BJ's Restaurants - Earnings Call - Q1 2025

Transcript

Operator (participant)

Good afternoon, and welcome to the BJ's Restaurants' First Quarter 2025 Earnings Release Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Rana Schirmer, Director of SEC Reporting. Please go ahead.

Rana Schirmer (Director of SEC Reporting)

Thank you, Operator. Good afternoon, everyone, and welcome to our fiscal 2025 first quarter investor conference call and webcast. After the market closed today, we released our financial results for our fiscal 2025 first quarter. You can view the full text of our earnings release on our website at www.bjsrestaurants.com. I will begin by reminding you that our comments on the conference call today will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that forward-looking statements are not guarantees of future performance and that undue reliance should not be placed on such statements. These statements are based on management's current business and market expectations, and our actual results could differ materially from those projections in the forward-looking statements.

We undertake no obligation to publicly update or revise any forward-looking statements or to make any other forward-looking statements, whether as a result of new information, future events, or otherwise, unless required to do so by the securities laws. Investors are referred to the full discussion of risks and uncertainties associated with forward-looking statements contained in the company's filings with the Securities and Exchange Commission. We will start today's call with prepared remarks from Brad Richmond, our Interim Chief Executive Officer, followed by Lyle Tick, our President and Chief Concept Officer, and Tom Houdek, our Chief Financial Officer. After our prepared remarks, we will take your questions. With that, I will turn the call over to Brad Richmond. Brad.

Bradford Richmond (Interim CEO)

Thank you, Rana, and good afternoon, everyone. We appreciate you joining us today to discuss our performance for the fiscal first quarter of 2025 and updated annual outlook for 2025. Our first quarter comp sales performance was strong, driven by significant traffic growth, which meaningfully outpaced the industry. While sales were a bit behind our internal expectation, the shortfall was isolated to February, where monthly comps were negative due to adverse weather and the delay in federal income tax refund processing. January and March comp growth was strong at approximately +3%, in line with our expectations. Importantly, our operating initiatives delivered improved guest satisfaction scores, which bodes well for future sales growth, and we expanded margins beyond the normal sales growth leveraging expectations. As a result of the stronger margin performance, we've raised our earnings expectations and increased our planned share buyback range.

Tom will take you through those details in a minute. Even amidst the potential macroeconomic headwinds in 2025, we believe we are well positioned to continue to be a share taker and expand margins as we look across the remainder of the year. Underlying this are well-developed near-term sales growth drivers, initiatives around operational excellence, and executing at our best, while also supporting investments in our longer-term strategic initiatives to create shareholder value beyond 2025. Before I turn it over to Lyle to walk you through a few of those key highlights, I want to thank our restaurant operators, who make this happen every day at every restaurant for every guest.

Our support team centers, who have raised their level of support to enable our operators to perform better, and the restaurant leadership team, who have been very agile and adaptive on developing and implementing near-term actions and have put in the extra effort to develop our broader strategic initiatives as we move this business ahead with more clarity and certainty. A big thanks to Lyle for his guidance through the early phases of this journey. His insight and leadership have been instrumental in our progress, and we believe BJ's is well positioned for the long term. With that, let me turn it over to Lyle to talk more broadly about our brand refresh and growth initiatives.

Lyle Tick (President and Chief Concept Officer)

Thank you, Brad. Good afternoon, everyone, and thank you for joining us today. I'm happy to report another quarter of positive sales driven by 2.7% traffic growth, which beat the Black Box industry average by approximately 320 basis points, as well as margin expansion, resulting in 16% restaurant-level operating margins and 10.2% adjusted EBITDA margins, representing improvements of 100 basis points and 150 basis points, respectively, year-over-year. I'm also pleased with the progress we're making across both our short and long-term strategic initiatives. While we're still in the early innings of this journey, we're increasingly confident in our actions and continue to believe the work we're putting in place now we can build upon going forward. Before I look ahead, I will take a moment to briefly double-click on Q1.

We continue to put the guest and team member experience at the center of everything we do, and I believe that is reflected in our sales performance, particularly our continued traffic outperformance, as well as our margin expansion. On the sales side, we continue to leverage one of our core brand equities, the Pizookie. The Pizookie Meal Deal continues to resonate with guests, providing a great value and an accessible everyday splurge opportunity that consumers need now more than ever. I also want to give a shout-out to our marketing and operations teams for their agility in recognizing and building on the emerging social media interest in our Pizookie Platter, which combines four regular-sized Pizookies into one huge treat. This off-menu jumbo Pizookie started to gain traction in January on TikTok, and the teams moved quickly on both the marketing and operations side to leverage the momentum.

So far, the Platter has generated over 57 million in organic social impressions, and we've sold over 24,000 Pizookie platters, a 17-times increase from the previous run rate. This compelling value, combined with increased social relevancy, was reflected in traffic growth not only during the week when the Pizookie Meal Deal was offered, but also throughout the weekend. On the margin side, we continue to focus on helping our team members be more effective and efficient to enable better execution and guest satisfaction. Outside our typical sales leverage gains, we continue to make practical improvements to our POS and KDS systems to help make it easier for our team members to enter menu items, improving accuracy and speed for the guests and helping us reduce our comp food and beverages, which has seen a 13% reduction year-over-year, a win-win for the team member and guest experience.

I also want to highlight our proactive facilities program, leveraging our equipment tagging we put in place in the second half of last year and preventative maintenance programs that mitigate emergency repairs and ensure our team members have the tools to deliver. These programs, combined with other facilities initiatives, have delivered an overall 4% R&M spend reduction for the quarter while helping our team members execute better. All of the work we're doing culminates in our guest satisfaction metrics, including food value and recommend scores all hitting multi-year highs, making us increasingly confident that the work we are doing has a runway to build upon. As we head into our celebration season during the second quarter, our momentum provides us a great opportunity to further drive sales and grow profit.

I want to thank our teams for their dedication and agility navigating a choppy sales quarter that started strong in January, followed by a challenging February driven by weather and some delayed tax return processing, and then March that bounced back with strong top-line trends that are continuing to hold. This kind of choppiness requires a lot of agility by our operators to forecast, staff, and manage the business efficiently and effectively, and they did just that in Q1. With respect to the consumer, clearly there's a lot of uncertainty out there, which no one loves. Having said that, we're not seeing any marked changes in our guest behavior across income cohorts, traffic, or check management.

While we have seen a nominal increase in Pizookie Meal Deal incidence, the increase we have seen in traffic, combined with the great job our team is doing leveraging the incremental sales, have delivered strong results overall. I feel confident that between the Pizookie Meal Deal, improvements in operations, and our product roadmap, we're in a good place to compete and win at a time when consumers will be focused on ensuring when they go out that it's worth it. On the tariff front, Tom will get into more details, but about 85% of our food is sourced from either U.S., Canada, or Mexico under USMCA and not subject to the proposed tariffs. We do not see much impact in Q2, but have contemplated some modest incremental inflation in the second half.

At this point, we feel comfortable with what we have baked into our guidance based on what we know today and are not planning any extraordinary changes to our pricing or promotional optimization initiatives. We are, of course, keeping a close eye on the evolution of the policy and will adjust accordingly. Looking ahead, we recently completed our brand positioning work, and while it's only been 10 weeks since we reported Q4, our cross-functional teams are diligently working to move our plans from strategy to action, and I continue to be pleased with the progress. We'll begin to see the impact of the work across our menu, operations, marketing in the second half of the year. I will now provide a brief update on progress across our four strategic priorities. Starting with the team member experience, we continue to focus on simplification and training.

As I mentioned before, we are working from a relative position of strength here. Our turnover continues to be below pre-pandemic levels, significantly below industry averages, and the trend is improving. Plus, we see a high correlation between manager tenure and restaurant performance. I just returned from some visits last week in California and Colorado, and the engagement and energy in the field is great. They feel the momentum in the business and are excited about the changes on the horizon, many of which have come from them. I think this energy is reflected in the improvements we're seeing across guest metrics that I mentioned earlier. Simplification is going to be an ongoing journey for us, led by operations and supported by our cross-functional support center teams.

In addition to continuing the work we're doing to optimize our POS ordering screens, we stood up a working group led by operations with the participation of our directors of operations, general managers, and team members. This task force has identified 50+ potential process and procedure improvements that come directly from the restaurants, and we are working through prioritizing and sequencing impact and effort. On the training front, we continue to refine our new team member training, and that feedback continues to be very positive. This is particularly true with respect to the first 90-day retention, as new team members get buddied up from the beginning and more quickly feel part of our community. Our next big training initiative is rolling out new manager training and a refreshed certified training manager program. Our aim is to roll this out at our GM conference in Q4.

With respect to our menu and handcrafted food and beverage offering, on our last call, I mentioned that the brand work we have done has reinforced that we have some very powerful core pillars of our menu with strong brand equity and association, as well as some emerging opportunities. Our signature pizza, our world-famous Pizookie, and our award-winning craft beverages are clear areas of strong association and equity. Our shareable items, steaks and slow roasts, are strong traffic drivers and emerging areas of strength. In these platforms where we choose to compete to win, we want to ensure we have the best offering and we can deliver it consistently great. To enable this, we've also identified an opportunity to optimize menu offerings around these core pillars. We're taking a structured category management approach to this work, with the first category being a renovation of our signature pizza platform.

Pizza is a core equity and strong brand association, but has had eroding guest satisfaction and incidents in recent years. We've dissected the feedback, and our culinary team has renovated the product from the ground up, starting with the crust to ensure it's crispy and light every time, through the new sauce, the cheese, pepperoni, and so on. Our operations and central location testing were very strong, and we recently moved into an expanded market test with encouraging initial results. Along the journey, we're also taking advantage of our natural menu cycles to implement low-hanging fruit opportunities to drive guest engagement and our simplification opportunities. On April 17, we introduced two new wing sauces, Honey Barbecue and Honey Buffalo, expanding TURF coverage with the sauces, the main driver of choice in this category without adding any operational complexity. Wings remain our number one ordered shareable appetizer.

We also launched our LTO Snickers Pizookie, which is driving a lot of brand buzz and trial. Looking ahead to our June menu, we've identified nine SKU reductions and five prep simplifications that we're moving forward as we continue to plan for further category optimizations, which require more thorough testing like pizza. Our third priority is delivering WOW hospitality. Hospitality has always been at the heart of BJ's and a big reason why our loyal guests keep coming back. We continue to be focused on putting our managers and team members in the best position to deliver wow hospitality to our guests, both on and off-premise. We continue to evolve and calibrate our AI forecasting model and labor scheduling. It's all about having our team members in the right place at the right time to WOW our guests.

We're seeing opportunities to be more efficient and effective, particularly around the shoulder periods, while also identifying labor mix and peak hour opportunities. In an expanded pilot in certain restaurants in Texas and Northern California, we're leveraging AI to drive not just the forecasting, but also our labor scheduling, and we're seeing encouraging improvements in both labor hours and guest sentiment versus control. We will continue to calibrate and scale throughout 2025, but we believe we have a definite opportunity going forward. Lastly, we have our fourth priority, keeping our atmosphere fresh. BJ's atmosphere has always been a differentiator for the brand. Investing in keeping our atmosphere fresh through remodels will continue to be a priority as we move through 2025 and we continue to rebuild our new restaurant pipeline. On remodels, we've completed eight so far in 2025, with approximately 20 more planned for the remainder of the year.

Our remodeled restaurants continue to perform as expected with improved performance versus control. On new restaurants, we opened a new restaurant in Queen Creek, Arizona, just outside of Phoenix. It was our second highest sales opening week ever after Tracy, California, in 2024 and reinforces our hypothesis of focusing our near-term development in geographies where we have an existing footprint, infrastructure, and awareness. Our capital expenditures in 2025 related to new restaurant openings continue to depend on how quickly we can develop a more robust and targeted pipeline that aligns with our refined criteria for new locations. We're excited about the future unit growth for BJ's and will keep you updated as we move through the year. I'm proud of our teams and the progress to date.

The energy, engagement, and alignment behind our strategic initiatives has allowed us to create early momentum and lay strong foundations for an exciting and ambitious agenda still on the horizon. Thank you, and now I'm going to turn it over to Tom to provide more details on first quarter results and an updated outlook for 2025.

Tom Houdek (CFO)

Thanks, Lyle, and good afternoon, everyone. In the first quarter, we generated sales of $348 million, which was 3.2% higher than last year. On a comparable restaurant basis, Q1 sales increased by 1.7%, driven primarily by 2.7% traffic growth. We had a solid start to the quarter with comp sales up approximately 3% in January. Winter weather impacted our February results with comp sales down approximately 1%. We ended the quarter much like it started with March comp sales up approximately 3%.

As Lyle mentioned, we have not seen any material change in guest behavior in recent weeks. April comp sales are up in the mid-2% area and up more than 3% when excluding the Easter week with the mismatch holiday lap. Our restaurant-level cash flow margin was 16% in Q1, which was a 100 basis point improvement from a year ago. We effectively leveraged our sales and improved our operational efficiencies, delivering improving margins while also investing in marketing. Our restaurant-level operating profit increased 10% to $55.6 million, which marks our most profitable Q1 ever. We are pleased with our progress, improving margins to date, and as Lyle outlined, we have a range of strategies and initiatives to continue to grow margins both on a dollar and percentage basis going forward.

For more detail on restaurant expenses, our cost of sales was 25% in the quarter, which was 20 basis points favorable compared to a year ago. Food cost inflation was approximately 3% year-over-year, but deflationary from Q4 levels, driven by lower sequential costs for bone-in wings, steak, and produce. Labor and benefits expenses were 36.1% of sales in the quarter, which was 100 basis points favorable to last year. Our restaurant teams hit their stride leveraging higher sales and boosting efficiencies while improving our guest sentiment scores as we drove solid traffic in the quarter. Remember that winter weather had a meaningful impact on sales and operations during the quarter, so we delivered a solid labor performance despite operational headwinds during periods of less predictable traffic. Occupancy and operating expenses were 23% of sales in the quarter, which was 20 basis points unfavorable compared to last year.

The difference versus last year was due to investing 20 basis points in additional marketing to drive incremental traffic to our restaurants. G&A was $21.8 million in the first quarter, which was $1.2 million lower than a year ago and in line with our expectations. As a reminder, our Q1 2024 G&A was elevated due to legal expenses related to our shareholder cooperation agreements, higher deferred compensation expense, and severance, totaling approximately $1.9 million. As a reminder, the higher deferred compensation expense last year of approximately $800,000 had a matching amount in the other income line where the offsetting market gain is recognized. Adjusted EBITDA was $35.4 million and 10.2% of sales in the first quarter. Q1 EBITDA was $6 million higher than last year, while we also made longer-term investments in our brand positioning, which Lyle highlighted.

We reported net income of $13.5 million and diluted net income per share of $0.58 on a GAAP basis for the quarter. Diluted net income per share increased by 80% compared to $0.32 per share last year. During the quarter, we repurchased and retired approximately 404,000 shares of common stock at a cost of $14.1 million. At the end of Q1, we had approximately $72 million available under our share repurchase program. In April, we repurchased an additional 324,000 shares at a cost of $10.5 million. Turning to the balance sheet, we ended the first quarter with net debt of $66.5 million, comprised of a debt balance of $85.5 million with cash and equivalents of $19 million. We successfully upgraded to a new ERP system at the end of Q1.

To prepare for the migration, we released all invoices for payment, which created a temporary working capital need and was the key driver of the step-up in our revolver balance. Now, four weeks after we closed Q1, we have paid down our revolver by $13 million and expect to continue to reduce the balance as our working capital position further normalizes. Next, we provided an updated 2025 financial outlook today in our earnings release. Given our performance to date, we are raising our profit guidance. We now expect restaurant-level operating profit of $210 million-$219 million and adjusted EBITDA of $131 million-$140 million. We are also raising our expected share repurchase range by $5 million to $45 million-$55 million, given the higher expected operating profit.

We continue to anticipate full-year comparable restaurant sales in the 2-3% range and capital expenditures of $65 million-$75 million. Our updated guidance takes into account our current inflation expectations, including the potential impact from tariffs as understood today. For context, approximately 85% of our food is sourced either domestically or from Mexico and Canada under the USMCA and exempt from any new tariffs. For the remaining 15% of our food basket, we expect only modest impact in Q2, but potential for extra food inflation in the 1% area in the second half, including certain beef and seafood items. Tariffs could also impact other costs, including small wares, to-go packaging, and equipment used for repair and maintenance, as well as building new restaurants.

All in, the run rate impact could be about 30 basis point headwind to restaurant-level margins starting later this year, assuming no change from current tariff policy or before any mitigating actions. We have also preemptively purchased critical equipment to mitigate costs and ensure availability of these key items. We expect the tariff situation to remain fluid, and we will continue to explore how to best position our business in a range of environments. In closing, we are proud of our first quarter results and the strong foundation we are building for sustainable, profitable growth. We have a clear path to sales and profit growth ahead, and our long-term strategy and the strong consumer appeal for the BJ's brand position us well to continue building on our successes.

With strong and improving cash flow, expanding margins, and a healthy balance sheet, we are well positioned to execute multiple initiatives aimed at enhancing shareholder value. Thank you for your time today, and we'll now open the call to your questions.

Operator (participant)

We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Alex Slagle with Jefferies. Please go ahead.

Alex Slagle (Equity Analyst)

Thanks. Congrats on the quarter. Really good margin performance. The cost of goods and labor really stood out.

I was thinking maybe you could help us frame up the magnitude of the impact from some of the incremental simplification and process changes you've taken and just trying to get a sense for where restaurant-level margins maybe would have been if these actions were in place for the full quarter, if they—I imagine they were implemented over the course of the quarter—maybe you could update us on that and just if you see any opportunities to reinvest some of these savings back into the guest experiences as you look ahead?

Bradford Richmond (Interim CEO)

Alex, thanks for the question. I'll say, I mean, with the 100 basis point margin improvement year-over-year, about half of that was leveraging sales, the extra traffic and sales that we drove. Yeah, then we saw some really great performance really on the labor side. I would say we finished 2024 strong.

We had a strong finish to Q4 and really saw those benefits continuing into Q1. This really is—it is building to a degree, but I would say that it was fairly consistent through the quarter. As we updated our guidance, it is expecting now a continuation of these levels. When Lyle mentioned rolling out our Fourth, using AI to both forecast and now schedule labor, that's really in a small subset of restaurants. With any of that, it's incremental. Yeah, I don't—as I think of reinvesting in the business, I think we're taking a very balanced approach to getting efficiencies from the business, but we're also taking a fairly modest amount of price. We have a really nice balance right now of being able to drive traffic in with a great value message as well as delivering these profits.

It feels like we're in a good balance here of investing in the business, but using that to drive traffic and still being able to deliver these margins. Yeah, I don't foresee any new investments there.

Lyle Tick (President and Chief Concept Officer)

I also would just—sorry, this is Lyle. I would add that, and I think I mentioned this on the last call, what we're really trying to do is start initiatives that we can continue to build upon that become just kind of how we operate and help us be more efficient and more effective as we go forward. Simplification, those types of things are ongoing initiatives. I mentioned a little bit of the POS simplification. We have another round of that coming out actually shortly, focused on modifiers for our appetizers and our handhelds.

Just to give you an example there, as we look at that, we believe we can save our team members about 3 million clicks a year just through simplifying how we do modifiers on apps and handhelds. The result of that is more accuracy, better guest experience, and us being more efficient managing our comp food and beverage. I was talking to our COO, Chris, the other day. He was talking to me about the results and said the thing that he's excited about and encouraged by is we're not forcing the results. We're building off of strategic initiatives. We're holding standards. We have growing tenure in our managers, and we have clear focus. We're just kind of getting tighter and sharper as we go forward. I found that really encouraging.

Alex Slagle (Equity Analyst)

Good color. Thank you.

Just a follow-up question on the check and the mix component. Maybe you could just kind of talk about the dynamics behind that. The traffic growth was great. I guess the mix was a little bit lighter. How do you see that progressing through the year and any drivers?

Bradford Richmond (Interim CEO)

Sure. Yeah. Like you said, I mean, you're looking at both the pricing element. We're in, call it the mid-2% of pricing. So looking at the mix shift, we did launch our Pizookie Meal Deal, which is driving a lot of traffic. That's some of it. We also lapped this quarter, a very good launch last year and some new menu items. So we had that lap. We were going up against. Also just how spring breaks fell and how Easter fell, that weighed on mix a bit in Q1.

Looking forward, I would—we're thinking that the check piece will be something closer to flat. It was a little more of a drag on comp in the first quarter, but a bit of things we've worked through. I think going forward, we will still be pushing things like Pizookie Meal Deal. We are looking at ways to use that to build check, to build on that promotion. There is more to come that are check builders that are on top of this. I think that this moving forward, I would expect to be something more flat in terms of our check component.

Alex Slagle (Equity Analyst)

Helpful. Thank you.

Bradford Richmond (Interim CEO)

Thanks, Alex.

Operator (participant)

The next question is from Brian Bittner with Oppenheimer & Company. Please go ahead.

Brian Bittner (Senior Equity Analyst)

Hi. Thank you. Your same-store sales trends are holding up really well. You talked about the plus 3% in March and then holding up into April.

Obviously, you guys are taking share, which is a big positive. What's your hypothesis on why the casual dining customer seems to be holding up so much better than the quick service customer and the quick casual customer, which they're seeing much softer trends in that segment? How are you guys thinking about what's going on?

Lyle Tick (President and Chief Concept Officer)

Hi, this is Lyle. I'm just polishing up my crystal ball. I'm not sure how to answer this. Look, I mean, I can speak more to, I think, what we're seeing in the BJ's customer than I can more broadly than that. I think there's a few things when I think about our performance. One is the BJ's customer tends to be a little higher income than the average. That's for both CDR and QSR. I think there's some resiliency there.

I think overall, we continue to improve our execution, and we have a strong value platform and craveable product news in Snickers and the wing sauces. I think all of that is reflected in our consumer scores that I mentioned earlier. I think those things together are helping us hold up. I also believe that in times of uncertainty, and I think this will be true going forward, when consumers may have less transactions to give, they're really focusing on that experience being worth it. I think our atmosphere, service, and food is compelling in that regard. I guess the last thing I would posit is that our recently completed brand work underlines that from a BJ's perspective, we over-index and win in these kind of everyday celebration and treat occasions. We call them social splurge occasions.

They're not like the big celebrations, although we do well there too, but rather those kind of weekly moments when people plan for going out and they value those. I think those occasions are pretty resilient, where I think some other occasions may be more transactional and easier to pass up. That's kind of my perspective, obviously through the lens of our consumer and our brand.

Bradford Richmond (Interim CEO)

Yeah. This is Brad. Yeah. Just to add on to that is you got to get beyond the conventional thinking, if you will. Particularly in the casual dining space, it's a very fragmented industry. It wasn't too long ago that the big change for more than half the establishments out there, meaning there's a good number of small independents or regional operators out there. Some do well, but a lot of them aren't doing particularly well.

Lyle touched on it, the social splurge occasions. I think more of occasions that we're after than the guests that we're after. These occasions are very valued by the consumer right now. They're retaining those fairly well. The way we're operating, we continue to think we will be taking share from some of the weaker players and the relevancy of our brand to what the consumer is looking for right now. I think that gives us optimism as we look forward. We're early in that journey. We've had a lot of smart people in here with us working on this and understanding it and crafting what it means. We think we have a plan that is pretty durable for the foreseeable future.

Brian Bittner (Senior Equity Analyst)

Thanks. I appreciate both those perspectives.

Just my follow-up is the margin performance, as Alex talked about in the previous question, very impressive. I want to focus on the labor line, the operating leverage there that you got 100 basis points. What stood out to me was also the per-store labor cost. When you break it down, we're actually down year over year. What's the biggest driver of that dynamic, and how sustainable are those impacts?

Tom Houdek (CFO)

Hi, Brian. Yeah. I would say very sustainable. This truly is, I mean, it's a combined effort. If we look across the spectrum on labor, this is scheduling better. We looked at the restaurants that were scheduling the best and paired them up with other restaurants that had opportunities. We really looked at where overtime we were spending more there in certain restaurants than others and found ways to drive that down.

We have an increased focus on, from the traffic that we're getting in, to get as much to not take anything away from the guests, but just schedule as efficiently as possible. Lyle talked about it too in terms of the tenure of our team members is only growing, and our retention rates are well ahead of where the industry is. It really is coming together nicely. We love seeing that on the financial side. The check on the other side of the equation is to make sure our NPS, our Net Promoter Scores, are moving in the right direction. The overall recommend score, is it multi-year highs?

Our value score, our food score, things that if we were squeezing too hard and we were doing things that might be helping in the short term but not the longer term, that would show up in our NPS scores. It is moving the other direction. It gives us a lot of faith to the second part of your question of how durable this is and sustainable. If anything, we are finding more opportunities to keep efficiencies here. We want to continue to leverage the sales that we are bringing in, and we are seeing just that.

Bradford Richmond (Interim CEO)

Hey, Brian, Brad, I would just like to add on to this because it can easily get lost. We tried to highlight when you look at how January is performing and then the steep drop off to February. We are not immune to the weather and all those things. We did drop like many did.

The delay in the refunds processing snapped right back when the weather cleared and they caught up on the processing of refunds to the March levels. I really appreciate what our operators were able to do. They were proactive. They were agile of managing through that dip, if you will, with really not giving much up. I think it speaks to your operating philosophies and how the team is working together. There are going to be speed bumps along the way here. We know that. We really believe we are much better positioned to deal with those today than in the past.

Brian Bittner (Senior Equity Analyst)

Great. Thanks, Brad. Thanks, Tom. Appreciate it.

Bradford Richmond (Interim CEO)

Thanks, Brian.

Operator (participant)

The next question is from Jeffrey Bernstein with Barclays. Please go ahead.

Jeffrey Bernstein (Equity Research Analyst)

Great. Thank you very much. First question is just on the macro and the value implication.

I'm just wondering what you see in your data to showcase more challenging macro at all. It sounds like you're not really seeing any change in consumer behavior, which is what led me to think maybe it's in value. I didn't know if you can share how you define value or what the mix of sales is. Sounds like the Pizookie Meal Deal is one, but I think you mentioned your mix is probably down three and a half points if I back out just the traffic and price. Just trying to get a sense for how you would even tell looking at your own data that you're seeing a more challenged macro. I had one follow-up.

Lyle Tick (President and Chief Concept Officer)

Yeah. Sure. This is Lyle. I'll start, and Tom will provide some color. Again, I go back to our consumer, so I'm talking relative to our consumer.

As I mentioned, we're seeing a little bit of increase in pickup in the Pizookie Meal Deal, but that's more than offset by our traffic gains. The thing we're seeing is we're seeing traffic gains that are quite similar on the weekday and the weekends. We're seeing traffic gains across all of our cohorts, maybe a little higher traffic gains, actually, in some of the lower-income cohorts who are taking advantage of the Pizookie Meal Deal. Net, the way that all comes together with the traffic and our operations, it's been overall really good results. There really haven't been what I would call flashpoint changes in any of those areas that say we're seeing fundamental changes across traffic in terms of weekday, weekend, day part, check management, or income cohorts.

Tom Houdek (CFO)

Yeah. Specifically around the mix piece. Yeah.

To Lyle's point, there was no material shifts overall. If we think about more longer term, and we have seen some alcohol incidents decline that started last year and continues a little bit this year, but it's more of just on the fringes. Really, as we look at this quarter specifically, we were lapping some higher checks, so we anticipated it being a little heavier of a negative mix in the first quarter here. The other piece, I mean, Pizookie Meal Deal continues to be strong. It still started strong in Q4, and it grew a little bit in terms of mix, but nothing dramatic. There's just a few things like that that, again, net is driving traffic. It's driving sales. It's manifesting a little differently through the build on sales there.

Sometimes those guests, if they're coming in more at lunchtime, they're ordering less, so the check's a little lower. It is a bit of the contribution of the types of checks that are coming in as well. Back to your bigger question around the macro and value, I think we were smart getting ahead and having this promotion that is very unique and distinctive to BJ's. It's something that's unique to us. It's a great value, and it is during Monday through Friday when we typically have capacity in our restaurants. Great to see our value scores where they are and be able to drive the traffic. We're seeing some great flow through on it net net. Love what the promotion's doing. Looking forward, we are looking at ways to use this promotion to drive some more check as well. More to come on that.

Yeah, really seeing it from it.

Jeffrey Bernstein (Equity Research Analyst)

Got it. My follow-up is just on the unit growth opportunity. If I flash back five or 10 years, this call was dominated by how quickly you can open up new stores and how you were pretty much only halfway to where you thought you could get to in terms of total number of units. I feel like we're potentially embarking on that conversation once again over the next year. I'm just wondering your confidence. It sounds like you opened up one unit this quarter, and perhaps that's it for this year. Should we expect an acceleration of openings next year? Is that integral to the thesis? If you could snap your fingers, what do you think the right rate is? How does your team equip to handle something like that?

Could we expect a big snapback in unit growth, or should we just assume it's more about fixing the existing, and you're going to hold off for the next couple of years in terms of any major uptick? Thank you.

Bradford Richmond (Interim CEO)

Hey, Jeff, Brad here. We clearly see the opportunity here to grow our unit base. We have a lot of white space. We feel good about it. We've been slow to add those. We've done some reassessments, and we had to prove the box economics. We’ve made great progress on those. As probably disappointing to us and a lot of other folks is the lead time these days from saying you want to be there to actually getting the doors open is 20-22 months pretty easy these days unless it's a conversion. We are very optimistic about where we are and where we can go.

We are out there now fairly aggressively looking for sites. Realistically, we'll see that benefit not until the back half of 2026. We'll post you along the way as we get more deals done. We see that as one of the contributing factors to creating shareholder value. We also see a lot of opportunity in the interim period here to further improve the economics of our box and to grow the AUVs. We have fairly big facilities, and there's still capacity we can utilize there.

Jeffrey Bernstein (Equity Research Analyst)

Understood. Thank you.

Bradford Richmond (Interim CEO)

Thanks, Jeff.

Operator (participant)

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

Sharon Zackfia (Partner/Head of Consumer Equity Research)

Hi. Good afternoon. I wanted to follow up on the Pizookie Meal Deal. It sounds like it's been a great customer acquisition tool for you.

I'm curious if you have kind of any data on what kind of customer might be coming in that you were maybe under-penetrating before and if you have any kind of repeat metrics on those customers once they come in?

Lyle Tick (President and Chief Concept Officer)

I mean, hey, this is Lyle. As we've looked at our consumer data, and we were looking at are we seeing any sort of material mix shifts? Are we suddenly seeing, over the course of the quarter, a big move into kind of mix towards lower income, for example, which might say we're bringing in a new or a different consumer that might be more price-oriented. Again, we're really not seeing those major shifts. We're seeing across each of our income cohorts, we're seeing traffic growth, we're seeing growth on the weekday and the weekend.

We are seeing a little bit more growth in some of the lower-income cohorts during the week. When you net it all out, the shape of our income cohort mix really hasn't fundamentally changed. Again, we're seeing traffic growth across all of those cohorts and seeing it during the week and on the weekend when the deal isn't offered. Overall, we see new customers coming in, but I don't know that it's fundamentally changed or we've seen any sort of fundamental shift of who the BJ's customer is based on the stuff we're doing.

Sharon Zackfia (Partner/Head of Consumer Equity Research)

Yeah. That's helpful. As you're starting to kick the tires on new sites for 2026, is there anything kind of different in the kind of pads you'd look for or the regions you're looking at relative to where kind of the historical BJ's sweet spot would have been?

Bradford Richmond (Interim CEO)

We're always looking at our current box for opportunities to improve the efficiencies, lower the cost. Also, we're underway, as we've done a lot of this work on the menu and the positioning of the brand, to look at ways to more contemporize the box itself. That work is underway. I don't know what that's going to yield. The prototypical site that we have utilized in the past is probably what would be in the future. No dramatic changes there. As we've talked about before, we will focus more of our attention on existing markets where we already have brand awareness. We have supervisory abilities there, distribution, all those. They just make more sense from where we are in the growth phase. That's not to say everything is going to be there because we do need to get to these other sites.

We'll have a more disciplined balance as we go forward.

Lyle Tick (President and Chief Concept Officer)

Yeah. This is Lyle. Just building upon that, I think probably bigger than the pad shift would be just kind of as we think about sequencing out the priority of geographies over time. As Brad said, we're focusing in on places where we have existing infrastructure, we have some existing brand awareness, and we have operations in place. When you think about it, what we've seen, Tracy as an example last year, as well as Cypress and Houston last year, as well as what just happened in Phoenix, is we don't really have any markets, including California, that are fully saturated as yet with our existing footprint. For us, as we think about filling in, it helps us on multi-unit management efficiency. It helps us on operational excellence.

It actually helps us with something that has come out loud and clear outside of California, which is we have a real brand awareness and consideration opportunity in our non-California markets. We are not going to be carpet-bombing marketing everywhere. We are using that very strategically. As we build out some of these markets, that also has the effect of helping us drive brand awareness and consideration in some of our existing markets where we have headroom.

Sharon Zackfia (Partner/Head of Consumer Equity Research)

Okay. Thank you.

Operator (participant)

The next question is from Brian Mullan with Piper Sandler. Please go ahead.

Brian Mullan (Director and Senior Research Analyst)

Thank you. Just wanted to ask about the pizza platform. Lyle, can you give us maybe a little bit of a history lesson here? How important is this as a brand, particularly in California? Maybe where did it mix back when the brand was at its best?

Just assuming you get the product right and you see that in test, how are you going to communicate that to your guests, and how impactful could this be to the business over time if you get it working the way that you envision?

Lyle Tick (President and Chief Concept Officer)

Yeah. I mean, we're very excited about pizza. Pizza is a core association with our brand. It is a strong association with our brand in California and outside, but it's our number one driver association in California. It's also our number one traffic driver in California. It's a traffic driver outside of California, but Pizookie is actually our number one traffic driver outside of California. I'll let Tom potentially build on the exact mix numbers of where we're coming from to where we are.

The interesting thing about the pizza, when we look at it, is what we find is it's really great for that group occasion, right, where we, I think, have really strong equity and over-index. The pizza actually provides a great value for feeding multiple people. The really interesting thing about a pizza check is it looks a lot like our other checks because it has a lot more add-ons. When somebody comes in and they get a pizza for a group, they're getting more drinks and appetizers and things like that than when people that are coming in for a specialty entree. It tends to fill kind of a different and complementary occasion and need to other things on the menu. We see it as a really great opportunity. Obviously, pizza also has really strong margins for us from a percentage perspective.

As we look at getting that mix back to where it needs to be, I think that overall would be a positive win for the business. I am really excited about it because it is a core association and gives us that opportunity because of how core it is to drive a real re-energizing story. To answer your question, once we do bring it to market, we are pretty choiceful about when we decide to go out and do external marketing. Obviously, we will be doing trial at our restaurants. We will be building the merchandising. This will be one of those stories that we will absolutely tell externally as we roll it out to all of our restaurants.

Tom Houdek (CFO)

Brian, just for some of the stats here. Right now, pizza is mixing in the, call it, mid to high single-digits.

If you rewind far in history before really our menu expansion happened, pizza was a much larger portion of the share. As you can imagine, slow roast, other things added, it's naturally come down over time. I think a good way to frame up the opportunity would be to look at our mix in a place like Southern California where it's core, people grew up with it. We have a lot more usage of pizza. Our mix there is almost double compared to some of the newer markets that we've entered in. We know when people try it, we can develop some really good fans. Especially with the new pizza, it is a great product. I think when we have the product ready, we talk about it more. It's something that if you look across the competition that nobody else can match.

It's something that's core to us. It's such on trend now with just good, high-quality pizzas that we think this has a lot of legs and we can drive a lot of traffic in core markets, knowing that this is something that people eat across the country. There's plenty of white space there to have this better product driving some serious traffic.

Bradford Richmond (Interim CEO)

Hey, Brian, Brad here. You can tell we're pretty excited about this. I'll pile on with a question or answer too here. In my history, one thing that's really important is what occasions is the brand relevant for? Can you expand that? We clearly see pizza as in that category. I mean, think about where can you get a high-quality pizza in a sit-down, full-service dining experience? There aren't a lot of places.

To the degree that there are, they're more your mom-and-pops or regional places. We see this as another facet of this of growing AUVs over time. That's not going to happen right now. As Lyle mentioned, it'll take some promoting around that to do it. We're looking at these from multiple facets. We see this one as a meaningful linchpin along our journey here.

Brian Mullan (Director and Senior Research Analyst)

Okay. Great detail. Thank you, guys.

Operator (participant)

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

Todd Brooks (Equity Research Analyst)

Hey, thanks for taking my questions. Wanted to lead off kind of following up on Sharon's question and drilling down on an infill strategy going forward for new units. If you think about overall white space for the brand, you've always sized at kind of 400+, and that number's been there for a long time.

If we look at a pivot to an infill-driven strategy and trying to get to scale on some of these non-Californian markets, have you sized what the infill unit opportunity is just so we can get our mind around, okay, with an infill strategy, we have X years' worth of growth that we can kind of exploit higher return, higher awareness type of openings?

Tom Houdek (CFO)

Hey, Todd, I'll start with this one. I would say, I mean, as we talk about our near-term strategy is in the next couple of years, it will be focused on the infill. Looking out longer than that, I would say that the market expansion is part of that strategy. We're not taking the expansion piece off the table.

We're just saying at present where we can get the when we're ramping up and building our pipeline, it's going to be more focused on infill now. As we look forward, it will be both. It's a good question to think through this because we look at our markets and we look where our restaurants are and where we can build. There's plenty of open space in every market that we operate in. There's plenty of white space for infill. We love that because of everything that was mentioned before. Really, as we think about how portable the brand is, when everything Lyle just mentioned from California to Phoenix to Texas where we've had some really great openings, it travels well. This is a brand, a brewhouse that Midwest to East Coast to Florida to home base in California.

We've got some great restaurants out there and can put up some great sales and profits. Yeah, we're not limiting ourselves to one versus the other. Just wanted to be clear that that was just more on the near-term side will be the infill focus.

Lyle Tick (President and Chief Concept Officer)

Yeah. Tom, let me just—sorry, Todd, let me add a little more color to that. Yeah, we're going to get to those spaces. Each one of these is a pretty significant investment. We want to get it right. We're going to go at the right time and at the right place. I think also to your ultimate unit potential is, and I've seen this over my career, that you start with a number, but it tends to grow.

If the brand is working right, the box model is working right, and the economics of that, you start improving it, it makes for more trade areas where you can economically be there and create shareholder value. We haven't revisited the number. We don't need to revisit that number right now. We have other things that we're working on. I mean, it's not too far on the horizon. We'll have to figure that out. There is so much white space right now that we can just go after what we have. We'll do it more of, I think, a concentric circle around our existing hubs than more of a scatter deployment. We don't really see first-mover advantage into going to some of these places. It's better to work from our existing strengths.

Todd Brooks (Equity Research Analyst)

Okay. Fair enough. Thanks. A quick follow-up, if I may.

Tom, you mentioned kind of April, same-store sales running in the mid-2s. Obviously, there was a real dislocation with the California restaurant consumer starting kind of early April last year with the menu price increases in the industry and that consumer just going on strike for a period of three to four months. I'm just wondering, as we look at what we're lapping as we progress through the quarter, do same-store sales comparisons get more difficult as the quarter progresses? Do they ease? Do they stay steady? I just want to make sure there's not any sort of nuance that we're missing as we're thinking about where you're running now. Thanks.

Tom Houdek (CFO)

It's a good question. Let me answer it two ways. Looking at regions, California is slightly above. I mean, this is really Q1 and through April. California was slightly above our average, but nothing outsized.

It really isn't driven by California having an easy lap or anything like that. As we go into Q2 here, it really does—when we look at one and two-year laps, we'll even look back to 2019 still just to triangulate internally. The first half of the year looks pretty normal. We had the Easter lap that pushed a little from Q1 and Q2. Other than that, it's a pretty clean lap. Yeah, I wouldn't worry about it being a tougher lap as we go through this quarter or anything like that. We're not.

Todd Brooks (Equity Research Analyst)

Okay. Thanks.

The next question comes from Jon Tower with Citigroup. Please go ahead. Great. Thanks for taking the questions.

Jon Tower (Equity Research Analyst)

Just, Lyle, earlier in the conversation, you talked about the idea of doing some menu work and, I think, optimizing the menu offerings around the core pillars that you outlined: pizza, Pizookie, beverages, and some of the others. I'm just curious if you could talk about what goes from the menu from here. Was there anything in the work that you—the consumer work you did—that surprised you in terms of what you should be pulling off the menu?

Lyle Tick (President and Chief Concept Officer)

I don't know if it's surprising. I mean, doing the work is more, from my perspective, in the past and this time as well, about gaining clarity, gaining alignment, and gaining kind of surety in the moves that you're making.

I think we look a lot like, I think, what a number of other restaurants look like, which is we've got a set of items that have a lot of our gross margin, and we have a long tail set of items that are a bigger percentage than they represent from a gross margin perspective. There identifies your long tail. That long tail really exists across categories. There are certain categories with a bigger long tail and certain categories with a smaller long tail. Our goal is to kind of go category by category. That kind of category management approach, looking at the long tail. The outcome ultimately that we want is eliminating the long tail, improving remaining items, bringing some new items in to get to an ultimately smaller but more productive category.

Giving you a specific example, as we look towards our next menu in June, we're actually taking our Pizookie platforms down by three. Those were in our long tail. We are keeping a core set of five. We will have an opportunity to lean into some of these great stories that we have, like Cinnamon Roll or Snickers over time. Something may find its way in and out over time, but we'll ultimately have a smaller, more productive category, we think, that we can execute better and more consistently. That is an example of one of the categories. Each of the categories, we kind of look at that same way. We are kind of going to take them one by one. The idea is you test and scale.

Right on the back of that, you're testing what you want to scale next, and you keep that evolution going forward.

Jon Tower (Equity Research Analyst)

Got it. I appreciate that. Maybe just pivoting to the marketing piece, obviously, it looks like it's working well, certainly on the social channels and with Pizookie. I'm just curious how we should think about that spend going forward. It sounds like it's going to be much more regionally concentrated than broad-based. Obviously, you're leaning into social. Maybe if you could help us think about dollar spend going forward. Do you plan on altering mediums at all as you progress throughout the year?

Lyle Tick (President and Chief Concept Officer)

Yeah. I mean, right now, there's nothing materially that's changing in terms of we're raising the percentage that we're investing right now.

I think we are still in the process, from a marketing perspective, of what I call codifying growth drivers. You are right. We are focused geographically. We tend to be pretty surgical about the times. We tend to focus less on broadcast media and more on narrowcast media or targeted media. Whether that is CTV instead of broad broadcast TV or digital channels. I am a believer that you need to keep your ear really close to social media these days. Not a lot of brands are actually creating trends, but the brands that do well are listening to what's going on and fanning the flames for them. Probably nine out of 10 of those flames do not catch on, and one of them does. You have to be participating in order to do that. We are going to continue to do that.

We're continuing to evaluate the media. If we codify growth drivers and we say, "If we know if we put an extra dollar in here, we're going to get two back," then we'll consider that as we get to that point. Right now, we're not looking at materially changing the amount that we're investing. We're continuing to play with the mix, codify the growth drivers, get clear on the messages that are moving, and we'll kind of go from there and build from there.

Jon Tower (Equity Research Analyst)

Got it. Last one for me, just on the off-premise business. I know you recently made some alterations to that business. I was just wondering if you could kind of comment on how that performed during the first quarter and if you're seeing some of the changes that you made translate into better sales and consumer uptake.

Tom Houdek (CFO)

Sure, Jon. Yeah.

The off-premise business, in particular, third-party delivery did trend a little bit better than the overall business. We are seeing some bright spots there. I do not think that is equal across the industry. As we are looking at how to best approach our third-party delivery business, I think we are seeing some really nice trends there. It is a little better than our overall company average. We are seeing a little extra growth coming from the off-premise business generally, but really being driven by third-party delivery.

Lyle Tick (President and Chief Concept Officer)

This is Lyle, just to build upon that. We actually have not made any sort of major interventions in our off-premise business yet. A lot of those things are sequenced and will probably be later in this year into next year. I would say that we have a material off-premise business.

I think we have the right products to win in the off-premise business. It is a growing business. All of those things are tick, tick, tick. If I was going to be hard on us and I would evaluate our business, there is too much friction in the consumer experience right now. Our merchandising is not optimized towards those items that are best for off-premise or towards the occasions for off-premise, whether I am looking to feed myself, which is bigger in the off-premise than it is for us in the on-premise, or looking for a group occasion. I kind of think we are at 1.0 of off-premise. I see a lot of opportunity there going forward. Most of our energy so far has been focused on the core brand, getting really clear on the core brand strategy and strengthening that.

We'll kind of sequence the work on off-premise as we go forward. The good news is it's growing, and that gives us some headroom to tweak it and advance it.

Jon Tower (Equity Research Analyst)

Got it. Thank you.

Operator (participant)

The next question is from Andrew Wolf with C.L. King. Please go ahead.

Andrew Wolf (SVP)

Yeah, thank you. I wanted to follow up on the promotional kind of cadence with regard to the same-store sales coming in at 1.7% on 2.7% traffic. It sounds like you didn't really increase your promotionality. Was that more to do with consumer behaviors, consumers naturally trending more to the value side of the menu, or was that more to some of the viral things that happened on social media, attracting those kind of guests?

Tom Houdek (CFO)

Andrew, I think part of it, when you're thinking about Pizookie Meal Deal in particular, is just gaining momentum.

It's something that people are coming and seeing and coming back for. There's a natural boost that happens there. I would say, I mean, we did have some value cocktails earlier in the quarter that left off. There were some things in the quarter that aren't currently in the mix that I can think of that might be part of the question too. I think more than anything, just thinking about the laps in terms of Easter and spring break, that also weighed on it.

Lyle Tick (President and Chief Concept Officer)

Yeah. This is Lyle. I would just build on what Tom was referencing.

The value cocktails are one example of, as we gain traction with Pizookie Meal Deal and we have a value platform that is working, it gives us the opportunity to lean into those things that are working and take a harder eye on some discounting that may have creeped in along the way that maybe is not as strategic or as effective for the brand. You look at something, there were these $6 value cocktails that found their way into the menu, and they were not helping our drink program, let's just say, or our overall check. We pulled those away. I look at our loyalty program. When you signed up for our loyalty program, you used to get a free Pizookie that you could redeem right there. We have now made that you get the Pizookie, but you redeem that on your next visit.

What we've seen is a little bit of a drop in signups on loyalty, but we've seen growing those loyalty members that we see two-plus times in the first few months of being a loyalty member, so a higher-quality loyalty member. We're kind of looking across the areas where we have less strategic discounting to either manage depth, manage access, or eliminate where it makes sense.

Andrew Wolf (SVP)

Got it. Thanks for that, color. Just a quick last question on the pizza improvement. Is the value change coming in taste or recipe or process, I think maybe changing how you cook it? Is there also a size component? I mean, is there going to be a value messaging, better servings or calories, and so on?

Lyle Tick (President and Chief Concept Officer)

Yeah. I mean, the size is the same. That's not changing. The pans we're cooking it in are changing.

The dough itself has fundamentally changed. The sauce has moved to a fresh-packed tomato, extra virgin olive oil, kind of a more fresh, modern sauce. The cheese has moved to 100% whole milk mozzarella. The pepperoni to a more modern, small, cupping, and crisp pepperoni, which, by the way, we also had two different kinds of pepperoni and three preps on pepperoni, which will be eliminated when we bring that in, but we will be upping the quality of the product, the sausage. Kind of across the entire thing, I think we are making improvements to that product.

Andrew Wolf (SVP)

Got it. Okay. Thank you.

Operator (participant)

This concludes our question-and-answer session, and the conference has also now concluded. Thank you for attending today's presentation. You may now disconnect.