Hello, and welcome to the BJ's Restaurants Third Quarter 2023 Earnings Release and Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Rana Schirmer, Director of SEC Reporting. Please go ahead..

Thank you, operator. Good afternoon, everyone, and welcome to our fiscal 2023 third quarter investor conference call and webcast. After the market closed today, we released our financial results for our fiscal 2023 third quarter. You can view the full text of our earnings release on our website at www.bjsrestaurants.com.

I will begin by reminding you that our comments on the conference call today will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Investors are cautioned that forward-looking statements are not guarantees of future performance and that undue reliance should not be placed on such statements. These statements are based on management’s current business and market expectations and our actual results could differ materially from those projections in the forward-looking statements.

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.

We will start today’s call with prepared remarks from Greg Levin, our Chief Executive Officer and President and Tom Houdek, our Chief Financial Officer, after which we will take your questions. And with that, I will turn the call over to Greg Levin.

Greg?.

Thank you, Rana. BJ has delivered another quarter of positive comparable restaurant sales and year-over-year margin expansion. Our total revenues increased a little over 2% led by a 1.5% increase in our average weekly sales, driven by continued positive comparable restaurant sales and the strong performance f our new restaurants.

For the 10th consecutive quarter, our comp sales results beat the industry as measured by Black Box. We expanded our restaurant margins to 11.9%, representing an increase of 160 basis points from the prior year and generated adjusted EBITDA of approximately $20 million in the quarter, marking a 29% increase over the prior year.

In fact, in the first three quarters of fiscal 2023, we have generated over $76 million of adjusted EBITDA, which is roughly equivalent to all of last year with of course one quarter to go. Compared to 2022, industry-wide sales trends normalized in the 2023 third quarter.

Historically, weekly sales volumes peak in May and June and then come down in July before taking further steps down in August and September. Last year, with consumers free of COVID restrictions, weekly sales average actually increased in August compared to July with a smaller step down in September.

This year third quarter sales trends reverted to pre-COVID, patterns resulting in a return to an August and September sales slowdown.

Tom will provide more details on the quarter, but since regular seasonality returned in the fourth quarter of last year, we have seen our comparable restaurant sales rebound to positive low-single digits starting in October.

As we mentioned previously, our sales and margin growth strategies are rooted in our in-depth consumer research and focus on building the BJ's brand over the long term quarter-by-quarter and year-by-year.

We know that our guests escape to BJ's for a dining experience featuring familiar food items made Brewhouse fabulous with gold-standard service and gracious hospitality delivered by our restaurant teams, and packaged in an ambiance that is of higher quality differentiated and full of energy compared to mass market casual dining concepts.

Therefore in the third quarter to enhance our already high service and hospitality standards, we rolled out new server scripts as well as an updated mystery shopper program focused on consistently delivering gracious hospitality to our guests.

As a result of these recent programs, we have increased hospitality stores year-over-year on our guest surveys. Additionally, our hourly and management staffing levels continue to improve year-over-year as we narrow the gap to pre-COVID levels.

In fact, our hourly team member retention rate in September matched our pre-COVID level illustrating our improving operating environment which has enabled us to execute at even higher levels of service and efficiency.

We also rolled out a new menu that has 15% fewer items and is focused on familiar items made Brewhouse fabulous based on our guest research and careful testing in our restaurants. Having fewer items but the right items for our guests resulted in improved pays scores year-over-year.

Our innovation team continues to create new menu items and drinks that provide the familiar yet made Brewhouse fabulous.

In the third quarter, we rolled out our Big Twist Pretzel paired with BJ's Brewhouse Blonde Beer Cheese and the Hickory Brisket Nachos for a limited time accompanied with a line of Wow margaritas, including our new White Peach Boba-Rita.

Importantly, our culinary and beverage innovation is working to grow sales adding both incidents and dollar sales to the appetizer and cocktail categories. In fact, the new innovative cocktails are now our top sellers in that category.

We also just rolled out our limited-time-only Spooky Pizookie with orange-colored vanilla ice cream and chocolate syrup that guests pour over their dessert, which hardens to make a delicious chocolate shell over our world-famous Pizookie dessert.

Our Spooky Pizookie has exceeded our expectations becoming our number one selling Pizookie this October and selling out sooner than anticipated. Given the extraordinary guest excitement and demand for this product expect to see Spooky Pizookie back next year.

We are now looking forward to this holiday season as we plan to feature a new limited-time-only Brewhouse Blonde garlic shrimp appetizer a special filet surf-and-turf entree and our new Tipsy Snowman and Winter Paradise Pomegranate Margarita seasonal cocktails.

All of these items fit squarely in our menu strategy of familiar items again made Brewhouse fabulous. Furthermore, we know that guests come to BJs for a better dining experience rooted in what we call Brewhouse Theater. Each of these new items provide the guests with more theater and quality than what you find at other mass casual restaurant chains.

For example, our Tipsy Snowman cocktail includes a holiday marshmallow shaped like a snowman in a Belgian beer glass and the Spooky Pizookie allows our guests to pour over the chocolate sauce and watch in anticipation as it hardens. All of these items allow guests to trade up, and indulge at BJ's while creating a fun polished casual experience.

Most importantly, for us to do this we needed to optimize the menu and simplify execution in certain areas so that we can provide our guests an even better culinary experience. All of this has been made possible by our menu optimization process, that we began last year and the continuing passion and dedication from our team members.

Through our research, we know that a key differentiator in full-service restaurants is ambiance. Guests don't want to visit old worn-out restaurants, with wobbly tables, dirty floors and broken chairs. Guests want a contemporary, relevant atmosphere that complements team members' gracious hospitality and BJ's delicious food.

Our remodel program focuses on that relevant ambiance, by providing enhanced seating capacity an updated bar statement, new lighting artwork booths and tables. As we've mentioned before, the new bar statement is amazing and includes a much lighter more contemporary bar feature featuring a new 130-inch television that screens Brewhouse Theater.

We are still targeting between 35 and 40 remodels this year, and we expect to have remodeled at least 20% of our restaurants by year-end.

While the best way for us to continue our margin growth is by driving top line sales since every additional dollar of sales leverages the fixed elements of our cost structure, we also laid out a plan last year to identify at least $25 million of four-wall cost savings opportunities that will benefit our restaurant operating margins while maintaining our high-quality standards.

We have now unlocked over $30 million of cost savings on an annualized basis, as we reduce food labor and operating and occupancy costs.

Additionally, the team has identified further savings opportunities, which we expect to roll out late in the fourth quarter which will continue to improve our margins and our EBITDA year-over-year We also continue to open new restaurants in a balanced manner.

In 2023, we opened five new restaurants including the relocation of our Chandler Arizona restaurant. Our 2022 and 2023 classes of restaurants are doing exceptionally well, with weekly sales average of more than $130,000 or approximately 10% higher than our system average and overall margins in the mid- to upper teens.

As we discussed last quarter, we submitted new plans for the majority of our 2024 openings so that we can roll out our new prototype that will save us approximately $1 million per build versus our current prototype. Additionally, due to a more efficient layout this prototype should provide an opportunity for labor optimization.

Overall, we believe this new prototype will provide even better returns on invested capital by delivering better margins and built at a lower cost. Therefore, I expect 2024 new restaurant openings to be similar in number to this year, before we plan for an increase in the rate of new restaurant openings in 2025.

As we've said many times, our goal is to reaccelerate our new restaurant expansion and grow restaurant weeks by 5% or more annually. However, we are going to do so with the right quality and at the right investment cost to continue to drive strong new restaurant investment returns.

With 5%-plus new restaurant growth, consistent comp sales in the low- to mid-single-digit range and expanding restaurant margins, we should achieve very strong EBITDA and earnings growth for our shareholders.

With the continued positive reaction from our guests to all that we are doing coupled with our increasing margins and EBITDA, we reinstated our share repurchase program this past quarter.

We are increasingly confident in our strategy to grow sales, expand margins open new restaurants and return capital to our shareholders in both the near and midterm. Finally, I am looking forward to seeing many of you at our Analyst and Investor Day on Tuesday November, 14 and the welcome dinner the night before.

We'll host a special beer dinner featuring some of our most iconic beers, as well as some of our new menu items and cocktails. At the November 14th event in Boston, we will share greater detail around our near-term opportunities and our longer term strategy. So I hope you can all join us for that event.

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

Tom?.

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. In the third quarter, total sales grew 2.3% to $319 million.

On a comparable restaurant basis, sales increased by 0.4% over the prior year. From a weekly sales perspective, we averaged more than 113000 per restaurant.

In a typical pre-pandemic year, the third quarter is our lowest sales quarter seasonally with the sales deceleration starting after Father's Day in June and continuing to step down into August and September as Greg mentioned. This year our sales followed this normal seasonal pattern consistent with industry trends in our markets.

However in 2022 the seasonal decline was much less pronounced as consumers enjoyed their first summer without any COVID restraints. As such last year's weekly sales averages actually increased into August before coming down slightly in September.

This year's return to a more normal seasonal pattern resulted in comparable restaurant sales softening later in the third quarter from the mid-4% positive in July to about flat in August to negative low-single digits in September.

Moving to more recent trends, comparable restaurant sales in the first three weeks of October are trending in the positive low-single digits, an improvement of more than 500 basis points from September levels as last year's seasonality normalized in the fourth quarter.

Our comp sales improvement in October is being driven by improving traffic trends compared to both August and September and to a lesser extent our late September pricing round in the upper 1%.

Looking at the sales trends from a different perspective, our comparable restaurant sales compared to 2019 were much more consistent throughout Q3 and into early Q4, providing us further confidence that 2022 seasonality was the main driver of the one-year comparable sales volatility in the third quarter.

To date, we continue to see acceptance of our menu pricing rounds with no value-oriented shifts in our menu mix or less items ordered per check, which would indicate check management or changes in traffic patterns. Regarding dayparts, our late-night sales continue to outperform and grow faster than other dayparts.

As our late-night check is lower than other dayparts this channel mix shift is adding a modest headwind to average check. Our restaurant-level cash flow margin was 11.9% in the third quarter, an improvement of 160 basis points compared to the prior year.

Comparable sales growth in conjunction with improving operating efficiencies and further progress on our cost-savings initiatives contributed to our margin improvement.

Further illustrating our progress, our third quarter restaurant-level cash flow margin was within 160 basis points of the same quarter in 2019, marking a 90-basis point improvement from the 250-basis point differential in the second quarter.

Also Q3 was the first quarter in the post-COVID era where our restaurant-level cash flow dollars were higher than the corresponding quarter in 2019. We are encouraged by the progress made to date and continue to advance initiatives to further grow our restaurant margins.

Adjusted EBITDA was $19.6 million and 6.1% of sales in the third quarter, which beat the prior year by $4.4 million with a margin that was 120 basis points higher.

We reported a net loss of $3.8 million and diluted net loss per share of $0.16 on a GAAP, basis for the quarter both of which would have been an improvement from last year when excluding the $4.1 million tax benefit from the year ago period. Moving to expenses.

Our cost of sales was 25.9% in the quarter, which was 140 basis points favorable compared to a year ago and consistent with the prior quarter. Food costs were about flat quarter-over-quarter and year-over-year, which was moderately favorable to our expectations.

The inflation figure would have been higher if not for the accumulating benefits from the changes we've implemented to date across our food basket as part of the cost-savings initiatives. Labor and benefits expenses were 37.1% of sales in the quarter, which was 60 basis points favorable compared to the third quarter of last year.

We made further strides improving our labor efficiency, which was driven in part by our reduced menu that requires less kitchen prep hours.

A number of the labor efficiency metrics we track, including items per labor hour were better this quarter than pre-pandemic levels illustrating the high level our restaurant teams are operating at as well as the effectiveness of our cost-savings initiatives to date with respect to refining and optimizing our labor model.

Occupancy and operating expenses were 25.1% of sales in the quarter which was 40 basis points unfavorable compared to the third quarter of last year.

Approximately half of the increase was due to an investment in promotional and awareness-building activity to drive off-premise sales including catering which have a high level of incrementality and return on investment. Our catering business continues to grow and delivered approximately 50% higher sales than the same quarter last year.

G&A was $19.5 million in the third quarter. Included in G&A was a $100,000 deferred compensation benefit linked to fund performance in our deferred compensation plan compared to a $600,000 expense in Q2. As a reminder this is a non-cash item that has an offsetting entry in the Other Income and Expense line in our P&L.

For the full year, we now expect G&A to be in the $80 million to $81 million range which is on the lower end of our prior guidance. Turning to the balance sheet. We ended the quarter with a debt balance of $60 million which was $7 million higher than the end of Q2 and equal to where we started the year.

We ended the quarter with net debt of about $48 million. Also during the quarter, we reactivated our share repurchase program to resume returning capital to shareholders. The resumption of our share repurchases reflects management's belief that BJ shares are currently undervalued and our confidence in BJ's longer-term prospects.

During the third quarter we repurchased and retired approximately 164,000 shares of common stock at a cost of $4.3 million. At the end of Q3, we had $17.8 million remaining on our authorized share repurchase program.

Looking ahead to the fourth quarter, we are encouraged by recent sales and traffic trends as comparable restaurant sales have returned to positive low-single-digits. Shifts in prior year seasonality have passed and we expect to continue delivering comparable sales in the low-single digits for the quarter.

Factoring in our sales expectations and recent cost trends, we expect restaurant-level cash flow margins to be in the low 14% area in Q4, significantly above last year's Q4 margins.

As a reminder, Q4 2022 margins had the benefit from a 53rd week and a onetime gift card breakage benefit which benefited last year's Q4 margins by approximately 130 basis points in aggregate. Regarding CapEx our five 2023 new restaurants are now opened and most of our 2023 restaurant remodels are completed.

Included in our Q3 openings was the relocation of our Chandler Arizona restaurant which is off to a fantastic start with sales approximately 50% higher than our previous location. Also in the quarter we closed an underperforming restaurant which required a non-cash write-off in the Loss on Disposal and Impairment of Asset line in the P&L.

Also related to CapEx we invested an incremental $2 million to purchase upgraded server handheld tablets for approximately half of our system which enabled additional functionality such as payment at the table and will lead to a meaningful operating cost savings with purchasing the tablets instead of the leasing arrangement with our prior-generation devices.

Due to this incremental investment as well as increasing the number of our restaurant remodels last quarter we are now targeting the high end of our prior $90 million to $95 million CapEx range for this year. Looking ahead to 2024. As usual for this time of year we are in the middle of our planning process but I can share some early thoughts.

We expect food cost inflation to remain in the low-single digits. We will lock in most of our contracted items for 2024 over the next couple of months and we'll have a better idea of any variances when we report Q4 results in February.

Labor inflation could tick up to the mid- to upper-single digits given the added impact of California's AB 1228 bill which is the bill that replaced the FAST Act.

To note many of our California-based hourly team members earn near or above the new $20-an-hour minimum wage to be paid at fast-food type restaurants in the state starting in April 2024 but we do expect some impact. We expect higher menu prices in restaurants throughout the state as operators look to mitigate the added costs.

We are still finalizing our menu pricing plan for next year but expect to be able to offset inflationary pressures. We plan to open four to six restaurants next year similar to this year and continue our remodel initiative given the attractive financial return profile. We also intend to continue repurchasing shares.

In conclusion we know the best way to grow margins and profit is to grow sales. Recent sales trends have been encouraging with demand for BJ's higher-quality experiential dining remaining strong and we expect to continue making progress with our sales-building initiatives.

At the same time we remain committed to productivity and cost savings through our margin-improvement initiatives with momentum continuing to build.

We have a clear path to sales and margins growth ahead and our long-term strategy and strong consumer appeal for the BJ's concept position us well to continue building on our successes and enhancing shareholder value. Thank you for your time today and we'll now open up the call to your questions.

Operator?.

Thank you. [Operator Instructions] Today's first question comes from Brian Bittner with Oppenheimer & Co..

Hey, guys. It's Mike Tamas on for Brian. Hope, you are well. I think you've talked historically about the fourth quarter margin being a pretty good read on what the next year's full year margin might look like.

So I'm wondering does that still hold with the guidance for like the low 14% range this year? And what do you think the big variances might be if any against that? Thanks..

Mike, thanks for the question. That's right. If you look back to 2019, our Q4 margins were very consistent or the same as the full year margins. I would say for this quarter, we do still have cost-savings initiatives rolling out through Q4. So the average for the quarter at the low 14%s I think the exit rate should be something higher than that.

We're still in the process of -- there's a couple of things on the supply chain side that are meaningful. There's some changes that we're making for efficiencies on our operating and occupancy line which we're starting to implement mid-quarter. So there's still some bigger savings that we should be seeing through the quarter.

So it's a little different than a typical year, but you're right this is -- Q4 is about an average sales quarter for us, where it comes out and we see the margins about where we think they should be for the year, but with that added piece that the exit rate should be stronger given some of the margin-improvement initiatives that we're continuing to execute on..

Got you. Thanks.

And then I know you haven't decided anything yet for 2024 on pricing, but if you didn't take anything and I know obviously California is going to force your hand on that, but if you didn't take anything can you just give us a sense for where 2024 pricing would be just with what you're carrying for this year? And then if you could, can you just give the breakdown of pricing and traffic mix for the third quarter? Thanks..

Sure. So I think for a base case, there will be some pricing next year. So as we think about it, we will get some extra carryover because we did take a pricing round in January that was on the heavier side and another one in April. So again, we're still finalizing the plan but let's say it is something closer to a 3% round taken in-year.

We'll have extra pricing flowing through in the year because of the carryover from 2023.

And I'm sorry remind me the second part of the question?.

I was just hoping you can give the breakdown from the third quarter. Thank you..

Sure. So we mentioned this in the prepared remarks, but through the third quarter, no extra pricing taken. So pricing in the quarter was closer to in the high 6% or 7% area. And then we had another pricing round come in in late September. So that put us in that 7% to 8% range..

So in the quarter, 2% dropped off from last year. We replaced it with kind of upper-1%s. So it brought it down a little bit. And kind of our exit rate going into next year would probably be somewhere in the 6% to 7% range frankly with about 2% falling off in January of 2024.

So we'll probably end up replacing that 2% with something around there or a little bit less which means we'll probably start the year somewhere in the 5% to 6% range..

Thank you..

Actually, 3.7% falls off. We'll replace 3.7% with something less than that..

That gets you down to the 5% to 6% range..

Thanks..

You're welcome..

The next question comes from Alex Slagle with Jefferies. Please go ahead..

Hey, thanks. Just following up on the question on pricing.

What was the -- did the check component how did that look relative to the pricing just in terms of thinking about the mix piece of check?.

I'll give you a high level and Tom can add some details there. But in general, Alex what we've seen in our business is no change in regards to how consumers are ordering and what they're ordering from a check standpoint. But as Tom mentioned on the prepared remarks we've seen an increase in late-night business.

So the late-night business has a lower overall average check. So, when we start to think about our business we're seeing about a 200-basis points kind of drag negative drag from a mix standpoint which is just not because consumers are shifting to lower items; it's just the fact that the late-night business is accelerating as part of our comp.

I don't know Tom you can--.

Late-night is certainly playing a role. And even some of our off-premise traffic is either growing or some of the takeout check is declining as well.

So, there's a couple of things that are just out -- like if we look at purely our on-premise check that's where we'll look to see if there's any movements in terms of shifts toward more value-oriented items and no change there. But we are seeing some areas of off-premise where check is going down a little and then the late-night piece as well.

Which is great that we're seeing that traffic pickup it's just shifting some more checks a little bit lower of a check-in. So, all-in as Greg said, in kind of that 1% to 2% band is kind of that delta from the pricing to where our check growth is..

Got it.

And as you step back and look across your system of restaurants and see what the top tier of restaurants are doing those that are driving the strongest traffic growth, I mean is it largely the remodels that drive that, or are there other sort of differences like service levels or retention or something else that you'd point to that drives the strongest outperformance?.

Yes. It's an interesting question Alex. And there's no doubt about it that service levels and restaurants that are well-staffed with tenured team members tend to have higher comp sales. And we saw that coming out of COVID and I know it's sometimes weird still to talk back to COVID, but we saw that and those restaurants have continued.

I think the other side of it is when we look across our system California and I know you're up there in the Bay Area California is probably the last state to kind of feel free of COVID so to speak.

So, they're still -- as we think about the third quarter there was kind of that pent-up demand last year in the third quarter and that's where we saw maybe a little bit of the biggest shakeout in the third quarter when sales softened even though it softened across all geographies.

And as we've gotten into October all those geographies have come back including California is probably coming back a little bit stronger. So, a tad on geography. But at the end of the day it's really service levels I think that have played a bigger portion in our business..

Helpful. Thank you..

You're welcome..

The next question comes from Josh Long with Stephens Inc. Please go ahead..

Thanks for taking the question. This is Tyler Prause on for Josh. I would love to hear more about just the general pricing philosophy at BJ's and where do you stand on third-party pricing. Like I think in the past you've talked about pricing tiers. So, any update on that would be great.

And then the second one if the industry were to shift to more of a value sentiment how would you approach that situation?.

I'll give you some more philosophical. I think Tom might be able to add some mechanics in there as well. Look our pricing strategy is always to be around a good, better, best; pricing strategy. The good is our value items or items that we call KVIs known-value items.

We want to make sure our burger or our chicken alfredo and other items that you might see across different casual dining concepts is very competitive. Then we want to have the ability for guests that want to indulge and know that they're coming to a higher-quality casual dining concept that might want the double bone-in pork chop.

They might want the filet or the rib-eye. Those all allow guests to kind of price up a little bit including things that are on our Slo Roast menu. The same thing actually goes for the bar and the beer side of it.

We've been really working on what I would consider a best-in-class bar statement and it's allowed us to have some higher-end bar drinks or cocktails that guests want to spend up. They can, but they're getting a higher quality for it. They're getting uniqueness and differentiating what we call the Brewhouse Theater.

At the same time, as part of our menu strategy as well or our pricing strategy, we have our daily Brewhouse Specials.

So, those allow for guests to come in on specific days and get something at a really good value from a price point whether it's our Slo Roast Thursdays where around $19 you can get a rack of ribs, two sides, starter salad and a full Pizookie dessert.

That drives obviously a lot of guests into our restaurants because it's something that we can do and it's differentiated from a quality standpoint. So we're going to continue to balance across that. We also have our lunch specials as well.

So depending on how the economy is or how we want to target guests in certain markets sometimes we'll target them with a value statement around our lunch specials or our daily Brewhouse Specials. Other times we'll target them around some of the indulgent items or some of the limited-time-only items that kind of drive a fear of missing out.

Our Spooky Pizookie perfectly played into that. That drove a FOMO from our guest standpoint. We need to come in the restaurant and get this Pizookie before it disappears. So it's a combination of different areas that we want to target based on those individual restaurants as well as the macro environment.

And then I don't know Tom if you want to add anything specific towards our pricing..

Sure. In terms of the third-party pricing we did implement an extra 10% approximately across our third-party platform. So that's in place.

And in terms of tiers we are going through a retiering process right now and some of that due to California needing to be separated out for some other restaurants because of now a new minimum wage as well as there were some changes on the rules around pork products here as well which increased some costs.

We're also just looking to see which restaurants should be paired together in terms of sensitivities that we can measure. So that process is ongoing and should be something that we roll out next year. And I think I'll just echo too what Greg said about the promotions. We've never backed down from our promotions.

So if there's other promotions ramping up we still have some great daily Brewhouse Specials promotions out there great happy hour promotions great lunch value as well. So its -- when we market it is about brand building but it's also there's a mix in there too about getting the awareness out to drive traffic in for these promotions.

And we're even looking at the promotions if these are the right ones if there's ones that can drive even more traffic.

So I think the -- I don't -- as we look at the landscape there are certain brands out there that are using more promotions now or more value and I think we've got a good mix already and a really attractive one that will drive people in in any of these forward-looking type of environments..

Great. I appreciate all the color there. Super helpful. And just one follow-up. So the G&A kind of coming in at the low end of the range for 2023 is encouraging. And just kind of think how you're thinking about G&A going into full year 2024..

So right now we're in the middle of our budget season. But our goal always on G&A is to grow it at a rate less than top-line sales so we can leverage it going forward.

So as we continue to put together our plan and look at what our revenues might be for next year we'll make sure that we're looking at G&A and going it's got to be below that so we can get leverage going forward.

Tyler?.

Yes. That’s all from me..

Okay. Thank you..

The next question comes from Andrew Wolf with CL King. Please go ahead..

Thank you. Good afternoon. I want to switch to your lower cost to build the new restaurants and just kind of a basic question.

Is that necessary, I mean, to get to the IRR hurdles you have talked about before which I think is 20%, or was the better-than-expected sales that the restaurants have been achieving already getting you there? And I also wanted to just ask you a math question.

I'm getting to about a 2% to 3% higher return on investment by bringing the cost down $1 million. Just wanted to run that by you as a reality check..

Andrew, it's a great question actually. And .we always continue to look at our prototypes over years to make sure we're basically building the right prototype for our business. And I think as we continue to look at it and evolve our menu and other things we tend to make adjustments that seem fit to be – that seem to make sense for us going forward.

So while the $1 million reduction in investment costs will help us drive our ROI as you just said you can just kind of put it in there and look at where our WSA is and drive the margins, some of the changes in there will allow us to be more efficient around how we build our – around how we run our restaurants.

Reducing some of the square footage, the way we set up our bar statement allows us some efficiencies there and then some of the changes in the kitchen with team members. So we always want to optimize it that way. The other side of it as well is we want to continue to understand how the consumer preferences are changing.

Some of it comes down to off-premise and where we're building our restaurants. So if we're building our restaurants in certain markets maybe in California, we might use a little bit of a larger format because we know the California brand awareness of the BJ's concept.

Going into some of the different markets that might be a little bit smaller, having that smaller prototype is going to give us better efficiencies in those restaurants. So it's a combination of both of those things.

But even as we look to build this current prototype for next year Greg Lynds, who's actually at a real estate conference this week and his team is actually looking at what that next evolution is going to look like with a couple of other changes that again continue to optimize not only the cost of it but optimize the way we can execute within the four walls of the restaurant..

Andrew just to – as you mentioned in your math that's right. The $1 million coming out of the build cost improves the return by in that 3% area..

Great. Thank you, for the color, Greg and feedback. I have a kind of analogous question this is my last question on the remodels. I'm just trying to sort of back into the sales lift. And I would assume it's a little less than a one-for-one dollar-for-dollar because the incremental profit margin is better. I just want to sort of check that.

Or are you able to talk to directly what the sales lift is?.

Sure, Andrew. The way that we've been rolling out these remodels, there's a couple of different scopes. So the lower scope where we've been adding a few extra booths and doing some of the touch-ups around the restaurants that's about $250,000.

And those ones are seeing in the neighborhood of about $1000 or $1500 extra on a weekly sales basis, which to your point it's incremental traffic and the flow-through on that is nice. So we're seeing the returns in the 20% or higher.

The larger-scope remodels that Greg mentioned and these are the ones that we actually like even more because it really is brand-building and traffic-driving and you redo the bars and do painting on the outside and put on new murals and brighten up the dining rooms and reconfigure some of the booths.

Some of these remodels can be $600,000 or $700,000 or even a little higher. And we're still seeing the same type of return. So it is -- as we think of the sales lift, we're seeing a multiple of that type of sales lift in these restaurants..

Okay. Thank you, very much. That’s helpful..

Thank you, Andrew..

The next question comes from Nick Setyan with Wedbush Securities. Please go ahead..

Thank you. I appreciate the monthly cadence as the quarter progressed and obviously the October pickup. Any way to kind of parse out this was sort of x percent was seasonality and the rest was some kind of a consumer slowdown? I know it's a very difficult question but it would also help us have some confidence in terms of the go-forward trend as well.

If it was seasonality then low-single-digit comp for Q4 makes sense. But if there was something else that you saw perhaps we should be a little bit more concerned..

Nick obviously a great question. And we all are trying to decipher different things as you just mentioned there. I think the biggest thing for us when we look at this number and look at what happened in the quarter and think about where we are today is -- and look I've been doing this a long time.

I don't think I've ever seen an August weekly sales average above July, whether it was my days back in California Pizza Kitchen as a public company to BJ's. You generally see a movement coming off of June into July, lower August and then a lower September. And as we were going through, it was just -- I wouldn't say odd.

It's just a trend we haven't seen where August sales are higher than July sales. And then as we did the same thing kind of to your question there, we started looking at how October, November and December played out and compared it to 2019. And last year in 2022 October, November and December played very traditional in regards to seasonality.

So that's where we kind of looked at it. And then as soon as September was over and we went into October, our sales just bounced back by that more than 500 basis points that Tom talked about.

And while we had some great promotion around Spooky Pizookie and some other things that we've done that are specific to BJ's that type of turnaround really gave us much more of a view that this was kind of going this was really the consumer moving back to normal seasonality.

Additionally, where we saw it just getting a little bit more granular per se is we kind of thought in that secondish week, the third week of August right when school started to come back into session -- I know both you and I grew up here in California and I remember starting school after Labor Day. That no longer happens anymore.

And as kids went back to school in August that's when we started to see that slowdown come through. The other side of it is California which with 60-plus restaurants in California that's going to have a big delta on our business. And I would probably say you can see it in the Black Box data as well.

California probably came down the most and then has come back the most. And California was one of those states that also came out of COVID the last so to speak. I even remember myself personally in 2021 still facing COVID here in California and regulations and so forth.

So I think California had much more of a for lack of a better term revenge dining last year in 2022. And as I said as quickly as we saw it come in August, we've seen it reverse here in October. And we always say this on our calls as well look this is where our sales are right now.

Just like when we reported in Q3 we were talking about where our sales were in July at that time frame.

I don't know Tom, if you want to add anything to that?.

I think Greg covered most of it. And just the one other aspect and we mentioned this in the prepared remarks was around the 2019 comp. And when we looked at our sales through -- the same cadence through each of the periods, each of the months, it was very consistent. And we hit September where we had a pricing round rolling in from 2019.

We saw the comp dip a little bit on the three-year basis. And then when we took our pricing round at the end of September, we saw it step back up. So it was following very closely to the patterns that we would have expected on a 2019 basis if the seasonality was the same as it was pre-COVID.

So all of the evidence that we're looking at is pointing to the 2022 seasonality was the difference in the quarter..

So nothing in terms of less attach rates trade-down, anything else you're seeing that would kind of imply consumers are becoming a little bit more cautious?.

That's right. We poll it by week looking at the incidence rates, things we want to be selling the Pizookie and alcohol any beverage appetizers the things that if there is some check management you would see it on. And also seeing the more value-oriented sides of our menu our happy hour our lunch value and daily Brewhouse Specials.

And looking by the week and this is looking actually both to last year as well as 2019 there's no -- it looks very consistent as we go through the weeks and through the period. So no shifts in those types of metrics that would signal some type of a check management or the consumer pulling back..

Anything in terms of the holiday seasons and how that might impact or benefit Q4 this year versus last year to be aware of?.

Compared to last year, so Christmas will fall on a Monday versus a Sunday. So there's a modest benefit there but that might be 20 basis points for all-in for the quarter. So a little help, but very -- there's not like New Year's Day falling in or out of a year, which can swing Q4 a little more dramatically.

There's probably some promotions that we might be looking at differently around Veterans Day. So I think all-in, it's going to be a very similar quarter as the calendar lines up..

Okay. Thank you very much..

Welcome..

The next question comes from Todd Brooks with The Benchmark Company. Please go ahead..

Thanks for taking the question. I've got a few for you guys here. Tom, if I could start off with you, very encouraging news on the further cost saves. I know you talked about $30 million and that's not an end point.

If we take this out to a longer term opportunity as we're looking into what could be harvested maybe going into 2025 what's the magnitude of this opportunity versus the $25 million that you guys thought was originally there to harvest?.

We're still vetting the new opportunities that are coming in. We're not saying yes to everything, but we are increasing the scope every time we're meeting as a team to find more and more opportunities. So as we said it's $30 million now that have been accepted and are rolling in.

There's still more that's either waiting to be rolled out, or still in some term of, some form of vetting. So we don't have that number to share in terms of what it could be in 2025 but that $30 million we're at now is going to be higher. So we're going to continue to keep rolling them out and we'll keep everybody updated as we keep adding to it.

But yeah we're encouraged by even some of the new ideas that keep coming in. It's great when you have a cross functional team that are all focused on costs and growing margins and doing it the right way. And we're continuing to get some really good ideas coming out of this initiative that we'll continue executing against..

Hey, Todd. This is Greg to add to that. We're even looking at how we continue to cook items in the kitchen. We've got obviously our peak starts and we run some great things through that. It's one of the reasons we have such consistency.

Can we move more items to that versus using a different other area versus maybe a flat top or the grill? And just looking at other areas in that perspective that can continue to help us. So I think as we go down this process not only as Tom talked about it that we'll have more than the $30 million but it's something that we've got to continue with.

We've got to continue with that creativity in our business to continue to figure out ways to make us more efficient, more productive and at the same time reduce costs..

Okay. Great. And then Greg one for you. With the new streamlined menu I think going back to what you said in tests you hadn't seen much of a same-store sales impact from constructing some of the items taking them off the menu.

Once the menu launched did that experience hold, or was there some sort of same-store sales headwind in actually moving across the full fleet to the new streamlined menu?.

So it looked like it held. And we didn't do a holdout restaurant just to see how things played out because of how we did it in the test. But as we went into July and forgetting some of the seasonality but looking at all of our restaurants, it didn't look like there was any significant changes from one area to the other.

So what we tried to do seemed to work in regards to driving operational efficiencies streamlining the fact that we didn't need 10 burgers or we didn't need 10 salads and so forth. As we moved down we saw guests shift into what we'd expected them to shift into.

At the same time, as we put things on like a filet or we put the pretzel on we saw guests move into that within those different categories. But overall it seems like things have held as we expected..

That's great. And then just two quick follow-up additional questions.

One, can you update us on where we are on returning the full fleet to late-night operations? And then secondly, you touched on this with California exposure, and I know you guys won't use weather as an excuse but I was wondering is there a way to tease out the impact? I mean you don't get a lot of tropical storms/hurricanes in the California market.

And just wondering, what impact that may have had on the business with it hitting in August. Thanks..

I'll let -- I'll give you some of my anecdotes, because I forget because it's been a while. It obviously did hit us. But us in California that aren't used to a tropical storm, I think we like literally went recluse for like the entire weekend. It was a tough weekend. I forget what our comps were down.

I think people were just not going to get out of their house even though honestly like we've seen bigger storms in the middle of the winter time. We'd have to come back to you because it's just been so far and it didn't seem like that in and of itself made that much difference.

Obviously, we had that and then we had the Florida hurricane that came through and both of those did impact the quarter. Late-night we are rolling out all of our restaurants. I don't know, Tom, if everybody is there yet or if we're still rolling through on that..

So in late-night to take you back to where we were pre-COVID, the place we have not added the hours back are really on the Fridays and Saturdays when we were open until 1:00 in the morning. We're still thinking if that makes sense and we're going to be able to drive the right type of sales and margin make sure that's dollar margin accretive.

So that's the one area we have not done yet. But for the most part getting the -- outside of that Friday and Saturday, the Sundays through the Thursdays most of our restaurants are now back to midnight. And that's been a very great success not just for the sales but actually seeing dollars as well as percent margin from those extra sales.

You do get it in that last hour that 11:00 to midnight but it also builds in that 9:00 to 10:00 and 10:00 to 11:00 hour. So we've seen some really nice return there. There's just a few restaurants that haven't added that back yet. But for the most part that midweek we're back to midnight.

And still exploring and analyzing, if it makes sense in at least some restaurants to go back to that 1:00 on the Friday and Saturday. But that we have not determined yet..

The next question comes from Sharon Zackfia with William Blair. Please go ahead..

Hi. Good afternoon. I guess, I wanted to go back to the California fast food wage hike that's happening next year. And I know, you're not directly impacted but obviously wages going up impacts everybody and you alluded to that.

I guess, I'm wondering is there any way that you could paint this as a favorable scenario for full-service where the order of magnitude price increase that you would have to take to cover labor inflation would be much less than your limited-service peers? I mean, is there any market where you've seen a test case of this where maybe the gap between full-service and limited-service narrows somewhat in terms of price points?.

Sharon it's a great question. And obviously with the dining room team members or the front of the house you've got tips coming in. So those tips put people significantly over the $20-an-hour range there. And then most of our kitchen is already close to that if not over that in California.

And we've even said we can be driving down the street and see a fast food or another restaurant with a sign outside saying, Starting Wages at $22; and really not necessarily impact our restaurant in that general area. So I do think we've got an inherent benefit there.

I also think to your point that because of this you're going to see fast food which already is and fast casual raising their prices and getting their prices closer to casual dining.

I still think that it's a different experience at times in that regard and we're trying to drive guests into our restaurants that want that more experiential dining from that experience I guess.

We will always want to obviously make sure we can continue to drive off-premise and be close to them if off-premise is not with them if not the same price if not better on off-premise.

But ultimately, what we're trying to do is have a differentiated food profile trying to make sure we're driving guests that are wanting Brewhouse Theater want that differentiation of a sit-down experience. And it's still an $80 billion-plus industry that we're going after.

Now that being said, I'm not sure there is a market that we can compare to where we are today. Even if I had to look at certain cities that already have minimum wages in the $18 $19 range and look at our business and how we're comping versus again trying to look at it versus fast food, I don't know, if I've got that comparison.

All I know is minimum wage in general hasn't been as impactful to driving top line sales. I guess, sometimes people think it tends to give more dollars in people's pockets and they tend to want to go out and use it on discretionary items and we get a benefit of that..

Okay. And then sorry, if I missed this I hopped on another call I know the menu rationalization seemed to go pretty well that you did in July.

Are there thoughts to doing further rationalization, or are you pretty happy where you are at this point?.

We've got to stay disciplined on it. And I would actually like to take it down personally. That's a personal thing. But I've got to continue, to watch where guests -- we at BJ's have to continue to watch where guests go on our menu and what they're ordering and making sure we've got the right variety of differentiation.

We do know from our consumer research that, variety and breadth is important to our guests. And as a result, we want to continue with that breadth there.

But at the same time, Putnam Shin our Chief Growth and Innovation Officer Scott Rodriguez our Senior Vice President of Culinary, continue to create unbelievably new great items that we would love to get on our menu. And the only way, we can do that is by being disciplined on items that need to come off.

So I don't know if there's another big, big chunk down like we just did, but we'll stay disciplined and take certain items off going forward so that we can have really unique I think LTOs to drive that kind of consumer traffic into our restaurant and that fear of missing out..

Thank you..

You’re very welcome..

The last question today comes from Teddy Farley with Citi. Please go ahead. .

Thanks for taking the question. Just one for me. As you think about return of capital and continuing the share repurchase program what is your thinking around restarting the quarterly dividend that you had pre-COVID, if you're thinking about that at all? Thanks..

Yes. Teddy, it's something we'd have to bring up with our board of directors.

I think right now where the stock is trading and look I'm not the one that determines the valuation of the company but I think management is very confident in its strategy and its ability to increase its EBITDA, and feels that at least share repurchases right now are the right way to return capital back to shareholders.

As we continue to put together our 2024 and 2025 and beyond, capital program both CapEx and capital program I think we're going to be in a position that continues to generate a significant amount of free cash flow at that 5% to 7% new restaurant build and continue to expand margins.

I think as we look at that it's something to look and figure out what's the right approach here, in regards to returning capital to our shareholders. Dividends do allow a certain amount of discipline within the capital structure, because you've got to meet that each quarter. And I think that discipline is actually a good thing.

At the same time, I think where we are today, being more opportunistic buying back shares makes more sense..

Awesome. Thank you..

You’re welcome..

Thank you. The conference has now concluded. Thank you for attending today's presentation..

Thank you. .

Thanks. Thanks, everyone..