Good day, everyone, and welcome to the BJ's Restaurants' Incorporated Fourth Quarter 2018 Earnings Release Conference Call. Today's conference call is being recorded. At this time, I'd like to turn the conference over to Greg Trojan, Chief Executive Officer. Please go ahead, sir.

Thank you, Operator. Good afternoon, everyone and welcome to BJ's Restaurants' fiscal 2018 fourth quarter investor conference call and webcast. I'm Greg Trojan, BJ's Chief Executive Officer, and joining me on the call today is Greg Levin, our President and Chief Financial Officer. We also have Greg Lynds, our Chief Development Officer, and Kevin Mayer, our Chief Marketing Officer, on hand for Q&A. After the market closed today, we released our financial results for the fourth quarter of fiscal 2018, which ended on Tuesday, January 1st, 2019. 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'll then provide an update on our business and current initiatives, and then Greg Levin will provide a recap of the quarter and some commentary regarding fiscal 2019. And after that, we'll open it up to questions. So Rana, go ahead please.

Thanks, Greg. Our comments on the conference call today will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause actual results, performance, or achievements of the company to be materially different from any future result, 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 21, 2019. We undertake no obligation to publicly update or revise any forward-looking statements or to make any other forward-looking statements, whether as a result of new information, future events, or otherwise unless required to do so by the Securities Laws. Investors are referred to the full discussion of risks and uncertainties associated with forward-looking statements contained in the company's filings with the Securities and Exchange Commission.

Thanks, Rana. Our continued sales and market share gains in Q4 fueled solid margin growth and strong overall financial performance and capped an outstanding year for BJ's. Fourth quarter comparable restaurant sales rose 4.5% and traffic was up 1.1% topping off the year in which our overall comparable sales growth of 5.3% outpaced the industry as measured by Black Box by over 400 basis points. Combined with our five new restaurant openings during the year, revenue rose 8.3% in 2018. In addition, our comparable traffic increased 1.6% for the year outpacing our competitors by approximately 270 basis points and now we've achieved five consecutive quarters of positive traffic. When reviewing these strong results, it's important to keep in mind that in 2018, we were lapping a year in which we also outperformed the industry in both sales and traffic. Although 2018 was clearly an outstanding year, it is worth reminding everyone that taking market share is not new news for our concept. In fact over the past five years, we've outpaced the industry in traffic and sales on average by approximately 100 bps per year again using Black Box as our industry metric. Furthermore, these gains don't even count for the incremental revenue of our new restaurant openings as we have opened 59 new restaurants in the past five years and we expect to contribute nearly $300 million in annual sales this coming year. We believe our ability to drive share in good and challenging periods reflects favorably on our path to make BJ's as the best casual dining concept by focusing on food quality, value, service, and great guest experience. The objective of our sales and traffic initiatives is to deliver profitable growth and for 2018, we drove an approximate 70 basis point increase in restaurant-level margins, a 54%…

Thanks, Greg. As we noted in today's press release, we had another very productive quarter with comparable restaurant sales up 4.5% and restaurant level margins of 17.2% which is up 50 basis points. As Greg just mentioned, we generated adjusted EBITDA of $140.3 million for the year, an increase of approximately 15% and that's an increase on total revenues of just over 8%. While it may sound repetitive, the strength of our 2018 financial performance is a testament to the BJ's brand and our ability to drive sales and efficiencies throughout the organization based on well-defined strategic initiatives which are executed at a very high level across our platform by our over 22,000 team members. Before I get into the quarter, I want to mention that our tax rate in Q4 was 12.6% which was higher than our estimated rate of around 10%. This increase is due to higher pre-tax income as well as fewer tax credits than anticipated. The higher tax rate impacted diluted earnings per share by approximately one to two pennies in the quarter. Our 2018 tax rate moved around due to excess tax benefits and net of credits by quarter making it very difficult at times to predict the rate and model earnings per share. It is one of the main reasons for those that have followed BJ's for a while that we tend to evaluate our business around our operating margins and our EBITDA. Our total fourth quarter revenues increased 7.4% to $280.5 million driven by 4.5% growth in comparable restaurant sales and 3% rise in operating weeks. Our comparable restaurant sales was driven by positive guest traffic of 1.1% and growth in average check further underscoring the attraction and health of BJ's concept. On a trend perspective, every month in the quarter was solidly…

Thank you. [Operator Instructions]. We will go first to David Tarantino from Baird. Your line is open.

Hi, good afternoon. My first question is really on how you're thinking about the comp outlook. I know you've had a lot of weather issues so far in Q1 but just as you look at the balance of the year and what you have in the pipeline, I think last time you mentioned that it takes about a 3% comp or a little north of that durable to margin structure flat excluding maybe some of these training costs. But I guess first of all is that relationship changed and then second what's your degree of confidence in getting to that level given the comparisons and everything you have in your initiative pipeline?

Well I will take a couple of those questions there and maybe Greg Trojan will add on as well. I don't think there is a change in regards to the fact of looking somewhere in that 2.5% to 3% of range to kind of hold margins. We said that kind of specifically in the formal remarks there, David, and I don't think anything really changes on that from that perspective. Frankly as we look at the start of this year and we still had a tough quarter last year going over 4% comps, we're pleased to see positive traffic right now. We're advised to seeing I think a little bit higher average check to start the year which we are starting to see a little bit to help us get some of the margin perspective. But I feel myself personally feel good about the initiatives we have in place. I think the consumer backdrop still remains very strong and solid from that perspective and I think we've always said that that's an important factor towards our comp sales last year and going forward is some of the consumer perspective there. And I think our initiatives and the things we're doing on the menu to help move the mix in the right direction and other things makes us optimistic that I think we can be in the average check range of 2.5 plus that we've talked about. Anything?

No, I agree. I think we have a lot of momentum from 2018. We're very pleased with the fourth quarter and how December finished. And we like where we are from a product pipeline. We're still very bullish around off-premise. So I think a lot of things that drove such a fantastic year last year continue to be in place, as Greg said, against the backdrop of everybody is wondering beyond 12, maybe 15, 18 months what the economy is going to look like. But all indications are with this level of full employment and real income growth that the consumer is in fundamentally a very good position and that's the most important backdrop to sales momentum is are those macro factors. And we think what we're doing is going to add to that. So -- but we don't know as we often say, we don't have a crystal ball but there's a lot of reasons to continue to feel -- to feel good about 2019.

That's great. And then one follow-up on your commentary around sort of uncertain maybe economic backdrop when looking out a couple of years, I guess how do you think about your unit growth when you look at 2020, 2021. Are you thinking that seven to nine is the right phase, are you thinking you might want to go faster or slower given your commentary there?

Look we don't, obviously we don't make those face ultimate decision until quite late into the year and but absent changes in the environment, we look towards and Greg Lynds is in the room, here he is preparing to open more restaurants not fewer. Given that we've scaled back over our pace of several years ago we're not going to get back on to 15, 16, or 17 restaurant opening phase all in one fell swoop. But we know that we're capable of opening that kind of rate of restaurants when we think the environment is right for that. So we're going to remain optimistic and flexible but we're working towards a phase that like I said tends to be more than we're doing this year than last.

And next we'll go to Will Slabaugh from Stephens. Your line is open.

Yes, thanks for taking my questions, and this is Hugh on for Will this afternoon. First as we think about your initiatives for 2019, how much of it should we consider to be you going deeper into what is proven to work versus some of the new initiatives you've touched on the consumer hasn't seen yet?

Hugh, I think -- I think it is leveraging the success, I don't think we're not here pronouncing any wild new foray. I think we've been showing good consistent results in traffic and top-line growth which is the most important thing. Following a fundamental value strategy and menu strategy and new channel strategy, it wasn't just last year. And that's what I try to reinforce in my remarks is that we've been consistent in regards to those strategic pillars for a number of years now. So I do think it's fair to characterize them as going deeper on things that have been working well for us rather than a shift in strategy, if that's your question.

Yes, got it, thanks. And then on the off-premise business, could you just give us your updated thoughts on delivery and if there's been any change in your thinking around its incrementality or profitability?

Yes, sure, sure. No is the quick answer there. We still believe it's highly, highly incremental. We're seeing no evidence that across our portfolio of restaurants that we're seeing any relationship between higher delivery sales and impact on on-premise. And we in terms of profitability as we all as an industry talk a lot about the marginal economics are less attractive than someone coming in and joining us in restaurants. But nonetheless as long as we continue to be convinced and I think we will continue to be convinced that this is an incremental occasion, the marginal economics are still quite attractive, very attractive. So at the end of the day as we say internally here, we're counting dollars not percentages and incremental dollars help us leverage a lot of our fixed infrastructure costs already invested in the business and in our G&A here and we think it's a great way to keep growing our business.

Yes, and Hugh, I think one of the important comments that we've made before is we really started on the kind of delivery partnership with frankly zero delivery in our business. Our off-premise sales at that time are around 5% or so and it was almost entirely takeout. So as we have gone from 5% or so to 9.5%, that's been primarily through delivery and our takeouts maintain kind of a flattish number as a percent of overall sales. I think it might be a different question if you're asking us this and we are starting from a point of 20% or 25% of our sales already being off-premise and you might end up having a little bit of cannibalization from takeout to delivery where I think where we're starting from, it's a little bit more of an incremental growth aspect of it versus maybe a different type of concept.

Got it. Makes sense. Appreciate you taking the questions.

Welcome.

And next we'll go to Jeffrey Bernstein from Barclays. Your line is open.

Great. Thank you very much. Two questions, one in terms of labor specifically, I think the inflation is well understood and I think you mentioned 5% inflation for 2019. I'm wondering if you can give some color, if you're finding difficulty staffing regardless of the cost. We're hearing more and more people are just literally unable to staff certain restaurants or maybe not get the quality people they're looking for. Maybe the turnover is ramping up. I'm just trying to get a feel especially in your California market how you're dealing with the labor pressures and if they become more significant, then I had one follow-up?

Yes, Jeff, frankly you kind of basically stated there, I don't think we're seeing anything that different than other restaurants. Frankly, luckily or kind of luckily is the right word that all of our restaurants are staffed. We feel good about from that standpoint. I think as Greg Trojan mentioned a comment about opening new restaurants and having a growth vehicle that really helps us around management from that perspective. But when you think about the 5% wage rate inflation that I mentioned or even what we see last year, a lot of that is due to supply and demand. If it was just purely minimum wage, our wage rate inflation would be basically 60% less or so, when we try and analyze that. So I think the entire industry is being challenged to find right people. It's one of the reasons that where you are looking at our kitchen systems that we mentioned on the call here today. It's not about taking labor out and I know everybody wants to kind of come up and figure out ways to take labor out. We'll always look at that and become more efficient but it also has ways that set up our restaurants to make it easier to work in our kitchens and make it more productive and efficient that way. So we can hold on to people. Generally speaking, we do a pretty good job holding on to hourly team members. We are a busy restaurant and people like that. If you're a server in the front, you're getting good tips from that perspective. So that's always been a benefit for us but across the board, it is I think challenging in the labor environment. And one of the things is I'm kind of going on here with different, different areas of your conversation or your discussion or your question is any area that comes into that wage rate actually being up about 5% is related to over time. I think a lot of restaurants are putting in more over time than they like and you end up paying a higher wage rate there so. So we're hoping that some of these we put in place here will help reduce over time and keep wage inflation lined up. But across the board it continues to be a challenge.

The only thing I would add, Jeff, is I think we are encouraged if you will by the fact that our overall turnover rates were actually down a little bit in 2018 versus 2017. We've always run better than industry averages from both our Manager and an hourly perspective. But that being said it's still a dog -- it's just a dogfight out there and I think as Greg mentioned, we're focusing on retaining more people particularly the great people that we have and the kitchen initiative as an example is as much how do we make it a better place to work in our kitchens, better organized and make it easier for our teams to execute than we are in terms of let's cut hours and make it harder on our people. That's the last thing we want to do here. So thinking differently about staffing and making, giving us a competitive advantage of attracting people is a high priority.

Understood. Certainly can you provide any color or commentary on just what you're seeing from a category perspective in terms of the broader environment? Needless to say we see lots of promotional activity in terms of marketing and whatnot. But I'm just wondering what you're seeing by market whether it leaves you inclined to promote more value or whether you're comfortable kind of going with a premium route because you think maybe the discounting is easing. Any color on the landscape would be great? Thank you.

Yes, thanks. I wouldn't observed any different. I mean I think every conference or conversation, we have the question comes up a boy there's a lot of discounting out there. And others -- there is just -- I don’t think there has been a fee change in any regard. I think if anything, I think the -- you're seeing in a healthier economic environment folks pulling back on the depth of discounting is probably about the same frequency. But I think if you really analyze the depth of the discount, I think if anything that's pulled back a little bit. But having said that our strategy remains pretty much the same in terms of the advantage and one of the keys that people ask me, why are you guys doing as well from a traffic perspective is the balance on value that we've created. And one of the things I pointed out in my remarks earlier is we're not taking price on some of these value leadership promotion that were really franchised nights and our Brewhouse Specials and our Happy Hour price points for instance because that's we'd rather invest in those kind of value elements than run another promotional program or run deeper discounts to compete. And we're going to continue to -- with our breadth of our menu be able to drive check where people want to spend those extra dollars on great value and quality. By being present in all day parts with very compelling everyday value and price points is really central to our strategy when it comes to being competitive on value.

And next we'll go to Chris O'Cull from Stifel. Your line is open.

Thanks. Good afternoon guys. Greg, I was just trying to do some quick math and it looks like you expect the first quarter restaurant margin to be down maybe 150 basis points year-over-year. Maybe I'm wrong but I think that's the math. But how much of that relates to softer comp sales versus some of the start-up costs you're mentioning with rolling out new menu items and some of the other operational changes?

Yes, about 100 basis points to maybe 120 is really the softer comp sales in there. I mean in any normal environment, Chris, and you've been doing this for a long time and of course we have been doing it for a long time, we would be at static with 1.5% comp sales and driving positive traffic in there as well. But as we talked and I think we've been pretty consistent about it and sometimes we don't like to mention it as much, you need a little bit of average check in there especially with the labor environment that we just discussed a moment ago. So when we tend to look at what we're seeing right now, the comp sales is probably the bigger driver of it. The lesser amount is the roll out of the first part of the initiatives around the TRI-TIP. I'm just expecting some ways there and I'm learning how to cook it. That's not going to be as much. And again -- your 100, 150, I think as I give the guidance I'm hoping that it's going to be on the lower side of those type of things, it depends on how you guys run through comp sales and other things for the second half of this quarter.

Okay. And then just in terms of growing the check average, Greg, can you maybe describe the catering or large party sales opportunity, you think you have and maybe some more specifics are in the plans you have to drive catering sales?

Sure. A lot of it, Chris, revolves around just making it easier to understand. We've got and we have had and did some work last year on improving the product offerings and the variety and the combinations and we just don't think we're all the way there in terms of making it simple to understand and use language that mom or dad trying to feed the team or making the office person just that really simple to understand what they can order to feed X number of people. In a little bit, our breadth of the menu -- or of menu is such an advantage but it also works a little bit to our disadvantage and it becomes a little more complex to figure out like what are the best combinations and things to order and we're just trying to do some good work on both from a menu but also from an ordering mechanics and communication perspective that at the end of the day just make it easier because we think we have frankly some screaming values in the large party offerings but I think we haven't done as good a job yet of communicating those offerings and that value yet and that's what we're working on.

And next we'll go to Matthew DiFrisco from Guggenheim Securities. Your line is open.

Hello, this is Matt Kirschner on for Matt. I just had a question on the 20 basis point average weekly sales gap during the quarter. Was that one-time or can we kind of expect that as a going forward gap to historical ranges closer to 100 basis points or so?

Yes, I think that gap obviously has narrowed because we just don't have as many new restaurants coming into the comp base as we would have had two or three years ago, Matt. So I think you're ultimately going to see a more closed or a closer gap between comp sales and weekly sales average. So I would tend to think that that number 20 basis points or so, it's probably more realistic on a go forward basis.

Okay. And is it worth commenting on Easter. Do you have an expectation well how that could potentially affect the comp benefit or an impact with the latest trending [ph]?

Yes, Easter is generally a slower weekend for us. So we'll pick up at Easter weekend which should be a little bit better. You do end up putting Spring break a little bit later and those Spring break weeks are generally good for us. So I don't think it's going to have that much of a material impact on our business overall. So you think it's probably maybe 10 to 20 bps probably more favorable in Q1 just could you pick out that kind of Saturday and Sunday.

Okay. And then did you give pricing for the fourth quarter?

No, we thought I mean I think generally the way we looked at the fourth quarter is again 4.5% comp sales. We did 1.1% traffic. So your difference there about 3.4% so it's kind of your average check or your check growth. A little bit higher maybe what we expect that's due to a little bit less discounting than what we've seen over prior years.

And then my last one would be on depreciation. We have seen the unit growth come down, should we expect maybe a little more leverage on the depreciation line in 2019 too?

No, your depreciation frankly is let a cost per week; is the way I would think about it. If we can drive comp sales 5% or 6%, depreciation as a percent of sales will go down. But generally speaking depreciation is a fixed cost and I think we are averaging somewhere in the 6,700 to 6,800 per week. So you could probably take that times the number of weeks I mentioned on the call here and that's kind of going to be your depreciation number.

Okay. I just saw that the cost per week went down in 4Q as well. So just wasn't sure if that's something I could imply going forward.

Yes, I wouldn't. It's interesting. I didn't -- I got to put it up here as well. How much did it go down, it probably went down from 7,000 to 6,700 or so.

Yes.

Yes, I mean I think that --

6,700 to 6,800 per week.

Yes, I think that's a pretty reasonable number to use. The reason that's been going down over time is really our new prototype just been lowered to build but I think the 6,700 is kind of what I'm targeting internally.

And our last question for today comes from Stephen Anderson from Maxim Group. Your line is open.

Yes. Good afternoon. I have a question about one of your day parts guys, kind of lunch and some other promotions I've encountered that as a promotion to 20% off discounts for BJ's loyalty members that they paid through the app, just want to track the performance of that. And that's been successful getting new members?

Yes, I think we've been very, very pleased that's not something we're currently running now, Stephen. But we did for a good part of last year and we use it to really drive incidence around mobile apps and get people experiencing particularly mobile pay and how wonderful it is to be able to control that part of their experience. So like I said, it's not something that we're looking to have in place day in and day out, but it's a great thing to spur trial and what typically happens is we'll grow incidence and it'll come back down a bit. But we hold on to some of those folks that have discovered the power of sometimes ordering ahead but also paying through the app. So we will use that going forward as a good new trial tool.

Thanks. And I know that certainly with the first quarter being under pressure from weather. Are you seeing this as an opportunity for you to maybe publicize the fact that you have delivery in many of the markets and maybe something that can maybe cushion the blow from weather in the future?

Yes, I know we've been from a marketing perspective have trying to always strike the balance but have made sure that we're allocating a good amount of our marketing dollars to growing off-premise and creating that awareness to your point. And it has helped. You never know what that relationship is but our off-premise growth rate has not really slowed down and we're comping bigger and bigger growth rate numbers. So having been a veteran of running pizza delivery businesses early in my career in Southern California rain, rain is good for delivery.

The other thing about that, Stephen, Stephen I think is -- it is interesting, we're driving nice positive traffic even with the weather. And as we said comp sales in the mid 1% range, if we can get that average check up a little bit which we're starting to see and even with the weather, we would end up actually with a pretty solid comp to start Q1 from that perspective. And I think gives us I think a lot of optimism going for the rest of the year is despite some weather challenges, we are still driving positive comp traffic, it gives maybe our promotional guide a little bit higher than what we're expecting on top of the weather which has kept the average check which last year was more in the 3% range to growing where we'd like it to grow to help offset some of the inflationary pressures, so.

I think it's worth noting just because it's an important point of -- on the check is one of the things that I think is most different versus a year ago is all this momentum that we've built around the loyalty program and our retention rates and sign-up rates have all been really good positive factors in our growth from last year. And we didn't besides the $5 Thank You offer that we distributed to our loyalty folks, our playbook really wasn't all that different from a discounting perspective versus a year ago but what we hadn't experienced before is a busy holiday season of folks actively redeeming and participating in our loyalty program and coming back in with the bounceback offers in January and early February on top of a normal promotional activity. So look I still think it's great fundamental again delivering great value to our guests particularly our most loyal guests. And but to Greg's point is -- it's the combination of that damp in check early, early on in the quarter a bit more than we're expecting but that's something we'll learn from frankly.

And we have no further questions for today. So that does conclude our call for today. Thank you for your participation. You may now disconnect.

Thank you, everyone.

Thank you, everyone.