BJ's Restaurants, Inc. Stock

Good afternoon, everyone. Thank you for joining us. My name is Jeff Bernstein, and I'm the restaurant and foodservice distribution analyst here at Barclays. With us this afternoon from Huntington Beach, California, we have Lyle Tick, President and CEO of BJ's Restaurants; and Todd Wilson, EVP and CFO. They're both to my right. By way of background, for those not familiar, BJ's is a casual dining chain with roughly 220 U.S. company-owned and operated restaurants. They are currently in the midst of a very successful strategic reset prioritizing operational excellence and restaurant economics to pave the way for a disciplined return to unit growth starting next year and the years beyond.

So we are excited to have BJ's management with us and an esteemed Board member of theirs in our audience as well. So we want to thank everyone for joining us in the room and on the webcast. I will kick it off with some broader questions for BJ's, but thank you very much.

Here you go, gentlemen...

Great, how are you?

Good.

So I had a couple of bigger picture industry questions and then dive more specific into BJ's. And I'm guessing this will be a question you'll enjoy because we've always asked about the health of the consumer, but it seems like your results of late would demonstrate your consumer is feeling okay. So I'm wondering if you could talk a little bit about how you think about the consumer more broadly, whether there's been any change in trend related to age or income or ethnicity or whether your turnaround is just capturing, you think, lots of things simultaneously.

Yes. I mean, I guess -- I mean, from -- speaking from the BJ's perspective specifically and what we see, we have -- from our consumer perspective, we're not seeing a lot of stress in the consumer, right? I mean, we continue to see strong traffic-driven growth. We continue to see it across age and income cohort, across geographies, across dayparts and now again, across channels, like, dine-in throughout this whole thing has been very, very strong, but off-premise as well now.

So we're not seeing a lot of stress. Like, if I take a step back and hypothesize, I think the way I look at it is I see a couple of things going on. I mean, when you look at all of the data out there, you have to assume that the consumer is under some level of stress. And I look at, kind of, 2 things. One is what I call, kind of, durable and disposable transactions. And I think we compete for what are pretty durable transactions. So we call it the social splurge space, whether it's the weekly a couple of times a month, I'm going out with friends, I'm going out with family. It's an experience-based thing. And I think people protect those things.

And then I think the disposable transactions maybe tend to be more of, like, my during the week, quick lunch that I'm going to grab or a quick dinner on the way home during lunch before or after practice, one of those types of things. And I think you're willing to, kind of, give up on some of those things and make your lunch or eat at home to protect those, kind of, social occasions. And so that's where we compete. That's where we do well. And so I think that's potentially a dynamic why we're doing well.

And then you look at the fact that we're not alone in doing well, right? You see there's a number of our contemporaries who are doing well right now as well. And you look -- so then you get into the full-service category. And I think this is where you start to see the spread of winners and losers. And I think this is in a time like this where consumers, when they're giving a transaction, they want to make sure it's a great exchange. And I think the folks that are winning are the folks that are investing in their value proposition holistically, right, their product, their service, their atmosphere and making sure they have a place where their team members and their guests want to be. And those folks are winning more. And I think, thankfully, over the past couple of years, we've made pretty significant progress across all those areas.

No, that's great. And you mentioned some food at home on occasion being that we're sitting in the same building with a lot of my staples peers. I'll keep this quiet, but I've always said that I think food away from home is taking share from food at home. Do you believe that the most recent push of restaurant value is a driver of that? Like, how do you believe your brand is positioned in terms of the battle versus food at home because you mentioned some people might just eat at home during the week, so maybe you feel it on the week, but you make it up on the weekend or...

Well, so I mean, I think when I was -- when I'm making that distinction, to me, again, it goes back to, kind of, the disposable or the durable transactions, right? I'm not sure that for that, kind of, couple of times a week when I'm getting together with friends and family, and I want to have that social occasion that I'm really competing so much with food at home. But I do think that if you think about, am I going to get a fast food lunch during the week or do that, kind of, a dinner to just fill a convenience occasion, that's where that choice might be coming into play more so I can protect that social occasion. So that's, kind of, how I see it.

Yes. And whether it's in meetings earlier today or in recent months, I'm just wondering, you're relatively new to the seat, although maybe not so much anymore. But what questions do you get most from investors that surprise you or questions you don't get that you're wondering why people aren't asking because it's something that you're excited about, but maybe that's more beneath the surface?

I mean, on the surprise me, and I don't know if it surprises me anymore, but I think every -- folks want to compartmentalize the success that we've had or in general into, kind of, what's the one thing, either what's the one thing that did it or what's the one thing that you're excited about? And from my perspective, it just doesn't work that way. It's not one thing. This has been a combination of things that have ultimately improved our business over the past 2 years, and I think set the foundation for future growth. And for me, it's the operational improvements we've made, which we see come through in guests and team member metrics, then followed by unlocking, kind of, the power of the Pizookie, building an everyday value platform, improving our product, starting with the pizza, obviously, moving through burgers and chicken sandwich -- putting a fair bit of money back into our facilities and driving our remodel program.

So to me, it goes back to that investing in the full value proposition. And I feel like folks want to compartmentalize it into what's the one thing. And there just isn't a one thing. I think on the -- also, I think the other thing is, as I look at our business, sort of, like, last quarter, right, we had obviously great growth. Our operators did an awesome job, I think, running the restaurants and getting labor leverage. We had 70 bps of cost of sales headwinds, which that's going to happen over time, right? But in the big picture, I think we did a great job of running great restaurants. And it's, kind of, a question of, oh, like, are we now -- are we still growing profit or not?

And I guess I take, again, a bigger picture view, which is over the past couple of years, we put on $0.5 million of AUV, about $220,000 of restaurant level cash flow, expanded margins 240 basis points, and we're still running restaurants and leveraging those sales when you look at the operations we control, right? And so I feel really great about our business and where it's going. But you get, kind of, the -- we want you to be building a long-term better business, and then it's -- but what happened this quarter? And I think we try and be really focused on building a better business over time.

Jeff, I'll chip in with one, if I could. I believe in the -- what question, kind of -- I don't know surprise is the right word, but well, sometimes to Lyle's point on the improvement in the unit economics over the past few years, we'll get questions on what do we need to see to really get the new unit pipeline moving. And I'd say we've really already seen it, right? We've talked about trying to opening up to 2 restaurants this year, but we are very active out looking for new sites.

We're signing leases. We're negotiating with landlords. And so the proof points really are over the last 8 quarters of same-store sales growth, traffic growth, dollar and margin expansion that we're building the pipeline, just takes some time when you're talking 12- to 24-month lead times. But we get that question a fair amount that hopefully that clarifies a little bit.

Yes. Well, just to be able to summarize the way you just did of the volumes, the margins, the cash flow that you've achieved in such a short period of time, the improvement there. That's incredible. So congratulations on that. Is there any talk internally or at the store level about GLP-1s? I mean, I know that's just something that comes up a lot, and it feels like this is -- having done this for a while, this is the most, I think, likely to take a bite out of food away from home and sustainability and whatnot, and I have family members and they're losing weight and eating out less, and I'm sharing more with my wife instead of me getting 2 entrees and it just feels like it's in pill form and it's cheaper? Like, do you see -- do you have any reason to believe it's an area of concern up until now or going in the next few years?

Yes. So we haven't seen it as yet. And the funny thing, I was talking to some of the team about the other day as we were -- we're doing -- one of the market tests that we're doing for some product stuff. We were testing some shareable sides. And it was the most decadent, kind of, over-the-top shareable side that way outperformed every other one, right? And I remember hearing a Delta chef talk about how he puts, like, healthy things on the Delta menu and everybody gets the steak and the potatoes. And so I think what people say and what they do can be a little different. I do think our occasion, that social splurge occasion, is a little insulated.

But the way I think about it more broadly is I do think that overall, people are looking for real food that is fresh and made well for them, right? And so -- that is something we are definitely focused on as we think about the menu and the category work that we're doing. And we do a lot of stuff from scratch right now. But as I think about evolving some of the categories, how we continue to focus on being scratch where it matters, fresh, real, made-for-you food that makes people feel good about the stuff they're putting in their body. I think over time, that's going to continue to be true as long as it's craveable. Nothing -- I haven't seen anything that has people choose something healthy that isn't craveable. It's got to be a craveable dish.

Being that we're in September now and presumably in the fall period, you spent a lot of time probably thinking about 2027. I don't know if there's -- if there's 1 or 2 initiatives that you'd say that's going to define us in '27 is something or other, whether it's an AI thing that's worth mentioning or not. But what do you think is going to be the highlight going into next year?

I mean, the thing -- look, I'm -- at the core of our business is food and the product and the menu. And so we've made progress with pizza, burger, chicken sandwiches, but I'm really excited about the menu work that we have going into next year as we continue through the categories. So the food and the menu will probably always be the thing that gets me most excited and will be a continual journey over time because that's what we are. We're a restaurant company, right?

The other thing that I get really excited about, and Todd touched on it, is the work that we've been putting into our new prototype and just our new brand standards and how we express, kind of, our brand is finally going to come to fruition as we end this year and go into next year and bring that to life and building proof of concept around that, which is going to manifest not only through the physical plant itself, but we're really looking at the total experience from menus and menu engineering and plateware and cutlery.

And so it really touches our entire experience. And so I'm really excited about standing up proof points of that next year. And I think that's going to be the foundation of a next chapter that we go into with BJ's as we look at how we dimensionalize, kind of, the full growth story.

And I think more specifically about, kind of, each of the components of your business. So from a comp perspective, I mean, the most recent Pizookie, I think you said doubled the incidence rate year-over-year, which is incredible and have 8% traffic, I think, in the most recent quarter, unbelievable. I guess, therefore, not surprising that there's a little bit of average check compression if you get people who are maybe getting a smaller portion or getting dessert instead of -- but the strategy for -- I know you have an upcoming Pizookie launch -- like, how do you think about converting that viral dessert traffic into higher-margin entree sales to get back to average check growth going into next year?

Yes. I mean, I think there's a couple of things. One is we know the people who come into us through the seasonal Pizookie, we see them again. So they don't come back and disappear on us. We see them and they come back more often. And I think that goes all the way back to, I think, the first point about the levers that, kind of, play together, which is we're bringing these people into a restaurant that the environment is better, the service is better. And therefore, as we bring new people in, in theory, some of those people are going to have a good time and become customers. So there's a flywheel there.

I think with the seasonal Pizookies, when those hit a nerve, you see what you saw in Q2. And what you see is they resonate really, really well with young people, like high school and college kids, right? And recruiting that next generation into our restaurant, I'll take every day of the week, right? And -- but yes, we see these things we call them Pizookie trial checks. You'll see a bunch of appetizers, a bunch of Pizookies and some drinks, which aren't discounted checks, but from a dollar amount are a lower total dollar check. But we're bringing tons of these folks through the door as we hit a nerve with these Pizookies.

And so I feel really good about that overall flywheel. And the other thing that I feel really good about is, as I look at our sales, our sales every day of the week, whether it's a Pizookie Meal Deal day or not, whether it's Pizookie Tuesday or not, whether it's a weekend day, are super consistent. So we don't have, like, a lumpy business where we see during the week growing a lot, but not the weekends, we don't have the discount or just the Pizookie Tuesday when we're discounting the Pizookie. We see people coming in across every day of the week, across the weekends, and it's really consistent and even.

Just one piece I'd add there, too. If I think about the mix that we've seen, call it, over the past year, people have gravitated to the areas of the menu that we've highlighted, right? They've gravitated to pizza that we reinvented back in the fall of last year, burgers to start this year, chicken sandwiches most recently, which all of those things are beneficial to us within their category from a sales and margin perspective. We have seen that pull people out of some of our higher-priced items like our steaks and Slo Roast, -- and that -- we prioritize those things first for a reason, right? Pizza was our founding product, and that was first.

But I think to -- as you look forward, it gives us confidence that as we reinvent those future sections, we'll be able to push people back there to items that, one, they certainly enjoy and have higher satisfaction and two, that have favorable business financials for us, right? And so it gives us confidence that we're able to drive mix as we highlight these different areas of the menu.

Seemingly, that's worked out well for you, not by design necessarily, but to focus first on things that are a little bit more value during a period where consumers probably appreciate that and maybe in a year or 2, when they're feeling a little bit better and you highlight the steak or the Slo Roast, you can get people to trade back up to that. Seemingly, that would be set up well.

Maybe [indiscernible] outside of our -- outside of the Smash Burger, which is our entry point burger, our second most popular burger is our Wagyu Burger right at the top end. So people are -- they'll trade up and pay for something that is of quality, I suppose.

Great. I don't want to take one data point and spread it too far, but I think you had mentioned that you reallocated the first quarter of this year's marketing funds into the second quarter, and it generated a 60-some-odd percent increase in impressions during your celebration season? Like, how do you think about -- it seems like marketing is a powerful tool for you, especially as you reaccelerate unit growth. So I think you're talking about maintaining full year marketing spend flat as a percentage of sales. But how should we think about the back half of this year and going into next year as you think about the marketing dollars spent...

Yes. So I mean, dollars -- pure dollars we'll spend more because we're growing, and we're -- but we're maintaining the percentage. We don't see a reason right now to increase the percentage as we have growth that flows more dollars, and we're able to continue to drive the marketing. And we're getting smarter on our channel mix and our message mix and how we drive that. So we shifted out of Q1 into Q2 because we felt like we were going to get more bang for our buck during celebration season. And Q1 has all of the weather that you can't control and coming out of New Year's, which you can't control. So we felt it would be an advantageous reallocation of dollars, and it was.

I think as you look through the balance of the year, you'll see, again, us spending the same percent, us spending more dollars, us optimizing those more towards social and word of mouth, more behind Pizookie and product and then being very choiceful about broader media where we drive our value message. So I think going forward, it's -- for me, it's about that intersection of the right channel and the right message at the right time is what we want to deliver. And I think we continue to get smarter and optimize against that. But certainly, a shift towards social and word of mouth has been clear in our business over the past couple of years.

And the fact that you recently overhauled pizza, burgers and chicken, what percentage of sales -- obviously, you start with the biggest buckets, but -- is that 75% of your menu?

Well, it's not necessarily the biggest buckets. Actually, pizza was probably only about 6% or 7% of sales. But because it was our founding product, now 6% or 7% of sales, it touched, like, 20% of checks. So a lot of checks have pizza on it, but it was only about 6% to 7% of sales. But it's our founding product. And I'm just -- I'm a brand guy, so I, kind of, start from are we clear in our brand positioning? Are we clear in our consumer? And then is your foundation strong? And so being our founding product, and we had seen eroding guest satisfaction, we had seen an increase in comps and we've seen sales go down. And so we had to get our founding product renovated. So we started with that. Burgers, handhelds, ballpark here, but...

I'd say between those 3 categories, I'd say 25% of our sales. So it's a nice chunk -- but one of the benefits, I think, of BJ's is, right, we have a broad menu. That's one of our benefits. And so there's still plenty of runway ahead.

So, like, what's over the next 12 months, like where do you see the biggest opportunities on the menu to make upgrades that could be meaningful to the overall business?

Yes. I think as I'm looking across the menu at the categories we haven't hit yet, I think steaks and Slo Roast is an area we're spending a lot of time on. Shareables and appetizers is an area that we're spending a lot of time on, which is core to us and touches a lot of checks. But we also have work on the salad category going on, and we'll get to specialty entrees. We're going to touch every category of the menu over the next 12 to 18 months as we ultimately look to get to a menu that we feel like holistically is a more compelling offering.

Got it. And I think you mentioned, well, the traffic expansion was broad-based. I think you said across all quintiles. So that's encouraging, including the stores that are already sitting at your top -- your best AUV stores. So the specific operational unlocks that are necessary for that, whether it's kitchen productivity or labor scheduling, like, how does the high-volume restaurants at least accelerate traffic growth and essentially the learnings you then take to the bottom quintile?

Yes. I mean, it's interesting because I even think about -- I think about Mother's Day, I think about Father's Day and across all those restaurants, even though those are the biggest days of the year for even our heavy hitters, we were growing traffic, and we're growing sales. And I think a lot of that, first of all, is credit due to our operators, right? And the focus that Chris, our Chief Operating Officer, was driving through the teams during those periods is you got to be really, really clean on your shoulder periods, so, like, coming in and out of, kind of, your dayparts so that we're not creating false waits so that we're moving people through full hands in and out of the kitchen, never in a unbussed table for more than a couple of minutes. It's, kind of, the urgency and hustle and hard work of working the restaurants.

On top of that, we have talked about how about 1/3 of our restaurants have this activity-based labor model, which is AI forecasted labor model, that helps us get the right people in the right place at the right time. And that has told us that we need more people during our peak hours and less people in our nonpeak hours to really drive through and optimize the volume that's coming through the restaurant. And then there's a lot of the smaller things. I mean, they may seem smaller, but it's, kind of, what are the things that are getting in the way or making it longer from a team member entering something in or how we're sequencing things on the KDS, right?

And so there's, kind of, constant feedback loop with our GMs, with our executive kitchen managers as we're optimizing how things come from the front of house into the back of house and then come back through. And it's a continual improvement, kind of, process. But the thing that's exciting is, again, you see our heavy hitters being able to churn more traffic and churn more volume. And so it just gives you a sense of how high is up.

And you mentioned when you talk about digital marketing a little bit, getting loyalty conversion and ramping that up with social media influencers. I mean, it just seems like you're hitting on a lot of cylinders here. But the strategy is to, kind of, convert those first-time promotional guests into long-term loyalty members? And, like, how do you think about that? Where are you in that process? Presumably, you can control your business better when you, kind of, have a better understanding the frequency with which your customers visit and how to accelerate that.

Yes, absolutely. I mean, look, we want to continue to grow our loyalty program and our loyalty base, right? If you look at our loyalty program, our loyalty customers get us about an extra 1.5 to 2 frequency per year, right? So getting them into the program is great. Obviously, getting learning about them in the program both helps you in terms of optimizing them, but it also helps you understand better what your best customer looks like, what you can take in lookalike targeting outside of your restaurant. So it's a virtuous cycle.

I think on our loyalty program, we are growing our active base again. We made a little bit of a change last year where it used to be if you sign up for the loyalty program, you would get a free Pizookie immediately. And what we saw was a lot of people signing up, but a lot of people are not coming back. And so we change that to you get that free Pizookie on your next visit. And so we actually saw less sign-ups, but we saw those people returning a lot more often. And so we did that, and we saw a little bit of a contraction in sign-ups.

Now that's, kind of, evened out, and we're growing what we call our active loyalty base again. So that is people transacting within 6 or 12 months. And that's what I really look at is are we growing the base of people that we're seeing in a 6-month or a 12-month period because the vanity metric of how many people you have in your loyalty program, if half of them aren't transacting, I don't care about that. So we're growing that again, and it's definitely a focus on the restaurants. And we look at, like, little things are for whatever reason, and I don't have an answer for you as to why, but, like, from a server script point of view, we weren't really asking about loyalty until the end of the meal.

And so that's a problem, right? Like, at the beginning of the meal, I want to ask you if you're a loyalty member because if you're not, I can sign you up. If you are, you feel recognized and important. And when you go and ask about it until the end of the meal, if somebody has already decided, I want my check and I want to go, they're not going to, at that point, want to sign up and go through the process and give you their phone number and do all of that. So we've, kind of, changed our server scripts recently, and we're seeing sign-ups. So a lot of focus on it, a lot of tweaking. It's funny how much, kind of, just the execution at the restaurant and some of that sequencing can make a big difference.

And I think you said the loyalty member, you say they come 1.5, 2x more per year than a non-loyalty member.

Correct.

And how many times per year? What's the...

So you're looking at a non-loyalty average of just under 2. And so the loyalty member is getting closer to 4.

Yes. When shifting more from the top line drivers, maybe the cost side of things. First and foremost, people, like, to talk about commodities, which tend to be a little more volatile. And I think you said beef costs surged 20% in the most recent quarter. And you thought there was going to be additional sequential inflation in the back half of the year.

Maybe talk about how you achieved or how you think you were able to achieve that restaurant margin target despite that inflation and maybe how much pricing, kind of, comes into play to help with that going forward? Or what are the levers you have available if commodity inflation remains elevated?

Yes, I'll jump in there. Just the fact base of part of the inflation dynamic and what's impacted our margins over the last 4 quarters is commodity inflation, in particular, beef, really started to see its biggest increase in Q3 of last year, right? And so on a year-over-year, we felt that in Q3, Q4, Q1, Q2. Now to your point, what was a 20% beef inflation in Q2, we think falls to, call it, 10% inflation in Q3. So still an inflationary period, but less so than what we've experienced so far.

And so the way we've thought about it and what our modeling shows is that Q2, as an example, on a year-over-year basis, cost of sales was a 70 basis point headwind in Q2. As we now turn the corner into Q3 and start to lap some of that inflation from a year ago, we see that turning into, call it, a 20 or 30 basis point headwind in Q3, right? So what was a 70 basis point -- excuse me, make sure I said that right, 70 basis point headwind in Q2 becomes a 20 or 30 basis point tailwind...

Tailwind.

Tailwind. Yes, I think I missed.

It doesn't mean deflationary. It means less inflationary.

That's right. There's less inflation, but that allows us to actually improve that margin on a year-over-year basis. So we think there's a 90 or 100 basis point benefit just from that dynamic. Now I'll give our operators a ton of credit, too, of in Q2, we actually were really happy with how we manage labor. We saw labor margins improve significantly in Q2. For the clarity of it, that is not us reining in labor. We still want to deliver a great guest experience. What that is, is the economics of this business, right? When you're growing traffic at over 8%, growing sales at 6.5%, you should be able to leverage those fixed costs and our operators did a great job of that.

We fully expect that we can continue to do that in the back half of the year. So that commodities change, we always knew the front half of the year would be more limited from a margin percentage expansion in particular. We very much expect, which we always have, that the back half of the year, we see those margin dollars and percentages grow much more on a year-over-year basis.

And your reference to beef inflation, 20% going down to maybe 10%. That's -- how much of that is because beef prices that you've secured have come down versus just the comparison from a year ago, is beef less of an issue? Or it's just a comparison?

Yes. Look, the headline is it's the fact that last year, the comparison changes. The dollar per pound that we're paying for beef, in many cases, is flat, if not maybe a little bit more. But that comparison is what helps us and gives us the confidence that we will be able to grow the margins the way we've talked about in Q3 and Q4.

Yes. You also mentioned keeping your fleet in good condition. You talked about -- I think you talked about incremental R&M investments to achieve the gold standard across the system, repair and maintenance, I should say. So how do you think about, as a public company, balancing the short-term P&L cost burden of doing that against the targets for margin expansion? Well, then, hopefully, the inflation subsides going into next year, but how do you think about that spend?

Yes, I'll start, and you want to jump in. So on the R&M side of it, our big focus is -- so that hits the P&L, right, the 4 walls. Our big focus is on shifting from unplanned to planned, which we've made good progress on, and we plan to continue that. So what does that mean? That means, like, preventative maintenance. So are we doing all of the right preventative maintenance getting all those PMs in for all of the equipment in the kitchen, for the refrigeration, for the salamander, for the stoves, for the fryers, for the vents. So we're doing all of the PM because if we can get to the planned maintenance, what really eats you up on the R&M side is the unplanned maintenance, right? When something breaks and you're reacting and going in that cycle, right?

So from an R&M point of view, preventative maintenance so that we're in better working condition all the time. On the capital side is also where we're leaning in, which ultimately will help this as well, which is getting much more planful on our repair and our replace intelligence, right? So being able to identify very clearly where we're seeing repairs, repeated repairs and ultimately, we want to replace and being really planful about our big equipment replacement. So you're talking about HVACs, you're talking about refrigeration and that, kind of, stuff and making sure that we are proactively working through that from a capital side to make sure our team members have the tools they need to deliver the standards that we expect from them and to be able to more effectively manage the, kind of, OpEx R&M on an ongoing basis.

I'll be brief on this, Jeff. To Lyle's point, we're very much committed that we've got to have great restaurants for our guests and our operators. And so we're committed to that. All of the -- whether it's the P&L side with repair and maintenance, the CapEx side, all of that's contemplated in our guidance. And so we've been thoughtful on how we've approached that from all sides.

And lastly, just because you said it's a question you get a lot in terms of the comps are moving in the right direction, the [indiscernible] returns are getting better and better. The new unit growth with only 200 and some odd units and visions to potentially be a lot bigger. You said 2 units maybe this year by the end of the year, maybe 1 rolls into next year. But how should we think strategically about next year, the year after? Like, where does that go to as people get excited about the potential for both comp and unit growth simultaneous?

Yes. Look, I mean, I think you're looking at 1, 2 this year, a handful next year. When we talk about ramping up the way that we've talked about it is getting towards double-digit units, not percentage. So -- which would be probably closer to, like, a 5% when you look at a footprint like ours. But the key for me, like, much of the work that we've done on this business overall.

It's about making sure that we're taking a methodical approach, getting these things stood up, getting the learnings, applying those learnings as we go forward. So it's -- I want to be more driven by doing it right and sustainably and durably than hitting a specific number, but that's how you should think about, kind of, as we think about the ramp over time.

It seems like you're sitting in a unique spot if we can get some comp momentum and get some unit growth going and the margin is expanding, and that's -- it's a good flywheel.

Yes. Thank you. The team has been doing a lot of hard work, putting a lot into it and has made great progress and improve.

Well, we want to thank you for joining us, BJ's Restaurants and specifically Lyle and Todd. And hopefully, you'll have productive meetings throughout the day. Hopefully, you get a chance to see them if you haven't already. Thank you very much.

Thank you.

Yes.

Good afternoon, and welcome to the BJ's Restaurant's Second Quarter 2026 Earnings Conference Call. All participants will be in a 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 1 on a touch-tone phone. To withdraw your question, please press star, and then 2. Please note this event is being recorded.

I would now like to turn the conference over to Rana Shermer, Director of SEC Reporting. Please go ahead.

Thank you, Operator. Good afternoon, everyone, and welcome to our fiscal year 2026 second quarter investor conference call and webcast. After the market closed today, we released our financial results for our fiscal 2026 second 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. 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 or 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 Lyle Tick, our Chief Executive Officer and President, followed by Todd Wilson, our Chief Financial Officer, after which we will take your questions. And with that, I will turn the call over to Lyle.

Good afternoon, everyone, and thank you for joining us to discuss our Q2 financial results, operating performance, and outlook. Q2, or celebration season as we call it, was another very strong quarter for BJs. It was energizing from a performance standpoint, reinforcing our relevance in the social splurge occasion I've talked about, and meaningful from an organizational perspective. Q2 represented our eighth consecutive quarter of sales and traffic growth and our seventh consecutive quarter of profit growth. Same-store sales increased 6.5%, driven by 8.3% traffic growth, continuing to significantly outperform black box casual dining benchmarks. On the profit side, restaurant-level operating margins expanded roughly 20 basis points to 17.2%, inclusive of roughly 5% of food inflation, which impacted cost of sales by 120 basis points. Adjusted EBITDA margins were up roughly 2.3 million at 11.4%, inclusive of roughly 40 basis points of deferred comp expense, which Todd will address in his remarks.

A few notable Q2 highlights. Our operators delivered outstanding performance. Mother's Day and Father's Day were up over 8% and 3% year over year, respectively, and more than 80 restaurants broke daily or weekly sales records, all while continuing to improve guest metrics. A strong reinforcement of our ability to win across multiple occasions. Our marketing plan continues to work effectively and efficiently. As I have previously shared, we shifted marketing dollars from Q1 into Q2 to optimize spend timing and drive the highest returns. For the first half overall, we invested the same dollars but were about 20 basis points more efficient as a percentage of sales versus last year, while delivering an increase of 67% in impressions in Q2, and 146% in the first half overall, supporting our strong sales. results continue to reflect the progress our marketing and culinary teams are making, aligning product, messaging, and go-to-market strategies. Our Biscoff seasonal pizookie was a hit, doubling pizookie incidents year over year during the quarter, and we saw growth across all geographies, all day parts, and all channels.

On check and mix, there are a few key points I think are worth calling out. The majority of compression came from Tuesday and Friday. Tuesday is driven by an iconic promotion that builds acquisition and ritual amongst hard-to-reach younger guests. Friday is when the Pazuki meal deal has opened the social splurge occasion to more people driving both new guests and repeat visits. Importantly, our sales growth is relatively evenly split between all of the weekdays and the weekend days. So we are not overly reliant on any one-day or promotion, and our value proposition is resonating across the week. As I mentioned last quarter, as we move further through the menu renovation and continue to optimize programming, we expect more balance between traffic and mix, which we started to see in Q1.

What we cannot fully plan for is when a product like the Biscoff Pizookie hits a cultural nerve and drives extraordinary trial. Thankfully, our marketing and culinary teams have a pretty impressive hit rate and have built a strong pipeline going forward. Ultimately, the key point is that we are driving profitable traffic. Even with 120 basis points of cost of sales headwinds driven by food inflation, we grew total dollars and expanded restaurant-level cash flow margins. From an organizational perspective, Q2 was a meaningful quarter. We hired Monica Saxena, who came to us most recently from Longhorn Steakhouse, as our brand president. Monica's track record of delivering sustainable long-term results. through clear brand positioning, a relentless focus on product quality and guest experience, and her ability to build high-performing teams makes her an ideal addition to our leadership team.

We also recently brought in Birju Amin as our new Chief Technology Officer, coming most recently from Yum! Brands, where he led restaurant technology for Taco Bell. These hires, along with the other leadership team changes over the past 18 months, reflect our commitment to unlocking the full potential of BJ's, as we enter our next phase of growth. I'm confident their perspectives, combined with the strong existing team and tenure we have at BJ's, will help us continue to drive long-term value for our shareholders. Overall, I'm very pleased with our Q2 and first half results and encouraged by the positive momentum we carried into Q3, including sustained significant outperformance versus black box casual dining benchmarks. Looking ahead, we have a deeper understanding of our business and our consumer. We've identified our core growth drivers and are clear on the levers to pull in both the short and longer term. Our strategy remains centered on ensuring our people, our food, and our atmosphere work in concert to make difference.

BJ's the brand of choice. Everything starts with our team members. They're the ones who bring our brand promise to life, and we're committed to ensuring they have the tools they need to deliver for our guests every day. That means continuing to invest in our training, embedding the new team member and manager programs we rolled earlier this year, building one BJ's way consistently across our restaurants, and developing our leadership pipeline to support future growth. It also means making our team members' jobs easier. Through continued work on POS simplification and modernization, tablet upgrades, and tech enablement like our AI-supported activity-based labor model, which will continue to expand through year end, our priorities are informed by listening listening to our teams, and investing in the tools they need to deliver. investments are reflected in our consistent guest metric improvements, continued reduction in comp food and beverage, team member and manager retention outpacing casual dining benchmarks, and ultimately in our sales and profit performance. On the menu front, we feel good about the progress we're making and will continue taking a disciplined category management approach. We We will focus on leveraging the chicken sandwich and burger category refreshes through Q3, while advancing other key category and item work across the menu.

Our three culinary pillars of Pazooki's, the Pazooki meal deal and product news, drive our culinary calendar, and we continue to optimize for more balance between traffic and mix. We have a strong Pazuki lineup for Q3, anchored in perennial favorites, s'mores, and spooky, and we'll be bringing some new flavor innovation for holiday while continually building our pipeline to drive buzz and engagement. The Pazuki meal deal continues to resonate, driving both new customer acquisition and repeat visits. As I mentioned last quarter, we're testing potential evolutions, including a premium tier. The test is providing great learnings, but it's still in its early stages as we explore ways to give guests pathways to try it. trade up while reinforcing two core BJ's equities, variety and the Pazuki. On the product news side, I remain pleased with the category work we have done to date, and I'm excited about what lies ahead. Across pizza, burgers, and chicken sandwiches, each renovated category is driving higher incidence, more sales, higher average price, and higher dollar margin than before, inclusive of all of the other categories. over 1.5 million of investments we've made back into product quality, particularly with pizza.

As we continue progressing across the menu, I expect us to deliver a more craveable, compelling, consistent, and profitable offering over time. Ensuring the atmosphere of our 219 existing restaurants remains a competitive advantage is another key focus. invested incrementally over the past 18 months and plan to continue doing so over the next 18. Getting fully caught up on deferred facilities work and ensuring our fleet, both the physical plant and equipment, is gold standard for team members and guests. This work, combined with our remodel programs, is fundamental as we plan for growth. On new unit development, the two planned openings later this year, Buckeye, Arizona, and Joliet, Illinois, are well underway and will showcase a meaningfully refreshed expression of the BJ's brand. These markets represent a mix of an established performance market in Buckeye, Arizona, and a development market in Joliet, Illinois, where we expect nearby restaurants to benefit from increased brand awareness and operational leverage. Continue to build our pipeline as we dial in the new prototype and apply a right size, right place, right cost approach to our next chapter of unit growth.

In closing, I'm confident in our plans, excited about what lies ahead, and committed to continuing to invest in our people, ensuring they have the tools and support to bring our brand to life every day. advance operational excellence, making BJ's better and easier for team members and guests, elevate our food and beverage offering, and set the foundation for future unit growth. Q2 delivered another quarter of sustained traffic-driven growth and share gains. While the environment remains dynamic, we enter Q3 with strong positive momentum, clear plans, and significant outperformance versus black box casual dining benchmarks. years into our journey to unlock the full potential of BJ's Restaurant and Brewhouse, our performance speaks to the progress we've made. Going forward, we remain focused on our strategic pillars and on making sure BJ's continues to be the restaurant of choice when people want to get together with those they care about most. Before I close, I want to thank all our BJ's team members, from our restaurants through to the support center, for their passion and commitment. talk a lot about being better every day and stronger together. And once again in Q2, our teams took care of each other, our guests, and our restaurants, and delivered another strong result for BJ's. Thank you. I'll now turn it over to Todd for more color on our financial results and outlook.

Thank you, Lyle, and good afternoon, everyone. We delivered strong second quarter results led by 6.5% comparable restaurant sales growth. We achieved 20 basis points of restaurant margin expansion despite a 120 basis point commodity headwind and delivered a $4.7 million increase in restaurant level operating profit and a $2.3 million increase in adjusted EBITDA. Total revenue for the quarter was $388.9 million, a 6.4% increase versus last year. The comparable restaurant sales increase of 6.5% was led by 8.3% traffic growth and included 1.8% average check compression. Traffic growth was driven by several initiatives, including the success of our seasonal pizookies, DMV offerings, and menu innovation, all of which benefited from the shift in marketing investment. In addition, our operators continue to do a great job driving increased guest satisfaction and remodeled restaurants are delivering traffic growth that exceeds the rest of the portfolio.

Lyle commented earlier on the check impression, growth in both traffic and sales across the week underscores the breadth of our performance. Guests are responding to our total value proposition as our promotional offers, combined with an improved overall BJ's experience, are driving growth across all days of the week and across all day parts. Restaurant-level operating profit was 66.8 million, and margins increased 20 basis points to 17.2%. Cost of sales was 25.5%, a 70 basis point increase versus last year. The increase primarily reflected a 120 basis points margin headwind due to approximately 5% inflation in our commodity basket, led by an expected 20% increase in beef costs. produce increases further pressured costs in the quarter due to severe weather and higher transportation costs. Though we have seen some relief early in the third quarter. Operationally, we continued to deliver improvements in food waste management and reduced comp, food and beverage incidents, including through our efforts to support outlier restaurants.

Alongside our operational initiatives, the menu work completed to date is helping us offset a portion of the commodity pressure through improved product architecture and mix. We expect the year-over-year commodity inflation rate to subside in the balance of the year and the benefit of this work to be more visible in the second half. Total labor expense improved 90 basis points to 34.5% as sales leverage and disciplined execution more than offset a 10 basis point increase in workers' compensation costs. Our operators did an excellent job leveraging sales growth to improve margins across hourly management, and benefits while continuing to increase guest satisfaction measures. We remain committed to delivering a great guest experience and expect to continue delivering labor margin gains through the remainder of the year. Occupancy and operating expenses were 22.8% unchanged versus last year. Within this category, I would highlight three items.

First, marketing. We strategically shifted dollars from the first quarter into the second to support our high volume celebration season. increased second quarter marketing expense by 1.2 million or 20 basis points versus last year. On a year-to-date basis, marketing dollars were unchanged and declined 10 basis points, reflecting improved efficiency and return and driving significant traffic growth. Second, repair and maintenance. We increased our P&L investment in repairs and maintenance during the quarter by approximately 1 million, or 14%, versus last year, as part of the journey to the gold standard physical plant and equipment Lyle mentioned earlier. This builds on incremental maintenance CapEx investments we have made over the past 18 months. We believe the condition and atmosphere of our facilities are important drivers of guest traffic and repeat visits, as well as team member satisfaction and retention. We expect to continue investing at a measured pace over the next several quarters, consistent with our updated financial outlook. Third, the remaining expenses in this category leverage sales growth, improving by 20 basis points versus last year.

General and administrative costs were 6.8%, a 90 basis point increase versus last year. This included $1.4 million of incremental costs related to a legal reserve and leadership transition costs, which we excluded from adjusted EBITDA. Additionally, the liability associated with our deferred compensation program is recorded in G&A and totaled $1.5 million. Notably, this liability is offset in other income by increases in the value of the underlying investments. Excluding these items and other smaller adjustments, on a normalized basis, we estimate the quarter would have been approximately $23 million and unchanged versus last year at $5.9 million. We continue to expect a normalized GNA run rate of up to $90 annually. These components parts delivered an adjusted EBITDA increase to $44.4 million compared to $42.1 million last year.

The business continues to generate significant free cash flow, which we deployed across three priorities. First, we invested $23.3 million in capital expenditures, primarily maintaining our restaurants, completing five remodels, and constructing two new restaurants targeted to open in the fourth quarter. Second, we repurchased and retired approximately 64,000 common shares for 2.4 million. Third, we restated $18 million of debt. We ended the second quarter with net debt of approximately $30 million, a substantial reduction from the $61 million we carried at the start of the year. While our cost of debt remains low at approximately 5%, strengthening our balance sheet further positions us to act with conviction on high return investments in remodels, new restaurants, share repurchases, and other investments to drive shareholder value. Turning to our 2026 financial outlook, based on our strong first half results, we are raising guidance for select financial metrics.

Our updated guidance is as follows. Comparable restaurant sales growth in the range of 3% to 4% compared with our previous range of 1% to 3%. Restaurant-level operating profit in the range of $228 to $235 million compared with $221 to $233 million previously. Adjusted EBITDA in the range of $145 million to $152 million, up from $140 to $150 million previously. We continue to expect capital expenditures in the range of $85 to $95 million, and our share repurchase guidance is also unchanged at up to $50 million subject to market conditions. I'll also provide additional color for modeling purposes. First, the third quarter is off to a good start with continued sales and traffic growth and results beating the black box casual dining benchmark.

Second, we expect third quarter comparable restaurant sales to somewhat outpace the fourth quarter, given the shape of the sales comparison in the third and fourth quarter last year. Finally, we launched a new menu in late June that included an approximately 110 basis point price increase. We expect total effective pricing of approximately 3.7% in the third quarter, 2.6% in the fourth quarter, and 3% for the full year. We believe average check pressure will will ease in the third quarter compared with the second and anticipate returning to moderate average check growth by the fourth quarter. performance of our seasonal pizookies can affect these results, as we've seen in prior quarters, as their popularity can reduce average check while providing a clear benefit to guest traffic, sales, and profit dollars. In summary, our second quarter results reflect strong traffic momentum, disciplined execution by our operators, and meaningful progress in strengthening our balance sheet. These results are only possible because of the hard work of our restaurant, field leadership, and support teams. Congratulations and thank you to the entire BJ's team.

As we move through the balance of the year, we remain focused on executing our core strategies, maintaining daily operational discipline, and investing in the guest experience, operational excellence, and high return growth opportunities. With that, we'll now open the line for questions. Operator? Thank you.

We will now begin the question and answer session. To ask a question, you may press star, then one, on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then 2. At this time, we'll pause momentarily to assemble the roster. The first question will come from Alex Slagle with Jefferies. Please go ahead.

Hey guys, thanks for the question. Really impressive leverage on the labor line and I guess if not for that cost of goods being elevated would have been the restaurant level margin closer to the 18% level. So curious looking at cost of goods and how much that can come down maybe versus these 2Q levels and I know you gave a guidance but is there.

room for upside there if things play out. Yes. Alex Todd here. I mean, as we're looking at cost of sales for the balance of the year, um, We do think that Q2, to your point, obviously was impacted by a lot of commodity inflation. We get a little relief on a year-over-year basis in inflation. Keep in mind, though, sequentially, some of our beef costs in particular still increase. So we think cost of sales can improve a little bit. We're not looking for a big step. down by any means, but we do think we can see a little bit of cost of sales improvement in the balance of the year.

Okay, and then I think you mentioned you expect the third quarter same-store sales to outpace third quarter, if I heard that right. I was just sort of surprised if that was...

I think it was third quarter to somewhat outpace fourth quarter. Fourth quarter, okay. Based on the shape of sales last year.

Yes, Alex, sorry if that wasn't clear, but yes, absolutely. Third quarter, we believe will be greater than fourth based on the year ago it compares.

Okay. Was there anything sort of one time in nature in that second quarter comp and traffic? I mean, I know that the seasonal Pazooki was really big, and I don't know if there was anything – With the World Cup or, you know, the lapse, you know, from last year, if there was anything hanging, you know, aftermath from the L.A. fires or anything like that.

No, I mean, there really wasn't, Alex and Todd, you can build on this, but any of that L.A. fire stuff was really Q1. And with respect to Q2, there really wasn't. And, you know, World Cup, I would say, you know, you see. We saw kind of individualized bumps in some individualized restaurants around individualized games. But it was really nothing that was materially visible or differentiated when you look at all restaurant performance across geographies, day parts and channels. So there wasn't anything anomalistic. It was it was really the the kind of programming and.

and I think the progress. All right. Congrats. Thanks.

Thank you, sir. The next question will come from Sharon Zacvia with William Blair. Please go ahead.

Hi, thanks for taking the question. I guess I wanted to ask about the implied comps for the back half. So I think the math suggests like one and a half to three and a half. And it sounds like you had some durable results in the second quarter. And it sounds like trends were off to a good start in July. So just curious on your thought processes.

as you enter the second half with that implied guidance? Yes, I'll start and Todd, you can pick up. What I would say, Sharon, is We are, I am very pleased with the trends and momentum the business has thus far in Q3, you know, much like we were when we were, you know, on the Q2 call. And, you know, our teams continue to do an awesome job executing. And I'm really pleased with what I'm seeing across the business and confidence in the performance. You know, you guys have probably gotten to know me a little bit in the past two years. And, you know, my predisposition tends to be I want to ensure that we do what we say we're going to do and maybe not get too far out over our skis. But I feel really good about the performance we have and everything.

and how the business is performing today. Thanks for that. And then I know you've been doing a lot of menu innovation and seems like that's been going really, really well. Is there anything else we should expect you to refresh before the end of this year? Like what's on the short list at this point?.

I mean, in terms of rolled out category refreshes, I wouldn't expect more rolled out category refreshes. We're right now in test on a number of different both category work as well as some item work. So I would expect more category work coming through next year. What you do see this year, and it's kind of how we've used it a little bit throughout the past couple of years, is you start to see some of the seasonal work that we're doing almost preview a little bit of work that's coming. And also, it provides us an opportunity to get kind of scaled learning about some of the work we're doing. So the Wagyu burger found its way first onto a PMI earlier in the year, the You know, I think about some of the work we did around something like the Buffalo Chicken sliders, those types of things. These things we start to get learning on and go into the bank and then inform the future rollout.

So we do both kind of the ops test, the market test, and then also use our seasonal platforms to get kind of scaled learning about it. So you'll see some of that in the fourth quarter reflected through some of our seasonal programming, but I wouldn't expect another category rollout this year beyond what we're doing. with burgers and chicken sandwiches from a category perspective.

Okay, thank you. The next question will come from John Tower with Citi. Please go ahead.

Thanks for the question. Maybe I didn't quite pick it up in the transcript so far, but I'm curious if you could just speak to what drove the negative mix in the quarter. It sounds like some of your seasonal pizookies might have been the primary driver of it. maybe expand upon that, that'd be great. Yes, I mean, it's not...

It's not a new story, but it's a codified story. which is a lot of it is driven by the seasonal pizookie and when that really hits a nerve, right? And we've kind of mapped the curve of that. And so you saw some of the things I said about Biscoff being, you know, double the incidence or double the size of last year. When you see that kind of hit that nerve, you get a lot of people in, not necessarily buying on discounts, but buying a smaller check as they're, you know, young people trying the Pazuki. I think, you know, when I take a step back, I think about it as kind of not all mix is created equal, right? We continue to drive outsized traffic with some of these programs. like the Pazuki, like the PMD, those people that we see come into there come back more often, and we're flowing more profit through to the bottom line. So, you know, as I think about it holistically, I feel really good about how our programs are working. And I think as As we continue to do the work across the menu, we continue to expect to see that moderate over time. You know, but the thing is with some of these seasonal products when they hit a nerve and they trial spikes, you know, you'll often see some mix impact with that.

When you take a step back and then you start to think about the menu work going forward and you look at pizza, burger and chicken sandwiches, they're all growing incidents, they're growing sales. their growing margin. Now some of that trade in there, some of it's new, some of it's trading, you'll see some of that coming from like stakes and entrees, which tend to carry a higher dollar check, but not necessarily, well, they tend to be lower margin, but a bit of a higher dollar check. And I think the key to remember there is on the journey so far, the category renovation work we're doing is working. It's driving the results we want. And people are moving kind of where we're driving them. And we just simply haven't gotten to those categories yet. So there's nothing, you know, from my perspective that has me not believing that as we do the rest of the work on the menu, we can continue to expect, as we do that work on the renovation, to drive similar behavior and ultimately balance things out as we go through all of the work.

Interesting. Okay. I know you had referenced in the prepared remarks the kind of tearing out of Pazuki meal deals and where you are in the process, or at least you've made some progress there. I'm just curious if you could also dig into that a little bit more in terms of either what you've been finding so far. as what's been resonating either from a price point perspective or product And or if there's any sort of things that aren't necessarily working as you've been testing and maybe even a timeline for us or where we should be able to think about a premium menu or premium tier coming through.

Yes, I mean, it's too early for me to give you anything that I would feel like comfortable standing behind at this point on that. You know, the shape of the work we're doing is, on PMD specifically, is twofold. One is... looking at how we keep that menu fresh. So as we did the chicken sandwiches, we retired one of our items on PMD and brought in a classic chicken sandwich, which delivered a great margin, but we thought would resonate better. And we're absolutely seeing that. And then as we do the tier test, we're just really, early in that process. And so I don't have results that I feel comfortable sharing, but it's, it's part of, it's part of learning. I think the thing that I would tell you though, is While we obviously look at how do we optimize the individual programs, when I'm looking at the business, I'm trying to always take a big step back and say, are we delivering a more compelling BJ's through the combination of things that we're doing that are bringing more guests in? and allowing us to grow profits.

And as I kind of look at the big picture, you know, I'm really pleased with how the pieces are working together, right? We're continuing to see two years in comp growth driven by traffic. We see our restaurants continuing to make progress and execute better, deliver more restaurants profit through to the bottom line. We continue to see our ability to grow corporate profits. We're on track to open the two new restaurants that we've mentioned previously and begin building pipeline again. And we're returning dollars to shareholders. So, you know, overall, you know, I'm trying to make sure that we keep in mind the big picture and is the shape of everything that we're doing delivering a more compelling. selling BJs. Not to say we won't optimize the parts, but I think sometimes if you get too caught in optimizing a single part, you know, you can lose the bigger picture of how everything's working together to progress the business.

Got it. Thanks for taking the question. I want to, you know, so I want, so I want to be intentional about how we do it, I guess, is the way I'd say it.

Thank you. Thank you. The next question will come from Todd Brooks with Benchmark StoneX. Please go ahead.

Hey, thanks for taking my questions. A couple for you. One, it's sort of a block and tackling question, but... Lyle and Todd a couple times during the call, you anchored the quarter-to-date performance to... your black box peer group. I know you're not going to give us detail on your performance, but can you talk about where the peer group performance sits through July, just based on some of the strength we saw in the bar and grill category during the World Cup?.

Yes, hey Todd, Todd here. Yes, I'd say what we've seen to start Q3 in the black box numbers is similar to what we saw in Q2, meaning, you know, traffic for the black box, to be clear, for black box, you know, we see traffic a little bit negative, sales a little bit positive. And that's consistent with what we saw in Q2. Obviously, we had significant outperformance. We beat the black box traffic by our comparisons by over nine points in Q2. So a very accelerating rate of performance. But we see Black Box very consistent to start Q3. And again, as we said, we continue to beat Black Box in these first couple of weeks of the quarter here.

Okay, great. Thanks, Todd. And by the way, Todd, just specifically, that's the casual dining benchmark. I'm not sure if there is a sub-bar and grill benchmark, but the benchmark we're talking about is casual dining.

Perfect, thanks. And then I look at the volumes and the traffic that you're able to generate during celebration season and for the longest time. The mantra out of BJ's is, you know, we're trying to grow the business. And then during celebration season, we're trying to hold the hill on the traffic that we always get and to see the material growth in traffic that you were able to generate at what previously have been characterized as prior peaks that you just, you really can't drive many more people through the box. I'd love to hear some about some of the key unlocks for how you were able to service so many more customers during celebration season.

Yes, I mean, look, I haven't seen that yet, right? Like, I haven't seen... an indication yet that we are tapped out in our ability to accept traffic and move people through. Because the traffic growth exists during this period in our top AUV restaurants through all of our quintiles. And so, you know, once you get below the top quintile, clearly there's plenty of ability as proven by the top quintile. I think, you know, the things that help, and I think I know I kind of have talked about it previously, a little bit of the kind of blocking and tackling of great operations. We have continued to, during this season, shine more of a light on reservations. We have continued to see the reservation growth. That's helpful from a planning perspective.

But, you know, Chris, for example, going into this celebration season, you know, he put a very big focus as from his observation on the transition, like the shoulder periods and how we're transitioning in and out of shoulder periods. Oftentimes, he'd go into restaurants and see that around that early shoulder period transition, we'd be on a wait early when we shouldn't be on a wait because it's an early transition. We didn't get the transition right. He put a lot of focus on, you know, I think the blocking and tackling of when we know we're going to be having a lot of volume coming through. You know, have we planned really well for it? Are we really disciplined on how we manage the shoulders, on how we get in and out of those periods? And then moving people through. Do we have full hands? in and out? Are we pre-busing? Uh, I know it sounds, it's not like super, you know, futuristic. It is the, it's the hard work of running good shift.

And I think our guys looking at, um, given the momentum the business has, how are they going to make sure that we're able to move the people through? Hey Todd, I'll tag in real quick. I think you probably heard it in our prepared remarks, but I think it's worth reiterating of when we look by day of week, or let me say it differently, sales and traffic grew across every day of the week, they grew across every day part, and they grew across every geography that we operate in. And so I think the broad-based nature of that reinforces that we're winning across multiple occasions here, right? And it's the broad appeal of this brand. And you probably picked that up. I just wanted to make sure it didn't get missed.

That's helpful. Thanks and congrats to you both and you all. Thank you, Todd.

The next question will come from Nick Setien with Mizuho Securities. Please go ahead.

Thank you. Obviously, the marketing has been very successful. Can you just Can you just remind us how you're thinking about the back half of this year in terms of marketing spend year over year And then maybe even kind of Q3 versus Q4. And then anything kind of under the hood in terms of any, you know, the evolution of how you're thinking about marketing, you know, more social and digital versus, you know, national TV or not national TV, but, you know, TV on the local market, et cetera, would be helpful. Yes.

Yes, I mean, year on year, as you look at the full year, from a percentage reinvestment point of view, We're targeting flat year-on-year percentage. Obviously, as we grow sales, that's going to throw off a few more dollars to invest in the business. But ultimately, we're... keeping the same kind of percentage reinvestment rate and looking to continue to get more efficient and effective. I think what you've seen over the past couple of years and continually have moved in this direction is, you know, is we're able to bring together a relevant product calendar with our go to market. market and kind of marketing strategies and apply that to kind of the relevant channels we've continued to move more and more towards social cultural word of mouth marketing And I think we've also sharpened, you know, what I call our comms architecture, right? A couple of times of the year when we decide to talk more broadly in broader media, that's where we might leverage Pazuki Mule Deal and a value message that gets more people in. We think the other two pillars we like to talk about, which is product news and Pazuki. news, those do really well from a social and digital perspective. The other thing that we continually do is for those markets that have traditionally, Nick, gotten kind of the broad media in those couple of windows of the year. We monitor those very closely to say, are we getting the return and we're constantly piloting how we might evolve that mix depending on those markets. to drive the business.

So, you know, there was, I think there was a couple of markets that got tier two, what we call tier two broader support during, during Q2 that we shifted to all social and saw great results there. And so that allows us to either reinvest some of that money back into the markets that really benefit from that broader media, or ultimately drive that social part harder. So we're constantly working on optimizing both channel mix and market mix by looking at kind of the return. I think the key for this working is to have that intersection of relevant news from a product perspective that intersects with a good channel strategy. And those things work together. Okay.

And then just on the margin and the flow through in Q2, I just wanna understand sort of what you intend us to interpret with some of the prepared commentary. I mean, can we get in Q3, like essentially, you know, really solid comps with better flow through? Was there something like it was one time in nature in terms of the Q2, you know, I guess less than expected flow through, and we should get more flow through in Q3 and going forward? Yes.

Yes, Nick, I mean, I hope it came through loud and clear. Q2, obviously on a year over year from a flow through, the cost of sales headwind, the commodity inflation was a big factor there. If you think about the shape of our year, though, we've always tried to communicate, hey, the first half of the year, because of the shape of inflation, right? Inflation started the peak in the second half of last year. That then carried through the first half of this year. We have always expected that the first half of the year would be, you know, we've actually a little ahead of our expectations given the headwinds on inflation. The balance of the year, meaning Q3 and Q4, as those inflation headwinds subside, we do expect the dollar margin and the percentage margin to increase more substantially than they did in the first half of the year.

Understood. Thank you. Thank you. The next question will come from Brian Mullen with Piper Sandler. Please go ahead.

Hi, this is Allison for Brian. Thank you for the question. The menu mix drivers in 2Q that you outlined were clear and also that it should moderate over time, but more near term should the 2Q trend hold. Is that 2Q mix level a good way to think about the back half of this year?.

Yes, Alison, Todd here. I think the way that we are thinking about it is that the mixed impact, even if it's eases is the word I intentionally used, right? It eases in Q3 as compared to Q2 and then takes a further step down in Q4. Um, You know, as Lyle alluded to, right, the variable in that is the degree in which our seasonal pizookies resonate, but on kind of a normalized basis, that is our baseline expectation that we see that mix ease in Q3, step down further in Q4, and by Q4, we do expect that that check could be back in total to a moderately positive number.

Okay, thank you. Thank you. The final question will come from Jeff Farmer with Gordon Haskett. Please go ahead.

Thanks. Just two quick ones. So sorry to do it to you guys, but just one more in July. I believe you did say that black box, the casual dining segment, the traffic part of it was down. percent in Q2. I'm curious if you guys can share what that number looks like in July or at least sort of month to date in July.

Yes, Jeff Todd here. We're seeing similar to start Q3 in the black box numbers. So similar on traffic, similar on sales to what we saw in Q2.

Okay. And then bigger picture, more strategy on the marketing front. Obviously, we heard from Cheesecake Gallery this week. A lot of these casual dining concepts are getting much better at advertising across social and digital channels. So you guys have had a nice lead there, but some of these concepts are bad. beginning to sort of, I won't say really you win, but they're narrowing the lead you have. Strategically, how do you stay ahead in terms of things like the digital and social channels on the marketing front that have worked well for you guys?.

I mean, I guess there's a couple of things that I might take seriously. a bigger step back before I get down to that, to that, you know, I think the big step back for me is I think what you're seeing and what we continue to see in our category in full service is this kind of, um, Delta between those who are winning and those who are losing, right? you know, as exemplified in, in some of the, the black box data that, that, um, that we were just talking about, because, you know, you've, we, we've obviously very pleased with our performance. We've heard some other people deliver good performance, which obviously means that there's that, there's that Delta. And I think, um, That delta is about your holistic value proposition as a business, and are you delivering a more compelling alternative to the category? So are you winning more of that traffic, right? And I think that we've seen our ability to do that, and I think there's a set of ways. winners who continue to do that. And I think part of that is, you know, marketing strategies, but it's a much bigger story than that, right? Which comes from better operations, better products, better atmosphere, and how the whole thing is working together. And I think we've continued to on improving the entire value proposition. And so I think you continue to see that at kind of a macro level, which is how we look at the business and I think, you know, important overall context. you know, when you get down to specifically the leveraging of digital channels and social media and influencer. Yes, look, I'm pleased with the way that we've progressed.

I'm pleased with. the trajectory that we're on. And as I said, I think the thing that, the intersection there that gets you the outsized results is the intersection of your product pipeline and leveraging that channel, right? So the relevancy of that product product pipeline is the multiplier on how that channel works for you. And I think we have some pretty good iconic. ownable platforms that we're able to build upon. And so, you know, I feel good about our ability to continue to resonate in those channels, but overall with our value proposition.

They're helpful. Appreciate it. Thank you. Sure. This concludes our question and answer session as well as conference call. Thank you for attending today's presentation. You may now disconnect and have a great day.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Good afternoon, and welcome to the BJ's Restaurants First Quarter 2026 Earnings Release Conference Call.  

[Operator Instructions]  

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.

Thank you, operator. Good afternoon, everyone, and welcome to our fiscal year 2026 first quarter investor conference call and webcast.

After the market closed today, we released our financial results for our fiscal 2026 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 Lyle Tick, our Chief Executive Officer and President, followed by Todd Wilson, our Chief Financial Officer, after which we will take your questions.

And with that, I will turn the call over to Lyle. Lyle?

Thank you, Rana. Good afternoon, everyone, and thank you for joining us to discuss our Q1 financial results, operating performance, and outlook.

Q1 was another strong quarter for BJ's. We delivered our seventh consecutive quarter of sales and traffic growth, along with our sixth consecutive quarter of profit dollar growth and EBITDA margin expansion.  

Same-store sales increased 2.4%, driven primarily by 2.2% traffic growth, continuing to outperform Black Box casual dining benchmarks by roughly 120 basis points on sales and close to 400 basis points on traffic. 

On the profit side, restaurant-level operating margins were 16%, and adjusted EBITDA margins reached 10.5%, up 30 basis points year-over-year.  

Our consistent performance continues to reflect the progress we're making across our 4 strategic priorities, focused on building a winning culture, improving our food, enhancing our atmosphere, and driving WOW hospitality and executional consistency.

A few notable Q1 highlights in context. Valentine's Day performance was exceptional. Approximately half of our restaurants set new daily sales records, while 14 set weekly records, reinforcing our strength in the social spoage occasion.  

We delivered Q1 results with roughly 20% lower media spend year-over-year as we continue to optimize how we deploy marketing dollars while ensuring we have sufficient resources to drive Q2, or what we call the celebration season.

This is a testament to the progress our marketing and culinary teams have made in refining our go-to-market strategy and how best to leverage our product news and media.

The quarter had its fair share of volatility, including approximately 70 basis points of weather-related headwinds year-on-year. Importantly, the teams managed this volatility effectively while growing sales and protecting margins.  

We are also encouraged by the results of some of our tests and recent programming we put into the market.

Overall, total beverage sales stabilized in Q1 behind growth in nonalcoholic beverages, our 22-ounce beer upgrade, and a successful seasonal beer offering in our waterfall beer, which was a collaboration with Sapporo Breweries, hitting on growing segment trends like lower ABV, sessionable drinks, and Japanese-style rice beer, which is one of the few growing segments in craft beer.  

Our chicken sandwich renovations have shown a clear positive impact in tests, improving the chicken sandwich and overall handheld performance, and we'll be rolling them out as we move into Q3.

Our premium Wagyu burger with a custom blend patty has garnered a lot of interest in trial and provides a top-of-the-barrel anchor in the burger category.

This has just moved into a full system, limited-time feature, and will become part of our menu burger lineup as we move into Q3 as well.  

Overall, I'm pleased with our Q1 results and encouraged by the positive momentum in the business as we head into Q2 and our growing outperformance versus black box casual dining benchmarks.  

18-plus months into my journey at BJ's, we have a clear road map, have made material progress in building stronger foundations, and we intend to continue to focus on bringing guests a better BJ's by investing in our food, our people, and our atmosphere, ensuring these elements continue to work in concert to drive performance. 

While there's still a significant amount of work and opportunity ahead, we have made tangible progress across several areas.  

We have seen significant improvement across our guest metrics since Q3 of 2024, with our Net Promoter Score improving roughly 10%. Our team member retention continues to be better than pre-pandemic levels and is trending positively.

Both hourly and management turnover are improving on a trailing 12-month average and tracking 12-plus percentage points below black box industry benchmarks as we continue to strive to make BJ's a better, easier, and more rewarding place for our team members.  

The work we're doing to upgrade our menu offerings, while still in its early stages, is reflected in improvement in our food scores, our momentum with younger guests, and our new product performance.

Since the launch of the all-American Smashburger in June of 2025, the burger category has been delivering roughly 30% more sales than prior to the launch.

Pizza has also performed well since its introduction, with category sales up about 20%, and we're beginning to see encouraging signs that the new pizza is improving repeat visits amongst guests who try it.  

Seasonal Pizookies continue to resonate, particularly with younger guests, contributing to both traffic and growth in dessert sales. Our value scores have materially improved behind the Pizookie meal deal and an improved overall experience, reinforcing our complete value proposition.

And our marketing strategy continues to evolve with greater emphasis on social and word of mouth to support our new products, complemented by selective use of broader media to deliver value messaging.  

At the same time, we've materially improved margins over the last 18 months while making significant investments in our restaurants and guest experience through our remodels and facilities programs. 

We are, however, still in the early innings, and the vast majority of our opportunities still lie ahead of us.  

The last 6 quarters of sales and traffic growth have been driven predominantly by traffic. We have brought a younger, hard-to-reach guest into our restaurants, lifted frequency, and meaningfully reset BJ's relevance in casual dining.

As we look ahead, we will continue to build on the drivers of success to date while moving to further balance the model where traffic, as well as average check and mix carry weight, over time.  

The Wagyu burger I mentioned earlier is an example of the category management work we're doing on the menu.

Sitting alongside the all-American Smashburger that remains a hero at the opening price point of the category, the Wagyu burger gives guests a premium trade-up option, building a clear, good, better, best strategy within a high-affinity category.  

In addition, we're moving into a test with a premium tier on the Pizookie meal deal, giving our most engaged guests a path to trade up while still reinforcing 2 core and ownable BJ's equities in variety and the Pizookie.

We continue to work across the menu, extending the structured approach to category renovation. I'll share more information in the coming quarters as we gain more learnings from our market tests.  

The progress to date, combined with the work ahead, will help us maintain momentum while continuing to allow us to improve flow-through over time.

I'm confident in our plans and our commitment to investing in our people, ensuring they have the tools and support needed to bring our brands to life every day, advancing operational excellence, making BJ's better and easier for both team members and guests, continuing to improve our food offerings and guest experience, and setting the foundation for future net unit growth. 

On net unit development, our prototype work is progressing at a pace. The two planned openings later this year are in Buckeye, Arizona, and Joliet, Illinois, and they will showcase a meaningfully improved guest experience.

These markets represent a mix of an established performance market in Buckeye, Arizona, and a development opportunity in Illinois, where we expect approximately restaurants to benefit from increased brand awareness and operational leverage. 

As we build the pipeline, we will stay focused on refining the prototype to continue to improve the consistency and financial returns of future openings.

Q1 delivered another strong quarter for BJ's and reflects our continued progress, sustained traffic-driven growth, and share gain.

While the environment remains dynamic, we enter Q2 with positive momentum, strong plans, and growing outperformance versus black box casual dining benchmarks, and a focus on continuing to build on the foundations we've laid across our strategic priorities. 

Before I close, I would like to thank all our BJ's team members from our restaurants through to the support center for their passion and commitment in bringing our promise to life every day for our guests.

Q1 was not without its volatility, navigating multiple severe weather episodes, and our teams took care of each other, our guests, and our restaurants, and adjusted in real time to deliver another strong result for BJ's.  

Thank you, and I will now turn it over to Todd for more color on our financial results and our outlook.

Thank you, Lyle, and good afternoon, everyone.

We delivered a strong first quarter with traffic-driven sales growth, generating an increase of $1.6 million in restaurant-level operating profit and a $2.4 million increase in adjusted EBITDA.

As Lyle noted, we achieved these gains while navigating sales volatility, including 70 basis points of winter weather headwinds.  

Total revenue for the quarter was $358.1 million, a 2.9% increase versus last year. Comparable restaurant sales increased 2.4%, led by a 2.2% traffic growth and a 0.2% increase in average check.

The traffic-led growth underscores the continued strength of our brand and our increasing guest frequency.  

Restaurant-level operating profit was $57.2 million, a $1.6 million increase versus last year. Margins were stable at 16%, reflecting strong operational execution in a shifting environment.

Cost of sales was 25.1%, a sequential improvement from 25.5% in the fourth quarter.  

While this is a 10 basis point increase versus last year, led by anticipated beef inflation, we mitigated much of the impact with operational improvements, including reduced food waste and continued progress in our gross-to-net initiative focused on simplifying the efforts of our team members and more consistent execution for guests.  

Our menu evolution has also brought upgraded and new items to our guests, like pizza and seasonal Pizookies that are delivering increasing incidents, great guest satisfaction, and carry a favorable cost structure.

Total labor expense was 36.3% of sales, a 20 basis point increase versus last year. Core labor expense, including hourly wages, management, and benefits, was unchanged from last year.  

Our operations were efficient while also delivering meaningful gains in guest satisfaction.

The reported increase was driven entirely by higher workers' compensation costs resulting from rising medical expenses despite our team's good work in reducing the number of claims. We expect this pressure to begin to normalize in the back half of the year.  

Occupancy and operating expense was 22.7% of sales, a 30 basis point reduction versus last year. This reflects a strategic decision to shift marketing dollars into the second quarter to support our high-volume celebration season.

It also reflects the good work our marketing team has done to optimize channel mix and drive better return on our investments with increased focus on social and digital channels.  

General and administrative costs are $22 million and 6.1% of sales, a 20 basis point reduction versus last year.

Depreciation expense increased 110 basis points compared to last year, largely due to a one-time catch-up entry. Excluding this, the underlying increase was 30 basis points, reflecting our ongoing remodel program and new unit investment.  

These component parts delivered an adjusted EBITDA increase to $37.7 million as compared to $35.4 million last year. This represents a 30 basis point increase to 10.5% of sales.

The strong business performance resulted in significant free cash flow that we deployed for three primary purposes. 

First, we invested $15.8 million in capital expenditures, primarily maintaining our restaurants and completing five remodels.

Second, we repurchased and retired approximately 151,000 common shares for $5.3 million. Third, we repaid $23 million of debt. We ended the first quarter with net funded debt of $39.3 million, a significant reduction compared to $61.2 million at the end of 2025.  

With my first 100 days at BJ's complete, I would like to share an update on my initial areas of focus and the opportunity I see in front of us. Initially, my priority was stabilizing, building my immediate team, and strengthening the foundational processes within our accounting and finance functions.  

We are fortunate to have many great team members in place, and I'm pleased to have bolstered the team in key areas, including the addition of Ashley Van as our accounting leader, whom we announced a few weeks ago.

With that groundwork in place, my focus has shifted to partnering more closely with Lyle and the broader leadership team to accelerate our growth initiatives.  

This includes our efforts to continue driving top-line sales growth through great operations, marketing efforts, and remodels, driving further margin gains in the middle of the P&L, and enhancing our unit economics to accelerate new restaurant growth.

While I was optimistic when I joined in December, I'm even more energized by what I see today. The BJ's brand clearly resonates with a broad and growing cross-section of consumers.

Our team is highly engaged, and we are continuing to build sales, traffic, and profitability. I am confident we have a significant runway ahead.  

Now turning to our 2026 financial outlook. We are reiterating all metrics in our 2026 full-year financial guidance. I will provide additional color for modeling purposes.

First, comparable restaurant sales and traffic trends to start the second quarter are off to a strong start and continue to beat the Black Box casual dining benchmark.  

Second, we expect the second quarter to be the peak for commodity inflation this year, which will likely result in a Q2 cost-of-sales percentage marginally higher than Q1.

In response, we are tracking towards a midyear menu update engineered to further optimize product mix. Combined with our planned pricing actions, we expect to fully offset the inflation impact in the second half of the year.  

Next, we expect occupancy and operating expenses to be approximately 23% of sales in Q2 as we reinvest the marketing favorability captured in Q1 to drive sales performance in our high-volume celebration season.

Lastly, construction is underway for our new restaurant in Joliet, and we are on track to break ground in Buckeye in the coming weeks. We expect to record nominal preopening expenses in Q2 and Q3, with approximately 80% concentrated in Q4 as these restaurants open.

As a reminder, we target roughly $700,000 in pre-opening costs per opening.  

Overall, our sales and traffic trends are strong, providing a solid foundation for the business. We are implementing targeted improvements across our menu, operations, and marketing tactics.

As inflationary pressures ease, we expect these actions to further enhance performance, positioning us for accelerating profit growth in the second half of the year.  

In closing, the first quarter was a strong start to the year, defined by healthy traffic growth and resilient margins. This performance is a direct result of the hard work and dedication shown by our restaurant teams, field operators, and everyone at the support center.

Thank you for your hard work and commitment. Looking ahead, we are confident that our strategic plan, combined with strong execution, will drive sustainable growth and create long-term value for our shareholders.  

With that, we'll turn the call over to the operator for questions.

[Operator Instructions] Our first question today is from Brian Bittner with Oppenheimer & Company.

Just want to ask about same-store sales. The seven consecutive quarters of traffic growth are very impressive, as is the outperformance against the benchmark. And it speaks for itself. 

So, I really want to ask about the average check side of the equation. It was flattish in the first quarter, which is definitely an improvement from where you were in 4Q.  

But I want to ask about the opportunity for the average check to become a bigger contributor to comp growth as the year unfolds? And perhaps what type of average check is embedded in your 2026 outlook for same-store sales growth of 1% to 3%.

Sure. Brian, this is Lyle. I'll start and turn it over to Todd. Yes. I mean, look, I'm really pleased with the consistent traffic growth and outperformance that we've been seeing and with the moderation of the check compression, which I think we signaled to be expected in Q4 of last year when we were talking about this year.

And so I think it's moving along very much the way that we expected it to, as we lap some of the performance from last year and then start to be able to layer in some of the other growth drivers.

So right, in Q4, I think we had a very strong seasonal Pizookie play, then towards the end, we started to be able to lay in pizza, building on that mix. And then, as you see us coming into this year, we continue to build on pizza.  

As I started to talk about in my comments, things like the Wagyu burger, the chicken sandwich refresh, the PMD tiering, and other menu work we're doing, we've got a planful approach as we go forward that we think will continue to moderate and allow both of those levers to work for us as we go forward. 

So, in terms of the exact price or check built into the model?

Yes, Brian, I'll jump in there. So relative to the guidance, what's embedded in our model is checked in a range of, call it, flat to plus 1%.

As Lyle alluded to, we think that progressively advances through the year, both as we lap different items and as some of these new initiatives come on board.

But we think Q1, marginally positive check in Q1. We think that's one side of the bookend. We think it could be as high as a plus 1% on the year, as some of these different initiatives take hold.

And my follow-up is just really zooming out here. Can you give us maybe a state of the union updated state of the union on your plans for accelerating unit growth?

How are you thinking about the near-term building blocks that are in place to accelerate unit expansion?

And just as it relates to the longer-term opportunity, have you had a chance now that you've been there for a while, to maybe create a road map on how you are thinking about what the proper growth algorithm for this company is over the next many, many years?

So yes, I'll answer both those questions. So first of all, I guess as we take a step back and we look at laying the foundations for unit growth as we go forward.

I mean, I think our first stage of it was looking and making the geographical decision about where we want to grow, which I think I've talked about in terms of growing out from where we already have a footprint versus going greenfield and the concentric circle approach.

The second part of that was getting to a new prototype design. Really, the first part of that job is getting to a prototype that we feel like our guests and our team members are going to love, and we feel great about what we've seen so far.

And so that's step 2, and that will be reflected in the next 2 openings.  

Then I think the second job after you've established that is, as you go forward, we want to make it commercially exciting for all of us to accelerate growth.

While the new units that we have to date have been a good use of capital, and that they've hurdled our weighted cost of capital. It's been a responsible use.

We have much higher ambitions for that as we go forward and look to tune in the prototype, both through actual engineering of the prototype, but also flexibility in the size of the box, as I've talked about, a mix of first and second-generation space.  

Then, when I talk about the box also just challenging existing assumptions, right? There had been an assumption that BJ's was going to have something from 35 to 40 taps. So this is just one example.

But when you do the productivity analysis, we probably need 20, and those are mostly driven by our BJ's beers. And when you start to kind of look through the opportunities and follow the numbers, there are a lot of benefits to play off of something like that, everything from cost to build, to ongoing maintenance of the infrastructure, to OpEx costs.

So, just taking a holistic look at everything as we go forward.  

If I get my head up and look at the growth, we're looking to open a couple this year. I would say mid-single digits next year, moving towards double digits as we go into 2028 and beyond.

And I feel like we have significant headroom in filling out our existing markets prior to actually having to go greenfield. So, as we've done our analysis, we will share more about the long-term growth algorithm as we go forward.

But I feel very confident in the headroom that we have to grow BJ's units.

The next question is from Jeffrey Bernstein with Barclays.

My first question is just drilling down on the comp. I think you mentioned a growing outperformance versus the industry. 

I'm wondering if you could share maybe the sequential trends through the quarter and more specifics for April. And I recall last quarter, you saying you thought all 4 quarters would be within that 1% to 3% range.

So just looking for some context there. And just lastly, whether or not gas price volatility, I know you mentioned weather was a big impact. I didn't mention gas. I'm just wondering whether you saw any kind of pressure or things in a sequential trend, as there was a spike in gas.

Yes. I mean, thank you, Jeffrey, by the way, this is Lyle.  I can only speak for our consumer. But our consumer has remained very resilient.

When we look across Q1, we saw a very consistent performance across the periods in Q1 for our brand and our consumer. And as we've entered Q2, based on black box benchmarks, we have seen some of the delta between our performance and the category performance, our performance accelerates versus the category.

But at least to date, obviously, we're keeping a very close eye on our consumer and their behavior. We really have seen a resilient consumer and resilient behavior, at least with respect to BJ's.

Jeffrey, Todd here. I'll chip in on a few of those, just building on in kind of the word you asked. Relative to Black Box, Lyle may have said it in his prepared remarks, but we beat in Q1, we beat the benchmark by 3.3%.

Encouragingly, that was across every geography that we operate in. So it was a consistent outperformance for our business, which is good to see. I think you asked about as well the quarterly same-store sales cadence. We talked last time about an annual expectation of 1% to 3% growth.

We obviously reiterated that in terms of our full-year guidance. And I'd say we still feel good with that. We're able to deliver that growth consistently quarter after quarter. So I think that's consistent with what we would have shared in our last update.

And then my follow-up is just taking a step back, Lyle. I think on a couple of occasions in your prepared remarks, you said you think the brand is still in the early innings. 

Seemingly, you've had some strong momentum and a number of quarters of accelerating strength. So, just wondering what exactly early innings means?

What are you referring to in terms of where you see the greatest further opportunity, whether it's a long-term target that you're aspiring towards or whether there's a North Star or a player in the industry that you aspire to be like? 

Just wondering what exactly that means when you say early innings. What are you referring to?

Yes. Well, I mean, one, very broadly, I'm 18 months roughly or a little bit more than that into a journey of, I think, what I've talked about, which is creating a more durable, consistent, and sustainable performance platform for BJ's that we expect and want to deliver on into the future.

I think secondarily to that, a lot of the work that we've done in the first 18 months, what we'll continue to build off of, I would say, is foundational.

So we put a lot of work into foundationally improving what we called our table stakes operations. And we see that coming through in our scores and our retention. But that is a foundation for us to then continue to improve operations.

We solidified our value platform with the Pizookie meal deal. But as I alluded to in our comments, as you then get that platform solidified, the question is after that step 1, where are you going with step 2 and 3, and we talked about some of the tiering.  

Then, really, on the menu work, we're really early doors there. The first real category renovation that we did was pizza, and I think we solidified our seasonal program for Pizookie.

But we have a lot more ahead of us in continuing to do the menu work. And while I speak about all of those things individually, the idea is that as those things come together over time, they ultimately create a strong flywheel for BJ's working collectively together to deliver sustained performance. 

So when I look at where we're at, I would still say we are in the early innings of the journey with more opportunity ahead.

But I do think we've identified our strategic priorities, and they'll guide us as we go forward, but there's more room in all of them. And obviously, we haven't even touched on really starting to get development going again. That's clearly in its early stages.

The next question is from Alexander Slagle with Jefferies.

I wanted to follow up on the Puzzuki meal deal, just sort of how you're feeling about the progress there and the next steps you talked about to further refine the offering, maybe with more attachment and upgrade options and the tiering options that you're testing.

Yes, sure. So I mean, I feel really good about the Puzuki meal deal. It continues to resonate.

It continues to bring in traffic and do its job and importantly, bring new people into BJ's that based on our numbers, is providing an improved experience. 

So that is exciting because hopefully, a number of those people are going to have a good experience and come back to us. When I think about evolving the Pizookie meal deal, there's a couple of different things that I would point to.

One is, as I talked about some of the chicken sandwich work that we have done and how we've felt confident in what we've seen in testing and are going to roll those out as part of Q3 menu.  

We're taking an opportunity within PMD, for example, at the $13 level to retire one of our less-performing items on there, and we're going to bring in a core chicken sandwich.

The reason I mentioned that is because if you remember, the Smashburger, we introduced the Smashburger exclusively on PMD and, then it became very popular and people wanted it, and then it became a mainstay on the menu.

So we are going to be doing a couple of premium chicken sandwiches on the menu, but an entry chicken sandwich on PMD that I think potentially could play a similar role for chicken sandwiches as hopefully Smashburger did for burgers for us.  

Then there's the tiering, which is we have a lot of people who come and engage in PMD, and we wanted to give them an opportunity for our best and most frequent customers who are coming in and taking advantage of that deal to have trade-up opportunities.

And so we've developed a premium tier offering. It's just a few offerings where we're able to condense the 13 a little bit, open up a trade-up tier a little bit. And I'm excited to see how the test goes. It's going to start in the next couple of days here.

But we feel good about the products that we're putting into that tier. We think it will be a compelling partnership to the 13.

And then just on marketing spend, just remind us of the percentage of sales in the 1Q and what the 2Q outlook looks like? I know you gave some comments on that.

Yes. When I look at marketing spend, I guess the thing that I would point us back to is that when we look at it year-over-year in terms of the full year marketing spend, we're planning flat year-over-year.

I think it's 2.2%, if I'm not mistaken, reinvestment from a marketing spend percentage point of view. So we did make a strategic decision to move dollars out of Q1 to reinforce Q2.

As I said, we call it celebration season. It's kind of one of our most critical seasons. And that was because when you think about the natural shape of our year, and what the important quarters are.

And then Q1 is always a choppy time. You have weather, you've got January, and people eating and drinking differently and all those types of things.  

So we felt that with our evolved marketing strategy, we could get more adolescent in Q1 and reinforce Q2. And so the biggest shift is really between Q2 and Q1. But overall, the percentage of sales year-on-year will remain flat.

The next question is from Sharon Zackfia with William Blair.

Sorry if I missed this, but I'm curious what you learned from your first pizza LTO.

And then when you talk about the growth that you saw in pizza and burger, which is really quite amazing, what have you seen consumers shift away from? Kind of what did that come at the expense of?

Yes. So the LTO, the Mike's Hot Honey LTO, it performed really well. It was our third, I believe, highest performing pizza in our pizza lineup, which we felt pretty good about. 

It had really good scores. You may see it rear its head again sometime later in the year. So we felt really good about that. We've actually just moved into our next pizza LTO, it's a Barada pizza. 

So think of like a margarita pizza, but with Barad and cheese, which I'm pretty excited about. It's a nice premium offering, but also not a meat-based offering. So excited about that. You may actually try it soon, Sharon. 

In terms of, sorry, the second part of the question, with respect to the growth of burgers and the growth of pizza, I mean, we've seen the sales growth. 

We've seen units per store per day growth. And overall, we've seen trading into pizza and trading into burgers is margin accretive to the menu. 

So we feel good about any sort of incident movement there from a margin percentage point of view. Where we've seen probably a little bit of movement around the menu, is in some of our steaks and slow roast category and in some of our specialty entrees, we've seen some movement there, while we've seen a lot of growth in pizza and burgers.

The next question is from Nerses Setyan with Mizuho.

It was very helpful the cost commentary and the other OpEx commentary, but I didn't hear anything about labor.

Would you mind sharing what your thoughts are on Q2 labor and maybe for the full year? And then just the bigger picture, where do you think the opportunities around remaining cost cuts and efficiency initiatives are across the P&L?

Yes, Nerses, this is Todd. I'll start there. As we look at labor, if I look at last year in Q2, we ran a little over 35%, 35.4%.

Part of our commentary on Q1, navigating those weather ups and downs, is not easy for an ops team. And we were really pleased with the job our team did in Q1, both on the margin side and the guest experience side, but we certainly feel like there's an opportunity there as we go forward.

And so as we look at the balance of the year, we think there's an opportunity to improve our labor margins. Primarily, certainly, the traffic traction that we have leads that as traffic grows, we're able to leverage our fixed costs. And so that's a leading piece of it.  

But there are specific initiatives in place. We work with our operators on a daily and weekly basis to learn what best practices are and how to implement those across the system.

So as we look forward, we think there's an opportunity to improve that through the balance of the year.

The next question is from Jon Tower with Citi.

Maybe starting, obviously, moving to this premiumization test on the PMD is interesting. I'm just curious, is this something that's spawned by consumer behavior that you're already seeing, meaning someone's coming in, getting the $13.99, and then adding a few more things to the menu such that you feel comfortable with the idea of moving in this direction?

So it's less spurred by that, although we do see people coming in for the Pizookie Meal Deal and adding appetizers. Obviously, it doesn't include a drink.  

So the vast majority of Pizookie Meal Deals also have a drink attached to them. 

So those are opportunities. It's really just the idea of as we go forward, optimizing that $13 segment to the most high-performing products within the segment and then giving those people who are coming in looking for that kind of social splurge need state, but looking for kind of an entry point like the Pizookie Meal Deal to give them a place to go if they want to go for something more premium.  

And so that it's a hypothesis based on what we see in our business, is the way people navigate our broad menu. We see a lot of people come in at different entry points when they're going to that social squares occasion.

Then secondarily, obviously, observations in the market about how this tiering can work and work effectively for your business.

Maybe pivoting a little bit, but the World Cups are coming up, and it will be at the end of your fiscal second quarter.

Obviously, you talked about the idea of the celebration season as being something that's important. But I know in the past, certainly, when the World Cup has been more aligned with your time zones, there has been an impact on the business.

Curious how you're thinking through either marketing around it or building up any business around it, if anything at all?

Yes. I mean, when we are looking at it, I'm hopeful that the World Cup, when you think about it year-on-year, will provide some tailwinds.

In my previous life, which was much more sports bar-rooted with respect to the World Cup, you really saw material movement around U.S. games, Mexico games, and sometimes when there was like a really, really big matchup. 

So they were geographical and specific to matchups. And so we've looked at that in terms of our planning.  

We've also looked at where we have restaurants in proximity to stadiums and venues where games are going on to make sure we're doing the right things locally.

And then you may see some fun rifts on some of our iconic products that live into celebrating the World Cup, as well as an important year for the U.S., so we're playing around there.

So yes, on our radar, I hope it will provide some tailwinds, and we're going to have a little bit of fun with it from a marketing and engagement perspective.

The next question is from Brian Mullan with Piper Sandler.

This is Allison on for Brian. Just one more on labor. But on the activity-based labor model, what percent of stores have it today?

And any commentary you can share on learnings or data points you've noted through the scaling of this rollout would be great.

Yes, yes. We're still at about 1/3 of our stores that have the activity-based labor model. 

We're still targeting it to be deployed to the system over the course of this year. We probably won't do much of that in Q2 because of the importance of Q2. 

So the next rollout phase will probably be more focused in Q3. What we continue to see with it is that it suggests that we have what I would call some marginal savings from a labor perspective because our looseness around our shoulder hours is more loose than the incremental labor we need at our peak hours is what the model is suggesting.  

But the real KPIs that we continue to look at are in those restaurants, and are we seeing improvements across our guest metrics? And so we're pleased with that, and particularly where we're seeing, I think, most of the movement is in our speed metrics, which stands to logic as you get the right people in the right place at the right time.

So overall, very much a build on the same story that you've heard before, on where we are and where we're going with that.

The next question is from Todd Brooks with Benchmark StoneX.

First, I was wondering about visibility into the celebration season, either through some of the advanced reservation capabilities and people utilizing those and being more aware of them year-over-year, or we're in the middle of graduation season now. Just Lyle, what's your take on the front end of celebration season here?

I mean, as I mentioned, I think in my comments, Todd, is that we've been pleased with the performance as we've gone into Q2 and some of the accelerated outperformance we've seen against Black Box benchmarks.

And so we feel good about how Q2 has gotten out of the gates for us and hope that bodes well for the rest of the celebration season. I think we have pretty strong plans that are reinforcing our core equities that we've been building off of. 

So I feel really good about the plans we have in place and at least how the quarter has gotten started. So overall, feeling good right now.

And is this a period where it's so high volume that there's no opportunity to drive a lot more incremental traffic year-over-year? Is it more of a hold to hill? Or do you see opportunities to drive more traffic through the boxes this year?

I mean, look, when I look at our top, top performing restaurants and you look at the AUVs that they're driving, there's clearly headroom for most of the restaurants in our system to continue to service and move more people through our boxes. 

So I think it's a matter of us operating as efficiently as possible and really doing the fundamentals right. It's about having it staffed right. It's about full hands in and out of the kitchen. It's about busing and turning tables quickly. And we have our teams very, very focused on that.  

We've, over the past couple of years, been pushing towards getting more upfront reservations or at least as many as we can because it helps us be as planful as possible. 

But I think one of the things that we get credit for at BJ's from our guests is that we're a place where you can book ahead of time, but we're also a place that tends to be pretty flexible on accommodating people as they come through our doors. And I think that tends to be to our benefit. 

So I'm excited about the season.

Todd, I'd just quickly add, Lyle commented on it in his prepared remarks, but right, we had roughly half of our restaurants setting records on Valentine's Day.

And true for us, true for many in the restaurant business, that is typically one of, if not the highest volume days of the year. So seeing that many restaurants are able to raise the bar even further, I think, to me, very much says we have an opportunity to continue to grow even in the high season of Q2.

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.

Good afternoon, and welcome to the BJ's Restaurants Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] 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.

Thank you, operator. Good afternoon, everyone, and welcome to our fiscal year 2025 Fourth Quarter Investor Conference Call and Webcast. After the market closed today, we released our financial results for our fiscal 2025 fourth 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 Lyle Tick, our Chief Executive Officer and President; followed by Todd Wilson, our Chief Financial Officer, after which we will take your questions.

And with that, I will turn the call over to Lyle Tick. Lyle?

Good afternoon, everyone, and thank you for joining us today. Q4 was another strong quarter for BJ's, delivering our sixth consecutive quarter of sales and traffic growth as well as our fifth consecutive quarter of profit and margin expansion. From a top line perspective, in Q4, we delivered 2.6% same-store sales growth, driven by 4.5% in traffic growth. On the profit side, we delivered 16.1% restaurant-level operating margins and 10% adjusted EBITDA margins, representing an improvement of 70 and 40 basis points, respectively, year-over-year.

Given the strong performance in Q4 2024, I'm particularly proud of how the team worked together to deliver a strong finish to 2025. Worth double-clicking on is the implied check compression between the comp sales and traffic in Q4. Our traffic momentum builds on the progress we have made throughout the year and underlines the continued improvements in operations, the resonance of the Pizookie Meal Deal and BJ's relevancy in the holiday and social splurge occasion. Two additional drivers in Q4 beyond these foundational elements are the buzz around our LTO Pizookies, which brought in a hard-to-reach younger demographic and drove an increase in the number of what we call Pizookie trial checks as well as our continued outperformance in late night.

While both of these occasions carry a lower dollar check, they help us continue to introduce BJ's to new customers, give existing guests new reasons to come back and sustainably grow sales and profit dollars. For the full year 2025, on the sales side, we ended at 2% same-store sales growth, driven by 2.8% in traffic. And from a profit perspective, we landed at 15.5% restaurant-level operating margins and 9.6% adjusted EBITDA margins, representing an improvement of 110 and 100 basis points, respectively, year-over-year.

As I talked about previously, 2025 was a year of strengthening foundations and learning, guided by our 4 strategic priorities. We created alignment, understanding and shared ownership of our strategy. We built trust, improved accountability and showed resilience when encountering performance challenges. We added 3 strong new leadership team members who have integrated well and made a difference with Jen Jaffe, our Chief People Officer; Tom Kowalski, our Chief Supply Chain Officer; and most recently, Todd Wilson, our Chief Financial Officer. We clarified our growth drivers and continue to refine how to leverage them most effectively.

In Q4 specifically, the combination of better execution, value rooted in the Pizookie Meal Deal and compelling product news driven by seasonally relevant Pizookies and the renovated pizza platform allowed us to continue to deliver strong traffic-driven growth. We evolved our marketing strategy, leaning more heavily into social and word of mouth to support our product news, while leveraging broader paid channels to deliver value through the Pizookie Meal Deal messaging, further refining how we deploy media and message most effectively. Throughout Q4, consistent with 2025 overall, our key metrics continued to build confidence in our progress with improvements across our NPS scores, our team member retention, operational metrics and frequency across age and income cohorts.

Some key callouts with respect to Q4. On the team member experience side, we completed the rollout of our new manager and hourly team member training. On the menu front, we built on our seasonal Pizookie momentum with 2 successful LTOs with the return of the Monkey Bread Pizookie and the introduction of the Dubai Chocolate Pizookie, which also had an accompanying Martini. We launched the renovated pizza platform, which is resonating well with guests and performing consistently with what we saw in test markets with incidents up just under 10% and check-in margin in line with expectations. We ended 2025 with a net reduction of 6 menu items and 4 ingredient SKUs.

From a brand perspective, our marketing teams continue to do a great job optimizing how we deploy our media and messaging. In Q4, we leaned more heavily into word of mouth and social with relevant product news, which drove significant dialogue, interest and trial as reflected in our traffic numbers. Together, these launches generated a 4x increase in Pizookie impressions quarter-over-quarter, outperforming what had previously been our strongest social performance with Spooky Pizookie in Q3. It also drove overall organic social impressions up 12x year-over-year in Q4.

On the operations front, we continue to lean into our core initiatives to drive everyday table stakes improvements and made further progress across our key guest and team member metrics with NPS recommend scores up just under 10% in the fourth quarter, led by improvements in pace, value and food scores. We deployed our AI-based activity-based labor model to 30% of the system at the year-end and intend to deploy to the full system in 2026 and pilot a follow-on use case.

With respect to Keeping Our Atmosphere Fresh, in 2025, we completed 19 remodels, bringing the total to just shy of 50% of our pre-2016 fleet as of year-end. We also modernized our facilities program, tagging and tracking all of our equipment, moving from a more reactive to a more planful approach to ensuring that our team members have the tools they need to deliver on our high standards, and we can put our best foot forward with our guests.

As we enter 2026, we've continued to see positive momentum in the business. While calendar shifts and weather always create noise in Q1, I'm pleased with our performance so far in the quarter and our performance versus Black Box, which continues to outperform on both sales and traffic year-to-date. As I look ahead through 2026, I'm confident in our plans, and we remain focused on delivering consistent growth and improving shareholder value by putting the guest and team member at the center of everything we do.

Our 4 strategic priorities remain unchanged. We will continue to focus on Investing in our People, ensuring they have the tools and support needed to bring our brand to life every day. We will advance our operational excellence initiatives focused on making BJ's better and easier for both team members and guests. We will progress our menu renovation work and set the foundation for future net unit growth.

Our team members are the heart and soul of BJ's. In 2026, our key priorities with respect to the team member experience will be training, embedding the new manager and team member training, ensuring our teams have the right support to deliver for our guests, leadership development, refreshing our high-potential development programs as we continue to build restaurant and above-restaurant management pipeline to support future growth and culture, continuing to build engagement and alignment around our values and behaviors. With respect to Handcrafted Food and Beverage, we will progress our menu renovation work across our priority categories.

We kicked off the year building on 2025 momentum with the Butterfinger seasonal Pizookie, our first LTO pizza with Mike's Hot Honey, which quickly became our third most popular flavor out of 9 and a Korean Sticky Rib appetizer leveraging an existing wing sauce and ribs to create an easy and craveable new option. We also removed 2 lower-performing items that were heavy on single-use SKUs, which resulted in the removal of 5 single-use ingredient SKUs.

As we move forward in 2026, our culinary priorities will be to continue to drive buzz and engagement with seasonal Pizookies, and I'm excited about the pipeline we've built, continue to renovate our core categories, refresh strong sellers with clear NPS and executional opportunities, and continue to find opportunities to simplify while maintaining and protecting the turf coverage that allows us to win across so many occasions and consumer groups. We're currently in market in the early stages of testing refreshes to our burger category and chicken sandwiches. Our culinary team has been hard at work, and we have a pipeline of category and core item improvement tests that will follow suit. These refreshes are still in their early stages. And like we did with pizza, we will follow a structured approach to gain operational and guest feedback and make adjustments ahead of rollout. And also like with pizza, I will provide further updates as appropriate.

Our third priority is Delivering WOW Hospitality. Our focus in 2026 is to build off the foundations we've laid and continue to improve our guest satisfaction, throughput and efficiency. We'll continue to focus on great fundamentals and not seeding conceded ground by continuing to drive accountability through our directors of operations and GMs, having clear and consistent KPIs, lifting up our outliers and driving best practices. Our simplification team continues to work to remove unnecessary barriers and complications, things like integrating Apple Pay into pay at the table, simplifying split check procedures for our team members, simplifying Pizookie and cocktail ordering and ringing in processes and so on. As mentioned previously, we'll continue to advance our technology initiatives to help our GMs and managers have the right people in the right place at the right time.

2026 is an important year for our fourth strategic pillar, keeping our atmosphere fresh. We're going to continue to invest in our remodel program, which has shown strong results and pilot a refreshed BJ's prototype, setting the foundations to grow our restaurant portfolio. With the progress we're making on the core business, we're now laying the groundwork to reignite net unit growth. We're actively building a flexible pipeline as we target up to 2 new openings in the second half of '26 to pilot a refreshed prototype and set the foundation for further growth in 2027 and beyond. You will see this reflected in our capital allocation for 2026, which Todd will talk about in more detail.

Before I close, I would like to once again express my thanks to all our BJ's team members from our restaurants through the support center for their passion and commitment. I'm proud of the progress we made in 2025 and excited about the road ahead. I will now turn it over to Todd to provide further color on how we closed the year and our 2026 outlook.

Thank you, Lyle, and good afternoon, everyone. As Lyle has just outlined, the BJ's brand and business are healthy and thriving. In fiscal 2025, BJ's delivered growth across all key financial measures, sales, traffic, restaurant level profit, net income, EPS and adjusted EBITDA. Comparable restaurant sales increased 2%, restaurant-level profitability increased 110 basis points to 15.5% and adjusted EBITDA increased 14.5% to $134.1 million.

Turning now to the fourth quarter. In the fourth quarter, we generated total revenue of $355.4 million, a 3.2% increase versus last year. Comparable restaurant sales increased 2.6%, led by 4.5% traffic growth and a 1.9% lower average check led by the drivers Lyle outlined earlier. Restaurant-level operating profit increased from 15.4% last year to 16.1% this year, led by the leverage benefit of growing sales and continued efficiency gains captured by our operators. Cost of sales was 25.5%, 40 basis points favorable to last year.

The favorability was led by menu price increases and continued gains from our gross to net initiative focused on simplifying the efforts of our team members and more consistent execution for guests. This favorability outweighed food cost inflation led by beef costs of approximately 14% higher than last year and increases in produce costs, partially offset by favorable poultry prices.

Total labor expense is 35.8% of sales in the fourth quarter. While this result is unchanged versus last year, our restaurant teams continue to operate more efficiently while also delivering higher guest satisfaction. The efficiency gains are a credit to the great work of our operators and overall simplification efforts with contribution from the activity-based labor management tool that is rolled out to approximately 30% of the system at year-end. These efficiency benefits were offset by increased bonus costs for restaurant management as a result of the sales and profit growth, and we continue to see higher workers' compensation expense due to rising medical costs despite our progress in reducing the number of claims.

Occupancy and operating expenses, which include marketing, was 22.6% of sales in the fourth quarter, a 30 basis point improvement versus last year. Sales leverage more than outweighed inflationary pressure across the category. General and administrative costs are $25.1 million and 7.1% of sales, an increase of 20 basis points compared to last year.

The increase is a result of 2 primary factors. First, we determined that certain previously capitalized expenses no longer held future value and expensed them in the quarter. Second, we incurred costs related to different aspects of leadership transition, particularly in the finance function. Excluding these unusual expenses, our run rate for the quarter would have been approximately $22 million or 6.2% of sales, in line with expectations.

Depreciation expense increased 30 basis points compared to last year as a result of our investments in restaurant renovations and new restaurant openings. These components delivered growth across all profitability measures. Net income in the quarter increased to $12.6 million in 2025 as compared to a loss of $5.3 million in 2024. Adjusted EPS increased 40% to $0.66 per diluted share from $0.47 last year. And adjusted EBITDA increased to $35.6 million, a 7.4% increase compared to $33.1 million last year.

In the fourth quarter, we repurchased and retired approximately 167,000 common shares for $5.4 million. During fiscal 2025, we repurchased approximately 2 million shares at an average price of $33.80. With over $90 million of Board authorization to purchase additional shares remaining, we have significant capacity funded by the business' durable and growing cash generation to repurchase shares when the market price is at a meaningful discount to its intrinsic value. Importantly, our balance sheet remains healthy as we ended the fourth quarter with net funded debt of $61.2 million, comprised of a debt balance of $85 million and cash and cash equivalents of $23.8 million.

Now turning to 2026. Our financial guidance for 2026 is as follows. First, comparable restaurant sales growth from 1% to 3%. We expect continued traffic growth and a marginal increase in average check as we anniversary promotions that affected check in 2025 and implement prudent pricing action to address inflation. I would note, comp sales results to date in the first quarter, including the impact of Winter Storm Ben in late January are in line with this annual guidance. Second, restaurant-level operating profit of $221 million to $233 million. We expect sales gains and further efficiency from initiatives, including gross to net and cost of sales, activity-based labor management and multiple initiatives from our supply chain team to drive this growth versus 2025 and outweigh approximately 2% to 3% inflation in our commodity basket, labor rates and other costs.

Third, adjusted EBITDA of $140 million to $150 million. In addition to the restaurant level operating profit, we anticipate total G&A costs will normalize near $90 million or 6.2% of sales, a 30 basis point improvement versus 2025. This G&A estimate is inclusive of approximately $11 million in stock-based compensation expenses. Fourth, capital expenditures of $85 million to $95 million. This is an accelerated pace from 2025 and represents incremental investments in IT and a restart of our new restaurant opening pipeline. On the new restaurant front, we expect to open up to 2 restaurants in the second half of 2026 with additional restaurants under construction in 2026 slated for 2027 opening.

Fifth, we may repurchase up to $50 million of stock depending on market conditions. This is an important lever that demonstrates the cash-generating power of the business. We expect cash from operations to fund our CapEx, including an accelerated pace of new restaurant openings and have flexibility to return excess cash to shareholders through the share repurchase program or use it to further strengthen our balance sheet. As we demonstrated in 2025, we have the financial capacity and intent to put our capital to work, buying back stock when the market undervalues our shares.

Finally, as we model the quarterly shape of 2026, I would note 2 items. First, inflation accelerated in the second half of 2025, led by beef commodities, and we expect that elevated inflation to carry through the first half of 2026 before moderating in the second half. Second, we expect a more even spread of G&A across the quarters in 2026 than 2025, resulting in a G&A increase in the first half of the year and reduction in the second half. While we expect to increase our profitability in all quarters, as a result of these factors, we expect growth to be more measured in the first half of the year then accelerate in the second half.

In closing, 2025 was a tremendously successful year for the BJ's business. Financial results across all key measures increased significantly as the team executed across all aspects of the strategic plan. Congratulations, and thank you to our restaurant team members, field operators and everyone at the restaurant support center. As we look forward to 2026, we are confident in our strategic direction and our ability to continue to sustainably grow the business to create value for shareholders.

With that, we'll turn the call over to the operator for questions.

[Operator Instructions] The first question is from Jeffrey Bernstein with Barclays.

Great. I wanted to talk a little bit about the comp components. Clearly, the traffic is very strong and seems to be driven by a lot of compelling value. But on the flip side, I guess, you talked about how the mix shift seems to be down somewhat large in the fourth quarter. I'm just wondering how you think about your mix of sales on value, however you define it, what -- where that is now versus where it was a year ago? And if you're comfortable with the balance of value versus premium or whether the value mix might be too high? Just trying to think about the mix shift in general and what your expectation is as we look through '26.

Yes. Sure, Jeffrey. This is Lyle. I'll start off and Todd, you can build. I mean as you look at Q4, I wouldn't actually -- I mean personally, I wouldn't characterize it as value particularly in Q4, taking a larger role, right? Because it wasn't -- in Q4, it's not like the Pizookie Meal Deal suddenly took a much larger role, and that's what drove it. It's -- the Pizookie Meal Deal continues to resonate and have growth.

But actually, what drove some of that delta between sales and traffic, which is the implied check compression was the kind of resonance of the seasonal Pizookie that we had. And so we have people coming in. They're not buying the Pizookies on a discount per se. They're just coming in to try Pizookies. And you see what we see is a younger cohort coming in, which I'm pleased with, right? It's a hard group to get, and we have more of those folks coming in. You combine that with better operations, hopefully, more of those folks will then choose to potentially come back. But we are seeing more of those checks where it's them coming in and having a Pizookie or not everybody is having an entree or you're having a Pizookie in some drinks.

And so we saw a resonance and real movement there in mix. And then we continue to see the outperformance of late night in Q4. So the things that drove more check compression in Q4, I wouldn't necessarily think about as headwinds, right, so to speak, or like more from a discounting perspective. There's other small things in there like in our features for the holiday season. This year, we featured salmon over the ribeye given what was going on with the cost of steak. That carried with it a bit of a lower check but a better margin. So there's a number of little things in there, but I wouldn't say it was driven by a sudden jump in reliance on value in Q4 versus what we've been seeing.

I'll just quickly add 2 items of building on Lyle's point of the any "trade down in check or lower check", it's just a mathematical equation of we drove incremental traffic at a lower check average with those -- especially those seasonal Pizookies. The other piece I'd call out, and I think it was part of your -- where you're going, as we look forward to 2026, we do expect -- we continue to see PMD grow, and that's obviously a good thing for us as that value message resonates with guests. And so we do expect to see some continued check trade down, but not to the degree that we saw in 2026, meaning we do expect some expansion of net check. And that's just a matter of the pricing to cover off inflation.

Understood. And can you share the -- just on the inflation side, I think you called out a couple of particular commodities, but just wondering what the commodity and labor inflation was in the fourth quarter and what your outlook is for full year '26?

Yes, absolutely. So the total basket in the fourth quarter was about 2.5%. We called out beef. We called out produce as the big drivers of the commodity basket. Labor was a similar ballpark between 2% and 3% in Q4. We think the first half of the year, quite frankly, will be in the 3% to 4% range in terms of total inflation. Those same drivers really drive the start of the year, but then we see that moderating in the back half.

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

4% traffic growth in the fourth quarter, really impressive. I think it was your sixth straight quarter of positive traffic. And as you look to '26, your 1% to 3% same-store sales guidance, I think it clearly builds in a more balanced check and traffic, I think, and that's kind of what you just said to Jeff's question.

And just in your internal models, how are you anticipating the overall comp trends could be throughout the year? Do you expect them to be pretty steady throughout the year? Is there any interesting drivers we should be aware of that happened post first quarter?

I don't think there's anything we call out. There's obviously some movement in our internal models, but I don't think it's enough to call out. I go back to some of the comments we made in the call, Lyle commented on this, and I did as well that we're pleased with the start of the year. I pointed to our annual 1% to 3% guide and that our results to date are in line with that. And so that gives you a sense of what we're seeing at least so far in Q1.

I know there's been thought internally and externally about anniversarying PMD, which the company did successfully back in 2025. And so we're always looking ahead to make sure that we're planful in those things. I think you see that in the fourth quarter with the seasonal Pizookies that kept that momentum going. So we try to be very planful there. But ultimately, I wouldn't call out anything as big movements within the quarters. But to be clear, we are looking to grow comp sales and expect to grow comp sales and traffic in every quarter.

Okay. And just a follow-up on the restaurant profit guidance, I think it assumes kind of a 50-ish basis point expansion in restaurant level margins. If you can just kind of confirm that. And you've been on this really strong margin expansion path recently. What's going to keep the margins expanding as we look forward in '26? If that 50 basis points is the right kind of base case, where is that coming from?

Yes, I'll start, and Todd, you can jump in. The -- as we look at next year, I mean I think there's 3 components to it, right? One is delivering consistent sales growth, right, and having some leverage on the top line, which I think I've maybe been a little bit repetitive on is that we're really focused on delivering a more consistent and durable BJ's that delivers that kind of consistent growth. So that helps.

Number two would be the continued focus on the programs that I've talked about previously, which is we have a really strong core set of KPIs that we're driving accountability down through our teams. We're really focused on bringing up our outliers or kind of our bottom quartile of performance. So continuing to bring that bottom up. And so you see ideally everybody getting more efficient, but that bottom coming up and getting more efficient than the rest.

And then as you look at things like our gross to net, that is going to be a continued focus that we're pushing against with a particular focus on comp food and beverage, right? That is a continued area for us of real focus. Because for me, that is the best indication of when you're moving that, that suggests you're executing better, you have less bad conversations with guests, you can turn tables quicker. So none of that is totally wrung out.

I think also I've talked about previously, as we look at continuing to roll out the activity-based labor model, that's going to be rolled out over 2026. We're going to do that in a measured fashion because you kind of roll it out, you need to learn, get adoption from the GMs and keep going and you don't want to see conquered ground. So it may be more of a 2027 impact. But that -- as that rolls out, the [ ABLM ] is suggesting there are some hours that we can save. I think I've talked about this a little bit before on the shoulders and on our lower shifts and in the high times, we actually need more labor.

But the real focus for us on the [ ABLM ] has been consumer metrics, right? And are we seeing improvement across our pace, across our food quality, across hospitality. That's the real kind of, I think, focus on having the right people in the right place at the right time.

But I think as you observed on a lot of those initiatives, I think last year, we were able to get a lot of what was kind of more obvious, if you will. And that as we come into this year, you are seeing the level of expansion not be quite as big, right? And it's because as we come over that, while there's more to have there, each year we come over that, we expect to get more efficient and effective. But the degree of it is going to evolve over time.

Brian, just quickly confirming that the -- you mentioned the 50 basis points or so that we're thinking about it the same way, I'd say, in broad strokes, that's in the range of what we would expect. So your math aligns with ours.

The next question is from Sharon Zackfia with William Blair.

It's really interesting to continue to hear about the LTOs on the Pizookies bringing in younger demographics, and it sounds like it really accelerated for you in the fourth quarter. It may be too early, but what does engagement look like with those customers after they do come in for an LTO? Are you seeing kind of a tail of engagement with those cohorts?

You're right. I mean given average frequency of our business in full service, it's too short of a time for me to feel comfortable saying, I definitively am or not. So I want to get more time under our belt. I think big picture, as we looked across 2025, we did see increases in frequency across our age and income cohorts with a little bit more on the younger and a little bit more on the older and more actually on the lower income cohorts. And I think those dynamics to me show -- and this is, again, my inference. But you look at it and you look at the growth and you look at the mix are correlative to the resonance of PMD and the resonance of Pizookie. But it's too early for me, Sharon, yet to definitively tell you that, that is true.

That's completely fair. Are you doing something different in social media? Have you augmented your capabilities there? Or is that increase that you alluded to, is that just organic and coming from your consumers?

No, no, no. It's -- we've changed kind of the way we go to market. I mean we did bring on a new team member here who's doing a great job, who is far more socially conversant than anyone than Todd or I or Rana, anyone in this room in fairness. We also have looked at some of our agency resources.

But when you look at the shift, a lot of our social previously was what I would call kind of brand-produced top-down that we would then push out. And we've not only increased our investment as a percentage of our overall spend in social and influencer. But now that content is really influencer-produced versus brand-produced. So people speaking on behalf of us versus us just speaking on behalf of ourselves.

Great. And then last question. Now that we've kind of fully lapped the meal deal, how does the weekend traffic look versus weekday?

As we look through Q4, we saw growth through Q4 of all dayparts grew with the highest growth coming from late night. But yes, I'm looking at it right now. So as we look at all dayparts grew and late night was the biggest grower with mid-afternoon and dinner being quite similar and lunch growing, but not quite to the same amount. So that's what we saw from a daypart point of view in Q4.

The next question is from Brian Mullan with Piper Sandler.

This is Allison Arfstrom on for Brian Mullan. On the refreshes to the burger category in chicken sandwiches, curious if you could speak more about what led to the decision on these 2 platforms? And then what opportunity might be there and if we should expect a similar time line or stage gate process as the pizza relaunch?

Yes. I mean so working backwards, in terms of the process, yes, the process will be similar for most things that we take to market, right? We're going to identify opportunities through 2 things. One is, as we look at our menu satisfaction, intent to reorder, value perceptions, all of those things, that helps us identify areas of opportunity. We look at kind of what are driver categories, so what categories attached to a lot of checks. And then generally, upstream on the big categories, we'll do some screener work to get a sense of conceptually, are we in the right space from a consumer.

And then as we go to market, operations feedback, guest feedback. Just like with pizza, I would expect we'll have to do some tweaking when we get that and then go to market. So the process will be the same. I may have answered both questions there about kind of how we identify it. But we're too early in the -- it actually being in test market for me to have any material stuff to talk about.

The next question is from Todd Brooks with Benchmark StoneX.

First question, on the activity-based labor, I think you talked about a ratable rollout across the course of this year, 30% was in the barn last year. I mean by celebration season this year, you think you're kind of 50% penetrated with having it rolled out?

I don't know if we'll be all the way to 50%. I would say celebration season is probably the season where we are most cautious about creating disruption. So I think in the first half, we'll have some more rollout. I don't know if we'll get all the way to 50%. I think our windows for rolling something out that we have to kind of intake and get comfortable with.

Q1 is a pretty good window and Q3 are pretty good windows. So it's not that we won't advance it at all, but we want to be really judicious about any disruption that we might cause during celebration season as GMs get used to it because there is a getting used to it, right, when you go now to getting that labor schedule from the AI and kind of learning how to balance the GM's overlay with AI. There's a bit of a learning process, which we've seen in terms of getting comfortable with it. So we'll be judicious about how much of that happens over celebration season.

And just kind of looking at some of the earlier units that have implemented the platform, you talk about wanting to see a bend higher in certain scores. Can you start to put a framework around how much improvement you do see once the store is on that platform?

I mean I'm not going to be -- I won't give specific numbers at this point. But when I look at the shape where we're seeing improvement, we're seeing improvement pretty much when you look at the pre-post versus the control group across pretty much all of our metrics. The one that we're actually seeing move the most is pace, which is -- which I'm encouraged by because it's about getting the right people in the right place at the right time. So that's where I'd like to see the most movement. The others, we're seeing movement, but varying degrees of movement. But pace seems to be the one that's getting the most improvement, which would be, again, as you might imagine, a core metric for getting the right people in the right place at the right time.

Okay. Great. And the final one for me. Todd, you said earlier in Q&A that you continue to see the Pizookie Meal Deal grow. Can you talk to what mix looked like in the fourth quarter maybe versus what you were seeing in Q3 as far as percent of checks on PMD?

Yes, absolutely, Todd. When we look back at Q4, PMD grew almost 16% of checks in the fourth quarter. That was up almost 2% versus the fourth quarter a year ago and an increase versus Q3. So broadly, that platform continues to grow for us, which there's obviously been a lot of traffic associated with that over the last 5 or 6 quarters. So it's good to see that. That does come, Lyle hit on this. The check is just a little bit lower is what we see on the PMD checks. It's about 5% lower. So there's a little bit of a check trade-off there, but obviously, getting that traffic in is a big win for our business.

Yes. And the only other thing I would build on there, the percentage margin of those checks looks a lot like the percentage margin of our other checks. If you look at over the course of all of 2025, it's about 15.5% of checks and Q4 was a little bit higher than that. And when you look at it as kind of a percentage mix of sales, it's more like 6%. Now that's full week, Brian (sic) [ Todd ]. I know we've talked about in the past, which remains true that during the week, you're in kind of a -- Todd, sorry, you're in the low 20s, Todd, when you're looking at during the week.

The next question is from Jon Tower with Citi.

Maybe -- I'm curious to hear that you guys are seeing relatively strong late-night business. It's good to hear. I'm just curious, one, if you're doing anything special to drive it relative to what you've done in the past? And is that also inclusive of the off-premise business when you speak to the strength there?

Well, so the -- I mean all of late night is growing. I'll let Todd pick up on the channel mix because I don't have that answer at hand. Jon, I wish I could tell you that we were doing something super unique to drive the late-night business. I think we have a great environment. I think we have a good offer because our happy hour offer we offer at late night.

And I think I've talked about this before, I do think some of it is supply and demand. I think on balance, in the past several years, if anything, you've seen less people kind of either extend or go back to kind of full hours. And I think there's less late night supply. I think we probably have some demand coming back. And I think we are a great or better alternative to a lot of folks for late night. And I think that's helping us win. But we don't have like a specific marketing push or very specific unique like offer for late night that is uniquely driving it.

Jon, I'll tag in on -- Jon, just to give you -- it's Todd here. I'll give you some quick color on off-prem versus on. As we look at -- if you just split our business into on-prem versus off-prem, the dine-in business, the on-prem business is incredibly strong. Obviously, that's the majority of our business in the quarter. Traffic in dine-in was up almost 7%, a little over 7%. So just tremendously strong there.

The off-prem part of our business has seen declines. That wasn't new in Q4. That has been a headwind for us for the past few quarters. And so it's a matter of -- we've got folks dedicated to work to address that, but the strength of the dine-in business is particularly strong.

Okay. And just following up on the comment regarding late night. That anywhere near -- like if you guys were to recover, I guess, from an average weekly sales standpoint, back to peak, like how much more room do you have to go or better ask like how far has late night declined relative to your kind of peak times or peak windows or years?

I mean honestly, I don't have the number to hand of whether we're there or whether late night, if we look back, I assume we're talking like kind of pre-COVID like what the late night AUV was. I mean what I can say is as part of what we talked about in Q1, which is the continued momentum we're seeing in Q1, the shape of that continues to see particular strength in late night. So that has continued into this quarter. I don't know, Todd, if you have [indiscernible] in terms of specific AUV.

Jon, maybe we can tag those...

[Technical Difficulty]

Okay. Hopefully, you guys can still hear me. Just one last question that I had. Okay, great. Just you had mentioned, obviously, you're going to be opening new stores in the back half of this year. Can you just speak to what the new prototype might look like, high-level features that are different versus the baseline they could even just be square footage. But I would assume there's probably a little bit of a differential even off-premise access to the stores versus maybe some of the legacy asset base that you have today and even the cost to build?

Yes. So I mean as we look at it, right, I mean from a design perspective, I think what we're ultimately trying to achieve is a contemporized expression of our brand that is familiar to the people who know and love us, but also kind of exciting to new guests. And we leveraged our brand positioning to do that design work. And so I think it will feel familiar but contemporary. And we have, I think, some branding elements that we're bringing in that are evolved and new. I think how we're using some of the nods towards our craft beer heritage with the silos is going to be evolved and new. So there's a number of things, but it won't be -- it will be a familiar but contemporized version.

As we look at the footprint of it, I'm a big believer in right size, right cost, right place. Now the first couple that you build in my experience doing this are generally relatively prototyping. And then as you kind of go forward, and so as we look into the next couple as we move into 2027, I think we will be looking to look at building them not always at the same square footage, maybe in certain markets, it would be relevant to go smaller. I think we're looking at conversions in the appropriate markets. So we're not going to be dogmatic about every time it has to be just a prototype ground-up build. And so part of that influenced the design process, whereby what we're really coming out with is a clear set of brand standards for BJ's that we can apply to different sizes, different shapes, but it always looks and feels like a BJ's.

With that on a cost to build size, I mean, really, what we look at by each individual evaluation of a new unit is do we feel like it's delivering an attractive IRR so that we're being good stewards of the capital. But we are obviously conscious of what is going on with construction and inflation. And so as we built the new design, we are looking for opportunities with that kit of parts to be able to apply them flexibly and get the kind of cost to build to sales and profit and ultimately, IRR where we want it. But I think what you'll see going forward, Jon, is in certain markets, you're going to see something that looks quite like the size of a BJ's right now because it's appropriate for that market. And in another market, you might see something of a smaller footprint or a conversion that allows us to deliver the right return for the capital we put in.

Great. And have you shared those IRRs before that you're targeting?

I don't know that we've -- I think that we've shared it before. I mean in the past, I think we talked about like mid-teens IRR would obviously have us at a place where it exceeds our weighted cost of capital. But I think our ambition is far better than that.

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.

Good day, and welcome to BJ's Restaurants Third Quarter 2025 Earnings Release Conference Call. [Operator Instructions] 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.

Thank you, operator. Good afternoon, everyone, and welcome to our fiscal 2025 third quarter investor conference call and webcast. After the market closed today, we released our financial results for our fiscal 2025 third 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 Lyle Tick, our Chief Executive Officer and President; followed by Brad Richmond, one of our Board Directors. We also have Daniel Duran, our Senior Vice President of Strategy and Financial Planning and Analysis, on hand for questions, which we will take after our prepared remarks.

And with that, I will turn the call over to Lyle Tick. Lyle?

Thank you, Rana. Good afternoon, everyone, and thank you for joining us today. I'm happy to report our fifth consecutive quarter of sales and traffic growth as well as our fourth consecutive quarter of profit expansion.

From a top line perspective, Q3 delivered 0.5% same-store sales growth, which included a slow start to the quarter, as we discussed on the last call, with the remainder of the quarter averaging roughly plus 1.5% comp growth for the final 2 months, which has accelerated into Q4.

On the profit side, we delivered 12.5% restaurant level operating margins and 6.4% EBITDA margins, representing an improvement of 80 and 70 basis points, respectively, year-over-year.

We have now lapped the launch of the Pizookie Meal Deal, and I'm pleased with the positive year-on-year momentum in the business that closed Q3 and has continued into Q4. In the last 6-plus weeks, our traffic is tracking at roughly plus 3.5% year-on-year, close to 9% on a 2-year basis and outperforming Black Box casual dining benchmarks again.

Our current performance trends, combined with a strong product calendar for the rest of Q4, anchored in our pizza refresh launching next week and 2 exciting seasonal Pizookies gives us confidence to reiterate full year top line guidance of approximately 2%.

As I reflect on my first year with BJ's, I could not be more proud of the teams, and I remain very pleased with our progress to date and energized about what we can achieve going forward. 2025 has been a year of building the foundations of a stronger and more consistent BJ's guided by our strategic priorities. We are better positioned today to leverage an incremental dollar of sales and win a return visit and the improvement we're seeing across our guest, operational and team member metrics give me confidence in the durability of the progress we're making.

Our restaurants are operating more effectively and efficiently, focusing on being great at what we call the table stakes and both our guest satisfaction scores and team member retention metrics are at multiyear highs.

Our ongoing simplification efforts and focus on gross to net have resulted in sustained double-digit improvements in comp food and beverage incidents, improving the guest and team member experience while removing over 0.5 million unnecessary POS clicks for our team members and counting.

Our outlier program and drive for accountability has improved overall effectiveness and efficiency as reflected in our restaurant level cash flow. We continue to build the Pizookie Meal Deal into an everyday value platform, resulting in continued improvements in our value scores and traffic, and we're beginning to see these improvements reflected with positive movement in our guest frequency metrics as we now begin to roll out product and experience improvements with our pizza refresh next week.

Speaking specifically to Q3, we further embedded our Pizookie Meal Deal as a core value platform our guests can count on, leaned into the power of social media and seasonal Pizookies to drive brand momentum and continued the journey of improvement on table stakes operations.

Our strong year-on-year momentum since the Pizookie Meal Deal lap began can, I believe, be attributed to a combination of the foundational work I've talked about, as well as the continued refinement of our marketing strategies and tactics that are helping us codify how to most effectively drive the business.

In Q3, we continued to shift our marketing focus towards social influencer and word of mouth. Given it's not our strategy to win a share of voice battle, our effort is increasingly focused on driving social dialogue and relevancy. I want to give a shout out to the marketing team for the great progress they're making.

Our earned media impressions are up over 300% year-on-year. The Pizookie Meal Deal continues to resonate with guests, providing a great value and accessible everyday splurge opportunity, driving increased traffic, recruiting new guests and driving frequency with existing ones.

We leaned into our All-American Smash Burger as a new feature on the Pizookie Meal Deal and garnered over 2 billion impressions on National Cheeseburger Day alone. On September 17, we also rolled our latest menu update and the Spooky Pizookie has been a social phenomenon. Again, the team has taken a more proactive approach to social and influencer engagement, driving a 350% increase in overall engagement and doubling overall impressions year-over-year, further codifying the role of seasonal Pizookies as both a buzz and traffic driver.

In addition to the traction of the Spooky Pizookie, our other menu optimizations are resonating with our guests. The 22-ounce beer pour offering is seeing about a 23% pickup rate and helping to improve checks with beer attached. And the Brewhouse Sampler is a top 3 appetizer, resonating with guests while driving a premium trade-up.

In Q3 and through October, our growth has continued to be traffic-driven with broadly flat to slightly down average check. Underlying this performance is an increase in frequency that is more than making up for any check compression.

Double-clicking on check, there are 3 factors at play. Primarily, it's the increased traffic and number of checks driven by the growth of the Pizookie Meal Deal, which has continued into Q4. Additionally, the outsized growth we continue to see in late night, which carries a lower check and continued pressure on alcohol beverage attachment are also contributing factors.

On the margin side, our operators continue to do an excellent job making progress on the foundations of great operations and hospitality. Despite some choppiness in sales early in the quarter, they delivered another strong quarter of restaurant margin expansion by continuing to focus on the fundamentals.

I want to thank all our teams from the restaurants through to the support center for the continued energy, passion and commitment they show every day.

As I look ahead through the rest of the year and into 2026, we remain focused on continuing to make progress across our 4 strategic priorities, and I'm excited about what is yet to come. Starting with the team member experience.

Our team members are the heart and soul of BJ's. Our job is to make things easier and better for them and the guests and the rest follows suit. I come into this call having just hosted our GM Conference in Dallas 2 weeks ago, and the excitement and engagement was energizing and infectious.

We spent 3 days together building alignment and ownership of our brand strategy, learning together and sharing best practices. We rolled out our new company values, which were informed by our engagement survey, co-developed by a cross-functional team and will guide us in how we deliver on our brand promise every day.

Our people and training teams led learning sessions that empower our directors of operations and general managers to bring these values back to their restaurants and bring them to life across the system. Maybe most importantly, we began the rollout of a comprehensive refresh to our manager and team member training that will be fully implemented across the system in Q1 2026. This new training establishes one best way for BJ's while also empowering general managers and team members to deliver Wow Hospitality.

I think what resonated most with this training was it was created in partnership with our operations, people and training teams and was authored by people who came up through the restaurants.

With respect to handcrafted food and beverage, we continue to progress development across our priority categories, identify areas for simplification and are now on the cusp of launching our first major renovation. On November 6, we'll be introducing the refreshed pizza platform across the system. The entire BJ's system is locked and loaded and can't wait to share the new product with our guests.

Our team members love the product. And as Chris Pinsak, our Chief Operating Officer and our senior operation leaders remind me, that is the foundation of creating excitement with our guests. We will ramp up the pizza refresh through the end of the year and through Q1, introducing our first LTO pizza product in over 5 years in Q1, continuing to drive engagement and excitement.

We also have 2 exciting seasonal Pizookies launching in November with the Monkey Bread Pizookie coming back after much prodding from fans on social media and a Dubai Chocolate Pizookie and dessert martini taking advantage of this current trending flavor.

As we head into 2026, our culinary priorities will be to continue to renovate our core categories, to refresh strong sellers with clear NPS and executional opportunities, and to continue work on simplification.

In 2025, we have had net reduction in menu items of 6. And in the January menu update, we will be removing 2 more items, eliminating 5 additional single-use SKUs. And then additional simplification will be primarily connected to the category refresh work throughout 2026.

Our third priority is delivering Wow Hospitality. Our focus in 2026 is to build off the foundations we have laid and continue to improve guest satisfaction, throughput and efficiency. We will continue to focus on great fundamentals and not ceding conquered ground by continuing to drive accountability through our directors of operations and general managers focused on lifting up our outliers and sharing best practices.

As I mentioned earlier in our team member section, the new manager and hourly training is driving a one best way approach to the system, ensuring we're all pulling in the same direction and can deliver a consistent BJ's experience to our guests. Our simplification team continues to work day in and day out to remove unnecessary barriers, and this will be a continued process.

Finally, we will advance our technology initiatives to help ensure we have the right people in the right place at the right time with our AI-driven activity-based labor model. This will be rolled out to 30% of our system by the start of 2026, and we're beginning to lay the groundwork for future use cases.

In 2026, we will also continue to invest in our remodel program, which consistently has shown strong results and pilot a refreshed BJ's prototype, setting the foundations to grow our restaurant portfolio in support of our fourth strategic pillar, keeping our atmosphere fresh.

In 2025, we will complete 20 remodels, bringing the total to 72 over the past 3 years, impacting 50% of our pre-2016 fleet and are pleased with the value-accretive results we continue to see. In 2026, we will continue the program and are refining our 2026 remodel targets now.

With the progress we're making on the core business, we're now laying the groundwork of reigniting new unit growth and have signed 2 leases with a number of deals in late-stage development. We're actively building a flexible pipeline as we target up to 2 new openings in the second half of '26 to pilot the refresh prototype and set the foundations for further growth in 2027 and beyond.

As we drive towards a strong finish to 2025, we've made great progress in building the foundations of a stronger and more consistent BJ's and now are on the cusp of beginning to introduce product and experience improvements.

I will wrap by reiterating what I believe are the 3 key themes coming out of Q3 and looking ahead. The first is continued progress. Q3 marks our fifth consecutive quarter of sales and traffic growth, along with our fourth consecutive quarter of profit expansion.

The second is stronger foundations. All of our financial, consumer, and team member metrics continue to indicate that we're building a stronger and more durable BJ's. We are better positioned today to leverage an incremental dollar of sales and win a return visit. And the third is momentum.

Since the lap of the Pizookie Meal Deal, we have seen increasing momentum and strong traffic-driven growth year-on-year. This momentum, combined with the strong product lineup through the end of the year with the pizza refresh and 2 seasonal Pizookies, gives us confidence in maintaining strong performance.

Before I turn it over to Brad to take us through more detail on our Q3 financial performance and outlook, I'm excited to share that we have finalized an agreement with our next CFO, who brings deep restaurant industry experience and will be starting at BJ's in mid-December. You can expect more details in a public announcement next week.

Given that, I also wanted to take a moment to thank Brad and the entire Board for their continued support, partnership and guidance. It has and will continue to provide great value to me and the entire management team. Brad?

Thanks, Lyle, and good afternoon, everyone. As Lyle has just outlined, BJ's brand is healthy, thriving.

During the third quarter, we achieved record sales and profitability levels we have not seen in over 6 years. The cash flow of the business is durable and growing to support our growth drivers with ample excess cash to repurchase shares when the market price is a meaningful discount to its intrinsic value.

To the latter point, we repurchased and retired 996,000 common shares for $33.2 million during the third quarter. And for a year-to-date total of 1,838,000 common shares for $62.4 million. With the Board's authorization today for an additional $75 million in share repurchases, we have updated our 2025 annual share repurchase expectations from $45 million to $55 million to $65 million to $80 million.

Importantly, our balance sheet remains healthy as we ended the third quarter with a net funded debt of $64.1 million, comprised of a debt balance of $89.5 million with cash and equivalents of $25.4 million.

In the third quarter, we generated sales of $330 million, a 1.4% increase versus last year. On a comparable basis, Q3 sales increased by 0.5 percentage point, all driven by traffic growth. This quarter included a little over 2% of year-over-year pricing. The compression in check is driven by 3 factors: the outsized growth we continue to see in the late-night daypart and the Pizookie Meal Deal, both which carry a lower check. These comprised about half of the check compression. Continued pressure on alcohol beverage sales comprised the other half.

However, to put the check conversation in a larger context, I would highlight that gross margin, that's check less food and beverage is up 90 basis points and margin after direct labor is up 130 basis points this year over last year. This is a testament to our menu and marketing team's management of the menu and our operations team's delivery of the menu.

We achieved meaningful increases in our restaurant level operating profit, adjusted EBITDA and EPS. Lyle highlighted what I call the 4 drivers of this margin improvement.

But to briefly recap, it's our focused efforts on table stakes, simplification, restaurant outliers and the Pizookie Meal Deal platform. This has driven our restaurant-level operating returns to 12.5% in Q3, which represents an 80 basis point improvement year-over-year with our restaurant level operating profit increasing 8.8% to $41.3 million.

This included approximately 40 basis points year-over-year headwind on this line as we wrote down certain asset valuations this year that's included in the operating and other expense line.

Our adjusted EBITDA margins reached 6.4% in Q3, which represents a 70 basis points improvement year-over-year with our adjusted EBITDA increasing 14.1% to $21.1 million. On a line item basis, our cost of sales was 25.7% in the quarter, which was 90 basis points favorable to a year ago. Food cost inflation was approximately 2% on a year-over-year basis, driven broadly by higher beef and seafood costs, partially offset by lower cost for bone-in chicken.

Cost of sales also benefits from our 4 margin drivers. Labor and benefit expenses were 37.1% of sales in the quarter, which was flat to last year. Our restaurant teams continue to operate at a heightened level from better guest count forecasting, enabling better labor scheduling and then managing to that schedule.

We leveraged hourly and management labor by approximately 50 basis points, but this progress was largely offset by accruals for higher anticipated medical cost inflation related to workers' compensation despite the progress in reducing the number and severity of claims.

Occupancy and operating expenses, which includes marketing, was 24.7% of sales in the quarter, which was flat to the third quarter last year. Marketing costs increased by 10 basis points and sales leveraging offset the approximately 40 basis points of year-over-year headwind on the write-down of certain assets I mentioned earlier.

General and administrative costs increased 40 basis points year-over-year, largely driven by investments in our strategy and a negative 20 basis points impact of mark-to-market accounting, which is fully offset below EBITDA and other income.

Preopening costs declined 30 basis points from fewer new restaurant opening activities this year. Depreciation expense increased 20 basis points compared to last year, reflecting the remodel investment in our restaurants.

And as Lyle has already mentioned, we reiterated our 2025 comp sales guidance of approximately plus 2%, restaurant-level operating profit of $211 million to $219 million, adjusted EBITDA of $132 million to $140 million and capital expenditures of $65 million to $75 million.

And as I mentioned earlier, we increased our expected share repurchases to $65 million to $80 million, depending on market conditions. Our earnings assumptions include an overall inflation increase from approximately 2% in the third quarter to the mid-2% in the fourth quarter.

And with that, we'll take your questions. Operator?

[Operator Instructions] The first question comes from Alex Slagle with Jefferies.

I wanted to ask about the drivers of the acceleration in traffic. And it looks like the back half of September and into October, just kind of runs opposite of what some others have seen in the benchmarks show. So just maybe you could expand on that a little bit more on what drove that acceleration.

Yes. Sure, Alex. Thank you. It's Lyle. As we're looking at it year-on-year, there's a couple of things that I would point to. I think there's kind of a combination of factors that go into it. Some of it, I believe, is some of the foundational stuff that I've talked about on the past several calls. We're seeing improvement in guest metrics, improvement in satisfaction, improvement in value. And eventually, you expect to see that starting to come through in frequency, and we're starting to see those frequency numbers improve across income cohorts and age cohorts. So that kind of works together.

Pizookie Meal Deal has continued to grow. So as we came into the lap, the numbers that we were seeing coming into the lap that I think we alluded to probably last quarter is that PMD continued to grow. We continue to see more people coming into it and more frequency. So it made us -- gave us confidence going into that.

And then I mentioned the marketing and the lean in on the social side. I wouldn't underestimate that increase in social dialogue and buzz and influencer engagement. I'd say the 2 kind of main platforms for that were the Pizookie Meal Deal and the Smash Burger. But really, the Spooky Pizookie was really a phenomenon this year and the team leaned in, and it really gained a lot of traction on social. And I think that resonated. And we saw it coming through, obviously, in traffic, but we also see that in the rise in Spooky Pizookie incidents. So we kind of can see that correlation there that helps us point to that.

Interesting. And I guess you've been here a year and I guess, started the CEO role in June, but kind of curious if there's anything in the business that's surprising you now or just shaking out a little bit different than you expected coming in?

I don't know if there's anything that is particularly surprising. I mean, look, I'll tell you, I'm pleased with the performance we're seeing and the level of acceleration we're seeing in the business recently. I think the team came together, did the hard work on the strategy and the priorities, and we're remaining kind of guided by that and trying to keep ourselves focused on what matters and continue to build a stronger business, right, over time. And so I'm pleased with the progress we've made. I'm pleased with the progress the team has made, and I'm excited about where we're going with the business right now.

The next question comes from Brian Bittner with Oppenheimer.

Congratulations on solid results. You clearly have reiterated the guidance for full year same-store sales. And you also said that the 1.5% comps you were seeing towards the end of the third quarter accelerated into the fourth quarter. And getting to that kind of 2% range for the full year would suggest something in the fourth quarter that is closer to like the 3% range. So I'm just trying to level set because there's a lot of outcomes for 4Q to get roughly 2%. Is kind of the 3% range the right way to think about the fourth quarter?

Thank you, Brian. As we're looking at our models and kind of where we're at today as we speak and how we're rolling things forward, we're looking at about 2% to 2.5% growth, and that will land us right around that 2% for the year.

And that's still incredibly impressive, the acceleration, given what we're seeing. And just elaborating on Alex's question. I'm just trying to understand what's going on. Are you guys just not seeing any pullback in consumer behavior? Are you not seeing in your data and insights any changes in frequency or anything like that, that basically everyone else is talking about?

Yes. So I mean, I'll tell you what we're seeing. We're actually seeing an increase in frequency beginning to emerge across all of our age cohorts as well as all of our income cohorts. That frequency is resulting in also an increase in total average spend per customer across those cohorts. Now across all of those cohorts, whether you look at it from an age or an income perspective, we are also seeing a bit of check compression, right? But the frequency is more than making up for that.

If you kind of break that out at the lower end, we're actually seeing higher frequency gains and a little bit more compression. And at the higher end, we're seeing less frequency gains and less check compression, but there's not like big, big glaring differences between them. And on the age cohort side, we're seeing actually the older and the younger consumer kind of be a little bit more on frequency and a little bit more on compression. And that kind of between the 2, we're seeing again increased frequency to a lesser extent and a little less check.

I think what it might suggest, right, is we've seen the PMD growing in the cohorts where we're seeing the more -- the higher level of frequency and a little more check, that's a higher engagement rate with PMD. But when you look at the frequency resulting in the average spend, it suggests it's also driving an incremental occasion. So that's kind of the way I'm looking at it and dissecting it. And so I'm pretty happy with what we're seeing, but that's kind of the mechanics of it.

No, it certainly suggests the foundational work you've been doing on the brand is working.

Our next question comes from Jeffrey Bernstein with Barclays.

A couple of things you touched on from the unit side of things. The first one was on the remodels. It sounds like you're still on track for the 20 in '25. And I think you said that's 50% of your class of units opened prior to 2016. I'm wondering if you can give us an update in terms of the cost of these remodels, maybe the sales lift and how many you think you might do in 2026 as you move towards presumably 100% of those stores opened more than 9 years ago? And then I have one follow-up.

Yes. I mean what I'll tell you is on the remodels, we continue to see a return that we're pleased with, which gives us confidence that it is a good use of our capital to continue to invest in the remodel program. As I look into 2026, we're definitely going to continue the program. I'd say it might be at somewhat of a moderated pace next year as we start to also get the refreshed prototype out there and then apply those elements to the remodel. And then as we gain a little bit of experience with that, I think returning to that pace of, like we're doing this year, 20 to 25-plus remodel units as we work through the rest of them. So I feel really good about the program. I want to do a little bit of learning with the new prototype and then accelerate again. But we're going to continue it next year.

And then I think you mentioned from a new unit perspective, the reacceleration in growth. I think you said you have 2 potentially that could open in the back half of '26. And then I thought you mentioned something about accelerate from there. So I was wondering how you think about -- obviously, there's no shortage of opportunity across the U.S. for the concept. So what's -- how do you think about what that ramp looks like in '27 and beyond? I mean is it just -- like what's the constraint to that? Seemingly you have lots of opportunity, but whether it's people or real estate or just operations. I mean how do you think about when kind of the sky is the limit what you do in '27 and beyond?

Yes. I think -- look, I mean, I think part of it is building the pipeline, obviously, which we're doing now. Another part of it is gaining the confidence in the prototype and the return on the spend, which we'll be doing. And so I would think of it as kind of 2026, end of 2026. We'll take a step in 2027. And then in 2028, really starting to see that full run rate come back.

When you think of it from a geographical point of view and what's kind of -- how we're going to attack that and what are enablers, we're going to focus on where we already have a footprint, right? So the way we've talked about it is kind of think of it as concentric circles.

So we're going to look at markets where we already have restaurants and we either need to fill out that density to get kind of that alchemy on awareness and consideration and also leverage on multiunit management or we feel like we have room to fill in where we already have a decent amount of restaurants, because that gives us a head start, gets us out of the gate quicker. We have the leverage on management, we have the leverage on supply chain infrastructure. And so we'll get to new markets, but building out in kind of concentric circles versus kind of putting one-offs out, because we actually have, frankly, a lot of markets that what I would call our kind of between clubs on multiunit management, where we have just a couple of restaurants.

So I think what you'll see, you'll see some of those leases in places like in Arizona, where we're filling in and building out, and you'll see some in places like Pennsylvania or in Illinois, right? So there'll be those types of things, but it will be building out from where we have an existing footprint to a certain extent.

The next question comes from Sharon Zackfia with William Blair.

As we think about those 2 new locations and 2 new prototypes for next year, are there any key changes that we should be looking for either in the size of the box or the features of the box that you're really keen to explore?

I think the -- as we look at the box, the first thing that we talked about was as we did the positioning work, does the environment and atmosphere itself really live and breathe our positioning and our DNA? Does it feel like it would be familiar to existing guests, but excite new guests and bring us into kind of the next generation kind of contemporized BJ's.

I do think there's an opportunity to probably lighten things up a little bit with BJ's that we know we're taking an opportunity to do with the prototype. I am a big believer in right kind of size, right cost, right place. So you're going to see a prototype that has very clear indicators of that you'll see consistently across BJ's, like what are those design elements that make a BJ's a BJ's, which you see everywhere. But we'll see that applied in different markets to different sizes and different costs. In some markets, we'll look to test conversion versus a ground up. So I think we're trying to get really clear on what makes a BJ's a BJ's and then apply it flexibly to get the right return on the investment.

And then can I ask a follow-up on the revamped pizza launch? I mean as you launch that, I mean how do we think about that and the impact to check? I mean, I don't know kind of -- I mean, you already have pizzas, so I don't know how you're expecting the attach of pizza or the incident rate to kind of increase. And I'm assuming that's going to be more value for the consumer than necessarily ordering, everyone ordering entrees for themselves. So I'm curious on how you expect that to play out. And also if you're going to lean into that as another kind of value offering in addition to the PMD.

Yes, sure. I think pizza inherently does provide a value and fills kind of a different occasion for people, which is really nice. And so I think it's historically played that role. But I think as the pizza kind of quality and satisfaction eroded, it did that less effectively. And so part of what we're doing is refreshing the pizza to help it play the role it's supposed to play in our menu more effectively going forward.

I think when you look at kind of the way I think about pizza, it's a core product improvement that I would expect to kind of build over time as we drive trial. And I think of it as just another layer in building a stronger, more sustainable BJ's and kind of working in combination with the other improvements we talked about. So what I don't expect is like a short-term inflection point in short-term performance, but rather another layer in building kind of sustainable growth over time.

And this is Daniel. I'll expand on that just a little bit here. In terms of the check, what we've seen in the test locations is we've actually seen a little bit of an uptick in our average check in those locations versus control. Part of that is, I think we mentioned previously that we're seeing about a 10% uplift in our pizza incidence overall. So just kind of wanted to add a little color so you get a little more clear answer there around kind of what we're anticipating to happen with our check there.

The next question comes from Todd Brooks with Benchmark.

First question, Lyle, you highlighted the fact you've been here for a year, and you highlighted the foundational improvements that the team has made in that time frame. We're seeing -- when you talk about unit growth, we're seeing it some maybe on the culinary side. But with a year of foundation building behind you, what's the brand better positioned to play offense on now as we go into '26? Other areas that we should see you guys really start to put your stamp on the business and be a little more front-footed in how you're running it versus stabilizing it?

Yes. Look, I think -- I mean, one, I guess, I would say I'm pretty pleased with the momentum that we have and the work that we've done. I do call it foundational, but ultimately, it's building a better, more sustainable, more compelling BJ's. I think as you think about getting more on our front foot, it's kind of what I referenced when I talk about like product and experience improvements. And so the 2 kind of probably main drivers of that are going to be the continued work on the menu renovations next year as we start to focus more on kind of the post pizza categories.

And then the other one would be obviously the new prototype that we're working on. And so I think those things allow us to -- having the foundation stronger allow us to push a little bit harder on new stuff in the restaurants and the teams will be capable of taking that in and executing it really well.

I think probably the other thing that is maybe a little harder to just put your thumb on is, as we get stronger with the foundations and we're running more efficiently, it does give our GMs and our team members the opportunity to do more of the added value hospitality, right. As we're making things kind of more systematic for them, it kind of frees them up to deliver that hospitality more effectively, which, in my view, in our business can't be underestimated.

And my final question. You spoke on the last call about the Pizookie Meal Deal evolving the platform to have some add-on and kind of check builder type of capabilities for customers that are accessing there. Just wondering, A, success that you've seen with that, any other iterations that you're looking at with the program? And how are the teams doing from a front-of-house standpoint kind of selling that ability to build a higher check on that platform?

Yes. So I mean, overall PMD, so as I said, it's growing. It's not only growing in frequency and attachment, but the check is actually growing a bit on PMD. So that's good. Now would I say that we've kind of nailed that yet, the answer would be no. The PMD -- I'm sorry, the Pizookie, full-size Pizookie trade-up has been an easier sell for our team members at dinner, not much at lunch. The other add-ons we've had so far have not had much traction. The Smash Burger brought a lot of kind of momentum and news to the Pizookie Meal Deal, which we're excited about. And so we're still working through kind of what is the next iteration of add-ons and check building and menu refresh for PMD. And so that will be things that we test and roll in 2026. But I'd say we're still at the beginning of that journey, seeing a bit of traction, but I wouldn't pat ourselves on the back yet about that.

The next question comes from Brian Mullan with Piper Sandler.

Just wanted to come back to the pizza launch. In those test locations you referenced in the prior answer, were you doing anything to proactively drive awareness? Or were those really -- those lifts really just happened purely organically? And related to that, just talk about the plan to drive awareness once that does launch next week, whether that's social or inside the restaurant, anything you could offer?

Yes, sure. I mean in the test market, it was really organic. I mean, we obviously have -- geographically, we understand our loyalty customers that are most frequent at restaurants. So there was a communication that went out to loyalty members that are associated with those restaurants, but there was no really other proactive marketing on pizza outside of in-restaurant merchandising. And I think I mentioned this in my talk, but Chris keeps mentioning to me how much the team members love it and then if they love it, that's when you're going to see them selling it and people picking up on it.

So I mean, I think all of those elements obviously continue as we roll out broadly. Then the plan that we're putting in place, we are going to do external marketing about it. It is going to be heavily driven by social PR and influencer. So word of mouth, getting the product in people's mouth, getting people to talk about it and drive it. We'll be doing sampling at a restaurant level, again, to make sure we're driving trial. But yes, we'll be doing marketing, but it will be very much in the spirit of what I was talking about, a bit more of a center of gravity in the social influencer word-of-mouth world.

And then just a question on the share repurchase activity, notable step-up here in the third quarter. As you evaluate whether or not you want to continue with that moving forward, is there a leverage target we should keep in mind, whether it could be a turn of debt, maybe it's something different? Just any color on the philosophy or the parameters from here?

This is Brad. I would say, no. I mean, if you look at our balance sheet, you look at our debt levels, we have plenty of capacity. So if the situation presents itself, we'll continue to buy at a heavy rate. But also, we will keep some dry powder, if you will, because we're on the cusp of ramping up new unit growth. We'll get back to brisk pace on remodel. So we want to keep some powder for that. But even with that said, there's a lot of capacity to do that. And so we'll gauge that as each day goes by, but we don't feel constrained at this point.

The last question comes from Jon Tower with Citi.

Maybe just a few quick ones, if I may. First, obviously, you had mentioned that you're seeing a bit of check pressure, particularly from the higher mix of PMD rolling through the business today. But I'm just curious from another perspective, how are you thinking about that informing your pricing power going forward? And frankly, how you're thinking about pricing over the next 12 months and the broader menu?

Yes. I mean as I think about -- I mean, as we think about pricing going forward, I guess I would take maybe one step back, Jon, and this is Lyle, by the way. The way we're attacking the business is really trying to put that value equation at the center of everything, right? And is our product and experience worth the price and are we delivering kind of a worth it experience in that social splurge occasion. And I think price plays a role in that, but it's not solely about price, certainly.

I think that what I like right now is that we're seeing our value score goes up, we're seeing our guest metrics go up, and we're seeing that traffic-driven growth. So clearly, we're hitting a good kind of intersection with that right now.

Now I think the other thing is as you see guest satisfaction and value scores go up, as long as you're continuing to deliver on that, I think we will be able to find opportunities for pricing, particularly having kind of those entry points of the Pizookie Meal Deal and Daily Brewhouse Specials, right? Because what we're able to do is give certain consumers an entry point into social splurge with PMD and the Daily Brewhouse Special and other consumers an entry point into it with pizza or a steak for that matter. And so just having all of that work collectively.

Another thing that I'm looking at as we go into next year, particularly as we look at category refreshes is how we think about like category and revenue management in the category in order to create opportunities for trade-up for folks and opportunities to drive mix. And so there's really a lot of levers that I think about using as we kind of go forward and drive check. Pricing will be one of them, but we're going to be thoughtful about pricing as we go forward and continue to keep an eye on those guests and value metrics.

So yes, do we think we have some pricing power? Yes, we think we do. But we want to be judicious about that and make sure we continue to see the traffic, see the scores go in the right direction. And as long as we're able to lever that in the P&L, which we have been able to do pretty consistently, I feel good about it.

Maybe another question on -- just on your digital and off-premise business. I know that had been an area that you'd spoke to in the past in terms of seeing opportunity to improve the presentation to the guests online. And I'm just curious where you guys are in that process.

Yes. That is one of -- or will be one of our priorities for 2026. And I think it's really an end-to-end piece of work to improve our off-premise, right? Because it starts with some work that you guys -- it's not as visible to you guys right now, but we're already working on, which is how we attack missing and incorrect. And again, some of the kind of foundational stuff we've talked about.

So we've been tweaking things about like our KDS and how the products show up in the restaurants for our off-premise teams and our cooks, and we're seeing improvements in our M&I. So that's encouraging. And as we start to do that, we can then start to have that stronger foundation and then work on the consumer-facing stuff.

I think the consumer-facing stuff has to do with eliminating friction in our kind of digital consumer flow, which -- part of that is actually improving the flow from a technological point of view. But part of it is improving merchandising, making sure the things that are relevant for off-premise are presented to people first, not offering our full menu on off-premise because it's not all relevant.

So there's a lot of kind of those opportunities for us to improve, and we're going to be attacking them next year, but they just had to be sequenced in the priority this year. And so it's really a 2026 is when we're really going to start to see movement against some of that stuff.

And then just last one, bookkeeping. Fourth quarter, obviously, you gave some commentary on where you think comps might shake out. But is that accounting for some of the calendar shifts? I know Halloween hits this Friday versus, I think it was a Thursday last year. And then I think New Year's Eve falls out of the fourth quarter for you guys this year.

Yes. Jon, this is Daniel. That's correct. Our guidance there accounts for all the holiday shifts that you just called out. So you can take kind of the full quarter adjusted for those holiday shifts.

This concludes the question-and-answer session and today's conference call. Thank you for attending today's presentation. You may now disconnect.

Thank you, everyone.