earlier and I think Nicole asked a really great question on that just about getting people back of the things we're doing and we're doing like all other companies are doing, whether they are job fairs, referrals going in and just talking to different people, looking at the restaurants providing opportunities to grow from, whether it's a server assistant into a server or working in the different areas of the kitchen.

58:01 We've changed up some of our training materials as well to make things easier and take on smaller areas to begin from that standpoint. And then we've done a lot around culture in regards to team building weeks and team appreciation weeks, as well as raffles and so forth to bring people on board..

58:22 Okay, great. Thanks guys. That's all for me..

58:28 We'll take our final question from Jeffrey Bernstein with Barclays. Please go ahead..

58:34 Thanks, guys. This is actually Jeff Priester on for Jeff Bernstein. First, Greg, kind of, if I look at average weekly sales, you guys have kind of gotten back to your twenty nineteen levels despite significantly lower advertising and promo expense.

So longer term, how are you kind of thinking about when to put that advertising and promo back into the business? How have you put it into the business and whether it's actually necessary to put it back in the business at all? And then I have a follow-up..

59:05 Yeah. It's a great question. So I think there is a couple of ways to look at it. We wouldn't put it back into the business really until we're fully staffed.

Just when we think about it in the very traditional sense, it makes -- no, it doesn't make, I guess, again, using the word, any sense to all of a sudden go out there and do a lot of promotions and marketing and advertising, if the restaurants are only sixty percent or seventy percent or eighty percent staffed, because we're not to be able to drive the incremental sales for that additional marketing to make sense.

So that would be my first thought about it when you think about the timing.

59:38 Secondly, and I think this is, and I'll let Kevin probably talk to this as well, as we've been able to learn more and more about our guests and some of the projects that we've been doing, and we continue to build out our guest database where we can do more personalization and digital and social engage with guests on a one-on-one basis, I think our level of marketing might be less dollars because it's more efficient when you do it more digitally and reach to our guests, but it's also probably a little bit more of a one-on-one basis versus what we've seen in the past.

And Kevin is really an expert on this. I'll let Kevin kind of talk through some of this..

60:14 Yeah. Thanks, Greg. It's a segue.

We have certain restaurants as Tom I mentioned that are already staffed at decent levels, and we're able to go in right now, and actually put marketing around those restaurants, making it very localized with today's tools, the digital marketing what we can do with personalization of our website and geo-targeting, so we are doing some of that.

60:34 But as Greg mentioned, what we can do within our loyalty program, within our channel messaging, whether it'd be email marketing, SMS marketing, we can go almost at the guest level.

So we're doing a little bit of both, we're looking at both geographically around restaurants that are ready to take the marketing and secondarily guest segments were back to market, but we can actually target guests that we know are in market today looking for restaurants.

60:54 But I will say the last part of your question, we've seen historically very strong response from our guests to promotions to brand marketing around our stronger assets like our Daily Brewhouse Specials.

So we look forward to getting back in the market one day, where we can kind of let loose the marketing channel again and really push some of the great things to drive our guests back in the restaurants at the national level..

61:18 Great. And then finally, Tom, just the construction industry is facing all the same challenges the broader economy is, the labor shortages and supply chain issues.

So how should we be thinking about CapEx for those eight units in twenty twenty two?.

61:37 Yeah. So this is Greg, and I'm going to address it, Tom, from that standpoint. But one is we feel good about the eight units, and we always worry about our general contractors being able to deliver and that point on the shortage from that standpoint.

But right now, we have seen historically higher cost than what we were building restaurants for two or three years ago, which were summers around five million on a gross basis. Today, I want to say they're more in the five point six million, five point eight million range..

62:06 Yeah.

I mean, I guess I would add to that is really what's helped us navigate all these issues, and you're absolutely right that we've seen in the commercial construction business the same kind of supply chain issues, but our solid track record of consistent growth has been a great base of contract is helped us offset a lot of those supply chain issues..

62:33 Great. Thanks..

62:35 You're welcome..

62:37 And ladies and gentlemen, this does conclude today's question-and-answer session and today's conference. We appreciate your participation. You may now disconnect..

62:47 Thank you..