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BJ's Restaurants Inc  (NASDAQ:BJRI)
Q2 2019 Earnings Call
Jul. 25, 20195:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the BJ's Restaurants Inc. Second Quarter 2019 Earnings Release and Conference Call. [Operator Instructions]

At this time, I'd like turn the conference over to Greg Trojan, Chief Executive Officer. Please go ahead, sir.

Greg Trojan -- Chief Executive Officer

Thank you, operator. Good afternoon, everyone, and welcome to BJ's Restaurants fiscal 2019 second quarter investor conference call and webcast. I'm Greg Trojan, BJ's Chief Executive Officer and joining me on the call today is Greg Levin, our President and Chief Financial Officer. We also have Kevin Mayer, our Chief Marketing Officer; and Greg Lynds, our Chief Development Officer on hand for Q&A.

After the market closed today, we released our financial results for the second quarter of fiscal 2019, which ended July 2. You can view the full text of our earnings release on our website at www.bjsrestaurants.com. Our agenda today, we'll start with Rana Schirmer, our Director of SEC reporting, providing our standard cautionary disclosure with respect to forward-looking statements. I will then provide an update on our business and current initiatives, and then Greg Levin, will provide a recap of the quarter and some commentary regarding the balance of fiscal 2019. And after that, we'll open it up to questions

So Rana, please go ahead.

Rana Schirmer -- Director of SEC Reporting

Thanks, Greg. Our comments on the conference call today will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the company to be materially different from any future results, performance or achievement expressed or implied by forward-looking statements. Investors are cautioned that forward-looking statements are not guaranteed to future performance, and that undue reliance should not be placed on such statement.

Our forward-looking statements speak only as of today's date, July 25, 2019. We undertake no obligation to publicly update or revise any forward-looking statement or to make any other forward-looking statement, whether as a result of new information, future events or otherwise, unless required to do so by the Securities Laws. Investors are referred to the full discussion of risks and uncertainties associated with forward-looking statements contained in the company's filings with the Securities and Exchange Commission.

Greg Trojan -- Chief Executive Officer

Thanks, Rana. BJ's record second quarter revenue reflects our continued success in driving positive comparable restaurant sales and further progress with our off-premise sales, menu innovation and unit expansion initiatives. Our Q2 comparable sales of 2% expanded our trend of materially outpacing the industry in both sales and traffic.

Our second quarter sales outpaced the competition as measured by Black Box by 210 basis points, while traffic outperformed the industry by 150 basis points, particularly impressive when you consider that we were lapping outperformance of a year-ago above 400 basis points on both measures. In fact, for the quarter ended July 2, our two-year cumulative sales growth rate was 7.6%, the highest level in over six years.

BJ's has now outperformed Black Box sales over the last eight quarters or two years by 280 basis points on average per quarter and by 250 basis points per quarter in traffic. There is no better evidence of the sustainable competitive advantages we are building, when it comes to guest preferences and our consistent ability to gain share in today's incredibly competitive environment.

As encouraged as we are about the continuation of our sales momentum, we continue to face an inflationary cost environment, including weather related increases in cost of sales, wage rate pressures and the incremental costs of growing our off-premise business.

Commodities primarily driven by produce increased by approximately 2.3% in Q2, as weather impacted California crop yields and supplies of Mexican avocados. Effective wage rates continue to increase by mid-single digits this year, and Q2 labor of 36% came in slightly higher than the level we discussed on the Q1 call. The labor increase reflects these higher hourly wages as well as our discretionary investments in labor for our new check building, slow roasted items and the initial rollout of our new kitchen systems. Against this backdrop and reflecting our initiatives to become the Employer of Choice for the best talent in the industry, we are encouraged that hourly team member turnover trends are improving versus last year and we're hopeful this is an indication that labor availability versus demand is starting to level off.

With nearly 30% continued quarterly growth in our off-premise business, we also incurred pressures on our restaurant operating margin related to higher third-party delivery fees. Keep in mind, these additional off-premise sales are delivering incremental margin dollars to our business. That said, as we previously indicated, given all these current cost factors in our business, we need to drive comparable restaurant sales in the neighborhood of 3% to maintain our restaurant level margins.

At BJ's, we've always focused on building sales, while at the same time, investing in systems, process initiatives and other efficiencies that allow us to operate in a high return profitable manner. So I'll now review some of our progress on these fronts.

Our extremely successful introduction of our tri-tip entrees along with the prudent management of our depth and frequency of promotions, drove healthy guest check in the 3% range for the quarter. A nice improvement over Q1's positive 1.7%. In order to achieve our 3% comp sales objective, we plan to focus on our value oriented traffic and check building menu additions, growing our off-premise sales and continuing to drive promotion and discounting efficiencies while maintaining our strength in traffic.

We believe that our continued success in the higher price slow growth category of our menu, along with our recent loaded burger promotion bodes well for continued healthy levels of check growth. With the addition of our tri-tip sirloin menu items, order incidents of our slow roast category has increased by nearly 70% over last year, and collectively our tri-tip items now represent one of our most popular entree categories. While we love the check benefit of these items, much like our prime rib introduction, our new slow roast products can also drive great value for our guests and our tri-tip combination dishes are great examples of that. We took the opportunity to add our tri-tip entree to our brewhouse specials line up at $13.95 to give our guests an even greater value on Thursday nights.

In terms of off-premise, we're encouraged by the growth of our large party catering business in the early days after launching our new menu website and our new order processing. Although very early and still a small part of our off-premise business, we're seeing both traffic and off-premise check growth as a result of the increases in these catering orders. Overall, our off-premise business continues to grow at over 20% even though we completed full system coverage of third-party delivery late last year.

More importantly, the ongoing systems and operational improvements we and our delivery partners are making are producing a solid guest experience, as demonstrated by the improving net promoter scores for orders sourced from our website and app and delivered by third-parties.

Driving our top line is the best way for us to offset the cost pressures we face. In addition, we're working as hard as ever to unearth opportunities for us to improve the efficiency of every aspect of our operations. Last quarter, we began the rollout of our Gold Standard Kitchen Systems Initiative and we will complete this kitchen reorganization effort in the next few weeks. This effort is focusing on how we organize, setup and prep our kitchens for a successful shift execution. We've evaluated every aspect of our kitchen value chain from how and what food and supplies we order to order quantities, to how we physically receive and store, to who and when we perform prep for our kitchen lines.

While our investments in training and labor came at a somewhat difficult time, given the wage pressures we're facing, we believe we're making this investment at exactly the right time. Our Gold Standard Kitchen Systems are creating a new level of kitchen organization and process, driving even better food quality and speed, while as importantly, making our kitchens more satisfying places for our team members to work. It's only been a few weeks post execution for some restaurants, but we're already seeing that our initiatives are working and that our kitchens are operating more effectively.

Investing in growth initiatives like our tri-tip slow roast menu, GSKS kitchen systems, our infrastructure around off-premise and large party catering have put a lot on our operators plate. I could not be more proud of how well our teams have responded to these efforts, and how impressively they are executing. Still room for improvement, of course, but we continue to build greater separation in terms of guest experience versus our competition as -- again as evidenced by our ability to consistently grow market share in our industry.

And at the same time, we're building differentiation for BJ's in the restaurant industry as a gold standard employer, an employer of choice, and we see that bringing benefits to everything we do. While our concept remains a leader in sales and traffic metrics in the casual dining space. We continue to refine every aspect of our operations from our menu to marketing, to our guests experience, to kitchen efficiency. These strategic initiatives place our guests at the center of everything we do, making sure we're elevating our dining experience and positioning us to grow our restaurant base and improve shareholder returns.

Notably, our growth journey has a long way to go as there continues to be expansion opportunities to reach at least 425 BJ's in the United States. Our new restaurant growth plan is predicated on expanding at a rate that allows us to open new restaurants in a high quality manner. And I believe the results of our most recent openings reflect the efficacy of that approach. In fact, our last eight restaurant openings had weekly sales averages over $116,000. Just as in this second quarter, marking some of our best openings in recent years.

We continue to believe it's important to balance our resources between sales and traffic building initiatives, investments in process and efficiencies, new restaurant growth and returning capital to our shareholders. During Q2, we repurchased approximately 422,000 shares of our common stock and paid our seventh consecutive quarterly cash dividend, while we maintained a strong balance sheet with low leverage. The BJ's growth story continues to have a long road ahead, and I think you'll agree that our recent results are a strong indication that we continue to make progress and building on the strength of the BJ's brand to provide the industry's best guest experience, while delivering increased value for our shareholders.

So I'll now turn the call over to Greg Levin for a review of our finances, and then we'll do some Q&A. Greg?

Greg Levin -- President, Chief Financial Officer and Secretary

Hi, thanks, Greg. Before we get into all the details of the quarter, let me remind everyone that beginning with Q1 of this fiscal year, we adopted accounting standards update 2016 DASH 02, which is Topic 842 for leases, which requires us to put the present value of our leased assets on our balance sheet as a right to use asset with a corresponding lease liability.

The new lease accounting standards also require us to make that one-time non-cash cumulative adjustment to retain earnings of approximately $29 million of sale leaseback gains that we were amortizing in occupancy and operating costs over the term of the existing leases. This results in an annual increase in our operating occupancy costs per year of a little over $2 million. As a result, this new accounting standard impacted our restaurant level margins in the second quarter and our overall operating margins by approximately 700,000 or 20 basis points which equates to $0.03 a share for the quarter.

And a full reconciliation related to this new accounting standard is included in today's press release. Our total second quarter revenues increased 4.7% to $301.1 million and that was driven by our 2% comparable restaurant sales growth and a 2.6% rise in operating weeks. We have now driven positive comparable restaurant sales for seven consecutive quarters.

From a monthly trend perspective, comparable restaurant sales improved throughout the quarter. At the end of our Q1 earnings call , in late April, we noted that comparable restaurant sales were trending in the mid 1% range and were impacted from Easter shifting from Q1 in fiscal 2018 to Q2 this year. As expected, the comparable restaurant sales trend improved into the mid 2% range for the rest of the quarter.

Overall, we saw an increase in our average jack of around 3%, which was partially offset by a traffic decline around 1%. We estimate the flip in the Easter holiday impacted Q2 sales and traffic by approximately 40 basis points and 30 basis points, respectively. So excluding Easter weekend, our comparable restaurant sales would have likely increased approximately 2.4%.

Looking below the top line, our cost of sales was 25.5%, which was up 50 basis points compared to last year's second quarter. As we telegraphed on the last call, the increase was primarily due to high produce costs, primarily from avocados and menu mix related to the rollout of our very successful new tri-tip sirloin.

Like two years ago, when we rolled out our slow roasted prime rib, we expected some pressure on cost of sales from the success we are having with our tri-tip sirloin. And like our prime rib, the protein-centric tri-tip sirloin specials have a higher cost of sales percentage, but also generate higher check average, resulting in greater gross profit dollars.

Labor at 36% for the second quarter, rose 50 basis points from a year ago, due primarily to higher average hourly wages. We also invested in the rollouts of our slow roasted tri-tip sirloin and our Gold Standard Kitchen Systems. These factors were partially offset by lower incentive compensation and taxes and benefits compared to the year ago quarter. At the end of Q2, approximately 80% of our restaurants had completed the new Gold Standard Kitchen System implementation, and we expect the remainder to be finished by the end of July. As a result, our team members are still working through and adjusting to the new procedures and we anticipate that these learnings will last through Q3. Our hourly wage growth in Q2 was in the mid-single digits and are expected to remain in that range for the rest of fiscal 2019.

Operating occupancy costs increased 90 basis points to 21.4% from last year's second quarter. The increase was primarily related to higher delivery fees and maintenance costs related to our handheld server tablets as well as the 20 basis impact related to the new lease accounting standard, that I reviewed earlier. Included in operating and occupancy costs is approximately $6 million of marketing spend, which equates to 2% of sales and is pretty consistent with last year's second quarter. Marketing costs came in lower than anticipated as some production costs were moved into Q3 and Q4 of this year.

Our general and administrative expenses of $60 million were within our expectations and 20 basis points better than a year ago. In terms of capital allocation, we continue to use our strength or our strong cash flow from operations to execute our expansion plan and invest in our business, while opportunistically repurchasing shares.

Total capital expenditures for the second quarter were approximately $39 million and we continue to expect gross capital expenditures for fiscal 2019 to be in the range of $80 million to $85 million. During the second quarter, we allocated $19.2 million to the repurchase of 422,000 shares of our common stock. We have now repurchased and retired approximately 10.4 million shares of BJ's stock for $408.9 million, reducing our diluted share count to approximately 21 million. And we have a approximately $91 million available on our current share repurchase authorization. In addition, during the quarter, we returned $2.6 million to shareholders through our quarterly cash dividend.

With regard to liquidity, we ended the second quarter with approximately $23.4 million of cash and $100 million of funded debt on our $250 million line of credit, and that is in fact -- in effect until November 2021. With trailing 12-month adjusted EBITDA of $136 million, our funded leverage remains modest at 0.7 times.

Before we open the call up to questions, let me spend a couple of minutes providing some commentary on our outlook for the third quarter and remainder of fiscal 2019. All of this commentary is subject to the risks and uncertainties associated with forward-looking statements as discussed in our filings with the SEC.

With July 4 moving to a Thursday this year from a Wednesday a year ago, coupled with less extreme heat in California than a year ago, we have experienced a softer start to this quarter, just as we experienced softer start to Q1 with the shift at Easter from Q1 to Q2 this year. As such, comp sales for the first three weeks of July are roughly flat with a year ago. And parsing July's comp sales to date, the softer sales are primarily in certain areas of California, specifically the Bay Area of Northern California, where many restaurants are going over double-digit comp sales from a year ago as well as some other pockets in California that also had very large comps a year ago stemming from some early July California fires.

If we exclude California from our comp sales across the rest of our portfolio of restaurants, we would be up in the mid 2% range for the first three weeks of July. In addition to the softness in California, we have seen a deceleration of our delivery growth rate in July. We have been experimenting with some different offers to drive trial, particularly with our third-party partners. Our objective is to test offers which are more spend efficient and also are more unique to our concept, enabling us to stand out in a much more crowded field than just a year ago. For example, we've been testing a Free Pizookie with a Door -- our DoorDash partners for the last couple of weeks, an offer that is less costly but is trending at a lower cake rate as compared to a free delivery. That offer for the Free Pizookie is based on a spend of $19.95. These experiments will require some testing and learning over time.

Also for those of you modeling, while Q3 was our highest comparable sales for the quarter of 2018 at 6.9%, part of that increase was due to lapping of the hurricanes that took place in both Texas and Florida in 2017. In fact, there were three specific weeks in which we were comping around 10% or greater in 2018 which were directly related to the hurricane rollover. Taking those weeks out, our comparable restaurant hurdle is closer to 6%, which is not that much higher than the level we just comped over Q2.

With regard to restaurant operating weeks, we are looking at approximately 2,680 weeks or so in Q3. And moving onto the rest of the P&L, we continue to see high costs for avocados to start in Q3, although we are now starting to see prices abate as well some other commodity item increases. Overall, I'm expecting cost of sales to be in the upper 25% range for the quarter or ever so slightly higher than where Q2 came in.

With regard to labor, we continue to expect wage inflation and higher labor expenses as we finish out implementing and training for our new kitchen systems, which is expected to largely occur by the end of the quarter. Based on current sales trends and that we still have restaurants implementing our new kitchen system rollout, coupled with Q3 being our lowest weekly sales average of the year, I'm expecting labor in Q3 to be in the low to mid 37% range and then declining in Q4.

We are targeting operating occupancy costs in the low 23% range for Q3, and that includes $7 million in marketing spend. In last year's Q3, our marketing spend was $6.1 million, which equated to approximately 2.3% of sales last year. The increase in marketing in Q3 of this year is primarily for increased media and production to help build awareness of our new large party catering offerings and reflect some rollover costs in Q2 and in Q3. However, for the year, our total marketing spend will be in the low to mid 2% range, which is consistent with last year.

As I said a moment ago, Q3 is seasonally our lowest weekly sales average quarter for the year, and as we reminded you previously, labor and operating occupancy cost as a percent of sales are highly correlated to weekly sales averages and comparable restaurant sales growth.

our G&A expenses for the third quarter should be around $60 million, as we continue to expect total G&A for fiscal 2019 to be around $65 million. Pre-opening costs should be in the $1 million range for the third quarter and that's based on two planned new restaurant openings plus some pre-opening costs for restaurants that are expected to open later this year.

I expect our tax rate in the third quarter to be in the 8% range, which should be more in line with our current annual effective rate and that's less any discrete items that may happen. And our diluted share outstanding should be in the mid to high $20 million range for the quarter.

In closing, our consistently positive sales trends reflect the progress we continue making in elevating the BJ's concept and our success on a range of sales doubling strategies. We are also very excited about our initiatives to improve the processes and procedures at BJ's through our new Gold Standard Kitchen Systems and make it an even better place to work and for guests to enjoy. This focus on driving sales while being maniacal on productivity and efficiency combined with our balanced approach to new restaurant expansion are the pillars of our near and long-term operating success and ability to gain market share.

These factors, coupled with prudent management of our capital structure and capital allocation policies that return capital to our shareholders is a proven formula for sustained long-term financial growth and the appreciation of shareholder value. We remain confident that the plans and initiatives we have in place have established a solid foundation for further success as we continue taking market share in the casual dining space. And we'll further elevate the awareness and attraction of the BJ's brand and concept and pursue -- and while we pursue the massive expansion opportunity before us, which positions us to double in size as we bring the BJ's concept to more markets across the U.S. We're excited about our future and our operating teams are executing at a high level in support of our strategic initiatives.

That concludes our formal remarks. Operator, please open the call up for questions.

Questions and Answers:

Operator

[Operator Instructions] And our first question comes from Brian Bittner with Oppenheimer.

Brian Bittner -- Oppenheimer & Co. Inc., Research Division -- Analyst

Hi, guys. Greg, just on the third quarter line item, margin expectations that you just gave. What same store-sales trend are you assuming for the full quarter within those margin expectations?

Greg Levin -- President, Chief Financial Officer and Secretary

Yes, Brian, we don't give guidance on our comp sales. We kind of give you where we are right now and we kind of look at different ranges from that standpoint within our business. So knowing that we're a few weeks in and kind of flattish, I think you can kind of assume that it's flattish to up in regards to where we're thinking comp sales go.

Brian Bittner -- Oppenheimer & Co. Inc., Research Division -- Analyst

Okay. And as you kind of analyze your trend so far this quarter and you're able to look back to last year. Is there any reason to believe that your trend will improve throughout the quarter? Is there any reason to believe that the California market will begin to perform more in line with the rest of the system? Or should we all be assuming flat trends for the quarters, the base case to think about?

Greg Levin -- President, Chief Financial Officer and Secretary

Brian. I don't know if we have an exact answer for it. I mean, when we look at our numbers, we were somewhat surprised because it was actually fairly -- it was a fairly quick change in the sales trends, and meaning, we finished P6 and let's just call it in the mid-2%s in every week and P6 was pretty solid. We thought the first week and I do still believe the first week is a little bit of a July 4 flip from that standpoint. But then as we started looking at some of our numbers, we didn't notice last year, we have like the Miramar fires down in the San Diego area and that impacted a lot of our San Diego restaurants. We had a Madera fire, we had a Yucaipa fire out in the Inland Empire hitting some of our restaurants. So I think as we get through that that should be a cause for an improvement in our California restaurants. But as we say and we really say that's kind of on the calls, we kind of give you the information we have to date. And I know that sounds like sometimes not enough. But even as we were looking at our business in June, we weren't expecting all of a sudden, if a change from what we saw literally the last week of June of what we've seen first couple weeks of July. So I'm planning that it's going to improve, and I think we've got good initiatives and things we like in our business from that standpoint. We feel very comfortable at least three weeks and how the rest of our portfolio is doing. We're -- we like the strength that we continue to see in those markets, as we said, that would be up in the mid 2% range that including Texas, Florida, Ohio, etc. It's just California has come out of the gate a little bit softer here. And as we went through and try to analyze it and isolate it down, those are the things that we've seen a little bit softer in the Bay Area. We're going over against some high comp sales of a year ago related to some fires. And then as we've mentioned on the call, maybe while still growing in healthy double digits, not having quite as strong a tailwind maybe as third-party delivery was a year ago, but still tailwind for us.

Brian Bittner -- Oppenheimer & Co. Inc., Research Division -- Analyst

Okay. Thank you.

Operator

And next will be Will Slabaugh with Stephens.

William Everett Slabaugh -- Stephens Inc., Research Division -- Analyst

Yes, thanks, guys. First I had a question on value. Curious how the brewhouse specials mix versus what you've seen in prior period. And is there any sense that the customer is either gravitating toward or away from value in your menu at this point?

Greg Levin -- President, Chief Financial Officer and Secretary

Well, when we look at our brewhouse specials, they've continued to perform well for us. And I think when we look at the number, in fact, I was just looking at like our Pizookie incident rate. And frankly, that number was flat with a year ago, which tells you that our guests are still liking it, obviously, but it's not necessarily increasing in this quarter from that standpoint, which means we're not necessarily seeing people just gravitate toward that specific day. I think when we look at our other specials in regards to our brewhouse specials, they continue to do really well for us, but at the same time, as Greg Trojan mentioned in some of his formal remarks, our prime rib continues to do well, which kind of -- we still think it's a value and that's a higher check item, our EnLIGHTened Entrees continue to do really well with the zoodles that we put on. So those are all higher items. I don't think we're seeing a movement just toward brewhouse specials, if that's kind of--

Greg Trojan -- Chief Executive Officer

I think Will -- Will not to put other words in your mouth, I think you were thinking maybe the opposite that we're seeing a shift away from those value items and we're not is the short answer, is we're still seeing good popularity brewhouse specials are not losing momentum. In fact, I would say not I say -- our mid-week sales performance is stronger due to brewhouse specials and if there is a softness, day of the week wise, it's been more on the weekends than during the week. And I think the value offerings of brewhouse specials and happy hour during the week are really helping keep track of healthy events.

Greg Levin -- President, Chief Financial Officer and Secretary

Yes, I guess I would also add, happy hour day parts are doing very well as well as the combos we try to have been doing well which are both value priced.

William Everett Slabaugh -- Stephens Inc., Research Division -- Analyst

Thank you. And curious also on the plans for Dash you mentioned the $91 million left on the buyback authorization, you have $23 million I think on the balance sheet not to be generating cash well. Given where valuation is, how aggressive can you plan to be on the buyback here?

Greg Levin -- President, Chief Financial Officer and Secretary

Well we always, I think look at our business, Will, and you hit it at the end there on kind of the enterprise via the EBITDA and we have obviously a very solid and strong EBITDA of $136 million or so, I think I said on a trailing 12-month. So we have that part out there, we'll probably deploy it accordingly going forward.

William Everett Slabaugh -- Stephens Inc., Research Division -- Analyst

Got it. And last just to follow-up on your July 4 comment. If you were to exclude the July 4 shift, is there any way to kind of parse that with what that trend would look like?

Greg Levin -- President, Chief Financial Officer and Secretary

I don't have the exact reason in front of me to kind of normalize for it, but I would tend to say that the shift obviously improved coming out on July fourth week from that standpoint. But I would tell you, I would say that the -- even pulling out the July 4, I don't think we are where we were and let's call it P6 in June, where we are seeing comps across the board in the mid 2s.

William Everett Slabaugh -- Stephens Inc., Research Division -- Analyst

Okay. Fair enough. Thanks, Greg.

Greg Levin -- President, Chief Financial Officer and Secretary

You're welcome.

Operator

And next will be Alex Slagle with Jefferies.

Alexander Russell Slagle -- Jefferies LLC, Research Division -- Analyst

Thanks. Wonder if you could talk about check growth that sounds like you're getting the 3% check that you'd previously discussed as the level you wanted to hold margins. But the commentary seemed to suggest that you might need more than this to hold the line. How much of this is sort of commodities or labor or traffic. If you can sort of pass through those pieces?

Greg Trojan -- Chief Executive Officer

Alex, just to be clear, really, we were targeting -- we think around a 3% comp sales. Level of sales growth is -- it gives us a good shot at holding margins, as we've said before. We did not mean to imply, we need more check growth than that. What we did see is some weakening in traffic relative to Q1 and the trend. So all the things that we're working on we'd rather see the balance between check growth in that 3% range, which as you'll recall, we fell short of that in Q1 for a variety of issues, promos, most prominently, the promotional calendar and some of the interactions of loyalty with some of our beginning of the year promotion. So we're happy that tri-tip has helped us a lot. We've continued to be wiser, if you will, around the balance of promotions. So in a perfect world, what we'd like to see is maintain 3% check growth, obviously, as long as it's productive check growth, we'd take more. But we're not sitting here trying to drive checkup further, we're trying to drive traffic.

Alexander Russell Slagle -- Jefferies LLC, Research Division -- Analyst

Makes sense. And I don't know if you have any updated thoughts on development for next year, whether you might reaccelerate or whether you sort of like to hold off on thinking about that, given the traffic environment and some of the other issues like labor and construction cost?

Greg Levin -- President, Chief Financial Officer and Secretary

You know what, it's still early for us to make any predictions or pronouncements. I mean, we are really, really enthusiastic about how our new restaurants are performing and coming out of the gate and a lot of new trade areas for us. So certainly we'll balance that with what we think is going on in the in the environment. But we haven't made any decisions at this point.

Alexander Russell Slagle -- Jefferies LLC, Research Division -- Analyst

Okay. Thank you.

Operator

And next will be Matt DiFrisco with Guggenheim Securities.

Greg Levin -- President, Chief Financial Officer and Secretary

Matt?

Operator

Matt. Go ahead, sir.

Matthew Kirschner -- Guggenheim Securities -- Analyst

Can you hear me?

Operator

Again? Go ahead. Yes, we can. Thank you.

Matthew Kirschner -- Guggenheim Securities -- Analyst

All right, thanks. This is actually Matt Kirschner on for Matt. I have a quick question on the GSKS roll out and then a question around the digital delivery sales. But can you quantify the GSKS rollout impact during those second quarter?

Greg Levin -- President, Chief Financial Officer and Secretary

It's probably somewhere in the neighborhood of 10 to 20 basis points, Matt, it still came in line with about 125, maybe a little bit more of hours per restaurant. At the same time, I think we were probably around 160 to 170 restaurants that got completed in Q2 with the remainder coming here in Q3. And when I think about that 125 or so hours, it's not all one week and then it's done. It takes time to kind of implement this -- get the sea legs under each restaurant team and then drive efficiencies out of it. So it spans over a few weeks.

Matthew Kirschner -- Guggenheim Securities -- Analyst

Okay. And is it possible to also give us an updated number for 12% of total sales on off-premise delivery and then also catering? I know you mentioned pushing that more in the third and fourth quarter with some new marketing, but can you quantify that as well now?

Greg Levin -- President, Chief Financial Officer and Secretary

Well, our off-premise is right around 10% or so, and it's still pretty evenly split between delivery and take out. In fact, one of the things that we're encouraged to see is that our takeout business lately has been growing. Now, obviously we'd like take out a little bit more because you don't pay those commissions to the delivery companies. Our catering is small, I believe I want to say it's less than 1% of our sales and we think that's where we've got an opportunity to grow that. It just rolled out with some of our changes here in the May timeframe. And as I mentioned on our call, we're going to do some more marketing or some new marketing around that in Q3. We -- originally were going to do it in Q2, but frankly, the catering packages and things we put together take a little bit longer to get out. So that's some of the shift in the marketing side of things. But it's a small amount and we're going to go after that for the second half of the year and we think we've got a great opportunity with that part of our business.

Matthew Kirschner -- Guggenheim Securities -- Analyst

Great. Was there anything that you guys did differently to kind of hold up your take out business versus the delivery business?

Greg Trojan -- Chief Executive Officer

So just in general, I mean, we've been working hard, our ops team around, we've been putting some capital in our restaurants to make it easier for both our team members and our guests. We've done a lot of work online in terms of an ordering perspective to make ordering takeout more for convenient. So this isn't something although we've launched this next iteration pretty recently. We've been working on off-premise in the operations for quite a while, over a year now. And as I mentioned in my script, the -- it's really good to see our NPS scores but both improve. They -- I would say from an absolute basis, they still lag dining, which doesn't, I don't think surprises anyone on the line here. But they're not drastically different. And we're heartened by the fact that we're seeing the fruits of all the improvements and we're making from a restaurant perspective, because fundamentally, it's not a great guest experience just growth in off-premise is not going to last, right. So it's not, again, it's not perfect, but I think it's headed in the right direction.

Matthew Kirschner -- Guggenheim Securities -- Analyst

Would you say it's fair to characterize that your most loyal customers skew toward the take out and then new kind of incremental customers tend to try the delivery?

Greg Trojan -- Chief Executive Officer

I think that makes logical sense, but I can't tell you we -- we've looked at or have looked at the data to support this statement. But I think that's a pretty good guess.

Matthew Kirschner -- Guggenheim Securities -- Analyst

Okay. And then just one last question around the new store development, obviously, you highlight the strong openings. I just had a question around the stores when they drop into the comp base. I think there were two this quarter. I think one next quarter. But I mean how did the honeymoon periods look? You're entering newer kind of Tier 2, Tier 3 markets, specifically Connecticut for the first time. How did these stores hold up after 18 months?

Greg Levin -- President, Chief Financial Officer and Secretary

Yeah, we tend to still see that really the same trends in our business. And that is at 18 months, they generally come into the comp base a little bit on the negative because the honeymoon timeframe. And then from there they start to flatten out and start to move ourselves better overall. And I don't think we've seen any real change of that except the fact that our new restaurants are opening strong. And as a result, when they come off the honeymoon, they're not coming down nearly maybe where they were in some of the other markets. So I think as we look at and see as they come into the base, maybe there's a little bit less of a drag on them than maybe where they were processed in the past years.

Matthew Kirschner -- Guggenheim Securities -- Analyst

Okay. Thank you very much.

Operator

And the next question come from Nick Setyan with Wedbush Securities.

Nick Setyan -- Wedbush Securities -- Analyst

Thank you. There was some TV advertising I think that's planned for Q2. Can you kind of talk about the plans around Q3 and Q4 whether you can maybe put some TV advertising of the California markets to help out?

Greg Trojan -- Chief Executive Officer

In general, Nick, our media line up is pretty similar than what it looked like a year ago from a TV perspective. We are -- listen, we're going to react to these trends and Kevin, who can maybe speak a little bit more detail here, but we are looking at options of moving other elements of our media mix digital what we're doing through loyalty. We have more levers than we've had in the past and we are certainly looking at options to move some more guns where they're needed more than that, right?

Kevin Mayer -- Executive Vice President and Chief Marketing Officer

Yeah. I guess just from a media perspective, I mean, we have a lot of levers to pull. We've got both on and off-premise marketing. We have digital marketing, really that's targeted around all of our restaurants that were able to adjust at times. And then from a mix perspective, we're always able to play with reaching newer guests as well as retargeting existing guests. So as some of these adjustments for California, we have considered both a media mix adjustment to maybe targeting more of our -- people that have visited our website in the past as well as maybe heading up more toward California at the expense of some other markets. We're still evaluating some of those opportunities right now.

Nick Setyan -- Wedbush Securities -- Analyst

And Greg mentioned, Greg Levin mentioned the testing on a third-party delivery, trying some different things that maybe haven't had as much attraction year-to-date. Is that's something that you're planning to continue or are there changes coming there as well maybe prove that--

Greg Levin -- President, Chief Financial Officer and Secretary

I think -- thanks for asking that question, Nick, as it's -- obviously in general, this growth in off-premise and third-party delivery is still new to everyone, right including ourselves, although we were in there a little earlier than a number of folks. And it's changing rapidly just by virtue of its growth rate. And we look at the promotion efficacy of some things that we ran a year ago versus today. There are a lot more competitors and attendees in these third-party delivery order platforms. So when they're running, I mean, we're participating in certain promotions, it's more difficult to stand out and they're just not as incremental, frankly, as what they were even a year ago. So we're working with our third-party partners and putting Kevin's teams creative hats on to look for ways where we can stand out and differentiate more than just the standard offers. And you know, it's going to take some trial and error. But I think we're not going to spend our way to buying sales at levels that we don't think really make margin sense either. So, yes, it's going to take some trial and error to find that right balance. And what we highlighted is that some of the softness that we're seeing and this is national, that it is a slowdown. Now when I say slowdown, we're still in healthy double-digit growth rates here. So just to be clear about that. But given the high growth rates that we've been seeing, part of the impact -- it has impacted comps a bit when that rate has slowed down a bit, as we've lapped some of the offers of a year ago that worked really well.

Nick Setyan -- Wedbush Securities -- Analyst

Thank you. And just last question for Greg Levin, on the margins quarter-to-date comp in Q2 was sort of that 1 -- mid 1s and then the trends improved, but relative to your commentary, the margins were below expectations. I guess, you kind of ran through some in terms of the labor inflation and the third-party delivery fee. Aside from the card, very understandable, on labor and other opex, what surprised you the most in terms of the negative impact there?

Greg Levin -- President, Chief Financial Officer and Secretary

In Q2?

Nick Setyan -- Wedbush Securities -- Analyst

Q2.

Greg Levin -- President, Chief Financial Officer and Secretary

Yeah in Q2. I think the biggest surprise in Q2, if you're assuming, again, I want to make sure you're talking in Q2 was I think the avocados. Avocados are in our top 10 of spend. And that probably was a little bit more of a surprise for us than I was anticipating there. I think the success of tri-tip and which has been really very successful has actually challenged our operators a little bit in regards to maybe just making sure they're prepping and so forth. So there's maybe some a little bit more inefficiencies around getting tri-tip in place in Q2 and I think we've worked ourselves through that. But those are probably two things going into Q2 that maybe we're a little bit more challenging than maybe we're anticipating going in.

Operator

And next question will come from Mary Hodes with Baird.

Mary Hodes -- Baird -- Analyst

Good afternoon. Thanks for taking the question. I just want to follow-up on Matt's earlier question regarding the cost pressure you saw in Q2 related to the GSK implementation. Does that 10 to 40 basis point drag that you highlighted for Q2 from implementing that also include the drag from introducing tri-tip or what would you say that the total drag on restaurant margin in Q2 was from those one-time initiatives?

Greg Levin -- President, Chief Financial Officer and Secretary

Yeah, so when you think about it, and I don't think Mary I said that the GSKS was 10 to 40 basis points, I think GSKS is probably more in the 10, 15 to 20 basis points. It's about $125 per restaurant on that. I would probably just thinking about how tri-tip rolled out and the adjustments that we had to make. There is probably another 10 to 20 basis points related to tri-tip in regards to how we roll that out and the additional hours from that. I think we're continuing to work our way through those things and we expect going in there, really I think into Q4 and later Q3 that we'll reach our efficiencies around both of those changes there. In fact, I'd probably say tri-tip was little bit more behind us and GSKS is in front of us a little bit.

Mary Hodes -- Baird -- Analyst

Okay. Got it. Thank you very much for that clarification and then can you just look at a high level about the level of promotional activity that you're seeing in the industry right now. And with traffic turning negative in Q2. Do you think that there's any changes that you need to make in your philosophy around promotions or value to drive better traffic in upcoming quarters?

Greg Trojan -- Chief Executive Officer

Look that's the lever we look at literally almost every day, certainly every week in our business, Mary and look, it's always promotion out there. I think I said this on the last call, we get asked that question every single time as if this level of promotion and competitiveness in our market is intensifying or wildly different. And we don't see that. I mean I think it's kind of always a constant on -- and the other element I mention is people forget about -- we're competing in a very fragmented industry at the end of the day, the number of independent seats out there is much greater than the change we all think and talk about. So I honestly I just think that can be a little overdone and over talked about in our space at times. It's something obviously we pay a lot of attention to -- in general, as our business is going up and down. And so we'll make adjustments, I think the most pressing activity is making sure we're being more aggressive where our business needs the help the most. And right now, that would be California.

Mary Hodes -- Baird -- Analyst

Thanks very much for the perspective. That's it from me.

Operator

And next will be Chris O'Cull with Stifel.

Chris O'Cull -- Stifel -- Analyst

Yes. Thanks. Good afternoon, guys. Greg, I understand you're pleased with this new store sales performance, but can you talk about the average investment in those eight locations?

Greg Levin -- President, Chief Financial Officer and Secretary

Well, yes. I have to almost parse that a little bit because I want to say, I'm looking over at Greg Lynds a little bit. I want to say four those restaurants were Seritage or Sears deals from a year ago. So like Albany, New York, New York was [Indecipherable] Rhode Island was. And as a result, those investments were in the $4 million or less range because we were delivered a shell and we were delivered some of the utilities and stuff stepped forward. I would tend to say that, and I mean, like Greg Lynds jump in here a second, I would tend to say that looking a little bit going forward that we continue to see labor inflation in the construction world as well as some material inflation. And we tend to see our standard prototype probably closer in the $4.8 million range or greater. So $4.8 million plus range. So it's a mixed bag on those eight, we have some that we got in a really low investment cost, I think overall. But I think if you're thinking about going forward, it's a little bit higher. Greg do you want to add to that?

Greg Lynds -- Executive Vice President and Chief Development Officer

No, I think you cover it. I mean, we're seeing price increases in steel, asphalt, concrete, like everybody. And probably 2018 versus 2019, we're seeing total price increases in the range of 8% to 9%.

Chris O'Cull -- Stifel -- Analyst

That's helpful. Thank you. And then just follow up on that, I mean, with the restaurant margin and even profit dollars coming under so much pressure, has the sales to investment hurdle rate changed in order to justify a compelling return?

Greg Levin -- President, Chief Financial Officer and Secretary

Not really. I understand your question, Chris. And we tend to look at these really kind of at the longer term, from that standpoint. There's going to be inflation that comes up and then there's going to be times when it starts to modify and come down. If we had a look at our business, 10 years ago, we were spending at that time $5 million to build a restaurant and then through some value engineering and other things that made sense for us, we brought it down to $4 million. I think ultimately when we look at our business, we think about the fact that we're doing in this quarter 115,000 weekly sales average, out of our eight new restaurants say you're looking at somewhere is in the neighborhood close to 6 million AUVs. I think we tend to bring in a really great strong cash flow, but it still tends to be the place where we would want to invest our money and build our restaurants.

We just come down on the fact that we've always been this way that we're going to build quality over quantity. We're going to make sure we can do it with high quality as well, which means making sure that we have the right team members in place. So I don't think there's anything necessarily changed in our view in regards to hurdle rates for investing in the new restaurants and so forth, because we still believe it's the best place to invest BJ's money. But we're going to do it at quality over quantity. We've never been on a investor call saying that we're going to close 20 out of the last 40 or 50 restaurants we've opened. Something we're very prideful and the fact that we go out and select great place, great locations and execute them well.

Chris O'Cull -- Stifel -- Analyst

Yeah, that's helpful. And then just the restaurant margin was down, obviously a couple 100 points this quarter with a two comps. So and it looks like it's going to be down based on your guidance, another 150 on a softer comp. So how do you keep margins flat with a 3% comp?

Greg Levin -- President, Chief Financial Officer and Secretary

What we think with the 3% in top and you start to come back and take out some of the initiatives that we rolled through. It's probably going to be a little bit of a challenge from that standpoint, I think, as you look at it. But I think there's some efficiencies that we can go after. I also believe as we look at this. Some of its transitory avocados are starting to come back in line from that standpoint. So we would probably pick up the basis points there. We've got the basis points in some of the investments that we're rolling out in labor that start to help us. And then, as always, we're going to go after that operating occupancy line and make sure there's areas that we can get more efficient in our business.

I think there's a challenge we think -- Chris real quick the challenge we face, frankly, and try to make this clear, short-term is Q3 is just our lowest weekly sales average quarter, and that if you pay some utility rates, we start to pay for the NFL package, our restaurants, they are just lower things that kind of hit us in Q3. But I think when we look at our business longer term, we like where we are, we like the menu, variety that we have. The fact that we can have value on one side and we can have higher price items or center plate entrees on other, that all allow us to drive sales, drive check average and provide a great guest experience, but frankly will allow us to drive margins.

Chris O'Cull -- Stifel -- Analyst

Okay. And maybe just one last one. Are any stores that have hit a stride with the new kitchen systems seeing any labor savings benefit from the new systems?

Greg Trojan -- Chief Executive Officer

No, Chris, I mean, it is still a bit early and as we've been saying consistently is we're doing this for quality team member, great place to work, all of the nerve center of what our kitchens are. We do think that over time all of this process reengineering an organization will yield some savings, but we're not -- obviously we're not asking for savings at this point. And as people are -- as our operators are scheduling labor from this perspective, I think we're a bit away from that, but we will likely see some, but it's just too early. We want to make sure these get engrained the right way and we're prioritizing the most important reasons we're putting these systems in place. And think of it as a second phase of looking at our kitchens once these are embedded in behaviors. And that's the thing, I mean, just to highlight as Greg's been describing the rollout itself is more around physical organization and retraining. The ongoing part of GSKS is the behavior changes of what people are doing when and those take a little bit more time. So we want those to fall in place. And we think those will then evolve into some efficiency in terms of hours.

Chris O'Cull -- Stifel -- Analyst

Great. Thanks, guys.

Operator

And our last question today will come from Nicole Miller with Piper Jaffray.

Nicole Miller Regan -- PiperJaffray -- Analyst

Thank you, good afternoon. Two quick ones, earlier in the discussion, you talked about softer weekends, I believe. Where do you think that customer might be going -- are they at home waiting for you to deliver to them? Are they going to be a peer group or is this a broader macro comment about people staying at home?

Greg Trojan -- Chief Executive Officer

I'm not -- I don't think we know the answer to that Nicole, to be honest. I think one of the things that we take a close look at and want to make sure is that our value doesn't get out of balance, right. So we've been driving so much value both at dinner and during the week with the one punch of both happy hour value and brewhouse specials. We've been with the introduction of slow roast and prime rib, which is a weekend only. So was a weekend only launch and is weekend only product. We have been balancing that well historically, right. And so that's the pushes and pulls of our businesses is that we may need more news or more value on the weekends relative to the investments that we've made during the week. I don't say that with certainty but as we're looking at these trends, that's something that we're looking at.

Nicole Miller Regan -- PiperJaffray -- Analyst

Okay. Thank you, very fair. And then just a second and last question, you also talked about setting aside some additional marketing this quarter to talk about large party ordering. And I want to understand, how will that -- where will you do that marketing? And then what can you share in terms of large party ordering? How far will you go in terms of delivery time? What's the price hurdle? What's the margin profile, etc?

Greg Trojan -- Chief Executive Officer

Let me do the last part and then I'll have Kevin fill in some of the -- a little bit more of the specifics. We're not going to get too far into those specifics for competitive reasons, obviously. But are -- most importantly is the product line up that has been -- we've really have constructed these both a la carte items and these combinations with value in mind. So at the starting price points, you can see large parties add at and around $10 per person, which we think is quite compelling. But there is, I think you if you scroll through these varieties and do a relative value check, you'll see that we compare I think more than more than very competitively. So, that's been -- since this again is, we think very incremental to our business. We wanted to, frankly, be pretty aggressive from a value and pricing perspective. Our delivery radiuses don't vary from our normal radiuses which range, based upon drive times, so the mileage isn't the best way to think about it, but we're usually within 20 minutes of drive time is on the outside of our delivery ranges, and in terms of those logistics.

Greg Levin -- President, Chief Financial Officer and Secretary

From a marketing perspective, and Greg said it in past calls, we've invested a lot over the last couple of years in everything from our digital lab experience to our ability to target guests, both to our loyalty guests as well as our digital marketing. We've invested heavily in social and influencers and PR. And with his catering campaign, a large party catering campaign, we plan to use a lot of that. And not to mention that I'd say roughly half of our business or at least from a peel perspective, we're looking at both business to business as well as just to consumers. So we've got a campaign, we're developing a lot of tactics that will allow us to not only reach businesses and business decision makers, but also those folks who are planning large parties on a personal level, and we'll do some more disruptive things as well that hopefully will get us noticed in the at least the casual dining space as one of the few brands that can actually offer something for everyone. So that's really the plan right now.

Kevin Mayer -- Executive Vice President and Chief Marketing Officer

The only thing I'd add to that, Nicole, is the power of our operators, large party catering is a relationship business at the end of the day, particularly the B2B portion. So we have a plan in place to make sure our restaurant teams are involved in making sure people in their trade areas know about this great offering that we have as well.

Nicole Miller Regan -- PiperJaffray -- Analyst

Thank you so much.

Greg Trojan -- Chief Executive Officer

Thank you.

Greg Levin -- President, Chief Financial Officer and Secretary

All right. Thank you every one.

Operator

[Operator Closing Remarks]

Greg Trojan -- Chief Executive Officer

Thanks, everyone.

Greg Levin -- President, Chief Financial Officer and Secretary

Thank you.

Duration: 63 minutes

Call participants:

Greg Trojan -- Chief Executive Officer

Rana Schirmer -- Director of SEC Reporting

Greg Levin -- President, Chief Financial Officer and Secretary

Brian Bittner -- Oppenheimer & Co. Inc., Research Division -- Analyst

William Everett Slabaugh -- Stephens Inc., Research Division -- Analyst

Alexander Russell Slagle -- Jefferies LLC, Research Division -- Analyst

Matthew Kirschner -- Guggenheim Securities -- Analyst

Nick Setyan -- Wedbush Securities -- Analyst

Kevin Mayer -- Executive Vice President and Chief Marketing Officer

Mary Hodes -- Baird -- Analyst

Chris O'Cull -- Stifel -- Analyst

Greg Lynds -- Executive Vice President and Chief Development Officer

Nicole Miller Regan -- PiperJaffray -- Analyst

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