BJ's Restaurants (NASDAQ:BJRI) Q1 2020 Earnings Call

0:02 Good day, everyone, and welcome to the DJ's Restaurants, Inc. first quarter 2020 earnings release and conference call. Today's call is being recorded, and now at this time I'd like to turn the call over to Greg Trojan, Chief Executive Officer. Please go ahead, sir. Thank you, Operator. Good afternoon, everyone, and welcome to the conference call and webcast. I'm Greg Trojan, BJ's Chief Executive Officer. Joining me on the call today is Greg Levin, our President and Chief Financial Officer. And we also have Kevin Mayer, our Chief Marketing Officer, on hand for Q&A. So after the market closed today, we released our financial results for the first quarter of 2020, which ended Tuesday, March 31, 2020.

0:51 You can view the full text of our earnings release on our website at www.bjsrestaurants.com. Our agenda today will start with Ronna Shermer, our Director of SEC Reporting, providing our standard cautionary disclosure with respect to forward-looking statements. I'll provide an update on our business, and then Greg Levin will provide a more detailed commentary on the quarter and current environment. After that, we'll open it up to questions. We expect to finish the call in about an hour, so Ronna, please go ahead. Thanks, Greg. Our comments on the conference call today will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause actual results, performance, or achievements of the company to be materially different from any future results, performance, or achievements expressed or implied by forward-looking statements. Investors are cautioned that forward-looking statements are not guaranteed of future performance and that undue reliance should not be placed on such statements. Our forward-looking statements speak only as of today's date, May 7, 2020.

2:03 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 filing with the Securities and Exchange Commission. Thanks, Rana. As we all know, our business was turned upside down in a matter of weeks in March as the coronavirus pandemic took hold across the United States and throughout the world. Given the business updates we've provided since the onset of the virus, I will summarize the steps we have taken and adjustments we have made in our business and how we are executing in the early days of the gradual reopening of dining rooms in our restaurants.

2:55 We first started restricting dine-in capacities and enacting social distancing practices within our restaurants in the first two weeks of March. Government restrictions put in place over the following two weeks led to full closures of all of our dining rooms Leaving us with only delivery and takeout channels to drive sales. Pre-crisis, our off-commerce represented about 10% of our revenue, or roughly $11,000 per week. Our sales reached their lowest level in the fourth week of March, ending 3-24, declining 82% year-over-year and reaching a weekly average of approximately $21,300 per restaurant. By mid-March, we were already implementing cost savings actions, but knew we had to push further in order to conserve cash and reduce our burn rate.

3:48 Early on, we quickly eliminated discretionary G&A spending, stopped all nonessential capital expenditures, including halting construction activity on three new restaurants, and temporarily delaying or canceling all other new restaurant openings for 2020. In total, we currently have only one incremental signed lease obligating us to open a new restaurant beyond the three we recently postponed. We also suspended our dividends slated to be paid March 24th and future quarterly dividends and share repurchases. We scaled back our marketing and media spend significantly and unfortunately, the severity of the situation necessitated us temporarily laying off roughly $16,000 of our approximately 21,000 hourly team members and furloughing roughly 200 of our restaurant managers.

4:45 And at our Restaurant Support Center in Huntington Beach, we furloughed approximately 20% of our staff and implemented salary reductions ranging from 10% for team members making more than $100,000 per year up to 20% for our senior team and board of directors. These were difficult and painful choices for sure. Thank you for joining us today. Our first decision in this regard was to reduce the number of menu items available from about 145 to roughly 85.

5:38 This enabled us to provide our guests with the quality they've come to expect, but at staffing levels well below our norm. Our operations team stepped up in amazing fashion, learning each and every day better ways to approach and execute in this new reality. Through our operations leadership and the hard work and problem solving creativity of our restaurant teams, we have been able to keep all but four of our 209 restaurants operating to date. And the sales volumes of our off-premise business have nearly tripled since the start of the crisis to approximately $31,800. Aside from strong execution at the restaurant level, our culinary and marketing teams quickly assembled new product offerings, and many more.

6:53 in six-pack cans, along with new disposable growlers priced attractively at $12 for 64 ounces. We've also promoted our $10 bottles of wine to go, along with higher-priced varietals, also available at price points competitive with what guests would pay at local retail. All of which speaks to the nimbleness of our team, despite more than doubling our revenues since 2010, We've worked hard to not lose the decision-making and speed-to-market advantages we've always used to our benefit. While our overall check is a bit lower year-over-year, our off-premise check is higher by approximately 15% from pre-COVID levels due to large parts of these recently launched and expanded check-building add-ons.

7:45 Our current level of promoted items have led to higher promotional mix. about 28% versus 12% pre-COVID, but the favorable food cost of selling a higher mix of pizza and pasta and less center-of-the-plate proteins has resulted in a cost of sale similar to our steady state. BJ's top-line growth combined with our limited menu and our operators' obsession with running our restaurants safely for our guests and team members resulted in a reduction of our burn rate by nearly half to a level of approximately 2.5 million per week. The next phase we have begun is the gradual reopening of our dining rooms across the country.

8:31 Over the last week, we opened our Texas, Florida, Tennessee, Oklahoma, and Kansas restaurants to partial dining rooms. Our most substantial data set comes from Texas, which opened last Friday, to dining areas set at 25% of capacity. Our dining rooms are typically larger than our competitors, and we have less fixed-boost seating than most as well. Both are nice advantages, enabling us to provide a safe environment for a large number of guests. The great news is, as we expected, guests are eager to get back out to a social dining experience, and they are doing so in a manner that respects the prudent safety protocols these times demand.

9:18 Sales levels are encouraging, even at these low levels of effective capacity. In early results, we've not seen a decline in off-premise sales after these dining rooms have reopened. In fact, off-premise sales are modestly higher when compared to the average sales from same days in the three weeks prior to the dining rooms being reopened. And remember, these off-premise sales that we're maintaining are growing significantly are roughly three times higher than our off-premise sales at the start of the year. So we believe the dine-in and off-premise sales are largely independent, at least in this current environment, with certain guests excited to return to the social experience of dining out and others still using takeout and delivery orders to feed themselves and their families in the comfort of their own homes.

10:08 Time will tell, but we're hopeful that guests that have now enjoyed the convenience of takeout and delivery from BJ's will continue to do so in addition to dining onsite well after this crisis has passed. We have a comprehensive plan in place to ensure the safety of our guests and team members so our great food and service can be enjoyed with a high degree of comfort and security. Our recent technology and digital investments are serving us well in the current environment, so we can provide our guests an experience which is as touchless as possible. We're taking reservations by phone and through our website and app. We have moved our hosts outside our entryways to meet our guests with mobile waitlist management devices and utilizing text communication to let guests know when they are able to be seated.

11:03 In addition, we're encouraging them to download our menus to their phones via text link, QR codes, and website landing pages which eliminates the need for any physical touching of menus by our guests and also enables us to link their check processing and payment directly to their mobile devices. And guests are quickly adopting and using digital payment as a result which adds convenience and improves speed at the end of the dining experience. Undoubtedly, there is opportunity for further innovation as our guest preferences and needs evolve beyond this crisis. We look forward to more partial dining room openings beyond these first states and are driving to the next milestone in all of this to achieve cash flow break-even at the company level.

11:55 At our current management staffing levels, which average a bit less than five managers per restaurant, We believe our average weekly sales levels needed to reach about 65K per week to attain positive cash flow for the company, including corporate costs and current levels of cap expense. We were averaging about 30K per week before starting to reopen our dining rooms. While it's less than a full week since Texas reopened its dining rooms at only 25% capacity, Our dine-in sales in Texas are adding roughly 20,500 of additional weekly sales. As more dining rooms reopen, permitted capacities grow, and we expand our menu closer to our pre-COVID offerings, we can see a clear path to reaching this next milestone in the near term and continuing to grow well beyond it.

12:55 In terms of liquidity, I previously mentioned that we're running about negative 2.5 million per week prior to dining room openings. Initially, we don't think dining rooms limited to 25% capacity will improve that run rate and in fact may put some near-term pressure on that level as the costs involved in safely opening are significant. However, we're confident we will see steady improvement as effective capacities grow to 50% and beyond. At the end of last week, we announced an equity raise of $70 million through the sale of common stock to Ron Shake's Act III holdings and funds and accounts advised by T. Rowe Price Associates. We are grateful for the confidence expressed by Act III and T.

13:42 Rowe Price in BJ's long-term outlook as we begin reopening our dining rooms and continue to deliver the delicious food, excellent dining experiences, and gold standard guest service and hospitality that guests have come to love and expect from BJ's. Before I turn the call over to Greg, on behalf of the executive leadership team, our board, and all of our stakeholders, I want to again thank all of our restaurant and operating teams and everyone at the RSC for their unique ability to deliver BJ's gold standard level of guest service, regardless of the circumstances. We stand by each one of our team members and loyal guests and look forward to resuming normal operations as conditions permit. And with that, I'll turn the call over to Greg Wood.

14:35 Thank you, Greg. As Greg mentioned, these are very different and unprecedented times. I'll keep my commentary on Quarter 1 brief to provide some top-level highlights before we transition into some additional thoughts for the second quarter based on what we've seen to date on recent state reopenings including capacity restrictions and social distancing measures, as well as an update on our recruiting position. The fluidity of the situation with the different timing of state reopenings coupled with national, state, and local restrictions makes it challenging to provide any real visibility on the second quarter earnings at the current time. Please remember that all of this commentary today is subject to the risks and uncertainties associated with forward-looking statements as discussed in our findings at the SEC.

15:27 From the Q1 perspective, as we noted in today's press release, our comparable restaurant sales through February were positive 1.5%. As Greg Kergen noted, we began to see a reduction in our comp sales in the first weeks of March as consumer worries around the virus started to impact traffic, and the states of Washington began some of the earliest stay-at-home orders Followed quickly by Northern California and then subsequently the rest of California and then the entire country. Our last positive day of comp sales was March 1st as COVID news started to dominate the airwaves which ultimately led to all of our restaurants to only selling food and beverage through the takeout and delivery channels.

16:12 As a result, we finished March down approximately 40%. leading to a comp sales decline of more than 15% of the quarter. Prior to us switching to an off-premise-only business, our margins were fairly consistent with the prior year. Cost of sales was in the mid-24% range through February, and this was offsetting wage pressures with our other operating occupancy costs pretty much in line with the prior year. As we pivoted to an off-premise-only business, our weekly sales average for all of March declined to $70,000 per week, and that's compared to more than $116,000 per week in March of last year. As our business elevates against our fixed and semi-variable cost base, and we absorb negative working capital costs in March as sales decline, we adjust our operations to better align with the sales levels, including a limited menu, the new scheduling requirements, and eliminating all non-essential spend in our restaurants.

17:17 We acted quickly to manage restaurant-level costs, resulting in improved weekly cash burn rates of the $2.5 million level that Greg previously outlined. Additionally, as part of the temporary layoffs and furloughs, we implemented an emergency paid time off program for team members who were not eligible for... As a result, in March, we incurred almost $5 million of additional labor expense as we paid out approximately $6.7 million to our team members, which includes the new emergency paid time off program as well as accrued vacation time. We would also continue to fund our portion of health insurance and offer restaurant fee benefits to furloughed team members.

18:04 Shifting forward to today, we have 55 restaurants or 27% of our 205 operating restaurants with dining rooms reopened and many more. In this first wave of reopening, Texas and most of Florida are two largest states behind California. Both Texas and the areas where we are open for dining room service in Florida are allowed to operate at 25% total capacity. Using this most current week as a small sample, we are very encouraged with the additional sales increases we are seeing. Also impressive is that our off-premise sales volumes for these restaurants have remained pretty consistent and even increased slightly week over week as we begin reopening our dining rooms.

18:52 As Greg commented earlier, we believe that we need our sales to reach about $65,000 a week to cash flow break-even once dining rooms reopen. And that is inclusive of rent and corporate costs. It also compensates today's manager cars, The limited menu we have in place with some menu additions and the additional cost for personal protective equipment for our team members and the safety of our guests including masks, gloves, throwaway menus, sanitizers, and other items. While these are only estimates, if we continue to hold on to a large percentage of our off-premise sales, even as our dining rooms reopen, The incremental sales we need in our business is very attainable in order for us to return to generating positive cash flow.

19:41 In regards to liquidity, we currently have $134 million on our balance sheet, and that includes the net proceeds from the equity offering and the full drawdown on our $250 million line of credit. We also amended our current line of credit to provide additional flexibility for us during this time. As part of this amendment, our leverage and fixed ratio covenants have been waived for the second and third quarters and reset starting the fourth quarter on an amended basis and beginning really with November's results. For more details on our amended credit agreement, please see our filings with the SEC, which we filed on Monday, May 4th. In regards to capital expenditures, we have stopped all initiative capex for the time being.

20:26 We do have one restaurant under construction which is close to 80% complete and currently anticipate opening this restaurant sometime later in this year. This restaurant is in the Cleveland market and we own the underlying land so we have total flexibility as to when we will open this location as well as the opportunity to monetize the underlying real estate if we so choose. Let me wrap up with a couple thoughts before we turn it over to questions. As Greg Trojan mentioned, the passion and commitment of our team members is unparalleled in casual dining. We are able to pivot our operating model to accommodate the safety of our guests and our team members by simultaneously growing our off-premise sales by nearly 200%.

21:12 We are now beginning to slowly reopen our restaurants based on the local ordinance and the communities in which we operate. Our leading-edge investments in technology allow us to provide our guests with digital check-in, digital menus, and digital payment options directly from the phone, but do not take away from the personal service level our guests expect from BJ's. Additionally, our large restaurants with flexible seating give us the competitive advantage to be able to welcome more guests back into our restaurants to enjoy the great BJ's food, beer, and service in a dine-in setting. Combine these attributes with our strength and balance sheets and BJ Despoys to take advantage of the opportunities to continue taking market share in the casual dining industry for years to come.

22:01 With that, I'd like to open it up for questions. Operator? Thank you. If you would like to ask a question, simply press the star key followed by the digit 1 on your telephone keypad. Also, if you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, press star 1 at this time. and we'll first hear from Jeffrey Bernstein of Barclays. Great. Thank you very much. I had a couple of questions. One, obviously, in terms of the most recent investment you took in, clearly Ron Shake is a pioneer and we hold him in our regard from his days at Panera, so congratulations on that. With that said, I'm just wondering how you evaluated the different funding options you had in front of you before ultimately deciding on that particular investment.

22:54 Hey Jeff, it's Greg Levin here. Great question. I think like we've seen across the industry from Darden to Shake Shack to Cheesecake Factory just recently with Brinker, we evaluated a combination of different opportunities out there. I think we basically felt that it was important to really have a were to have basically a clean balance sheet. I think as a continued growth company with a lot of opportunity out there, we felt that straight equity was a better way to go for us. It allows us to really maintain, as I said, a simple capital structure that doesn't income us with any other additional costs. And therefore, as we move through, You said it, but the other element of here is being able to attract Ron and his team and the experience they have.

23:43 Think about the path of growing off-premise that drove so much growth at Panera's overlaps A great opportunity for our concept as well, and we look forward to tapping into that knowledge and experience and other elements as well. And then, you know, you guys are well aware of T. Rose's track record and depth of experience in the retail restaurant space, so we're really happy to have two to investors of the caliber of both Act 3 and T-Rove join our team to an even greater level.

24:45 Understood. And then just curious your thoughts in terms of your ability to retain the current 30-some-odd percent of your former AUVs that you're now generating with to-go while at the same time reopening the Your restaurants. I'm just wondering, obviously the early stages, maybe you're only opening at 25%, so maybe that definitely helps. But in terms of your confidence level, being able to sustain the to-go component of your business while at the same time growing the dine-in, any thoughts there in terms of the ability to do that as more and more states open up and maybe you can open up at close to the 50% capacity? Yeah, that's a really good question. And look, we're only, as you said, a few days into this experience, but My perspective has always been, and when we've talked about off-premise and delivery in the past, you'll remember me being very vocal about these are different occasions and are driven by different guest needs and as such are a lot more incremental and differentiated than they overlap. And we've shown that as we've grown takeout up to this point. As you remember, we started this journey at about 5% of sales in off-premise and we had And every piece of evidence and data we've looked at tells us that we did not cannibalize in-restaurant dining while we did that.

26:09 So I don't think, you know, it's not my expectation that we'll hold on because of the uniqueness of these circumstances, obviously, that we're going to hold on. and so on. The latitude from a legal perspective of most states and municipalities loosening liquor delivery laws and takeout laws has really opened up an opportunity for us, particularly on our beer side of things, to deliver six packs, which we've been doing for a while now.

27:08 And also the growler sales have been impressive. So So I'm very optimistic about continuing to grow and just accelerating the growth of off-premise in this journey. Got it. And just my last question, I'm just curious in terms of the pace of the recovery. Like you said, you bottomed it down 82% in late March, and now you're in the down 68% range, I guess, in early May. So it looks like maybe a 15 percentage point improvement there. I know some of your peers have gotten comps into the down only 40 or so range. I'm just wondering what you think differentiates or leads to the differential in your pace of recovery thus far only with to-go relative to some of your other casual dining peers. Thank you. No, thank you.

27:55 Thanks for asking that question. So, look, structurally you have to remember a couple different things about BJ's. One is the amount of consistent business we do throughout the day and shoulder periods. and particularly late night, the amount of food and beverage we sell late night, all of which are highly experiential occasions, right? Those can't be replicated in a takeout or a delivery kind of order. That's the biggest reason you see us from a comp perspective look lower. Our rate of growth in off-premise has actually been higher than the industry, but the sales fall because of the dynamic I mentioned and the fact that we, as you've known us a long time, you know that we do a high alcohol and beverage mix much higher than other concepts as well, which is we're never going to duplicate Duplicate that kind of beverage consumption in an off-premise way.

29:03 So all of that works into, you know, a percentage number from a comp perspective of a follow-up that's going to be a bit more than others. Yeah, hey, Jeff, it's great. Just doing, and this is a back-of-the-honor estimate, if I take out our late-night business, which virtually does not exist today, and kind of look at comps for this last week, In that regard, last week and a half, we'd actually be down somewhere in the kind of negative 43%, 45% range. So probably a little bit more in line with our peers, but we just have a segment of our business today that, frankly, is zero. Very interesting. Thank you for the clarity.

29:49 Good question. Sharon Zaxia, William Blair. Hi. Good afternoon. Can you... Obviously, good job being nimble in this environment, but trying to get a handle on where your G&A run rate is at this point. It was really low in the first quarter relative to what we've been expecting. So if you could kind of help us understand what the right current G&A run rate is, that would be helpful. And then just so I understand when you're reopening in Texas, are you reopening with the full menu or are you still using... that curtailed menu that you've had for off-premises. We're opening with the same limited menu. It's another great question, Sharon.

30:36 So that, as I alluded to in my remarks, is some upside for us because a lot of our, you know, craveable center-of-the-plate protein items in that we've worked, you know, so hard at growing the last few years, particularly our slow-roast items, our primer and tri-tip that have been so successful are not on our menu right now. So... So we look forward to when we see a line of sight around how Dynon's really going to settle in from a traffic perspective and then also supply chain restart up, all that stuff. But that's obviously a significant upside for us. Yeah. Thank you, Sharon. It's Greg with the other guy here. I would probably say that. In the first quarter, because of the way this market came down, we have, and this happens to us from time to time, we have that deferred comp plan, and as a result, when the market comes down, we get a credit in G&A.

31:39 At the same time, we have to take an expense and other income, and you can kind of see that on our P&L year over year. That was to the tune of about $2.5 million. That's why G&A looks so low. are one of the reasons G&A looks so low here in the first quarter. If you go in the second quarter forward, we're probably closer to about a $13 million a quarter run rate. Great. Thank you. And then did you – I didn't hear this, but maybe you did mention it. Out of the off-premises customers you're getting, do you have any intel on kind of what percent of those might be new to BJ's? I don't know the answer to that. I would tell you our loyalty is up from a frequency standpoint. We're seeing nice increasing loyalty guests.

32:27 We can reach out to them, obviously, very effectively through our loyalty program. So we're seeing nice increases there. Other than that, though, I don't know. I couldn't speculate what's a new guest. Thank you. And next we'll hear from John Glass of Morgan Stanley. Thanks. Good afternoon. Hope you all are well. Greg, you talked about some potential startup or restart cost as you open dining rooms. Do you have a sense of what those are? and thinking about labor dollars per week or something. Are there any issues of getting employees to come back inside and work down the road? I've heard anecdotally that there's some concern for obvious reasons that working inside may increase risk.

33:18 Do you have to either pay more or is there any issue that we're attracting those employees? I'll answer the last one first, John. We really haven't experienced that yet. In general, I think it's an industry concern, particularly given... The unemployment subsidies that are in place, you could argue there's an economic disincentive to go back to work for a while, but we have not experienced that as we brought some people back as we've opened dining rooms. I think people who are looking in the medium to longer term are like, this is a place I like to work and I want a job. So that's been... As far as the first part of your question, John, because it appears that we're going to be opening restaurants in a social distancing way, it doesn't look like there's much training cost in regards to bringing people back. Ultimately, we're bringing individuals that have worked with BJ's. So the training on that from an hourly standpoint is pretty minimal and we haven't really seen it in our Texas or Florida restaurants as of yet.

34:35 And I think that's probably going to be the case again because the restaurants are going to be opened up in a social distancing type of thing. Outside of that though, as I mentioned in the call today, we are having to obviously increase the cleaning, sanitation in our restaurants. whether that's gloves and masks and other things. And we do expect to see that incremental cost come through in the operating and occupancy side of our business. I think everybody's going to, in the restaurant space, see that for a while until that gets through everybody's supply chain and becomes more of a normalized cost within the business. So generally I think you see a little bit more in the operating and occupancy side today than you see maybe in labor.

35:21 Thank you. Just one last question. I understand job one is to get the restaurants back up and running and real estate and community development has been pushed aside, but as you think about, if you've had time to think about how BGs may look different, either real estate site selection or the format of the store, do you anticipate changes to how the four walls look or the sites you select just based on this experience and maybe potentially permanent changes to how consumers behave? You know what, John, it's a great question that we do right now probably in our spare time think and talk a bit about. I think there's a lot more, I would say, that won't change than will change.

36:06 And the primary reason I say that is the foundation of our dining room experience is highly social. And I don't think that's going to go away. I mean, the fundamental of going out with friends and family in the near term, you've got to make sure that appears and actually is a super safe experience, obviously. But that's what people are yearning to do. And for that reason, those elements of our business, fundamentally from how we build our restaurants and and maybe where, you know, also where are we building, maybe not so much. But I do think, you know, as you know, we've been on this road of how can technology make this experience a better one and not at the detriment of hospitality but increasing the convenience and just, you know, dipping away with some of the pain points of dining in a restaurant and, Our hope is that this current experience will accelerate some of that from a technology perspective.

37:18 I mentioned some of these things that we're doing around a downloadable menu that our guests, so far, again, very early on, really appreciate not having to touch the menu, but they're also finding the experience to be pretty convenient and When we can tie that mobile device to a guest and lead to payment and other elements that can drive more convenience, that's the kind of stuff that I think will change the experience and for the better. The obvious one is continuing to I think this will involve more physical changes as off-premise reaches these kinds of numbers and and in fact we are able to hold on to the majority of these dollars. That will necessitate, you know, we started going down that path and have put some capex behind expanding our takeout areas and situating our kitchen lines to accommodate these kind of volumes, but this will require further changes on that side of the business.

38:30 Thank you. Thank you. Jeff Farmer of Gordon Haskett You know, Jeff, I'd say, you know, as is usual, we're going to see, you know, some level of weight, but it was pretty even flow over the weekend, which is really the test of that. You know, we were running, keep in mind, it's something we didn't really accent in our remarks, it's not typical that we're taking the level of reservations that we are taking now.

39:39 in fact we're encouraging guests to reserve online or just call the restaurant so we can better manage that flow because honestly one of the things we're worried about that's going to be tougher to manage is we can't queue people in our waiting areas so we're having our host literally outside the restaurant meeting folks as they're coming up and then using text to let them know when they can come back to the restaurant to be seated and So, so far, you know, it's been, like I said, because of reservations, and I think, you know, people are easing back into this. We, again, we're encouraged by the sales volumes, but it was, like I said, it was pretty evenly paced.

40:25 And then, your second question, it's too early to tease out, you know, much of, you know, This is true of our business in general. We have obviously higher volume restaurants and those that are lower around our averages, but our extremes are not that extreme. We didn't see something where initially you're like, wow, urban, you might think more dense, Urban areas versus some counties in Texas where they've had such a low level of infection rates or whatever. It may have been different was one theory, but not yet. Nothing that stands out this early on.

41:11 That's helpful. And just one other follow-up. So you guys touched on this, but in terms of thinking about that off-premise sales growth, any color in terms of how much of that growth was driven by curbside versus delivery? Yeah, yeah, about 70% of our increase is coming from takeout, interestingly. So that is up almost threefold, and delivery is still up nicely at about 90% of the pre-COVID rates, but it's about 30% of the incrementality. Okay, thank you, guys. Okay. David Tarantino of Baird. Hi, good afternoon. I hope you both are doing well.

42:02 My question, I have a couple of technical questions. So on Texas, I think you mentioned the $20,500 lift in average weekly sales. Could you maybe frame up what that means relative to what the prior down-end business looked like a year ago? I'm sorry, David, can you ask the question again? Yeah, I'm sorry. It's the pitfalls of working at home. The $20,500 in average weekly sales you mentioned for the Texas dine-in business that you're seeing, I was wondering if you could tell us how that compares to what the dine-in business in Texas in those same restaurants was a year ago. just so that we can frame up what percentage of the volume you've recovered, I guess, apples to apples versus the dine-in business a year ago.

43:06 Yeah. I don't know if I have that. I'm just trying to see if I have something on that. You know, the better way I would say it is Texas is – Texas has been down last couple days from a comp sales perspective somewhere in the negative 45% range. I probably think about it that way. I don't have in front of me the difference between takeout or off-prem, let's call it, and dine-in of last year. I just kind of have an absolute in where that new dine-in room sales were. Got it. Okay. That's helpful. And then...

43:53 Are you getting guest feedback on the experience in these restaurants as you reopen them? I'm curious to know what the reaction has been to all social distancing efforts and what the experience is like in their view, if you have it. And then I guess if there's anything you can share on how they're using the restaurants Thank you for having me. and just weeks ago, right?

44:53 And listen, it's kind of a... You have guests that are willing to be in the restaurants to begin with. It's not the general population, right? So you have folks that have an expectation of, like, okay, I'm going out in the world here. So it's not necessarily representative of all of our guests. But having said that, people were actually... Not just receptive, but glad we were doing what we were doing because it made them feel safe. And I think the visual cues and the actual things that we are doing, and look, others are doing a lot of them as well, right, are reassuring people. And so, you know, so far, again, I think it's encouraging that the number of people that are going out are going out, and I think the and Greg Levin.

46:13 Do you have a rough ballpark for what the restaurant contribution margin looks like at the current sales volumes for the industry overall, not just Texas, but for your chain overall, and then what that would look like or what levels needed to break even specifically at the restaurant level? Yeah, you know, I don't have at the current level at $30,000. We think we need to route $55,000 to be cash flow neutral at the restaurant, and we need that additional $10,000 to move us up to $65,000 to get us to cover our G&A and other costs around tap access and other things.

47:07 Okay, great. Thank you both very much. Thank you. You're welcome. Nicole Miller of Piper Fendler. Thank you. Good afternoon. Hi. Thanks for the time. I wanted to understand the limited menu. What are you learning or what is that informing so far about margin, speed, and accuracy? Obviously, it's very early days, but how do you think about a staged reintroduction versus perhaps elimination of certain items or even platforms? Yeah, another really good question. Look, we are not just going to start with the end point.

47:52 We're not going to rush to institute our full menu all at once. And we will look at it in stages for sure. And as you know, because you've been following our story a long time, we've been on this course of trying to reduce the number of items on our menu prudently where our level of now about 145 compares to 180,190 previously. So we're going to look at it and analyze it on all different dimensions, certainly not led by cost but by sales and I think it represents an opportunity Thank you very much.

49:13 Thank you very much. Thank you. John Powell, Wells Fargo. Great. Thanks for taking the questions. Just a few from me. First, I'm curious. I think, Greg Trojan, you mentioned earlier that at the 25% capacity levels in Texas, you're burning through quite a bit of money in that market. So I'm just curious to know why you reopened full dining rooms if you're still burning pretty significant levels of cash in that market versus just keeping the off-premise going. And I've got a few more questions after that. Well, just for clarity, I didn't say we were burning through a pile of money. I said it was going to not greatly influence our burn rate. And it may put a bit of pressure on it, but we felt like the tradeoff of, of learning.

50:08 We think those capacities are going to grow sooner rather than later. We wanted to get team members back to work. We wanted to continue the momentum. We don't think we're taking undue risk in doing that financially. And I think the benefits of learning operationally how to get better because, you know, look, we do think we're in this for quite a bit of period of time, that we're in a world of social distancing where operating differently for a long time. And so we thought the tradeoff of starting in Texas was the right thing to do there. And we're learning a lot, and most of it's been exceeding our expectations from a guest perspective.

51:01 Okay, thank you. And then kind of following that similar thread, Thinking about your business longer term and how it's going to change, I know it was already asked about how your stores might look, but I'm kind of curious to think about the company as a brand in and of itself. Obviously, you've got a strong beer business that's out there. Has this kind of changed your thinking about maybe extending the brand beyond the four walls and potentially going after new revenue streams, or is it sticking within the four walls and focusing purely on the restaurants? Hey, well, because I think what others might be missing here is we are optimists around people gathering and socializing and enjoying food and drink.

51:47 Like it's one of the oldest, most important elements of being a human being, and it is not going to go away. So are there going to be challenges and timing and all of that? Yeah, will people, will some of this induce changes that, may last a long period of time, yes, but they're not going to impede our fundamental business model of people wanting to be in a restaurant, having good food, and award-winning beer. So that is a very strong position that we have as a company, I have as our CEO. I do think I do think, look, we're looking at other revenue streams and, you know, they're not mutually exclusive, right?

52:32 So I think looking at the popularity of our beer that we have started to sell in retail over the last couple of years as an example, you know, there's probably, you know, other things that we can be doing with our Pizookie franchise outside of our four walls. So, yeah, we do... We do think there are opportunities to do that, but not driven so much because we think dining in is going away. Understood, and I appreciate that, Collar. The last piece, and it kind of powered along that same line of thinking. I'm curious, you know, you mentioned earlier just the idea that it's going to take a while for things to return back to normal.

53:20 and a lot of the commentary in the industry so far is perhaps that the independents, particularly in the full service sector, might have a more difficult time of reopening and staying open for much longer. So I'm just kind of curious if you could perhaps put some numbers around your stores. Do you have a general idea of the competitive set from the independents within, say, a three to five mile radius of your stores across your system? No, we really don't, actually. It's a valid question, but look, I don't, it does vary by market where you see more, you know, chain representation, you know, in Texas as opposed to the northeast, just anecdotally, because probably obvious real estate development and other reasons, but, you know, we don't, We don't look at it on a trade area market-by-market basis in that way. It's an interesting question, but we don't have much to offer you there.

54:29 Okay. Thank you. I appreciate it, and good luck. Thank you. Thank you. Thank you. My question is a couple of follow-up ones there. I just wanted to be clear. With the $25,000 from the 25% capacity added in those Texas stores, those stores saw a greater cash burn after the vending room opened? Is that correct? No. What we're saying is don't expect us to convert to a wildly different burn rate immediately based upon and so forth. After a few days' scientific analysis of our P&L, we realized the cost of the supplies, et cetera, that Greg outlined, and we know the business well enough to tell you it's not going to be wildly incremental at those numbers. It may put a little short-term pressure, but we wouldn't be doing it if we thought we were going to change our burn rate significantly.

56:00 And then I think the answer asked before a little bit about when you had the 25K from the dine-in business, but then I think, Greg Levin, you said those stores were doing down 45. So are those stores seeing growth specifically in their delivery business, or are we just talking in aggregate the brand itself? So I'm just trying to understand the actual stores that have the dine-in business. It's both, actually. It's 20,500, just to be clear, not 25,000. But we are saying in those stores, so far, those restaurants have seen continued growth. Again, we're talking days here, but that takeout and delivery grew in those restaurants.

56:45 Yeah, I think it's important, Matt, when we think about that 20,500, Fred Kozen said again, we're talking days. Texas opened up their dining room last Friday. So we have Friday through today that we're giving you data for information for. That number could wildly change next week, both positively and negatively. So I just want to make sure as we talk about that, we've added, when we look at Texas this last week, having the dining room open, it added about $20,500 to their sales levels versus what they were doing before. I appreciate that. Thank you for having me. Anecdotally or maybe hard numbers, what you've seen, how the guest is using you, more in dinner, more in lunch, or absent late night.

57:56 How does that sort of fall out, that 25% capacity being used compared to your prior business? Thank you. Well, it's a good question that I don't know if we know the answer. I can tell you before we opened the dining rooms, we saw most of our growth at dinner, which is probably what you'd suspect. but it also brings up a good point, Matt, is we're not opening late night. We're only staying open until 10 and 11 on weekends in most of these restaurants so we're not opening to the true late night that we have traditionally here and I would suspect, again, we'll have to have a little more time go by. I don't think that late night business, I think that's still going to be a more impacted side of of the dine-in business that we've seen it quiet down earlier than it normally would.

58:54 Excellent. Thank you so much. Okay. Next, we'll hear from Todd Brooks of CL, King & Associates. Hey, good evening, everybody. I hope you're well. Two questions on a different vein, but they're linked. One, if you could walk through... just what the reality was of approaching your landlords and trying to renegotiate either abatements in rent or deferrals to maybe the end of the lease period, how collaborative that was, how you felt going to them, how successful you were. And then secondly, just in negotiating the amendment for the credit facility, and so forth. Same type of question. How was it working with your lender partners?

59:45 What did it cost you to get the amendment? And I guess how much recovery do we need to see to clear the Q4 covenants which sound like they're set to a more flexible level? Thank you. landlords. Todd, those discussions are truly ongoing. A number of our restaurants have said, look, we hear you. Let's let a little, I'd say the majority of our restaurants or landlords reacted in that way to say, okay, we hear you. We understand what you're going through. We're not going to make any broad commitments. Let's let a little time pass. And I think More of those substantive, ongoing, what the world might look like between us and landlords is, like I said, both ongoing and really starting to occur more now than they were four or five weeks ago.

1:00:49 And look, we have high-volume restaurants and have been great tenants for a long time, and we have some great landlords on the other side, so We have an asset in terms of those relationships, but look, it's not a happy time for either party on the side of that conversation. So I just tell you it's ongoing and active in that regard. And Todd, on the banks, I think the banks understand that there are a lot of really good businesses out there. And everybody's going through a period where the entire U.S. economy slash world economy is shut down and not in any fault of the businesses.

1:01:45 And so our working with the banks has really been around that. They've been very flexible. We've tried to reach agreements that make sense for both parties. They knew going or prior to COVID out there that DJ's always maintained a very unlevered balance sheet for the most part and a solid financial position. They took that approach as we worked through to come up with a covenant agreement that made sense for both parties. So, you know, I don't think it was anything crazy for both parties. I think they were trying to figure out and so forth. So, I think that's really how we can manage this through and make sure that DJ's has the flexibility to continue to operate its business so that when it comes out on the other side, both parties are in good shape and good standing and really that's how the approach went.

1:02:36 Okay, great. And just on the, when we get back to having a covenant in place in December, can you talk about where kind of weekly sales volumes need to get to to clear that hurdle or any sort of color you can give us there? I wouldn't go into that much specifics on it, but it really starts in November for us as we start to look at it and be taking leverage ratios up. Probably you can see all that information in our filing from that perspective. But, you know, based on all of our analysis that we've done, we are not expecting us to be in a position of putting up comp sales positive in November and December of this year. We still have ourselves negative from that perspective.

1:03:21 I think 2020 is probably going to be a little bit of a tougher year from that standpoint. I would say I do expect all of our restaurants to be open by November and December of this year, but I'm not expecting it to be a positive comp sales quite yet. And therefore, as we look through our covenant calculations, It's based on still a pretty significant decline in comparable restaurant sales into the November and December timeframe. Okay, great. Thanks for the call. And our next question comes from Chris Sokol of Stiefel. Hi. Good afternoon, guys. This is actually Alec on for Chris. Just had a question on the sales of beer outside the restaurants.

1:04:06 Are there any restrictions on that, and how much of that contributing to your off-premise sales right now. As you probably know, tied house laws vary by jurisdiction, states, counties, cities, et cetera, so they're all over the place. I think the most important thing to know is many, many of those jurisdictions loosened – I don't want to use that word – and as a result that's helped us grow that area of our business. It's still down versus, you know, it's one of the areas most impacted because of the dine-in, you know, incidence is always going to be, you know, so much higher.

1:05:01 So it's hard to quantify it as, you know, part of our growth, but it has grown off-premise. I don't have that number off the top of my head. I do would also add that it would be my expectation, and this is just conjecture, that the legislative bodies or powers that be are going to see that the world is not a worse place as a result of people being able to obtain beer through delivery and takeout, and I think The public outcry, if you were to go backwards on that front, would be a high level. So, you know, a little bit of us were hoping but would also be expecting that a lot of those will stay in place post-crisis here.

1:05:56 Okay, thanks for that. And just one more question. Following up on that, it seems like in the current environment with gatherings limited and off-premise usage increasing, it would kind of lend itself well to that beer club subscription you were planning on piloting later this quarter. Is there any update on that? Is that still planned? Any trial beyond California or any update there? No, it's a good observation, and we agree with you, but given the priorities of all that we have been – We've been grappling with here, you know, we postponed that rollout and test in California. But it's, you know, I'd say it was in the eighth inning plus, even the top of the ninth ready to go. So as soon as we have some, you know, a little more stability in dining rooms, you know, dining rooms have to be open for people to come in and pick up their beer, et cetera. So... So we're as anxious as you to get that going, but we don't really have a time frame yet.

1:07:00 Okay. Thanks, Rick. And there are no further questions at this time. That does conclude today's conference. Thank you all for your participation. You may now disconnect. Thank you, everybody. Thank you.