BJ's Restaurants, Inc. (BJRI) Earnings Call Transcript & Summary

Good afternoon, and welcome to the BJ's Restaurants Second Quarter 2026 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 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 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?

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 BJ's. 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. The 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 incidence year over year during the quarter, and we saw growth across all geographies, all dayparts, 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 Pizookie 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 Monika Saxena, who came to us most recently from LongHorn Steakhouse, as our Brand President. Monika'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 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 to our teams, and investing in the tools they need to deliver. These 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 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 Pizookies, the Pizookie 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 Pizookie 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 Pizookie 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 trade up while reinforcing two core BJ's equities, variety and the Pizookie. 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 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. We've 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 plants and equipment, is gold standard for team members and guests. This work, combined with our remodel program, 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. We 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. 2 years into our journey to unlock the full potential of BJ's Restaurants 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. We 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, PMD 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 compression, 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 dayparts. 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 incidence, 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 labor, 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. This 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% of sales ]. We continue to expect a normalized G&A run rate of up to [ $90 million ] annually. These component 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 5 remodels, and constructing 2 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 repaid $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 ease in the third quarter compared with the second and anticipate returning to moderate average check growth by the fourth quarter. The 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?

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

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 some 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, 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 based on the shape of sales last year.

Fourth quarter, okay. Got it. That makes sense.

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 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 Pizookie was really big, and I don't know if there was anything with the World Cup or the lapse from last year, if there was anything [ hanging ] 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 World Cup, I would say, you 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, dayparts and channels. So there wasn't anything anomalistic. It was really the kind of programming and I think the progress.

The next question will come from Sharon Zackfia with William Blair.

I guess I wanted to ask about the implied comps for the back half. So I think the math suggests like 1.5% to 3.5%. 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 process 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 I am very pleased with the trends and momentum the business has thus far in Q3, much like we were -- when we were on the Q2 call. And 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 guys have probably gotten to know me a little bit in the past two years. And 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 how the business is performing today.

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. 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.

The next question will come from Jon Tower with Citi.

Maybe I didn't quite pick it up in the transcript so far, but -- or the prepared remarks. 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. But if you can maybe expand upon that, that would be great.

Yes, I mean, 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 these trial checks, right? So we're bringing a lot of people in, not necessarily buying on discounts, but buying a smaller check as they're, you know, young people trying the Pizookie. I think 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 Pizookie, 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 as I think about it holistically, I feel really good about how our programs are working. And I think 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 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 incidence, they're growing sales, they're 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 steaks 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 tiering out of Pizookie 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. 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 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 restaurant 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 overall, 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 BJ's. Not to say we won't optimize the parts, but I think sometimes if you get too caught in optimizing a single part, you can lose the bigger picture of how everything's working together to progress the business. So I want to be intentional about how we do it, I guess, is the way I'd say it.

The next question will come from Todd Brooks with Benchmark, StoneX.