BJ's Restaurants, Inc. (BJRI) Q4 2022 Earnings Call Transcript

BJ’s Restaurants, Inc. (NASDAQ:BJRI) Q4 2022 Results Conference Call February 16, 2023 5:00 PM ET

Company Participants

Rana Schirmer - Director of Securities

Greg Levin - President and Chief Executive Officer

Thomas Houdek - Chief Financial Officer

Conference Call Participants

Alexander Slagle - Jefferies

Michael Tamas - Oppenheimer and Company

Drew North - Baird

Sharon Zackfia - William Blair

Todd Brooks - Benchmark Company

Teddy Farley - Citi

Andrew Wolf - C. L. King

Operator

Greetings, invited to BJ’s Restaurants, Incorporated Fourth Quarter 2022 Earnings Release and Conference Call. At this clip each participants are successful a listen-only mode. A mobility and reply convention will travel nan general presentation. [Operator Instructions] Please statement this convention is being recorded.

I will now move nan convention complete to Greg Levin, Chief Executive Officer and President. Thank you, you whitethorn begin.

Greg Levin

Thank you, operator. Good afternoon, everyone and invited to BJ’s Restaurants fiscal 2022 4th fourth investor convention telephone and webcast. I’m Greg Levin, BJ’s Chief Executive Officer and President and joining maine connected telephone coming is Tom Houdek, our Chief Financial Officer, and we besides person Greg Lynds, our Chief Development Officer connected manus for Q&A.

After nan marketplace closed today, we released our financial results for nan fiscal 2022 4th fourth and you tin position nan afloat matter of our net merchandise connected our website astatine www.bjsrestaurants.com.

Our schedule coming will commencement pinch Rana Schirmer, our Director of SEC Reporting, providing our modular cautionary disclosure pinch respect to forward-looking statements. I will past supply an update connected our business and existent initiatives and past Tom Houdek will supply immoderate commentary connected nan 4th and nan existent environment. After that, we will unfastened it up to questions.

So Rana, please spell ahead.

Rana Schirmer

Thanks, Greg. Our comments connected nan convention call coming will incorporate forward-looking statements wrong nan meaning of nan Private Securities Litigation Reform Act of 1995. Forward-looking statements impact known and chartless risks, uncertainties and different factors that whitethorn origin nan existent results, capacity aliases achievements of nan institution to beryllium materially different from immoderate early results, performance, aliases achievements expressed or implied by forward-looking statements. Investors are cautioned that forward-looking statements are not guarantees of early capacity and that undue reliance should not beryllium placed connected specified statements.

Our forward-looking statements speak only arsenic of today’s date, February 16, 2023. We undertake nary responsibility to publically update aliases revise immoderate forward-looking statements aliases to make immoderate different forward-looking statements whether arsenic a consequence caller information, early events aliases different unless required to do truthful by nan securities laws. Investors are referred to nan afloat chat of risks and uncertainties associated pinch forward-looking statements contained successful nan company, filing pinch nan Securities and Exchange Commission.

Greg.

Greg Levin

Thanks, Rana. BJ’s 4th fourth results demonstrated continued maturation crossed cardinal metrics, arsenic we hit nan manufacture arsenic measured by comparable income and comparable impermanent postulation according to Black Box, and we made further advancement improving our edifice level rate travel margins.

Our comparable edifice income accrued 6.6% complete nan aforesaid 4th a year-ago, connected a 14-week versus 14-week basis. While a slower commencement to December and precocious wintertime storms provided a flimsy headwind to nan industry, BJ’s still delivered its highest play income mean ever, reaching much than 131,000 a week earlier Christmas.

With our attraction connected staffing our restaurants to guarantee we are delivering golden modular work and gracious hospitality successful our precocious energy, lively restaurants, we were capable to summation eating room sales, while maintaining disconnected premise income astatine doubly nan pre-COVID levels.

Of note, our comparable income capacity has accelerated successful fiscal 2023 to-date, driven by maturation successful nan eating room impermanent postulation and an further 3.7% of paper pricing, which is 190 ground points much than our pricing information that we took past February.

If our year-to-date income trends continue, first 4th comparable edifice income should beryllium successful nan high-single-digits. Currently, we are carrying pricing successful nan mid 7% scope compared to a year-ago.

Like each user facing businesses, we are intimately monitoring customer trends and nan broader macro environment. To-date, we person not seen immoderate meaningful alteration pointing to a slowdown successful spending astatine BJ’s.

For example, our cheque driving incidents for add-ons specified arsenic appetizers, drinks, and of course, our [indiscernible] stay supra pre-COVID levels and we are not seeing antagonistic operation shifts towards little priced aliases discounted items.

The 1 area that has moderated somewhat has been our intoxicant incidents. We are still trading much intoxicant per check-in our eating rooms than earlier nan pandemic. But nan magnitude of other portion incidents has declined modestly. This inclination began successful mid-2022, truthful we judge it has to do much pinch a return to nan much normal impermanent behaviour than immoderate macro effect connected our consumer.

During nan 4th quarter, we made advancement improving our edifice level rate travel margins, contempt nan ongoing inflationary pressures. We each cognize increasing income leads to incremental profit and separator description .

The income maturation we generated successful nan 4th coupled pinch immoderate early occurrence from our separator betterment initiatives and to a lesser grade nan other week successful nan fiscal twelvemonth helped to propel our margins up of some nan aforesaid 4th a year-ago arsenic good arsenic nan 3rd 4th of 2022.

To that end, our attraction for 2023, this existent twelvemonth is astir expanding our edifice level margins done our income driving initiatives, our separator betterment project, and allocating superior to precocious returning investments.

Our income driving initiatives target capturing moreover much eating room postulation done a paper focused connected craveable, acquainted made Brewhouse fabulous offerings, precocious return connected finance remodels that are proven to assistance sales, arsenic good arsenic driving further disconnected premise income done our ain channels pinch our caller e-commerce level and done our third-party partners.

In regards to our separator betterment initiative, and arsenic we person discussed connected our 3rd 4th convention call, we are targeting astatine slightest 25 cardinal of yearly costs savings worthy 200 ground points of separator improvement.

We expect to spot savings from sourcing changes wherever we tin heighten and differentiate BJ’s precocious value products done our room exertion competitory advantage. So, for example, which we touched connected past quarter, nan alteration to slow roasting our ain wings unsocial will prevention america complete $4 cardinal annually and use our margins by 30 ground points.

We proceed to trial nan number of different impactful opportunities to optimize our business, including a simplified paper that is still broad, but reduces nan paper point count complexity and SKUs, while improving execution and prep hours successful nan kitchen. We intend to rotation retired a paper pinch astir 10% little paper items successful July, and we will trial removing moreover much items later this year.

Additionally, we conscionable started testing AI driven income forecasting to supply an further instrumentality to our edifice operators to forecast income much accurately, which past improves labour scheduling ratio arsenic good arsenic room prep. I’m very assured that we will execute our extremity of identifying astatine slightest 25 cardinal of annualized edifice costs savings this year.

We besides proceed to measure our paper pricing strategy and expect further rounds of paper pricing later this twelvemonth successful bid to negociate ongoing inflationary pressures and negociate our margins.

With commodity and labour costs now each up astir 30% since 2019, paper pricing will play a domiciled successful our expected separator maturation this year. To-date, we person priced much conservatively than galore peers during nan caller play of accelerated inflation, which has benefited our impermanent postulation trends and worth scores.

As a result, guests proceed to spot their tremendous value constituent worth provided astatine BJ’s from our Lunch Specials, Daily Brewhouse Specials, and Happy Hour offerings, on pinch our much indulgent favorites still astatine awesome prices for illustration our Slow-Roasted Prime Rib and Fresh Atlantic Salmon.

Remodels will besides play a cardinal domiciled successful our income building inaugural for nan adjacent fewer years. The impermanent consequence measured by accrued traffic, income and profit has been excellent. Our remodel programme includes adding seating capacity and updating our barroom connection wherever applicable and different highly impactful elements wrong and extracurricular nan restaurants.

To-date, nan return floor plan successful these investments has been highly attractive, truthful we person made further remodels and important portion of our 2023 superior allocation strategy, which Tom will screen successful much item shortly.

Based connected our existent and expected income maturation trends, our separator betterment advancement to-date, and expected further separator opportunities and further pricing, we expect tally complaint edifice level rate travel margins successful nan debased to mid-teens arsenic we exit 2023, assuming a continued patient macro and user environment.

Finally, our caller edifice description strategy continues to supply beardown results and growth. In nan 4th fourth we opened nan last 3 restaurants of nan twelvemonth for a full of six caller restaurants unfastened successful 2022.

We thin to unfastened restaurants successful markets pinch precocious income and charismatic edifice rate travel potential. To exemplify successful January, our people of 2022 restaurants had mean play income much than 20% higher than nan remainder of nan BJ’s system.

We are very pleased pinch nan beardown income capacity of our caller edifice openings, which reinforces our assurance successful nan charismatic financial returns by allocating superior to caller restaurants.

We expect to unfastened different 5 caller restaurants successful 2023, 1 of which is simply a relocation of our Chandler Arizona edifice to a caller premier location successful nan aforesaid waste and acquisition area. Also, reflecting prudent portfolio management, we will adjacent 2 older restaurants successful nan first half of this year.

On nan group front, past 4th I announced that we added BJ’s first standalone Chief People Officer, Amy Krallman, to our activity squad early successful nan 4th quarter. Also successful Q4, we invited Putnam Shin arsenic our caller Chief Growth and Innovation Officer to BJ’s.

We are thrilled to person Amy and Putnam subordinate nan executive team. They are some already making important impacts crossed nan statement and I cognize they will beryllium beardown leaders arsenic we thrust nan business connected our roadworthy to 2 billion.

So successful summary, we are focused connected nan broad broadside of initiatives aimed astatine importantly expanding our mean play sales, increasing our edifice margins and continuing our nationalist description pinch a controlled gait successful apical value sites pinch a extremity of increasing BJ income to 2 cardinal and beyond.

[Technical difficulty]

Alright. Thank you, operator. I judge we had immoderate method trouble here. I’m conscionable going to do my past paragraph, because I perceive that is wherever we dropped off. And past we will move it complete to Tom Houdek, our Chief Financial Officer. So sorry astir that everyone.

As I was saying, successful summary, we cognize nan champion measurement to turn margins and profit is to turn sales. Our caller income trends person been encouraging and we stay committed to being income drivers first and foremost.

We intend to proceed building income into 2023 pinch request for experiential eating remaining strong. And our extremity is to turn our income into 2 cardinal and beyond by delivering this meaningful net maturation and shareholder return.

In nan meantime, we are incredibly progressively assured that impermanent affinity for our marque and conception coupled pinch nan trajectory of our business and our existent maturation and separator enhancing initiatives will alteration america to execute charismatic adjacent and midterm maturation and separator objectives.

Now fto maine move it backmost complete to Tom to find a much elaborate update from nan 4th and existent trends. Tom.

Thomas Houdek

Thanks Greg, and bully day everyone. I will supply specifications of nan 4th and immoderate forward-looking views. Please retrieve this commentary is taxable to nan risks and uncertainties associated pinch forward-looking statements arsenic discussed successful our filings pinch nan SEC.

For nan 4th quarter, we reported full income of 344.2 million, an 18% summation from nan anterior year. Included successful 4th fourth income were 26.5 cardinal from nan other week successful our fiscal twelvemonth and 3.2 cardinal gift paper breakage gross related to a alteration successful estimated redemptions of gift cards issued anterior to 2022, which person yet to beryllium redeemed, resulting from nan COVID-19 pandemic.

Excluding nan other week and gift paper breakage adjustment, our income accrued astir 8% versus Q4 2021. On a comparable edifice basis, which is unaffected by nan gift paper breakage adjustment, income accrued by 6.6% compared to Q4 of 2021 connected a 14-week to 14-week basis.

The comparable income betterment successful conjunction pinch definite savings, we began to recognize from our separator betterment inaugural and to a lesser extent, nan other triumph successful our fiscal twelvemonth helped BJ’s amended margins successful nan 4th quarter. Our edifice level rate travel separator was 12.9% successful Q4.

After removing nan gift paper breakage use discussed earlier, edifice level rate travel separator was 12.1%. Our Q4 2021 edifice level rate travel separator was 10.1% aliases 9.6% erstwhile removing nan 1.6 cardinal successful worker retention taxation in installments benefit. When comparing margins, excluding nan gift paper breakage and ERTC benefits edifice level rate travel margins improved by 250 ground points successful nan 4th fourth compared to nan anterior year.

Adjusted EBITDA was 26.1 cardinal and 7.6% of income successful our 4th quarter, which included nan gift paper breakage benefit, erstwhile again excluding nan gift paper breakage use from 2022 and nan ERTC use from 2021, Q4 2022 EBITDA hit nan anterior twelvemonth by 10.8 cardinal pinch a separator that was 260 ground points higher.

We reported nett income of 4 cardinal and diluted nett income per stock of $0.17 connected a GAAP ground for nan quarter. Our Q4 GAAP, nett income and EPS benefited by astir 2.4 cardinal and $0.10 per share, respectively from nan gift paper breakage accommodation discussed earlier, erstwhile applying our 24.2% effective taxation rate.

From a play income perspective, we mean much than 112,000 per edifice successful nan 4th fourth aliases astir 7,000 higher than our Q4 of 2021. We maintained our off-premise play income mean successful nan debased 20,000 while generating dine successful income of much than 92,000 successful Q4.

Moving to expenses, our costs of income was 26.8% successful nan quarter. After removing nan gift paper breakage use to gross described earlier, our Q4 costs of income was 27.1%, which was 20 ground points favorable compared to Q3 of 2022 and 30 ground points favorable compared to Q4 of 2021. Food costs stay precocious done - truthful twelvemonth complete twelvemonth ostentation moderated to nan debased single-digits successful nan 4th quarter.

The ostentation fig would person been astir 2 percent points higher, if not for nan first information of separator betterment changes we implemented crossed our nutrient our nutrient basket, including nan caller slow-roasted wings that Greg highlighted, which were afloat rolled retired crossed our strategy early successful nan 4th quarter. We did not return immoderate further pricing successful nan 4th fourth and our pricing carried was somewhat little than 6% successful some nan 4th and nan full-year compared to nan year-ago levels.

As Greg noted, we took 3.7% of paper pricing successful January to combat ongoing inflationary pressures and to recapture further margin. To-date, we person not, we person seen nary impermanent pushback to our paper pricing rounds. We are finalizing plans for an further pricing information early successful nan 2nd quarter.

Labor and benefits expenses were 36.8% of income successful nan 4th fourth aft removing nan gift paper breakage use described earlier, our Q4 labour and benefits expenses were 37.1% of income successful nan quarter, which was 140 ground points favorable compared to nan 4th fourth of nan anterior twelvemonth aft removing nan ERTC benefit.

We continued to amended our labour ratio successful nan quarter, which is driven successful portion by improving labour retention successful our restaurants, which was astatine the, astatine its champion level complete nan past 2 years successful Q4.

Our overtime and training hours improved arsenic well, which arsenic a percent of income were 20 ground points amended than Q4 of 2021 and wrong 20 ground points from pre-pandemic levels successful Q4 of 2019.

Occupancy and operating expenses were 23.5% of income successful nan 4th aft removing nan gift paper breakage use described earlier, our Q4 occupancy and operating expenses were 23.7% of income successful nan quarter, which was 80 ground points favorable compared to nan 4th fourth of nan anterior twelvemonth arsenic we leveraged higher sales.

We proceed to place O&O savings opportunities arsenic portion of our separator betterment inaugural pinch nan first information of costs savings rolling retired successful nan coming months, including caller leftover packaging containers and changing nan wave of definite attraction programs.

G&A successful nan 4th fourth was 19.3 million, coming successful little than our anterior estimates owed to a existent up for yearly inducement bonuses, little deferred compensation disbursal tied to money capacity successful our deferred compensation scheme and different savings against our original G&A budget.

Turning to nan equilibrium sheet, we ended nan 4th pinch indebtedness of 60 cardinal and nett indebtedness of astir 31 million. We are very pleased pinch nan spot of our equilibrium expanse and will stay accordant successful our attack of prioritizing maturation driving investments by return profile, including building caller restaurants, improving our existing restaurants and backing income driving initiatives.

We vanished 2022 spending 78.6 cardinal successful CapEx. CapEx would person been astir 85 million, but astir 7 cardinal shifted from nan extremity of 2022 to nan opening of 2023 owed to timing of twelvemonth extremity building payments.

We did not repurchase immoderate further shares successful nan quarter, which leaves our readiness nether our presently authorized stock repurchase programme astatine astir 22.1 million. Looking to nan first 4th of 2023 arsenic Greg said, we are encouraged by caller income trends and we expect Q1 comparable edifice income successful nan high-single-digits.

Factoring successful our existent income and costs trends, I expect edifice level rate travel margins to beryllium successful nan 12% area successful Q1 and expanding done nan twelvemonth arsenic we turn income done strategical initiatives, make further advancement connected our separator betterment inaugural and return further paper pricing. As Greg noted, we are targeting edifice level margins successful nan debased to mid-teens connected a tally complaint ground arsenic we exit nan year.

We are expecting nutrient costs ostentation successful nan mid single-digit area successful 2023. For 2023, we are targeting G&A successful nan 80 cardinal to 82 cardinal area taking into relationship investments successful strategical maturation areas specified arsenic off-premise and catering arsenic good arsenic a measurement up backmost to much regular prize payout and deferred compensation scheme return levels. Our CapEx walk is planned successful nan 90 cardinal to 95 cardinal scope including nan astir 7 cardinal of building payments that shifted from precocious 2022 to early 2023.

In 2023, our superior allocation privilege will proceed to attraction connected investments pinch charismatic returns, including a operation of caller edifice growth, edifice remodels and different income building and separator enhancing initiatives.

This year, we scheme to unfastened 5 caller restaurants pinch nan first scheduled to unfastened later this period and nan 2nd successful early April and to grow our precocious return connected finance remodel inaugural to much than 30 restaurants aliases astir 15% of our edifice base.

Additionally, arsenic portion of our separator enhancing initiative, we scheme to fortify and optimize our edifice portfolio by closing 3 bequest of edifice this year, 1 of which will beryllium relocated to a awesome caller tract successful nan aforesaid waste and acquisition area, which is included successful nan 5 caller restaurants.

In summary, we cognize nan champion measurement to turn margins and profit is to turn sales. Recent income trends person been encouraging and we stay committed being income drivers first and foremost. We intend to proceed building income into 2023 pinch request for acquisition of eating remaining strong, particularly astatine BJ’s.

At nan aforesaid time, we person elevated productivity and costs savings done our separator betterment inaugural pinch momentum continuing to build. We person a clear way to income and separator maturation and our semipermanent strategy remains intact.

Thank you for your clip coming and we will now unfastened nan telephone to your questions. Operator?

Question-And-Answer Session

Operator

Thank you. [Operator Instructions] Our first mobility is from Alex Slagle pinch Jefferies. Please proceed.

Alexander Slagle

Thanks. Hey, guys. On nan commentary connected nan edifice level separator expectations, it sounds for illustration nan cadence is benignant of a gradual ramp. Is that benignant of fixed nan timing of nan initiatives aliases mightiness location beryllium possibly nan seasonally beardown 2Q possibly that 1 you could get to nan little mid-teens separator levels? Trying to excavation into that a small spot more.

Greg Levin

Yes. Alex, this is Greg, and past I will walk complete to Tom. He has sewage different further commentary. That is mostly really we are reasoning astir nan cadence successful nan consciousness that, arsenic our separator initiatives activity their measurement through. I do deliberation to your point, Q2 is our strongest play income average.

And I deliberation based connected wherever we are coming and knowing really those income tin grow, we thin to spot that number spell up. And past to your point, it would spell down into Q3 and past accelerate into Q4 and benignant of get america onto that trajectory of wherever we are going.

The different point conscionable erstwhile we deliberation astir it arsenic well, overmuch for illustration you saw successful nan news yesterday pinch Producer Price Index, and truthful distant connected inflation. We thin to person a definite magnitude of contracts that get reset connected January 1st. So successful this first quarter, we person immoderate of those resetting contracts, while our paper pricing of 3.7% will thief offset that arsenic good arsenic immoderate of our different initiatives.

Our adjacent information of pricing location successful that April, May timeframe is really meant to benignant of return attraction of immoderate of this further pricing aliases immoderate of that further inflationary unit that we are experiencing correct now. So that generally, nan ramp up that we see.

And I don’t know, Tom, if you person thing to adhd to that?

Thomas Houdek

Yes, I would agree. It is nan operation of pricing that we person taken immoderate successful January, we will return much later successful nan year, and nan separator betterment initiatives that proceed to build. So those that that is really nan separator expanding arsenic nan twelvemonth progresses.

Alexander Slagle

Maybe you could remark connected nan statement resetting and benignant of wherever you are. Um, really overmuch is contracted for nan twelvemonth astatine this point?

Thomas Houdek

Sure. So, successful January, we person nan mostly of our contracts travel due. So we are astir 35% to 40% fixed, which is simply a small little than we person been successful nan past. There is immoderate contracts we are staying floating connected this twelvemonth because conscionable nan other premium to fastener successful contracts for nan full-year.

We saw it much advantageous for our costs building to support them floating, return nan little costs now, and not expecting them to spell up arsenic precocious arsenic immoderate of nan fixed costs. So, that was nan grade of our statement resets that that happened successful January.

But arsenic is Greg mentioned, wings for example, that is an area wherever nan marketplace is bully correct now and prices are still low. So we kept that statement bloating to get nan use of nan existent marketplace arsenic good arsenic wherever we deliberation nan marketplace should spell for nan equilibrium of nan year.

So yes, arsenic we look into nan Q1 and gave nan forecast it margins for Q1, it takes into relationship nan other costs that we saw travel successful January. But arsenic we deliberation astir pricing what we took successful January, what we return again successful Q2, that should offset that ostentation positive other to you gets immoderate other going done nan margins.

Alexander Slagle

Great. And wanted to follow-up connected nan superior allocation commentary. If you could supply a small much colour connected nan remodel ROIs and possibly really galore of each type of opportunity you spot for 2023, whether it is nan barroom area aliases nan seating immoderate colour location would beryllium helpful.

Greg Levin

Alex, it is Greg. So arsenic you mentioned successful nan call, we are trying to get a minimum of 30 dine adjacent year, and I would opportunity it is astir apt correct now evenly divided aliases truthful betwixt nan barroom and past what we would telephone benignant of grow capacity astir nan owed seating. Some of those will overlap aliases we tin do some successful those restaurants.

And what we person seen retired of, without getting successful ace circumstantial I conjecture is nan barroom is simply a higher costs than nan barroom taps to nan backmost handle. We put successful 130 inch TV and really lighten up nan edifice and that costs tin beryllium anyplace from 500,000 to 700,000.

However, nan returns from a income standpoint connected those restaurants person been importantly higher than nan return connected sales. Meaning nan magnitude of income that we are getting connected conscionable adding nan 3 further boots, while nan 3 further some will costs only astir 150,000.

So it is simply a batch little of a cost, possibly 150 to 200 depending connected what other we do connected there. The magnitude of incremental income location while successful and precocious successful nan consciousness that gets america a bully return connected finance doesn’t thrust nan aforesaid type of return that redoing nan barroom does. That really, I think, benignant of accentuates nan power wrong our restaurant.

So, that is wherever we are today. We are looking astatine those returns location wherever we would for illustration to beryllium possibly successful nan 20 positive percent scope for nan costs of that investment.

Alexander Slagle

That is great. Interesting. Thanks.

Greg Levin

You are welcome.

Operator

Our adjacent mobility is from Brian Bitner pinch Oppenheimer and Company. Please proceed.

Michael Tamas

Hi. Thanks. This is Mike Tamas connected for Brian. Two speedy questions, nan first 1 connected pricing. Can you talk astir possibly what you are readying connected having for nan full-year 2023 inclusive of nan early value summation you were talking astir successful April and are you readying immoderate further value increases beyond April and conscionable generally, really are you reasoning astir pricing against nan much shaky user backdrop now? Thanks.

Thomas Houdek

Sure. Thanks Mike. So yes, we are, you know, for illustration we said, we took 3.7% successful January. The April information is we are targeting location successful nan 2% positive area and we will person different opportunity perchance successful nan September timeframe for much pricing. So adding that up, we could beryllium successful the, you know, 8% positive area for nan year.

Michael Tamas

Okay, thanks. And then, you know, conscionable a commentary connected nan debased to mid-teens margins exiting 2023. I conscionable want to clarify, I mean, does that mean that for full-year 2024 you will decidedly beryllium successful that range, assuming, you know, income and everything benignant of shakes retired to wherever you deliberation it is going to beryllium aliases is location thing that we request to deliberation astir that, that is different astir that tally complaint exiting 2023 into 2024? Thanks.

Greg Levin

Mike. That is our goal. Our extremity would beryllium precisely arsenic you laid it retired there, and that is arsenic we move our margins up done nan year, done nan separator betterment initiatives, 1 point that, you know, we didn’t mention, you know, and Alex asked nan mobility astir really it plays retired to nan cadence, and that is starting successful July, we will person that.

That reduced menu, and proceed to play pinch different group of nan paper arsenic well. That will really thief connected nan prep hours and nan ratio arsenic good arsenic we talk astir nan labour forecasting from the, from our AI artificial intelligence systems that we are moving with.

So arsenic we activity done those and get ourselves successful that correct into that tally complaint arsenic we spell into 2024, we would expect our margins to beryllium successful that mid teen range, and move from there. And evidently it is going to beryllium seasonally adjusted. Q2 would beryllium higher, you know, Q3 would beryllium a small spot lower. But wide we would spot 2024 successful nan area wherever our margins are successful nan mid-teens.

Michael Tamas

Okay, that is perfect. Thanks. If I tin conscionable compression successful a speedy modeling 1 connected nan remodels, is location thing we request to beryllium reasoning astir successful position of downtime, successful position of effect connected either wide income aliases comps and margins conscionable arsenic it relates to immoderate of those remodels? Thanks.

Greg Levin

No. Greg Lynds is successful here, our Chief Development Officer who is really, his squad is handling nan remodels and they person perfected it wherever they tin get successful location and do them astatine nighttime. So our restaurants enactment open, truthful we shouldn’t beryllium losing immoderate edifice days aliases edifice weeks. And location is really nary training aliases immoderate different changes from that perspective.

What we person tended to spot is, you know, that popular mightiness return a mates weeks conscionable because guests person to, you know, spot it and past build from location a small bit. But we decidedly for illustration nan pops that we are seeing and erstwhile you get to nan play and you get to Valentine’s Day, having that other capacity really helps us.

Michael Tamas

Perfect. Thanks truthful much. Thank you.

Greg Levin

Thank you.

Operator

Our adjacent mobility is from Drew North pinch Baird. Please proceed.

Drew North

Thanks for taking nan question. I was wondering if you would beryllium consenting to stock an update connected really nan comps specifically we are search 4th to-date, admit nan colour connected extrapolating nan inclination done nan equilibrium of nan quarter. But conscionable wondering if you could thief quantify nan 4th to-date metric conscionable to level group america here?

Greg Levin

Sure. It is an absorbing mobility and without getting very specific, nan first 2 weeks of January were really beardown sales. They were northbound of 20% arsenic you went complete Omicron. And since that time, it is benignant of leveled retired wherever we felt comfortable pinch benignant of mid single-digits, which thin to - high-single-digits, I’m sorry, which would tended to beryllium benignant of wherever we expect nan adjacent weeks and nan different weeks to be. So I deliberation we saw first mates of weeks of January pinch immoderate beautiful beardown income and we benignant of level group it into wherever we are today, possibly a tad higher per say.

Drew North

Okay. That is adjuvant and understood. One follow-up connected nan margin, specifically related to nan commodity ostentation outlook. Mid single-digits I judge you mentioned. I was hoping you could stock immoderate position connected nan cadence of that ostentation done nan year, based connected your existing contracts and what you whitethorn beryllium cycling?

Thomas Houdek

Sure. There was a measurement up arsenic we mentioned successful Q1, erstwhile nan fixed value contracts astir reset. We do person a small much loaded successful nan backmost half for beef and steak items. There is forecasts retired saying, fixed herd sizes that, we could spot immoderate higher value is successful beef later successful nan year, truthful that is loaded successful nan forecast arsenic well.

But otherwise, I deliberation this first reset was nan caller pricing and location is going to beryllium immoderate markets somewhat up aliases somewhat flat. But those are nan - I deliberation beef was nan only 1 worthy highlighting beyond that.

Drew North

Thank you, I will walk it on.

Greg Levin

Thanks Drew.

Operator

Our adjacent mobility is from Sharon Zackfia pinch William Blair. Please proceed.

Sharon Zackfia

Hi. Good afternoon. It was really bully to perceive astir really nan caller units are performing, and I understand nan superior allocation strategy for this year. But arsenic you deliberation beyond benignant of 2023, really are you, I guess, by nan thought process betwixt further remodels and accelerating maturation because it seems for illustration nan ROI connected caller units would beryllium beautiful patient fixed nan productivity that you outlined successful nan property merchandise aliases possibly conscionable juxtapose that pinch what you are seeing pinch building costs and if that is been a awesome facet successful benignant of nan thought process this year?

Greg Levin

Yes, Sharon, awesome mobility and sorry to jump successful that. We are excited to get 1 unfastened successful your adjacent to woods present soon successful nan Chicago area. That is benignant of our benignant of our adjacent section time.

Sharon Zackfia

I will azygous handedly boost your incidence complaint of alcohol.

Greg Levin

That if you get immoderate [Fazookes] (Ph), we will beryllium really happy. But you benignant of deed a pond astatine nan extremity location and that is, nan costs to build caller restaurants has moved higher than we anticipated coming retired of COVID.

As we were building restaurants past year, they were benignant of successful nan mid-6s to possibly upper-6s. As we went retired and sewage this year, those bids started travel successful pinch nan $7 cardinal grip location aliases starting pinch nan 7 handle.

And I tin fto Greg Lynds jump successful present for a second. But Tim and his squad person gone retired and rebid that and we are trying to bring those costs down. And while our waste to finance ratio is really beautiful bully astatine 1 to one, because our caller restaurants person opened up really good and we are really pleased pinch them.

We benignant of felt that, nan finance costs for our caller edifice versus having these precocious ROI remodels this twelvemonth made much consciousness to pivot. And knowing that moreover arsenic we spell successful adjacent year, we are still going to person restaurants that we want to walk clip connected remodeling because we tin only get 30 dine adjacent year.

I deliberation it is going to beryllium a small spot little arsenic well. But taking each that aside, nan eventual cadence backmost successful our business and is to get our caller edifice maturation backmost into 5% positive summation successful weeks.

So while we are astatine 5 caller restaurants this year, wherever we beryllium present today, we would for illustration to summation that adjacent twelvemonth and summation that thereafter and get ourselves person again to 5 positive percent. I deliberation if we do that, we thrust costs income successful nan benignant of 3 to 5% range.

We commencement to look astatine 8% to 10% gross maturation and past leveraging and building margins allows america to turn net astatine supra 10% that I deliberation astatine that clip we will beryllium throwing disconnected immoderate decent free rate travel arsenic well, allows america to commencement to deliberation astir really we want to prioritize our excess rate for our shareholders.

So that is nan longer word cadence successful our business. Even though correct now we are doing a small spot of a pivot towards remodels because of that precocious finance costs and Greg if you want to adhd anything, deed it.

Thomas Houdek

No, I will conscionable benignant of adhd to what you said that pinch our existent initiatives going on, we think, successful 2024, we tin get our full costs and that is our each successful cost. So that is construction, FF&E, soft costs tract work, everything backmost to that, six million, our target is nett six cardinal range, which still gives america awesome ROIs successful that 20 to 30% scope depending connected landlord contributions and that benignant of thing.

Sharon Zackfia

And past conscionable 2 speedy clarifying questions. The mid single-digit commodity ostentation for this year, was that a gross aliases nett of anticipated benignant of costs savings that you identify? And past did you springiness postulation for nan 4th fourth aliases tin we get that?

Greg Levin

I will do nan postulation 1 origin that is arsenic simple. So for nan 4th fourth we ended up pinch six, six comps and our postulation was astir 2.5 aliases so, and nan remainder was nan mean cheque going up. And conscionable to jump into nan mean cheque a small bit, we person mid 5 pricing, I deliberation beneath nan industry, our checks a small spot little and that is really owed to nan truth that we person seen an extracurricular maturation successful luncheon successful nan 4th fourth and nan precocious nighttime business.

So those areas person thin to person a small spot little wide mean check, and that is why our mean checks much successful nan 4% scope versus our 5% pricing. And past again, arsenic our postulation was affirmative successful nan 2.5 positive percent range, - Tom deed connected nan commodities.

Thomas Houdek

And past connected nan commodity and ostentation question, nan mid-single-digits was a nett number location is imaginable for upside, conscionable depends connected what other we are capable to execute successful nan separator betterment initiative. But correct now, nan mid single-digit was met but again, we are still evaluating a number of different charismatic opportunities to prevention there. So it location could beryllium immoderate upside connected apical of that.

Sharon Zackfia

Thank you.

Thomas Houdek

Thank you.

Operator

Our adjacent mobility is from Todd Brooks pinch nan Benchmark Company. Please proceed.

Todd Brooks

Hey bully evening everyone, this is Todd here. A mates questions. There is 1 adaptable and, and Greg you hinted astatine successful your comments, but successful talking astir nan betterment and nan edifice level separator and an exit complaint for nan twelvemonth and nan load mid teens, what is nan presumption of income arsenic acold arsenic you talk astir that arsenic being your champion driver of separator betterment and I cognize we person sewage nan separator betterment program. I cognize we person sewage immoderate pricing coming in, but what is nan presumption for what you request for aforesaid shop income maturation arsenic a constituent of reaching that target aliases are you not expecting overmuch connected that beforehand beyond Q1 and immoderate increment location would beryllium put you higher into that targeted range?

Greg Levin

Yes, it is simply a bully question, Todd. And I deliberation erstwhile we look astatine our business and deliberation astir nan truth that we are looking location successful nan 7 to 8% paper pricing, truthful reasoning astir from nan 7 to 8% paper pricing, I think, we are thinking, you know, comp income aliases gross maturation successful nan benignant of possibly mid-single-digits aliases so, hopefully a small spot better.

But we consciousness that location is opportunities that we tin thrust that separator by looking astatine our costs betterment initiatives to thief negociate that down. So I deliberation we person sewage to get that, that, you know, that pricing to travel through, successful our business to benignant of proceed to move ourselves successful nan guidance of those margins.

Todd Brooks

Okay, great. And past conscionable a speedy follow-up and I will hop backmost successful nan queue arsenic well. Is location a measurement pinch nan early acquisition pinch nan remodels and what you are seeing for lifts retired of, if you blended retired nan barroom programme and nan incremental free booth program, what type of structural aforesaid shop income do you spot arsenic we get into nan program. So arsenic we do nan first 30, location should beryllium a assistance that has a meaningful portion of nan wide concatenation from, from these efforts. How do we commencement to deliberation astir possibly a structural aforesaid shop income tailwind from this program?

Greg Levin

You know, I deliberation the, good a mates things are one, we are decidedly seeing a assistance and we talked astir nan barroom programs giving america sales, you know, location successful nan 2000 a week level, I’m sorry, nan coupon grow capacity is what we person mentioned.

We are still moving done nan bar. The barroom we person done, I want to opportunity 3 restaurants correct now. Two are performing really well. One was conscionable going to say, 1 was conscionable completed past week, truthful we are watching that one. And it tends to beryllium a income number supra that.

We will travel backmost to nan investors aliases nan finance organization aft nan first quarter. And we benignant of vanished up pinch much of nan grow capacity, which is nan further booth and past person much of nan barroom successful beforehand of america and travel backmost and springiness you benignant of wherever we deliberation they blend retired and what type of assistance we are seeing.

Right now, arsenic I said, we are targeting astatine 20% return connected that cash. So, you know, we could beryllium spending 200,000 connected nan further booths and past we could beryllium spending 500,000 to 700,000 connected barroom and different areas conscionable depending. So you tin benignant of backmost into that a small bit, but we want to spot wherever it benignant of plays retired nan remainder of this quarter.

Todd Brooks

Okay, perfect. Thanks Greg.

Operator

Our adjacent mobility is from Teddy Farley pinch Citi. Please proceed.

Teddy Farley

Hi. Thanks. Two speedy ones from me. First, would you beryllium capable to telephone retired immoderate differences possibly you are seeing in, aforesaid shop sales, successful tech dense areas possibly versus nan remainder of nan system, thing on those lines?

Greg Levin

Yes, truthful successful regards to for illustration looking astatine nan first quarter, and this is not unexpected, I deliberation because of what we person seen complete nan past mates years. The Bay area correct now is outperforming successful regards to comp sales. And it is simply a beautiful beardown contributor correct now, really each of California’s doing well, but nan Bay area is decidedly coming backmost and we are seeing immoderate bully comp income up successful that area.

I deliberation crossed nan board, we are seeing bully comp income successful galore areas, but we person talked astatine galore times astir nan Bay Area and Northern California being a small spot much of a resistance successful our business short term. And correct now it has turned a small spot and fixed america a small spot of a tailwind.

Teddy Farley

Awesome, thanks. And past conscionable 1 past 1 for me. Good to perceive that you are capable to get immoderate staffing resolved. Can you talk to really overmuch you are seeing for that arsenic being macro driven versus possibly what you are doing successful nan edifice to thief to bring group successful applications aliases retaining existing stuff? Thanks.

Greg Levin

Yes. Teddy, I deliberation it is simply a operation of both. We are proceeding crossed nan manufacture that, uncovering group is easier coming than it was a twelvemonth ago. And definitely, we spot that. We spot an accent wrong BJ’s to make judge we are taking nan clip to do nan things to onboard our group correctly, to make them portion of nan civilization and portion of nan BJ’s family to turn our business. And that seems to person really helped america from that standpoint and thing that we proceed to do.

One of nan things that will besides thief america going guardant and we don’t talk astir it arsenic overmuch from a recruiting standpoint is, arsenic we proceed to activity done immoderate of our separator betterment initiatives, particularly astir nan smaller menu.

That helps to bring group connected committee into an already analyzable business, wherever we person 145 positive paper items, learning our paper is going to beryllium much challenging than getting a paper aliases getting a position successful South Casual aliases QSR aliases different casual eating restaurants.

So doing immoderate of those things arsenic good arsenic immoderate of nan different initiatives that we person done successful regards to our worth connection and different things that we rolled retired this past year. I deliberation it is thief to bringing much group connected committee for america and continuing to amended our staffing astatine our restaurants.

And it is simply a existent accent for america and I sewage to springiness them my hats disconnected to our General Managers. I person spent a batch of clip rebuilding our restaurants and doing a awesome job. We get group successful there, truthful that we tin present golden modular level of operational excellence and that we tin present greater hospitality to our consumers that travel successful and sojourn america for our guests.

Teddy Farley

Excellent. Thank you.

Greg Levin

You are welcome.

Operator

Our adjacent mobility is from Nick Setyan pinch Wedbush Securities. Please proceed.

Unidentified Analyst

Hi. This is really [Michael] (Ph) connected for Nick. Just 2 speedy ones from me. Did you supply what costs ostentation was successful Q4? And past conscionable nan opening cadence for adjacent year, it sounds arsenic though you person sewage 1 successful nan first quarter, 1 successful nan second. Do you person immoderate ideas for nan timing of nan relocation, is that going to beryllium Q3, Q4?

Greg Levin

So connected nan opening, nan relocation will thin to beryllium Q3. So we are looking astatine benignant of 1 is present successful Q1, 1 successful Q2. And past we commencement to decorativeness disconnected nan twelvemonth hopefully pinch nan remaining three. We for illustration it to support successful Q3, but astir apt will extremity up pinch 1 to 2 successful Q3 and past 1 to 2 aliases nevertheless it falls retired successful Q4.

Thomas Houdek

And fto maine reply nan mobility for costs maturation ostentation successful Q4, connected nan hourly front, we saw astir a 7% year-over-year summation successful nan wages.

Unidentified Analyst

Great. Thanks very much.

Greg Levin

You are welcome.

Operator

And our last mobility is from Andrew Wolf pinch C. L. King. Please proceed.

Andrew Wolf

Well thanks. Good afternoon. I mightiness person missed this. I don’t know, if you person mentioned aliases could quantify what nan effect mightiness person been from nan unspeakable monsoon for illustration rains that occurred successful California during nan quarter.

Greg Levin

Andrew, we did not quantify it. It decidedly was a headwind going complete COVID from a year-ago, aliases Omicron from a year-ago. And those rains were nan benignant of nan past of December and nan first mates weeks of January that each that was coming through.

It sewage masked a small spot because of conscionable nan situation a year-ago from Omicron that really I deliberation deed our manufacture and a batch of different industries powerfully I guess, aliases impactfully. We did mention because location was personification other that asked nan mobility astir really nan twelvemonth started.

I deliberation it was Drew complete astatine Baird. We benignant of said nan first mates weeks, January difficult com income were northbound of 20% per saying that benignant of double digit. So we started nan twelvemonth really strong. They astir apt would person been moreover higher if we didn’t person nan reins successful California.

Andrew Wolf

Okay and that is simply a bully color, I admit that. And now you are saying high-single-digit is benignant of nan existent inclination and is that against a normal - is location immoderate Omicron use successful that. This is really nan consecutive mobility aliases is that against a non Omicron compare?

Greg Levin

Not really. I think, arsenic we person seen from, from different companies arsenic good arsenic you look astatine Black Box and different data, it is decidedly comes, it is benignant of for illustration a skis slope possibly a achromatic gem skis slope aliases double achromatic gem successful the, since that nan first mates weeks of January were really impactful.

And past you benignant of move done January, things started to normalize and companies built their sales. We did arsenic good from, from a year-ago arsenic we thin to look astatine ourselves present successful nan February conference, it is overmuch much of a normalized operations.

It was again, astatine this clip past twelvemonth astir staffing up and to thrust eating room income and that is wherever we deliberation we are today. But that day effect Omicron was benignant of nan extremity of December into nan first fewer weeks of January.

Andrew Wolf

Got you. And nan different mobility I wanted to inquire was, I deliberation you person plan, good you said you are readying a 10% paper point simplification and you benignant of evidently mentioned it’ll thief nan P&L, but could you possibly springiness a small much color. I’m judge nan operating cost, it simplifies that arsenic I was benignant of reasoning astir it, these must beryllium items that I waste them truthful good. So you mightiness prevention immoderate shrink and procurement mightiness get better. So conscionable a benignant of a consciousness of really that helps astatine nan edifice level and also, nan flip side, really do you deliberation astir and scheme for imaginable nonaccomplishment income and benignant of activity that activity that each out?

Greg Levin

Yes. Andrew, first of all, that is simply a awesome question, very insightful question. And that is it is overmuch easier to turn income erstwhile you are adding items versus increasing income erstwhile you return items away. And truthful we person been testing this smaller paper for a while, correct now, trying a mates things pinch different placement, trying to spot really we suffer betwixt if we are losing thing connected add-ons aliases if we are losing it successful nan entree broadside aliases really we tin operation guests from 1 point to nan next.

And based connected our testing to-date, it looks for illustration we are capable to beautiful adjacent clasp connected to our existent mean cheque and our trends based connected what we are removing from our restaurants. And past we proceed to look astatine them precisely arsenic you said. What are nan precocious sellers? What is their scope and their wave to nan consumer? Because thing that mightiness person debased wave seems for illustration cleanable to return out, but if it is sewage wide scope 2 consumers, do you extremity up losing those consumers.

So arsenic overmuch arsenic we would emotion to opportunity this retired tomorrow, nan measurement we negociate against it is we trial it. And past connected this trial we person done a mates different iterations wherever we person moved different items and different places connected nan paper truthful that erstwhile we travel into nan July timeframe and rotation it out, we will consciousness comfortable what it does to apical statement income and consciousness comfortable what it does to nan edifice operations.

And nan edifice operations is twofold. One is it will thief pinch prep because you won’t person arsenic galore items arsenic overmuch arsenic we talk astir paper items that we are removing. It is really astir nan prep hours and reducing much skews astir prep than existent items for nan cons guests. And that is 1 area that we spell aft and we look astatine it.

And past nan different broadside of it is nan expertise to navigator thing aliases conscionable nan mahfuz and repetition from little items will make our existent products that overmuch better. So we would rather, service a small spot little items but make judge each azygous point is perfect, is really nan extremity there.

The different point I do want to bring up is, arsenic overmuch arsenic we activity this down, BJ’s is for having a wide menu. We are not looking complete clip to get down to 60 items aliases 70 items. A competitory advantage and a differentiator for BJ is to person a broader paper than accepted wide casual concepts.

So we will ever proceed to person that arsenic we proceed to spell guardant and we will proceed to benignant of prune wherever it is due and make judge what we are putting connected matches nan Brewhouse fresh for nan BJ concept.

Andrew Wolf

Okay. Thank you.

Greg Levin

You are welcome.

Operator

And that was our last question, truthful we tin reason today’s conference. Thank you everybody for your information and person a awesome evening.

Greg Levin

Thank you.