Q1 2023 BJ's Restaurants Inc Earnings Call

Participants

Gregory S. Levin; CEO, President & Director; BJ's Restaurants, Inc.

Rana Schirmer; Director of SEC Reporting; BJ's Restaurants, Inc.

Thomas A. Houdek; Senior VP & CFO; BJ's Restaurants, Inc.

Alexander Russell Slagle; Equity Analyst; Jefferies LLC, Research Division

Andrew Paul Wolf; Senior VP & Senior Research Analyst; CL King & Associates, Inc., Research Division

David E. Tarantino; Director of Research & Senior Research Analyst; Robert W. Baird & Co. Incorporated, Research Division

Jeffrey Andrew Bernstein; Director & Senior Equity Research Analyst; Barclays Bank PLC, Research Division

Jon Michael Tower; Research Analyst; Citigroup Inc. Exchange Research

Joshua C. Long; Analyst; Stephens Inc., Research Division

Nerses Setyan; Senior VP of Equity Research & Senior Equity Analyst; Wedbush Securities Inc., Research Division

Sharon Zackfia; Partner & Group Head of Consumer; William Blair & Company L.L.C., Research Division

Todd Morrison Brooks; Senior Equity Analyst; The Benchmark Company, LLC, Research Division

Presentation

Operator

Hello, and welcome to BJ's Restaurants, Inc. Q1 2020 Earnings Release and Conference Call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Greg Levin, Chief Executive Officer and President. Please go ahead.

Gregory S. Levin

Thank you, operator. Good afternoon, everyone, and welcome to BJ's Restaurants Fiscal 2023 First Quarter Investor Conference Call and Webcast. I'm Greg Levin, BJ's Chief Executive Officer and President. And joining me on the call today is Tom Houdek, our Chief Financial Officer. We also have Greg Lynds, our Chief Development Officer on hand for Q&A. After the market closed today, we released our financial results for the first quarter of 2023, and you can view the full text of our earnings release on our website at www.bjsrestaurants.com.

Our agenda today will start with Rana Schirmer, our Director of SEC Reporting, providing our standard cautionary disclosure with respect to forward-looking statements. I will then provide an update on our business and current initiatives, and then Tom Houdek will provide some commentary on the quarter and the current operating environment. After that, we will open it up to questions. So Rana, please go ahead.

Rana Schirmer

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 the actual results, performance or achievements of the company to be materially different from any future results, performance or achievements expressed or implied by forward-looking statements. Investors are cautioned that forward-looking statements are not guarantees of future performance and that undue reliance should not be placed on such statements.

Our forward-looking statements speak only as of today's date, April 27, 2023. We undertake no obligation to publicly update or revise any forward-looking statements or to make any other forward-looking statements, whether as a result of new information, future events or otherwise, unless required to do so by the securities laws. Investors are referred to the full discussion of risks and uncertainties associated with forward-looking statements contained in the company's filings with the Securities and Exchange Commission. Greg?

Gregory S. Levin

Thank you, Rana. BJ has delivered record first quarter revenue growing more than 14% compared to a year ago. Our Q1 results demonstrate the affinity guests have for the BJ's concept. We are unmatched in the industry given our polished casual positioning, broad varied menu with AUVs of more than $6 million and growing and our focus on delivering gold standard operational service and gracious hospitality to our guests each and every day.

Given these factors and our unwavering commitment to taking care of our guests, our first quarter comparable restaurant sales and guest traffic continued to beat the industry as measured by Black Box. Our first quarter comparable restaurant sales increased 9% with our average weekly sales for the quarter rising above $121,000. We also made meaningful progress on our restaurant level margins reaching 12.6% compared to 9.8% last year despite continued inflationary pressures.

Our ability to grow our top line and leverage the incremental sales is a testament to our restaurant management teams who are executing well against our sales driving and productivity initiatives while delivering gold standard service to our guests. The best way for us to continue improving our margins is by driving top line sales. Every additional sales dollar earned leverages the fixed elements of our restaurants cost structure and flows through to profit at a higher rate. To that end, we continue to focus on a variety of initiatives aimed at increasing top line sales.

All of these sales initiatives must begin with a focus on the guest and how we can improve the guest dining experience at BJ's. We know from our consumer research that guests come to BJ's for an experiential dining experience that is rooted in our Brewhouse theater environment with a best-in-class bar statement, familiar foods made Brewhouse fabulous, served by our talented team members whose mission is to deliver gold standard service and hospitality every day.

To that point, we continue to execute against our remodel plan so that we maintain our competitive differentiation around our high-energy, polished casual positioning and brewhouse theater environment. As you may recall, our remodel program includes a variety of potential improvements, including additional seating capacity and updated bar statement, new lighting, artwork, boots and tables to name just a few items. The new bar statement is amazing and includes a much lighter, more contemporary bar featuring a new 130-inch television that screens Brewhouse theater to all guests. As we noted last quarter, we plan to remodel at least 30 restaurants this year or approximately 15% of our base. To that date -- to date, we have completed nearly half of the 2023 planned remodels in addition to the 9 we completed last year, which all are driving incremental comp sales for these restaurants.

Our culinary and menu strategy is rooted in the familiar items made Brewhouse fabulous based on our guest research. Last year, we began testing a smaller yet broad menu focused on these core familiar made brewhouse fabulous items. Based on the success of this test, we plan on introducing this new menu in July. This new menu will have approximately 10% fewer items, allowing us to improve daily execution while reducing inventory and prep hours in our kitchen. It will also allow us to introduce future menu innovation while keeping our overall menu tight.

Additionally, later this year, we are planning another test with removal of additional items while continuing to provide the guest variety BJ's is known for. From a menu pricing strategy, our goal is to maintain a good, better, best pricing strategy that allows for guests to receive excellent value across all price points and have the option to indulge with more premium items if they so choose. To that point, we have maintained our daily Brewhouse specials, lunch menu and happy hour prices to provide value options for all guests while maintaining a higher priced strategy with our craveable and differentiated proteins, including slow roast items like our double bone-in pork chop and Prime Rib and our fresh Atlantic salmon for guests looking for a more premium experience.

The execution of our sales-driving initiatives is not possible without the commitment and passion of our talented team members. Over the last couple of years, we have added a lot of new faces to the BJ family. Therefore, beginning next month, we are implementing a series of sales driving and optimization initiatives to enhance our dining room and kitchen execution, including updated gracious hospitality procedures and improved kitchen systems and prep procedures. These initiatives will uplift our already strong Net Promoter Scores, drive sales and optimize our efficiencies in our restaurants so that we can better leverage our increasing sales and continue taking care of our guests.

In addition to our sales-driving initiatives, we continue to execute against our cost savings programs to drive margin expansion. As we previously discussed, last year, we launched a cross-functional initiative to identify at least $25 million of 4-wall cost savings opportunities that will benefit our restaurant operating margins while maintaining our quality standards. Given the progress to date and the number of opportunities still being explored, we are confident that we will achieve our $25 million goal. Importantly, we won't stop there as we continue to vet additional opportunities to ensure we maximize savings across our business while, of course, still providing great quality and value to our guests.

While driving top line sales and improving margins on top of our priority list this year, we continue to complement these initiatives with new restaurant openings. As we've said many times, we believe there is an opportunity to double the number of BJ's locations in the U.S. However, we will continue to execute our expansion strategy at a rate that provides high-quality sites and execution over growth for growth's sake. Our new restaurants continue to provide solid results as the BJ's restaurant concept remains in strong demand by guests across many regions throughout the U.S. To date, we have opened 2 new restaurants and expect to open 3 more restaurants this year for a total of 5 new restaurants in fiscal 2023. Our first new restaurant this year opened in Orland Park, Illinois, which is our first restaurant in Illinois after building many successful restaurants in the Midwest, including Ohio, Indiana and Michigan.

We are very pleased with the strong sales performance of our new restaurant openings. In fact, our restaurant class from 2022 and 2023 to date has maintained average weekly sales approximately 20% higher than our other restaurants, and our 2 new restaurants opened this year are averaging approximately $150,000 in weekly sales.

In summary, we are focused on a comprehensive set of initiatives aimed at significantly increasing our average weekly sales, growing our restaurant margins and continuing our national expansion driving towards a goal of growing BJ sales to $2 billion and beyond, while delivering meaningful earnings growth and shareholder returns. In the meantime, we are incredibly and increasingly confident that guest affinity for our brand and concept, coupled with the trajectory of our business and our current growth and margin-enhancing initiatives will enable us to achieve attractive near and midterm overall growth and margin objectives.

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

Thomas A. Houdek

Thanks, Greg, and good afternoon, everyone. I will provide details of the quarter and some forward-looking views. Please remember this commentary is subject to the risks and uncertainties associated with forward-looking statements as discussed in our filings with the SEC.

In the first quarter, total sales grew 14% to $341.3 million. Because of the 53rd week in 2022, our Q1 period ends on April 4 this year as compared to March 29 last year. On a comparable restaurant basis, sales increased by 9% over the same weeks as last year, calculated by shifting the 2022 period by 1 week to end on April 5. Without this shift and using our fiscal Q1 2022 weeks as the comparable restaurant base, our first quarter comparable restaurant sales rose 10.7%.

The comparable sales improvement in conjunction with improving operating efficiencies and further progress on our cost savings initiatives contributed to BJ's first quarter margin improvement. Our restaurant level cash flow margins was -- were 12.6%, an improvement of 280 basis points compared to the prior year. Adjusted EBITDA was $25 million and 7.3% of sales in the first quarter, which beat the prior year by $11.9 million with a margin that was 290 basis points higher. We reported net income of $3.5 million and diluted generating dine-in sales of more than $100,000.

California was our strongest market with comparable sales of 12% in the quarter, and it was encouraging to see similar strength across all markets in California, including the Bay Area. Notably, we also drove outsized growth in our late night and lunch dayparts, demonstrating that guests are returning to more normal consumption patterns.

Moving to expenses. Our cost of sales was 26.6% in the quarter, which was 70 basis points favorable compared to Q1 of 2022 and 50 basis points favorable to Q4 of 2022 after removing the gift card breakage benefit to Q4 revenue as described in our fourth quarter earnings release. Inflation in the low to mid-single digits on a year-over-year and quarter-over-quarter basis was in line and even modestly favorable to our expectations. The inflation figure would have been approximately 2 percentage points higher if not for the cost savings benefits from the changes we implemented to date across our food basket as part of the cost savings initiatives.

Taking into account our January pricing round, we carried pricing in the mid-7% area in Q1. To date, we have seen no guest pushback to our menu pricing rounds. Labor and benefits expenses were 37.6% of sales in the first quarter, which was 130 basis points favorable compared to the first quarter of last year. We made further strides improving our labor efficiency in the quarter, which was driven in part by increasing labor retention in our restaurants, which was at its best level in more than 2 years. Our overtime and training hours improved as well, which, as a percentage of sales, were 20 basis points better than Q1 of 2022 and within 30 basis points from pre-pandemic levels in Q1 of 2019.

The Operating and -- occupancy and operating expenses were 23.2% of sales in the quarter, which was 80 basis points favorable compared to the first quarter of last year as we leveraged higher sales. We continue to identify O&O savings opportunities as part of our cost savings initiatives, which with savings beginning to materialize in areas such as new left of our packaging containers and renegotiating and optimizing certain maintenance programs.

Additionally, in the quarter, we made the decision to invest in reinstituting third-party janitorial services as opposed to using our own team members. This move helps ensure guests consistently experience our restaurants in a like new first-class condition. G&A was $19.7 million in the first quarter, which was slightly less than our original estimates. Turning to the balance sheet. We ended the quarter with a debt balance of $60 million and net debt of about $31 million. We are very pleased with the strength of our balance sheet and will remain consistent in our approach of prioritizing growth-driving investments by return profile, including building new restaurants, improving our existing restaurants and funding sales-driving initiatives.

Looking to the second quarter of 2023. The industry has experienced some choppiness in comparable sales as the timing of Easter and spring breaks shifted. However, we are entering what is typically our strongest sales quarter propelled by Mother's Day, Father's Day and graduation celebrations. We tend to see our average weekly sales per restaurant grow modestly from the first quarter into the second quarter.

Factoring in recent and historical trends, we expect to grow our average weekly restaurant sales in the second quarter by 4% to 5% over the 118,900 per week we generated in the same quarter last year. Factoring in our sales expectations and cost trends, I expect restaurant level cash flow margins to be in the low to mid 13% area in Q2 as we grow sales through strategic initiatives, make additional progress on our cost savings initiatives and benefit from menu pricing. Including in the margin expectations is our plan to increase our marketing spend as a percentage of sales by 70 basis points from 1.4% in Q1 to 2.1% in Q2 due to an awareness driving marketing media campaign in certain key markets in the second quarter.

We expect marketing spend as a percentage of sales to return to the high 1% in the third and fourth quarters, which is more consistent with 2022 levels. We continue to target restaurant level margins in the low to mid-teens on a run rate basis as we exit the year. With G&A spend to date, we are trending toward the lower end of the $80 million to $82 million range we provided for the year. Also, we expect the tax benefit in the second quarter similar to the first quarter, which will again include the usual FICA tip credit and applying our estimated annual effective tax rate.

We continue to expect CapEx spend in the $90 million to $95 million range this year, which includes the 5 restaurants we intend to open in 2023 and more than 30 restaurant remodels. 2 of our new restaurants are now open and the remaining 3 are under construction with expected opening dates in the second half, one of which will be a relocation. As previously discussed, we made the decision to close 2 underperforming restaurants, one of which was a small format legacy restaurant with 1 closing in Q1 and the other closing early in Q2.

We also continued to push ahead with various remodels depending on the specific restaurant, which rains from 150,000 to $750,000 per restaurant. We expect to spend approximately $450,000 per location on average this year. We have now completed 14 remodels to date and remain very encouraged by the extra traffic we have been able to generate with the remodel and the resulting return on investment. On average, restaurants adding more -- on average, restaurants are adding more than 1,500 per week in sales following the lower cost free models where we add 3 extra boots and enhance the lighting, artwork and other upgrades and adding multiple thousands of weekly sales after more costly remodels with broader scopes, including updating the bar statement along with many other upgrades.

In summary, we know the best way to grow margins and profit is to grow sales. Recent sales trends have been encouraging, and we remain committed to being sales drivers first and foremost. We intend to continue building sales into 2023 with demand for experiential dining remaining strong, especially at BJ's. At the same time, we have elevated productivity and cost savings through our margin improvement initiative with momentum continuing to build. We have a clear path to sales and margin growth and our long-term strategy remains intact. Thank you for your time today, and we'll now open the call to your questions. Operator?

Question and Answer Session

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Today's first question comes from Alex Slagle with Jefferies.

Alexander Russell Slagle

Congrats on the quarter. It looks like the -- you've been seeing some really strong non-comp sales trends in the recent couple of quarters, I guess, with the new stores performing really well. And trying to think about if we should expect those trends to continue that positive gap. And as you talk about the 4% to 5% average weekly sales growth in 2Q, should we be thinking about like a 2% to 3% same-store sales metric underlying that?

Gregory S. Levin

Alex, I think the 4% to 5% is probably the reasonable comp sales in there. This is a little bit of a reversal of Q1 in a way because it's an interesting question where in Q2, we actually end fiscal Q2 ends the week of July 4. And that's a low weekly sales average for us. So in a way, again, much like Q1 and then it evens out from there more or less. But we end up replacing a fairly high weekly sales into Q1 and put a low weekly sales into Q2.

It's one of the reasons that we try to give a little bit more color around what last year's comp sales was of $180,900 and the way to think about building your model would be 4% to 5% off of that number.

Alexander Russell Slagle

Okay. That makes sense. So the average weekly sales growth beyond that probably shouldn't be too significant beyond the comp for the balance of the year.

Thomas A. Houdek

That's right, Alex. In the second quarter, the weekly sales average growth will be right around the comp growth. We have seen about -- it could be 100 basis points extra that we're getting from the extra weekly sales from our non-comp restaurants. But because of the shift that Greg mentioned, it gets it about in line for Q2. So it's -- that 4% to 5% should be both weekly sales growth as well as comp growth in Q2.

Alexander Russell Slagle

Great. And the expectations for the holidays and events coming up, Mother's Day, graduation, recall them being pretty strong last year. Was there anything different in terms of staffing or other year-over-year differences to consider as we roll over those?

Gregory S. Levin

No. I think we're obviously well-staffed, I believe, based on everything we're seeing in our business that will be more efficient and more effective, taking care of our guests this year than last year because of the maturity in our team members and being staffed up. I think, at the same time, from a macro standpoint, there was a certain amount of excitement for guests to get back out and celebrate after 2 years of challenges around COVID. So I think from what we can control and execute, I think we'll do better. We continue to want to monitor the what I would call the macro side of it.

Alexander Russell Slagle

Okay. I'm not sure if you mentioned any changes in guest habits or anything with mix or appetizers, drinks, things like that, that you noticed over the last couple of months, but maybe just remind us if there were any changes you noted.

Gregory S. Levin

Yes. I think in Tom's comment, he mentioned that we're seeing some really strong sales coming in late night at lunch. And I think some of that has to do with, obviously, the BJ's concept. We've got great lunch specials. We updated our lunch specials this year in the first quarter, introduce some new items that are becoming best sellers for us. We have seen, I think, in general party side start to normalize a little bit, still a little bit better than where it was versus 2019, let's call it. And our incidents are up versus kind of the 2019 time frame. But as we look versus 2022 last year, we have seen a little bit of a slowdown in alcohol incidents. I think we mentioned that on the Q4 call. That's one area that we continue to watch. But generally, everything else seems very consistent in our business. I don't know, Tom, is there anything else to add?

Thomas A. Houdek

Yes. I think Greg covered it. And just to be clear, the outperformance we've seen in lunch and late night, those dayparts do have slightly lower check. So that's -- we think of the incidence levels that Greg mentioned, that's a cause of it. We do have these dayparts, and that's one great thing about BJ's we drive sales in our restaurants starting at lunch all the way through late night. So these areas that have been down more from pre-COVID levels are recovering. But when the traffic comes back, it's a little headwind on the check side. So that's the dynamics that play there.

Operator

The next question comes from Jeffrey Bernstein with Barclays.

Jeffrey Andrew Bernstein

Two questions. One, just on the menu pricing. I think you said for the first quarter in its entirety, you were running in the mid-7% range. I believe you mentioned there was no resistance. I'm wondering if you could just walk us through maybe what was taken in the first quarter and maybe what your current outlook is for what you would take for the rest of the year or what the pricing would be if you didn't take anything for the rest of the year. There does seem to be some concern that new pricing is going to be harder to pass through with what seems like food at home now falling below food away from home after a nice 18-month period where restaurants had some perhaps protection. So just trying to get your sense on the pricing outlook and your confidence in what you plan on taking as we look to the rest of the year. And then I had one follow-up.

Gregory S. Levin

Jeff, we're looking at somewhere in that 7%, 8% for the rest of this year, where we sit right now. We don't plan at this current time any additional menu pricing with our June -- I guess it would be our June 29, menu. We'll determine after that, there's usually an October menu. And probably in the October menu will take pricing as we start to think about that pricing, trying to cover inflationary costs going into 2024.

At the same time, we continue to try and be I guess, as I mentioned in the call, strategic in the way we're trying to look at our pricing items that are more unique and differentiated where consumers that are coming out and looking at things like a prime rib that maybe you can't make at home that provide much more of an experiential dining. We feel that there could be room for pricing on those areas. But at the same time, we want to continue to balance it with that barbell approach, which is around the lunch specials, our daily brewhouse specials and so forth to make sure that, again, there's kind of a good, better, best pricing. But where we sit right now kind of in the 7%, I think it were a little bit higher than that right now. That's kind of how we're going to roll through this year even as we -- some pricing will roll off in June, probably bring us down into the kind of low 7s at that time or so.

Thomas A. Houdek

And Jeff, one piece to add on this, too. When we take our pricing, there's the post audit that we do looking through both incidents rates if we see any shifts down or looking at trading relationships. And we've seen very consistent ordering before and after the pricing round. So as we made the comments in the prepared remarks that we haven't seen any impact from the price around that have been accepted. That's really what's driving it. It's really no incident shift after pricing rounds as well as no trade downs, no not trading from something that's higher cost into lower cost. We're seeing very consistent ordering patterns before and after.

Jeffrey Andrew Bernstein

My other question was just on the dollars you're spending. I know in 2023, you seem to be focused more on the remodels with 30 or more units whereas the new units, Greg, I know you often talk about quality over quantity and it's very understandable with the seemingly 5 units this year. Presumably, you'd like to do more, but you want to find quality. But the couple you already opened this year with $150,000 average weekly sales, I mean that's very impressive. I'm just wondering, what are the greatest issues you're finding in terms of finding sites more so than the 5. I think investors would love to see a reacceleration in the unit growth, which you guys used to deliver. So I'm just wondering what maybe are the challenges you're finding to find more than 5 sites in a particular year, whether it's real estate or the investment cost or anything along those lines would be helpful.

Gregory S. Levin

It's actually your -- what you ended there with. One is the site cost to build. As much as we're at a 1:1 right now with the new restaurants doing $150,000 is obviously 50 weeks gets you about $7.5 million, and we mentioned this on another call. myself, our Board of Directors, our executive team, really don't want to be spending $7.5 million to build a restaurant. And we continue to look for ways to bring that down, but still maintain the elements of the Brewhouse Theater, which are so important to differentiate our concept. So Greg Lynn, who is here, is working with his team to work on ways to bring that down and work through a couple of different prototypes. So that's number one.

Number two is as the people get better, but we want to make sure as we continue to build restaurants, we have the right quality of individuals to run these restaurants that are doing $7 million as we just talked about. And those are the 2 governors to growth. I don't think this puts any change in our view of where we can go. And ultimately, we want to get back to growing our new restaurants at a 5% plus clip, which would get you 10-plus new restaurants. We're continuing to line up the new restaurant growth for next year and what that pipeline is going to look like. I don't think we're going to get to the 5% next year, meaning 10 plus. Some of it is, again, building up the infrastructure and doing it the right way for quality over quantity. But that is our target, and I fully believe we'll get back to that target here shortly.

Operator

The next question comes from David Tarantino with Baird.

David E. Tarantino

The first question is just -- I was wondering if you could help to break down the composition of the comp a bit better for Q1. Can you talk -- I know you gave us a pricing mid-7%. But was there a mix impact? Or is traffic essentially the plug there?

Thomas A. Houdek

Sure, David. The -- when we said that the lunch and late night increase, that did weigh on check a little bit. So I think of traffic was low single-digit positive, but then yes, then check was up in that 6% to 7% range.

David E. Tarantino

Got it. And then what is your guidance for the second quarter, assume on those metrics? It sounds like you might be running a bit higher pricing. So I wanted to understand kind of what the underlying traffic assumption is for the second quarter.

Gregory S. Levin

Yes. It's more in the kind of flattish to negative low single digits based on the -- where the average check is trending.

David E. Tarantino

Okay. So maybe you could clarify what the pricing is. I thought you said it was a little bit higher.

Gregory S. Levin

I think the way to think about it, David, if we talked about the fact that we're going to try and grow average weekly sales in the 4% to 5% range and pricing being in that kind of upper single digits. We talked about trying to be similar 7% for the entire year. It starts to -- depending on where you look at it how you piece it together, it looks like kind of low single digits negative traffic. Generally, the difference there would be we're not getting the full 7% or 8% on our menu pricing. It's down, as Tom just mentioned, somewhere in the 100 to 200 bps. So that's why the difference is going to be traffic of 0 to negative 2-ish, let's call it, negative 3-ish.

David E. Tarantino

And then is that -- I guess is that how you're running right now? Or you mentioned some choppiness at the start of the quarter and optimism about what's to come. So is the message here that the traffic needs to improve? Or is that kind of how you're running right now or quarter-to-date?

Gregory S. Levin

Yes, it's been all over the place. I would say, more recent trends as we get away from Easter have been closer to the kind of mid-single-digit comps, I would say.

David E. Tarantino

And then the last question I had is just in general, I know you've given us a lot of detail on the price increases that affecting kind of mix impacts or what consumers are buying. But I'm wondering if you could maybe opine on whether you think there's any traffic degradation related to the price increases, either for you or the industry, I know you're not alone in having to take pricing, but I wonder just as you lean in on pricing to protect margins, are you seeing any sort of information in your traffic data that would suggest there's a pullback?

Gregory S. Levin

It's interesting, David, because when we look at last year, so I'm using last year and kind of going into this year, there was really no change in our traffic as we took different pricing last year. And last year, I think we ended up more in the mid-6s or so for the full year. So you don't necessarily think 6 and 7 on top because it's how it blends at different times. And we didn't really see much change in there. This year, it was harder to tell because of the January going over against Omicron and seeing how things have kind of like settled in right now. What I would tell you, which when we play -- which kind of plays into our numbers overall is we're continuing to see better growth in the dining room, which makes sense even here into the April time frame.

And we're seeing more of the flattening out of the delivery -- say delivery and takeout, meaning total off-premise. So that number is kind of flattening even though there's pricing there and that becomes for lack of a better term, maybe a little bit negative on the traffic where you're seeing better in the dining room. And it's a little bit to be expected as our dining rooms get better and more efficient. That's what we're seeing consumers to go. I don't know how much of that, though, is really pricing or when we've taken pricing, seeing a real change in our business.

Thomas A. Houdek

I'll add on that as well. The -- one metric we also watch after the pricing rounds is just how we're trending versus Black Box. So we get weekly both sales and traffic data from Black Box. And through last year through this year, we've been beating the industry and that margin hasn't changed. We track it right after we take pricing, and usually, it's not that visit that will impact, it will impact the next visit. So we watch it in the coming weeks and months. And it's been very consistent with the -- our trends versus the industry and how much we're ahead. So it's -- at least it's not impacting us any more than the industry. It seems like it's being accepted.

Gregory S. Levin

And my last comment on this one, and I know this facility becomes a little bit more challenging because it's a little bit more qualitative and quantitative. But it's the reason that on our drive and optimize conference is coming up, we're spending time on really making sure we're taking care of our guests within our restaurants. At the end of the day, we have to deliver that gold standard execution. We have to deliver gracious hospitality. So our guests know that if they are spending more, they are getting a better dining experience at BJ's and are willing to pay for it. And that's key for us going forward. It's one of the things that we will always invest back into our people and make sure that they're taking care of our guests every day.

Operator

The next question comes from Nick Setyan with Wedbush Securities.

Nerses Setyan

I do want to focus on margins a little bit more here. COGS in Q1, obviously, in the sort of 26.6% range. We took a little bit more pricing here in early Q2. It sounds like inflation is running a little bit better than what we thought even a couple of months ago. I mean, how are we thinking about the cadence of COGS this year and could you exit Q4 under 26%?

Thomas A. Houdek

Sure, Nick. Yes, very possible there. So the -- going into the year, we did have some inflation. So we're not modeling in deflation right now, but the percentage of increases has been modestly under what we were expecting even a short time ago. The back half of the year, it really depends on what happens with beef. That's a big input into our business. So if we have some inflation baked in there, and that was part of the full year forecast. But that's really the determinant if it's a little higher, a little lower. But yes, we certainly expect it to -- given some pricing and how that flows through, it could certainly be in the 25s.

Nerses Setyan

Is there anything in terms of mix shifts or anything else that we should think about that might derail sort of the sequential downtick in COGS from Q1 to Q2 to Q3 to Q4.

Gregory S. Levin

Nick, I think, as Tom said, it's really going to be around beef. One of the things that we've seen in our business really coming out of COVID, I almost argue maybe a little bit into COVID is consumers like their kind of indulgent comfort foods. And at times, there are things that are a little bit more unique than what they can make at their home easily. And we've seen over the years, especially coming out of COVID, just things like Ribeye and our Tri-Tip really start to come up our chain of commodities versus maybe people thinking of BJ's from 15, 20 years ago where it was kind of a pizza and beer joint. That varied menu has really moved that mix around a lot on us. And because we use a fresh product in regards to Ribeye and Prime Rib as well as our Tri-Tip, -- it's not locked in for the full year. So we continue to watch that. We've got some initiatives against that in regards to how we can be more efficient and continue to manage that. But I think it's a real wild card out there, as Tom said.

Nerses Setyan

And just relative to sort of that $25 million cost takeout number, where are we now relative to that $25 million.

Gregory S. Levin

We're probably in the middle innings of it. We put through some things like we've talked about before, such as the wings. A couple of ways that we've changed our cutting of our fresh salmon that have come through on the commodities. Right now, it's -- I think we're a big efforts going after the operating occupancy line. That's an area that just has shifted on us as well as the rest of the casual dining industry. Some of it's to off-premise. Some of it was those challenges with off-premise in regards to takeout packages and other costs that now we can competitively bid and get those in.

As Tom mentioned, we've got takeout packaging coming in later this year. That will give us some savings there. We're looking at some also less, I think actually left over packaging is coming in this year. We going to have some changes in take-out packaging that's actually higher quality to go after. We've got to offset that with some changes in janitorial -- we're starting to see a good momentum on there in regards to labor. And then we'll see another round here as we go through it with the new menu coming in, in June, or basically July with less menu items, that allows us to readjust our staffing labor lines as well as adjusting our prep as well as other efficiencies in there.

So there's really another level that's going to start to come here in Q3. Unfortunately, Q3 is a little bit lower weekly sales average. So some of it will get masked by that. But I think going into Q4, we'll start to see that real benefit coming from the efficiencies driven from the lower -- from the little bit smaller menu. And then on top of that, the other efficiencies around the cost savings.

Operator

The next question is from Andrew Wolf with CL King.

Andrew Paul Wolf

I just wanted to focus on labor. With regards to wage rate inflation, which I think you said was about running, I think last quarter, you said it was 7%. And have you seen any changes in that rate? Or is it kind of too soon and the economic slowdown for their standard relief on the labor side?

Thomas A. Houdek

The year-over-year number did decelerate a little bit more. It's more in the mid-5% range now for -- if you look sequentially more the quarter-over-quarter, it was more in the mid-1% range. So yes, it continues to -- it's still inflation. It's still we're paying more per hour, but it's nothing like the increases we were seeing a year or 2 ago.

Gregory S. Levin

Andrew, I think the other comment on that as well is Q1 is generally going to be some of our highest inflation periods because of minimum wage increases start to hit in January 1. So to Tom's point, we're not necessarily saying what we've seen a year ago, and we'll see how that continues through the year. The other side, and Tom mentioned this in his formal remarks is our retention levels are the best they've been in a couple of years. And that really helps us. They're not as good as they were back in 2019. And that's where we need to get back to. That's really important for us to make sure that we're bringing on the right people at BJ's. We're onboarding them correctly and basically reducing turnover. That drives efficiencies within our restaurant. It helps manage the overtime, helps manage the training costs. And ultimately, that is a buttress against inflation. And that's a big initiative of ours.

Andrew Paul Wolf

I was actually going to ask about the metrics Getting back to, I think, the last question, a follow-on on the $25 million cost savings goal. It looks like the run rate in COGS is around $8 million, just based on the color you gave in your earlier. So is it fair to think that -- and based on the commentary you just gave as well, that more of that is going to be skewed to labor and packaging and some of the other costs in the P&L -- to get from whatever you're running at now to the full realized amount?

Thomas A. Houdek

We'll be looking still across the board. If I think of everything that's being vetted right now, there's still plenty in the food cost line as well. So it really still is a full core press against -- if you want to put it into 3 buckets, the labor, the food cost and the O&O, the operating expenses. So it's great that we've found some of these great wins on the food cost side, but there's other items being tested right now that still have some decent impact. So -- but yes, there's certainly -- I mean, we did highlight a number of things that we'll be helping on the labor front as well. So yes, it won't be -- I wouldn't say it's more skewed in one way area versus another.

Gregory S. Levin

Andrew, the best thing that's happening -- I don't know if it's the best thing, but I think that's happening really well as we are getting back to what I would call kind of just normal operating cadence -- and what that means as well, and I think it's a little bit to Tom's point on the commodity side, we have the luxury now or the ability now to go out and bid certain products that you just couldn't do last year. Some of it worked out better for us. So for example, as we talked about it, wings. We couldn't go out and bid our wings last year. So we had to figure out something better, and that really helped us. But now that we can bid certain things, maybe we don't need to look at it differently, we could just get better pricing that we couldn't get a year ago as suppliers are coming back online. So I think to the point, as we look for our $25 million and the reason we're pretty bullish that we'll get above that is there's areas that we couldn't go after last year. Some of them, by the way, are take-out packaging that we talked about or to-go packaging, but you're also seeing it in the commodities line and other things, which I think will continue to help benefit us as well as the rest of the industry.

Operator

The next question is from Joshua Long with Stephens Inc.

Joshua C. Long

I want to see if you could circle back to the commodity conversation. And how much of your basket is locked right now? I appreciate the comments around beef and how that can kind of shape up or drive the trend for what happens in the second half of the year. But what kind of visibility do you have on the remainder of your basket here over the next quarter or 2?

Thomas A. Houdek

Sure, Josh. About 1/3 is locked on annual contracts right now. So it's a little less than we would have been kind of in the pre-COVID way that we would approach across the board here. But there's areas of our business like Wings, for example, where it was a kind of a process product before, and we would lock it in for the year. We could have locked wings prices in for the raw product for the whole year, but it was very favorable to not do that to flow to market. there's other areas of our business that just strategically or we think of the premium that was being charged a lot, it just made more sense and the direction of where the commodity markets were headed. It just made more sense to float. So a little bit less than usual, but not by any wide margin.

Joshua C. Long

And then on your comments around ticking marketing back up, especially as we go through the back half of the year, can you talk about what channels have been working particularly well for you? And just how you're thinking about that messaging as we get into a more normalized environment. I mean there's obviously conversations around potentially softening macro. And just remind us, is it going to be awareness, brand building? Is it going to be a little bit of more targeted price points? What's working in the current environment from a messaging and awareness perspective for the BJ's brand?

Gregory S. Levin

Yes. Great question, Josh. Right now, it's a little bit more brand building. The reason it's a little bit higher this quarter has really more due to the fact that we did new creative. And so we've got to expense that creative and it's going to get expensed in Q2. To some degree, the amount of, see, what you would call it media spend or being on TV or doing digital TV, linear versus connected, et cetera, is somewhat similar with last year, but it's really the more creative that's coming through from the expense side of things.

As we look at our business, we want to build the brand. Even though with our brand building, we do have usually some tagline, it might not necessarily be price specific, but it might be more of a limited time offering. So like right now, our tagline is around our confetti Pizookie. Our Pizookie one of those drivers for us that is unique and differentiated. And we'll continue to use that both from a connected and linear TV as well as social and digital.

Operator

The next question is from Sharon Zackfia with William Blair.

Sharon Zackfia

I was hoping to talk some more about the menu rationalization. Can you talk about whether -- I believe it's been in test, whether you've seen any kind of lost sales or consumer pushback and kind of the order of magnitude of margin benefit that, that provides? And then second question, just the loss on disposal of assets running a couple of million dollars a quarter the last few quarters. Is that related to the remodels? And is that something we should kind of expect for the foreseeable future?

Thomas A. Houdek

Let me -- I'll handle the second question first. So this quarter, the majority of that expense was related to these glass dividers that we put up in our restaurants during the COVID era. Just it was a high-quality glass that we put up as dividers to really give folks the ability to come to the restaurants where we can expand capacity at the time. But with where we are today, and it does break down the sight lines to our TVs. And so we're going through and removing those dividers. So there's some write-down associated with those. But yes, otherwise, for the remodels, we did write off -- we did have a plan coming into the year. So you saw an increased amount that was -- of the expense in the majority of the remodels should have been captured in that -- in the Q4 window.

Sharon Zackfia

Rationalization?

Gregory S. Levin

First of all, a great question on the menu rationalization because it is sub we've been testing for a while. And you're right in the sense that it's very difficult to rationalize the menu and grow sales. It takes a little bit of time, and it's probably one of the reasons we've been testing this for a while and have gone through different iterations to get it to where we believe we've got it right. And I will tell you, as we work through this, and I'm going to be -- get you into a little bit of the sausage making, I guess, for lack of a better term. Certain things didn't work for us. And as we took off some certain appetizers and we saw our -- what I would call our add-on sales go down. So we've had to add those back and continue to work through some of that where we feel that the changes should be more or less net neutral within our business. And it is -- we try to look at reach and frequency. There are a couple of just interesting ones. We took off. This one was our internal debate, you're going to laugh. We took off the side veg salad. And guess what, people that want a veg salad will not switch to a house salad or to a side Caesar salad. So all of a sudden, we lost side salads. And we went ahead as we go through and do this testing. And therefore, when it rolls out in the July time frame, it will still have a side veg salad. So bottom line, as we've gone through and we've worked this a lot and try to make sure that we know it the best we can.

That being said, every restaurant is a little bit different. But we feel comfortable in the fact that we've taken the right amount of testing that we, for lack of a better term, measure twice and we'll be cutting once in regards to this menu. And hopefully, there's another round that we can take off some other items as we continue to create new, more craveable items for BJ's.

Sharon Zackfia

And Greg, I know you mentioned you're taking off 10% of the menu items. I mean what percent of ingredients are things that come in the back door are going away?

Gregory S. Levin

I wanted to say -- I want to say it's like 21 SKUs. I don't have -- sorry, I think I mentioned on one of the other calls. It's a decent amount in SKUs. It's a decent amount of changes in the way we're doing some prep to your point there on some of the single source items that weren't high sellers that will come through that will have us adjust our prep hours on that going forward. But it is -- there are more SKUs that are disappearing than there are menu items, I believe.

Operator

The next question is from Todd Brooks with the Benchmark Company.

Todd Morrison Brooks

Just wondering if we could -- and I don't know which way is easier to snapshot the difference of where you are from a staffing standpoint year-over-year going into your seasonally strongest quarter, Greg. But can we either dimensionalize maybe what we think we lost in Q2 last year from having, I think, 25% of the workforce at that point have been higher in the last 3 months, and we were coming off of limited menus and getting back to full menus and some restricted hours. Do you have a sense of maybe what it cost you last year? Or if you want to talk about from the prospective standpoint, how excited are you to be going into this seasonally strong period with staffing, where you wanted retention improving, so you're getting bodies that have stayed in the role longer and gotten more efficient?

Gregory S. Levin

Yes. I think it's easier to talk prospectively. And we are, as an organization, excited, I think, going into this year's graduation, Mother's Day and Father's Day seasons, not only fully staffed from a body standpoint, but it's really about the staff getting their sea legs under them and getting used to doing the volumes we've done at BJ's. I think we learned a lot, obviously, last year, we learned a lot, believe it or not, it's going to sound again, a little of a little different. And that is even like around Veterans Day weekend, some of the Veterans Day specials, it's a lot of volume that comes into our restaurants, and our team members did a great job handling it. So we're excited to be fully staffed. So I think we can give better execution to our guests so they can have even a better dining experience at BJ's. And I think overall, it should be a strong period for us. At the same time though, as we did talk, I guess I'm tempered a little bit with there is a lot of buildup of people wanting to come out last year. And it's one of the reasons I think we see it in maybe alcohol incidents kind of slowing down a little bit. So I temper it a little bit with that. But I think we're excited to be fully staffed. We're excited to be executing at the level that we're executing at. And therefore, we're excited to be able to take care of even more guests I want to come to BJ's.

Todd Morrison Brooks

If you look at something like Valentine's Day in Q1 though, do you see evidence that the demand was tempered on that occasion because that probably the most recent rate, right?

Gregory S. Levin

No. We had a really good Valentine's Day. It was executed well by our team. They did a tremendous Valentine's Day, and they did a great overall Valentine Day weekend. So you can feel it in our restaurants. I get my hats off to Chris Pinsak, and our Vice President of Operations team that are really doing a great job making sure our teams are delivering on the gold standard and gracious hospitality. You just see it today versus a year ago. We see our restaurant managers out on the floor. We see our team members taking care of our guests. And I hadn't really thought about Valentine's Day, I guess, maybe because we're so much in April. But I think your point is a good one in the sense that we really had a strong Valentine's Day, and we executed well against it in regards to our operational cadence.

Todd Morrison Brooks

And then just 2 quick ones for wrap-up. One, when you're talking about capital allocation, the one piece that you didn't mention was share repurchase Obviously, the stock in the group have been weak here based on kind of the reality of the results that you put up. I think you could almost argue that highest and best use of some capital may be share repurchase at these levels. Where does that fit into the overall plan given the other claims on CapEx that you have?

Gregory S. Levin

I think as we continue to grow our business, share repurchase and other capital allocations to benefit shareholders is an important part of the BJ story. I think even if we were saying we were growing our business at 5-plus percent in regards to new restaurants, we would have extra cash in our business, assuming we move our margins the right way, which we fully expect to be able to use that cash to buy back shares. And as we continue to look and execute against our plan, I think share repurchases will be part of our business going forward.

Todd Morrison Brooks

Okay. And then a final one. You guys talked on the last call about an AI scheduling tool. I think it was being tested in 20 restaurants. Is there any update you can give us on maybe labor efficiencies that the tool is providing kind of in that control group of restaurants? And is it something where you know you want to proceed through the rest of the chain and maybe what the cost save opportunity might be?

Thomas A. Houdek

We're still very encouraged by what we're seeing. We're testing still on those 20 restaurants. And I would say on average weeks, there -- it's a good tool to get the sales forecast right, so we can schedule more accurately as well as prep more accurately. Some of these weeks, if you go into like the Easter it still needs some training there. But we're encouraged. We're still testing, but yes, -- this is something that I think is something we're certainly excited about and thinking about how it could benefit us.

Operator

Today's last question comes from Jon Tower with Citigroup.

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Jon Michael Tower

Most of my questions have been answered. So I guess 2 quick ones. Any impact of weather in the quarter or quarter-to-date that you want to call out because I know California obviously had some fairly big swings. Rest of the country have got some benefits to start the first quarter. But anything noteworthy to call out.

Thomas A. Houdek

Yes, John. It's -- we did see some impact in California, especially earlier in the quarter, especially when you think of the rain that came through. So it was a headwind, certainly for some of those days and weeks. But like I said, California was our best-performing markets. So nothing that held us back. But it was a modest headwind.

Jon Michael Tower

And then just real quick flipping to the menu reduction that you're talking about. It sounds like there's going to be some labor savings and prep improvement. You didn't mention anything about table turns. And I'm assuming that's part of the equation here, but I just want to verify that, that's the case. It's part of the work here is getting faster table turns.

Gregory S. Levin

Jon, it should be a byproduct. If we're able to be more effective in our kitchen and get menu items out sooner and quicker to our guests than essentially our tables would turn faster. But we have other opportunities there. We have mobile pay in our restaurants. In fact, people that use mobile pay, end up with, I want to say, about a 7-minute to 10-minute quicker table turn than people that traditionally pay the way they currently are. So we're continuing to work through some of those other aspects to be faster.

We're making some changes to our server handheld tablets where they can actually take the payment there to speed up the process. The interesting thing about this, and I'm going to go a little bit longer is we've done a lot of testing with our innovation team in regards to how we can be faster in our restaurants. We've even set up in a test in a couple in a restaurant to kind of do a quick service for our guests where they can order right when they walk in and they get seated. And guests come to BJ's, as I said, for that kind of experiential dining experience.

And even the ones that kind of ordered at the counter during our test, they end up ordering another beer, they end up ordering a physicist the end, and they still spent basically about an hour at BJ's. So we know the reason that a consumer comes to BJ, they made their decision based at their house, not necessarily driving down the street on -- is it QSR or is it BJs. Now that being said, we want to be as efficient as we can with our table turns and give the guest that wants to be faster, the ability to be faster. So we'll continue to work that. But at the same time, we understand that we are there for an experiential dining for our guests. And therefore, we want to make sure that we're doing everything we can and make sure that they have a great experience.

Operator

Thank you. Ladies and gentlemen, this concludes our question-and-answer session, and the call has now concluded. Thank you for attending today's presentation. You may now disconnect.