BJs RESTAURANTS INC (BJRI) Q4 2021 Earnings Call Transcript

Good day, and welcome to the BJ's Restaurants, Inc. Fourth Quarter 2021 Earnings Release and Conference Call. Today's conference call is being recorded. At this time, I would like to turn the conference over to Greg Levin, Chief Executive Officer and President. Please go ahead, sir.

Thank you, operator. Good afternoon, everyone, and welcome to BJ's Restaurants fiscal 2021 fourth-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, our Chief Growth and Brand Officer, and Greg Lynds, our Chief Development Officer on hand for Q&A. After the market closed today, we released our financial results for the fiscal 2021 fourth quarter and year ended Tuesday, December 28, 2021. You can view the full text of our earnings release on our website at www.bjsrestaurants.com. Our agenda today will start with Rana Schirmer, our director of SEC Reporting, providing our standard cautionary disclosure with respect to forward-looking statements. 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 to questions. Rana, please go ahead.

Thanks, Greg. Our comments on the conference call today will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause actual results, performance, or achievements of the company to be materially different from any future results, performance, or achievements expressed or implied by forward-looking statements. Investors are cautioned that forward-looking statements are not guarantees of future performance and that undue reliance should not be placed on such statements. Our forward-looking statements speak only as of today's date, February 17, 2022. 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. Greg?

Thank you, Rana. The pandemic has taught us to remain steadfast in our long-term strategy and operating principles, and to prepare for new scenarios as operating restaurants during these periods requires innovative and agile teams to quickly respond to changes in the environment. In this regard, Q4 was no exception. So let me take a moment to thank the BJ's teams that once again proved we have the best team members in the industry by providing our guests the gold standard service they expect through the omicron's surge that is fortunately in retreat. For BJ's, we see encouraging signs in our business every day as our staffing continues to return to pre-pandemic levels, which allows us to expand hours and capacity in our restaurants while serving guests the full BJ's menu. We have talked in recent calls about the impact that labor availability had on our ability to operate at capacity. And to that point, we've hired more than 7,000 team members since the start of the fourth quarter, and we are thrilled to have them on board as part of the BJ's family. Against this backdrop, BJ's generated record Q4 revenue, meeting our previous high set in 2019, even with the significant COVID impact from the omicron surge starting in December. During the quarter, our two-year comparable restaurant sales went from negative 1.4% in October to positive 1.8% in November. The top-line improvement occurred as the operating environment stabilized, and more than half of our restaurants were staffed at pre-pandemic levels by the end of November. In mid-December, as the casual dining industry began to experience omicron-related headwinds, our positive two-year comp trend turned negative, and we ended December down 3.3%. The sudden contraction in comp sales led by a pullback from guests, heavy rain in California in December, and an unprecedented level of team member exclusions de-leveraged margins during what is normally one of our highest sales periods of the year. Despite these challenges, we were able to drive average weekly sales of more than $125,000 the week before Christmas, which was our highest sales week of the year, highlighting the affinity guests have for our concept and the sales levels our restaurants are capable of, even with limited staffing and reduced hours. While Tom will go into the cost side of the business in more detail, we continue to experience high inflation in Q4. Specifically, our fresh meats, including rib-eye, prime rib, tri-tip, and pork ribs experienced some of our largest year-over-year cost increases. Related to labor costs, market rates continue to tick up, albeit at a slower quarterly sequential increase than the past couple of quarters. Given our re-staffing initiative, we incurred extra hours on a short-term basis, as we invested in training and experienced higher than typical overtime due to COVID-related exclusions. During the quarter, we were able to rebuild our manager pars to pre-COVID staffing levels. Now with the restaurant manager teams in place, we continue making progress on our hourly team member staffing, which will allow us to build sales and deliver on our gold standard level of operational excellence. To mitigate some of the recent inflation impact, we implemented rounds of menu pricing of 1.4% in November and 2% again in early February. We are carefully balancing the overall pricing to deliver attractive margins as sales recover with pricing rounds designed to limit any impact to guest traffic. To date, we have not seen a negative guest reaction to pricing actions, and we are continuously monitoring this to ensure our approach to pricing is aligned with our short- and long-term sales and profit goals. Now as I enter my sixth month as CEO, I remain highly confident in BJ's ability to return to industry-leading results based on four key factors: our differentiated concept and sales and product initiatives, our team members, culture and gold standard service, our guest affinity to our brand offering value and hospitality, and our very significant near- and long-term restaurant expansion opportunity. Our strategy and initiatives going forward for each of these key factors is in part based on the learnings from our recently completed most valuable guest research. To put that in context, our most valuable guests come to BJ's for a social dining escape where they enjoy the comfort of the familiar transformed to Brewhouse Fabulous. Our guests responded that they love the extraordinary mix of upscale yet approachable ambience, and BJ's menu and food that clearly exceeds other casual dining concepts at an extraordinary value. Through these learnings, we will be launching a remodel program later this year to address short-term and long-term benefits, including elevating the experience to further engage the senses of our guests, solidifying our Brewhouse authority, and expanding table capacity through some changes in our dining room layout that should provide a nice lift in sales going forward. I look forward to sharing more on this effort in the coming quarters as we finish designing the full scope of remodel options and begin this rollout. With regard to menu, we heard consistently from our best guests their love of favorites and familiar dishes with a Brewhouse twist. This phrase we heard directly from guests is the comfort of the familiar transformed to Brewhouse Fabulous. In addition to the familiar, we also heard the breadth of our menu as a key differentiator compared to our peers. So maintaining breadth is important but making sure it matches with BJ's core menu items will be a focus for us going forward. For example, some of our best-selling menu items that have that Brewhouse twist include our Brewhouse blonde fish 'n' chips made with BJ blonde beer, or our deep dish Ziti that goes to our pizza oven in a deep dish pizza pan. Our chief brand and growth officer, along with our head of culinary, are completing a category-by-category analysis of all of our menu items. Our goal is to make sure we maintain our breadth, but with more focus on the core BJ's. As I noted earlier, familiar items that our guests understand and identify with but transformed to Brewhouse fabulous. Price point affordability is another key area for our guests. We delivered tremendous overall value and received high marks in our guest research for both value and food quality. However, there is an opportunity to make sure that we have a clear price point affordability on some key menu items while at the same time, allowing guests to indulge and spend up as they desire. We also have an opportunity to increase value on some items based on our research. While this is a challenging topic to address in an inflationary environment, it does influence our menu strategy going forward. Our broad and differentiated menu is capable of maintaining this balance between introductory prices for some menu items while allowing for menu creativity for indulgent items. We are already attacking these opportunities today. For example, our new lunch special test has seen a more than 600 basis point improvement in traffic compared to our control group. We are also increasing value on some of our most popular dishes by adding additional sauce to our chicken alfredo pasta, increasing the portion on our side for our seafood taco, and we just recently introduced a larger shareable pizza at a slightly higher price point to replace our small pizza, enhancing the value statement and quality of our signature craveable deep dish pizza offering. Our guests love the service and hospitality that our team members deliver every day. We heard comments like hospitality you can't get anywhere else, and it's the people who make me feel comfortable and special when I go to BJ's. At the same time, for those that have been following BJ's over the last year, we have hired a lot of new faces, and we are excited to have them on board and become part of the BJ's family. But we need to ensure that each one of these new team members is delivering the BJ's gold standard level of operational excellence and gracious hospitality. Our operations leadership team and our talent department are developing new training programs so we can increase the distance between BJ's and our peers in delivering an experience you can't get in any other casual dining concept. To that point, we are continually optimizing our restaurant training programs and technology to help our team members be highly effective in their current roles and prepare for the future opportunities across our growing system. Engagement at our restaurants is very strong, aided recently by an internal online social platform where our managers can share accomplishments, best practices, and culture-building activities at their restaurants. We are so pleased with the level of engagement and increased connectivity between restaurants that will be expanding access to this platform to all our hourly team members later next month. We believe providing best-in-class training, advanced opportunities, and engaging workplaces are key to attracting and retaining our talented team members. We are also applying our deep learnings from our guests as we build our guest 360 digital platform. We are just beginning to use this capability in our website personalization, programmatic targeting, and segmented loyalty campaigns. In the near future, we will also have the ability to do more one-to-one gamification. These efforts will build a stronger engagement with our guests and provide an enhanced and leverageable marketing capability that will make a difference in the future. Regarding some of our other sales-driving initiatives, we have seen continued positive momentum in the early stage of our catering and beer club initiatives. Catering showed progress in Q4 as we did over $400,000 in off-premise catering in the fourth quarter with just one company. And we have an additional $150,000 of Q1 sales either completed or scheduled to be completed in the coming weeks with that same company, showing the scale and recurring nature of this type of business. This is a new skill set and revenue channel that we did not have a year ago. We have high expectations for our catering business, especially as businesses more fully open later this year. Next, our Beer Club that has rolled out across most of our California restaurants continues to add new members. The level of engagement and additional traffic driven to our restaurants is surpassing our expectations. This year, we will continue fine-tuning the membership program and testing other benefits for members to make sure we have the best offering possible before expanding to other key markets. Before I move on to our restaurant growth opportunity, I think it's important to note that for us to provide a higher quality differentiated casual dining experience, we will also remain focused on eliminating inefficiencies and driving productivity through our organization. While nothing can substitute for the leverage from driving top-line sales, we are working hard to minimize cost and efficiencies in our business given the current environment around supply chain, labor staffing, and overall inflation. About six to seven years ago, we implemented Project Q to go after these cost savings. While Project Q never went away, it is being elevated today as a strategic priority given today's environment. Our supply chain team and operators have already identified new opportunities that we will be testing over the next several months to help us mitigate inflationary costs. Additionally, as supply chains normalize, we will once again be in a much better position to proactively reverse auction and bid many operating costs that have creeped during the pandemic. In fact, we were recently able to reduce certain takeout-related costs as more suppliers came back online, and we were able to proactively bid. Last, but very importantly, is our significant near- and long-term restaurant growth opportunity. We have a terrific pipeline of sites identified for new BJ's restaurants in 2022 and beyond. We have been unwavering in our real estate standards for top sites and premier trade areas. We believe our openings in the next few years will be some of our best yet. Demonstrating our ability to drive strong sales to new restaurants, we continue to be encouraged by our recent restaurant openings. Our Class of 2021 restaurant openings continue to exceed both our internal targets and the sales levels for other BJ's. We are targeting as many as 8 new restaurants in 2022, but the final number depends on timing of permits and receiving critical equipment such as HVAC systems. Remember, we have a clear path to at least 425 domestic locations, which is about double our current footprint. I'd also like to take a moment to highlight our recent work and success on ESG initiatives as I know this is an important topic to our guests, team members, communities, shareholders, and other stakeholders. We have maintained a top governance score of a one out of 10 as rated by ISS QualityScores. Recently, we improved our social score to a two out of 10, which is a leading score for our industry after publishing a number of documents highlighting our human resources, our diversity and inclusion and other labor-related policies and programs. Finally, we also improved our environmental score in Q4, though we have more work ahead of us on this front. We will be engaging with an outside environmental consultant to help us determine our strategic priorities for this important aspect of our business. We are proud of the strategy we have made across the ESG spectrum and are committed to pursuing and reporting on additional initiatives and progress on this time. I'd like to finish by taking a moment to once again acknowledge every one of our team members. The omicron surge provides a new level of disruption to our operations, and I truly appreciate all their hard work and dedication to manage through the most challenging days to deliver gold standard experiences to our guests. Now let me turn it over to Tom to provide a more detailed update for the quarter and current trends. Tom?

Thank you, Greg, and good afternoon, everyone. I will outline the details of the quarter and share some forward-looking insights. It's important to note that this commentary involves risks and uncertainties related to forward-looking statements as outlined in our SEC filings. In the fourth quarter, we reported total sales of $291.3 million, which is nearly a 50% increase compared to Q4 2020 and slightly above Q4 2019, marking our highest Q4 sales to date. On a comparable restaurant basis, sales increased by 46% from Q4 2020. Although we were on track to meet or surpass 2019 levels, the omicron variant led to a 1.1% decline in comparable restaurant sales compared to Q4 2019. The late-quarter effect of omicron and ongoing inflation pressures resulted in restaurant-level operating margins of 10.1%, an improvement of 350 basis points compared to Q4 2020 but 580 basis points lower than Q4 2019. Adjusted EBITDA was $13.7 million, representing 4.7% of sales, which surpassed Q4 2020 EBITDA but fell short of Q4 2019 EBITDA. We reported a net loss of $4.7 million and a diluted net loss per share of $0.20 on a GAAP basis. We opened the quarter with weekly restaurant sales of $103,000 in October, which was 1.4% below October 2019 levels. However, we saw a positive trend in November as sales accelerated and COVID cases fell, bringing our weekly sales to $108,000, which was 1.8% above 2019 levels. In November, on-premise sales were within 10 percentage points of 2019 levels, while off-premise sales were more than double those levels. We maintained positive two-year comparable restaurant sales in the early weeks of December, but the surge from omicron heavily impacted sales in the last week when we could not operate during Christmas. Remarkably, we recorded our highest sales week of the year at over $125,000 per restaurant the week before Christmas, even with some locations facing staffing shortages. The late-December impact caused sales for the month to be down 3.3%, reflecting a 1.1% decrease compared to 2019. Looking at expenses, our cost of sales was 27.4% of sales, which was slightly higher than last quarter and unfavorable compared to both the previous year and Q4 2019. Food cost inflation around 10% persisted in Q4, consistent with Q3, mainly due to our popular slow-roasted meats and other proteins. We only source fresh meats to maintain quality standards, which have been significantly affected by inflation. Given their perishability, many of these meat products cannot be contracted for long durations. We expect prices for key food commodities to stabilize as supply chains normalize throughout 2022, leading us to enter fewer pricing agreements with suppliers than usual to take advantage of potential price declines. Labor and benefit costs accounted for 37.9% of sales in the quarter, which was an improvement from the previous year but unfavorable compared to Q4 2019. Historically, we leverage strong end-of-year sales to drive margins, but this was hindered by the omicron surge in late December. We were pleased to finish Q4 fully staffed with restaurant managers, although we faced some challenges with fixed costs becoming a burden due to the decline in sales late in the quarter. Training and overtime hours remained high throughout the quarter due to robust hiring, impacting labor as a percentage of sales by 60 basis points compared to Q4 2019. We believe these investments will foster significant sales growth shortly and will counterbalance the additional profit generated from increased sales. Our operating expenses were 24.6% of sales in Q4, favorable to the prior year but unfavorable to Q4 2019. We increased our marketing spend to 1.9% of sales from a low 1% in the first three quarters of the year, still below pre-COVID levels. We are encouraged that off-premise sales have remained above pre-COVID levels, resulting in higher costs for items like take-out packaging and delivery commissions. We also invested in refreshing some restaurants to welcome more guests back. As mentioned by Greg, we are intensifying our efforts to identify cost-saving opportunities in operations while ensuring we maintain the highest standards for atmosphere, service, and food quality, which distinguishes BJ's and keeps our loyal guests returning. G&A expenses for the fourth quarter totaled $18.4 million. Given the initial conditions in 2022, I anticipate G&A to be between $17.5 million and $18 million for Q1. We expect to increase G&A spending throughout the year as conditions improve, including investments that support higher operating levels in new restaurants and resuming in-person operational meetings and our career development conference. I predict full-year G&A to be around $76 million, with an additional $2 million in Q4, as 2022 comprises 53 weeks. On the balance sheet, we refinanced our credit facility in November and maintained our $215 million capacity with terms similar to our pre-COVID facility. We repaid an additional $21.8 million of debt in Q4, reducing our debt balance to $50 million, and we ended the quarter with net debt of roughly $11 million. Our strong liquidity allows us to fuel growth, with construction currently underway on five new restaurants and more set to begin in the near future. Our new restaurant pipeline is strong, featuring high-potential locations that mix infill in successful markets and expansion into new markets. Despite the past two years' challenges, we are pleased with our balance sheet's strength and will maintain our focus on growth-dedicated investments for new and existing restaurants, as well as sales-driving initiatives. We aim to open as many as eight new restaurants in 2022, although permitting delays and essential component shortages could affect the actual number of openings. Our 2022 capex budget ranges from $80 million to $90 million, encompassing openings and starting construction for more restaurants in 2023, along with remodeling initiatives. As we look to the first quarter of 2022, the omicron variant significantly impacted our business in January. During peak omicron weeks in late December and early January, the number of team members excluded due to COVID was six times higher than previous peaks. This resulted in limited operating hours and menu offerings at many locations in January, leading to average weekly sales of $96,000, which represented a 9% decline compared to the same time in 2020. As COVID cases decreased, our average weekly restaurant sales in February have rebounded to over $106,000, despite a severe winter storm earlier in the month. Recently, our average weekly sales surpassed $116,000, aided by both Super Bowl Sunday and Valentine’s Day. As of February, our two-year comparable restaurant sales have turned positive, adjusted for weather impacts and the shift in President’s Day weekend timing. Given the severe sales disruptions from omicron in January, we anticipate restaurant margins to remain around 10% for Q1 2022, akin to Q4 2021 levels. The sales decline from January will put pressure on overall quarter margins; however, we are hopeful for margin recovery as February sales improve compared to January. Finally, I want to highlight three key factors that affected recent sales but are expected to benefit us in the future: restaurant staffing, challenges with specific dayparts, and media spending. Restaurant staffing is crucial for driving higher sales. In Q4, restaurants with staffing levels similar to pre-COVID recorded a 4.4% increase in comparable sales compared to 2019, over 10 percentage points better than those still rebuilding their teams. We made significant hiring progress in Q4 and into Q1 2022, continuing to add team members weekly, facilitating further sales growth. Regarding dayparts, lunch and late-night sales remain the most impacted, dragging down our two-year comparable by around three percentage points in Q4. We expect lunch sales to recover with the return of more employees to their offices, which has been delayed by omicron. Encouragingly, some large companies have recently announced plans for returning to the office. We have also begun seeing promising results from our new weekday lunch menu test, which is increasing sales and profits through improved traffic. In terms of late-night sales, our reduced hours due to staffing shortages have consistently affected sales by $1,000 to $2,000 weekly on average. Lastly, looking at media spending, in Q4 2019, we allocated 60% more to media promoting the BJ’s brand across various channels compared to our Q4 2021 levels. With a conservative assumption that our investments merely break even, the additional media spending in 2019 corresponds to over 100 basis points of a two-year comparable headwind in the current quarter. While we remain at a low media investment level compared to pre-COVID spending due to current conditions, we are eager to reintegrate more high-return marketing this year as we transition to a more normal operating state. Collectively, these three factors negatively impacted Q4 sales by nearly 10 percentage points, presenting significant potential for sales growth as we address these challenges. Higher sales lead to improved restaurant margins, and in Q4, fully staffed restaurants with two-year comparable sales exceeding 10% compared to those understaffed had margins approximately 350 basis points higher. In summary, we recognize that growing margins hinges on increasing sales, and recent Q4 data clearly shows that as we fully re-staff our operations, we can enhance top-line momentum. Concurrently, we are actively increasing productivity and cost savings through our Project Q initiatives. We have a clear strategy for sales growth and margin recovery, and our long-term approach remains stable. Despite the pandemic's ongoing challenges, we continue to confront them head-on, manage our business with both immediate and long-term objectives in mind, and stay focused on delivering the best experiences to our guests, which positions us for sustained growth in the coming years. Thank you for your attention today, and we will now open the floor to questions.

Thank you. We'll take our first question from Brian Bittner with Oppenheimer.

Good afternoon, guys. Question on margins; I was wondering if you could perhaps talk about the store level margins that you actually did see in the month of November because that is a time frame where two-year comps did turn positive relative to the rest of the fourth quarter; it was really choppy. I know you talked about store-level margins being in the low to mid-teens as '22 progresses. But any color on kind of the actual margin experience in November, I think, would help frame for us how to think about margins if your two-year trends do stay positive. And I have a follow-up.

Yes, Brian. It's still hard on November because of the amount of training that was coming into the business. I would say, in general, when we think about this year, maybe this is a better way to frame it up and think about it. One is cost of sales where they are right now is in this 27% range. Over time, we see that number moving down, whether it's through some of the menu pricing and supply chain getting back in line. So even in November, we saw the high cost of sales number there. And that's something that historically we've run in the 25% to low 26%. So there's 100 basis points there that I think we have the opportunity to continue to move that down. We're going to take it prudently from that perspective. And then we continue to have the high labor, even in November. And that was really, again, more of the training and rolling out the new menu that we end up rolling out. We take the 1.4% pricing. But I would say, in general, it's about getting back into that lower to mid-teens. I think Q1 is going to still be, as Tom said, depressed to where we are today. I do call that a depressed number. But I think we have the ability to, again, move that back in the team, especially as we get into Q2, things normalize and our weekly sales average grows, and then the Project Q initiatives that we continue to work on.

And just my follow-up, based on the Project Q initiatives based on the supply chain normalizing your price increases, based on all those factors, where do you think that your average weekly sales need to be in order to potentially recapture those pre-COVID store level margins in that 16% to 17% range? Because I think that's what we're all kind of pinning the opportunity toward for store-level margins. So thinking about the average liquid sales required to get there would be helpful.

I believe we need to adjust our weekly sales average to at least the $110,000 range in the short term to maintain and grow our margins. While I don't have the precise figure, moving towards this target will enhance manager efficiency and leverage fixed costs as well as many controllable expenses. For example, last week during Valentine's Day, we experienced a weekly sales average of around $116,000, which helped us see restaurant-level margins returning to the mid-teens range. However, costs of sales remain high, and our aim is to gradually reduce these over time. This may involve a bit more menu pricing and improving our weekly sales average. Currently, we are being quite conservative, only implementing a 2% menu price increase, particularly with the challenges posed by rising minimum wages and food inflation. I also see this as it relates to how much more we may need to increase pricing later in the year. Our primary focus is currently on boosting traffic, especially during lunch and late-night hours, as COVID restrictions ease and offices reopen. If we can successfully increase sales, we might achieve those mid-teens margins, but this will depend on how we manage our pricing strategy.

Thank you, Greg.

Thank you. Next, we'll move on to Alex Slagle with Jefferies.

Hey. Thanks. I wanted to dive a little deeper just into what you're seeing in the business day to day with the staffing and consumer behavior and perhaps just anecdotal or certain metrics, maybe Beer Club tidbits or something, things that give you confidence in the trajectory for '22? And then also maybe within this, I'm just kind of curious, a little more color on like what the traffic looks like in the bar room, the bar room activity. I think you said the later hours were still tough because of staffing but kind of wondering what the demand is like as well there.

Yes, Alex, a lot of great questions in there. I would tell you, looking at and seeing our guests day to day, we're seeing incremental nice improvement. December and January were tough months. I think it's pretty straightforward in our formal remarks. I think our team members did an unbelievable job managing through exclusions that were six times higher than anything we've ever seen. And you start to put that in the context of what we are trying to do or doing in the fourth quarter. And that was hired team members to roll out a physical menu and getting back to a full menu. If you remember in the October call, not all of our restaurants were at a full menu. So we got that into place in November. We're making great strides; we obviously have training with it and additional costs to roll those out but really like to project the trajectory in regards to what we're seeing from our guests and what we see in our restaurants. And then it really took a 180-degree turn with the way the Omicron surge kind of came in, a little bit of weather in there, especially in California, and came through into the January month. As it starts to recede or has been receding, we're starting to see much more normal patterns, patterns that allow for us to optimize our business. And that's really important. As we look at our business, the ability to predict weekly sales allows us to prep correctly, allows us to par our food out correctly. It allows us to staff correctly. It allows us to buy controllables correctly and so forth and leverage all the way through the P&L. That's your optimization that happens when you have a very stable and predictable business. And we're starting to see that in February. So I like the green shoots that we're seeing in our business. I think it gives us a nice trajectory forward to be able to drive top-line sales and then optimize in the middle of the P&L. Now in regards to the late-night part of the business, in November, we saw the late-night part of the business really start to flatten out. We are less than $1,000 difference in our late-night business comparing it to 2019. As we reached December, that number went back to somewhere in the $2,000 to $3,000 range. It decelerated on us as well into January. From a February perspective, it's coming back. This weekend will give us a better telling because two years ago, in February, President's Day weekend was earlier and have already been passed and so forth. And those are big days for us for our holiday weekend. But what we saw in December was a real pullback there in that number. And the same thing with lunch. Lunch was another one, and Tom hit it on his formal remarks, lunch pullback as well with omicron is, I think people just kind of hibernated and stayed inside and we're starting to see that come. Our marketing leaning into our new lunch specials has really helped drive some of the lunch traffic, albeit at a little bit lower average check, which is a little bit of our design. I want to make sure we maintain a real strong price point affordability for guests as they start to come back to the office.

Helpful, and then just on kind of looking ahead, your thoughts on your ability to be fully staffed and get full dining room capacity as you look ahead? And do you anticipate full hours versus calendar '19? Or do you trim some at the late night just based, I mean, I guess, staffing really? The demand doesn't sound like the biggest issue.

It's a little bit of both in regards to that. I do believe we will get back to full staffing. We're making great strides, and we're seeing just that change throughout the workforce. More people applying for jobs showing up for jobs and building that team member ranks at BJ's. And we're always going to have some pockets here or there, and we've always had that even pre-COVID in restaurants in more challenging areas. But I do see our levels really turn back to pre-COVID levels within our restaurants. I commend our restaurant management teams for doing a great job of hiring people at the right pace that we can manage it within our business. In regards to late night, we've always been a place for late night, and it's an important differentiator for BJ's, and we want to get that back. It's going to be a combination of having the right people so we can add that back, but also making sure consumers are ready to go out late night as well. I think we are seeing that. But that's our goal and target is to drive that part of our business back.

Got it. Thank you very much.

Thank you. Next, we'll take James Rutherford with Stephens.

Hey, thank you for taking the questions. I want to pivot over to unit growth for a moment. You guided to open as many as eight units in 2022, and that looks to be about right around 4% growth. And historically, you've grown much faster. I'm just curious, when you look at your pipeline out for the next few years and your plans, what's your thoughts on kind of regaining some of that historical growth? And will those units look much different than the one that you've built historically? And then I have a follow-up.

Yes, great question. So ideally, for BJ's, we would like to be at 5% plus unit growth. And that was originally the target for this year as well, is to get back to a 5% unit growth. I think we can do that with high quality. I think you layer on top of that the ability to drive comp sales and then leverage the middle of the P&L. And I think that gets to a strong earnings cadence going forward. This year, the reason we said as many as 8%, and originally we were talking about 8% to 10% is we are seeing a lot of challenges getting through the permitting and planning at a lot of communities. And frankly, you're seeing the same issues with kitchen equipment and other equipment. So we've taken a little bit more of a conservative approach to how things are moving around. That 8% to 10% is probably looking more like as many as 8%, as we continue to manage kind of the supply chains out there. I would expect, like we're seeing on the commodity side, meaning the food and controllables in our restaurant that as things continue to open up and people work through the supply chain challenges that the kitchen equipment side will come back in line and be much more methodical like it's been in the past. I'm not sure where the city planning units are right now. That permitting, I think, and Greg Lynds is in the room, I think it's doubled. Does that sound about right, Greg?

Yes, depending on the area, definitely. Everyone is still working from home. So until people get back in office full-time, that's going to make the biggest difference from a planned development and permitting standpoint.

So the goal is there to get back to plus 5% on unit growth. In regards to our restaurants going forward, they're going to be pretty similar to what we built over the last couple of years and what we call our Proto 2020. At the same time, we're continuing to look at ways to optimize the off-premise side of our business with some digital boards and easier ways for guests to come in and for us to run out the food. That's one area that we look at. And we do also know from some of our research with our most valuable guests that energy around the bar statement is so vital to BJ's that we're going to continue to make sure that we have a best-in-class kind of bar statement that really shows energy within our restaurants. And it's interesting. Our guests that we saw did not necessarily say we love the bar statement because we want to just go and hang out in the bar. It was more about that bar statement and the energy it drove throughout the entire restaurant. That's the real important aspect of it. We don't want to be a bar-only concept. We've never been a bar-only concept with alcohol about 20%. But we love the energy and the visual that the bar provides for the entire restaurant.

Okay, my second question is about the recent sales trends. Thank you for the detailed information. I want to focus on the recent average weekly sales of $116,000. To provide some context, what does that figure imply when comparing it to two years ago? Additionally, could you break down the performance of the dining room versus the off-premise business in relation to two years ago? Thank you.

Yes, I'll take the first part there and I'll let Tom hit the next. We said in our press release and our formal remarks, I think this is probably the best way to think about it. And that is our comp sales on a two-year basis have moved to trending slightly positive, is the way to think about it. When we take out the weather that kind of came through in that first week of February. And then we're still in a mismatch on President's Day weekend. So it's hard to be exact week for week. But if we normalize and take out the Monday related to President's Day week, we compare a Monday Valentine's Day to a Friday Valentine's Day and so forth, it gets us into kind of a slightly positive comp sales. I want to say somewhere is in the kind of 0.5% or so? I think that's right. Is that right, Tom?

That's right.

And do you want to take the rest there?

Yes, that's as of February. To Greg's point, the $116,000 figure includes the President's Day data from 2019, which makes it an imperfect comparison. It's probably more useful to consider the overall performance for February, which showed a modest positive comp. Regarding your question about dine-in and off-premise sales, we continue to see strong performance in off-premise, with sales more than doubling in that category. When we think about sales recovery, on-premise represents a significant opportunity for growth, and it's encouraging to see off-premise sales holding steady. Once we are fully staffed and can increase foot traffic, there will be ample opportunities for improvement.

Yes, I think Tom's comp is the one that we tend to look at internally and that is how that dining room business is moving forward. It was moving in a nice direction in November that we put up the 2% comp, and these are moving there, and take this step back in P12 and P1 with the omicron. If we can hold on to this off-premise, which looks like we're doing, and now starting to grow the dining room again as things normalize, I think there's a good amount of upside for this business.

Helpful, thank you.

Thank you. And we will now be taking our last question today from Joshua Long with Piper Sandler.

Great, thank you for taking my question. I wanted to see if we might be able to just confirm what menu price was in the 4Q period and then also what you have kind of in place for the 1Q period.

So as I mentioned during the call, we implemented a 1.4% increase in November, followed by a 2% increase in early February. Considering the latest inflation trends, I estimate we're around 3.5%. Last July, we also added about 2% to 2.5%. Overall, it’s likely closer to 5%. However, we really began to notice inflationary pressures hitting in Q4 of last year and continuing into Q1.

Got it. That's helpful. And then when we think about some of the research that you did very interesting. And just curious how you're thinking about that from, obviously, protecting the price point and the value piece, but then a lot of the discussion was around just having that kind of focused menu. And so you've done a good job in terms of balancing the number of items on the menu as we went through the pandemic. You pulled that back a little bit. Just curious if now that you've done the research, if anything has meaningfully changed in terms of how you think about the size, scope of the menu, or if as you talked about in your prepared remarks, it's really about dialing in that kind of flavor profile and what the guest is expecting?

Yes, Josh, that's a great question. There are a few different ways we are thinking about this. Regarding your thoughts on pricing, our menu's breadth allows us to set price points at various levels. Currently, even in an inflationary environment, we are aiming for an introductory price point with our lunch menu, promoting our daily Brewhouse Specials and considering increasing portion sizes in certain areas. We want to take a different approach than what other companies are doing by reducing quantities or sizes due to inflation. We believe that's not the right strategy for BJ's. Our guests come to our restaurant for a different experience. Therefore, we will continue to develop a menu strategy that offers a good entry-level price point while also allowing guests to indulge in items like prime rib, tri-tip, or fish 'n' chips. We will keep crafting menu items in that area to encourage guests to spend more. On the other hand, Kevin Mayer, our Head of Culinary, is conducting a turf analysis to determine the optimal number of menu items. While I appreciate the breadth of our menu, I think we may lean a bit too heavily in certain areas, and we may pull back after assessing the analysis. I can see us refining what we consider core or familiar items and transforming them into something fabulous. Our data indicates that our guests recognize the unique yet familiar offerings. I believe that's the direction our menu development will take. Kevin, would you like to add anything?

I think you covered it actually.

He thinks I covered it. I think we're good there.

I have one last question. I understand it's still early regarding the remodel plans. You mentioned that some of the capital expenditures for the year have been set aside for that. I'm curious about your thoughts on the size and scope of the initial stores you might target, including the number or age of those locations.

Yes, so we got probably about a third of our restaurants, from a vintage standpoint, that have the ability to kind of add some capacity into it, up to almost 24 seats in our restaurants. Those tend to be an older model, meaning an older version of our restaurants, so they need a little bit of an upgrade there to begin with. But they're high-volume restaurants. We know that every time we've added capacity in restaurants, we're able to generate top-level sales. We haven't defined the full dollar scope yet on those, but knowing that we're adding capacity and getting seats in there, we know that they're going to have a high ROI just because, again, we're going to be able to generate top-line sales from them.

Very helpful. Thank you.

You're welcome.

Thank you. And that does conclude today's teleconference. We do appreciate your participation. At this time, you may now disconnect.