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BJ's Restaurants (NASDAQ:BJRI)
Q4 2020 Earnings Call
Feb 11, 2021, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day, and welcome to the BJ's Restaurants, Inc. fourth-quarter 2020 earnings release and conference call. Today's conference is being recorded. And at this time, I would like to turn the conference over to Greg Trojan, chief executive officer.

Please go ahead, sir.

Greg Trojan -- Chief Executive Officer

Thank you, operator, and good afternoon, everybody, and welcome to BJ's Restaurants fiscal 2020 fourth-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 Greg Lynds, our chief development officer; and Kevin Mayer, our chief marketing officer, on hand for Q&A.

After the market closed today, we released our financial results for the fourth quarter of fiscal 2020, which ended on Tuesday, December 29, 2020. You can view the full text of our earnings release on our website at www.bjsrestaurants.com. Our agenda today will start with Rana Schirmer, our director of SEC Reporting, providing our standard cautionary disclosure with respect to forward-looking statements. I will then provide an update on our business and current initiatives, and then Greg Levin will provide some commentary on the quarter and the current environment.

After that, we'll open it up to questions. So Rana, go ahead, please.

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

Our forward-looking statements speak only as of today's date, February 11, 2021. 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 will refer to the full discussion of risks and uncertainties associated with forward-looking statements contained in the company's filings with the Securities Exchange Commission.

Greg Trojan -- Chief Executive Officer

Thanks, Rana, and good afternoon, everyone, again. Given the broad increase in the dining restrictions that occurred in November and December, I'm very pleased with our team's accomplishments during the quarter. As we reported in last month's business update, the quarter began strongly in October with weekly sales per restaurant averaging over $83,000, despite dining rooms in only 28 of our 62 California restaurants being open for the full month, and significant dining room capacity limitations across our system. Beginning in November, as you know, numerous states rolled back dine-in reopenings; and California, in early December, closed all outdoor patio seating, which limited our sales in the state to delivery and takeout only.

As such, sales in November and December dropped from October's $83,000 weekly average to $78,000 in November and $60,000 per week in December. In the face of these challenges, our team once again demonstrated their ability to maximize sales and tightly control our operating expenses, allowing us to generate positive EBITDA for the quarter. In 2021, we have returned to growing our top line, and the momentum has continued to build each week. Gradual easing of restrictions, first outside of California, followed by the opening of outdoor dining again in California at the end of January along with government stimulus payments and the continued implementation of our sales initiatives, helped us to increase our average weekly sales to $66,000 in January and to more than $74,000 this past week.

Although we are prepared for the pandemic recovery to continue to be uneven, we are optimistic that ongoing vaccination efforts and improved treatment protocols will continue to have a positive impact on sales. Our ability to take advantage of improvements in the sales environment will benefit from running the plays we have learned over the past year to maximize dine-in capacity through both indoor and outdoor seating. And in addition, we continue to double down our efforts to maintain and grow our off-premise business. Our ability to prioritize the near term, while not neglecting the longer-term opportunities for our concept, will pay dividends in the years ahead.

Our first priority throughout all of this, though, has been to confront the daily challenges of operating our restaurants in this environment. The number of obstacles has been great, but the pace of change related to the operating restrictions, supply chain disruptions, PPE regulations, etc., has been truly unprecedented. And as we've navigated these challenges, we have also been very conscious to take advantage of the circumstances to improve our business for the long term. There's a great opportunity for us to build stronger relationships with our guests.

And as we work harder than ever to serve them in more ways than ever, our steadfast commitment to operating as safely as possible and not bending or breaking the rules, like many operators have chosen to do, we believe is building further confidence and trust in our brand. Building new muscles as an organization in virtually every functional aspect of our operations has been and continues to be our mindset. Key to operationalizing these improvements, however, is ensuring that we have a strong, flexible balance sheet to make the prudent investments that will enable us to be opportunistic in the months and quarters ahead. We adopted this mindset at the outset of the pandemic, which led us to execute an equity offering last May to raise $70 million.

We recently raised an additional $30 million through an add-on at the market equity offering. And along with our previous extension and recent negotiation of our credit agreement, we're in a strong position to invest in the right growth initiatives while ramping up our new restaurant opening pace when the time is right. As a result, we've already made investments in high-design quality partitions within our restaurants, experiential outdoor tents, heaters and audiovisual upgrades, which are important head starts as we see restrictions easing and spring weather approaching. We have also made important physical improvements to our restaurants to better execute off-premise demand such as kitchen system technology to improve order visibility and pacing, enabling our kitchens to sync both in-restaurant and off-premise demand with our restaurant capacity.

Front-end order and pickup technology to drive convenience and order accuracy is also helping provide a better friction-reducing experience for our guests. We've been averaging approximately $28,000 per week in off-premise sales in the recent weeks, which is maintaining at more than double our pre-COVID levels, and we remain committed to growing this from its space. We're also pleased to see our guests increasingly engaging with our brand digitally. More than 25% of our diamond checks are now paid digitally via mobile pay.

And over 80% of our off-premise orders are placed through digital channels. Additionally, more than 80% of curbside orders are now using our easy digital check-in functionality to alert us that the guest has arrived. Our innovations that increase convenience and reduce friction will surely remain popular with our guests well after the pandemic has passed. In the fourth quarter, we also made good strides on several of our longer-term sales building initiatives.

First, our beer club membership program continued to show promise. Members were engaged with the program, enjoying both the special beer releases and taking advantage of the program's benefits, and they increase their visits to BJ's. We're very excited to build closer connections with our guests that love our beer and to further promote our world-class award-winning brewing skills and creativity. Our pipeline includes some of the best beer from our R&D brewing team, including our Bourbon Barrel Chocolate Stout and our Coffee Blonde, which was awarded the bronze medal at the most recent Great American Beer Festival.

We plan to launch our beer club in most of our California restaurants in the next couple of months and are evaluating the expansion into other states later this year. Next, we began testing our virtual brand called slow roast in the fourth quarter and expanded the test to 13 restaurants last month. This is a delivery-only concept of a focused menu featuring our slow roast and other protein-centric products. Sales continue to build week over week, and our guest ratings were averaging 4.8 out of five stars.

We will continue to closely monitor this test to ensure we are building incremental sales and profit while maintaining our kitchen efficiency, but early results are promising. Finally, we continue to believe there's significant growth potential in our catering business. We added individually boxed meals to our catering menu in September and have seen impressive demand, including some very large orders from companies leading the fight against COVID. We're extraordinarily proud of this business for its small role in helping the frontline workers battle the pandemic.

Our strong balance sheet also enables us to accelerate new restaurant growth. We remain committed to limiting our 2021 growth to opening the two restaurants located in Merrillville, Indiana, and Lansing, Michigan, which were already under construction at the outset of the pandemic. But we continue to believe it will take more time for the real estate landscape to reset in any meaningful way. But when it does, we are confident it will open up attractive new locations for our concepts.

While our real estate team is hard at work assembling a robust pipeline for 2022 and beyond, we are being cautious about committing to new leases until there is more clarity in regard to a more predictable dine-in environment. When we do commence committing to new leases, we expect to build in flexibility regarding pandemic-related delays in regard to opening day commitments, rent commitments, etc. That said, we look forward to resuming an accelerated new restaurant opening cadence toward addressing and realizing the geographic potential of our concept. In summary, the point is clear.

We're not standing still in playing defense only. We're spending time and making investments to improve our concept differentiation and competitive advantages as we emerge from this pandemic. Before I turn the call over to Greg, I wanted to take a moment to thank our team members for their ongoing commitment to serving our guests with gold standard service. I could not be prouder of their efforts.

The pandemic has presented new challenges to all of us, and our teams have successfully navigated all of them. Our recent performance and future growth would not be possible without our dedicated team members that strive to deliver a great experience to every guest while supporting our business principles and goals. So now I'll turn it over to Greg to provide some commentary on our financial results.

Greg Levin -- President and Chief Financial Officer

All right. Thanks, Greg. As detailed in our business update on January 21, sales continued to be largely dictated by capacity restrictions, therefore, my commentary on both Q4 and Q1 to date reflects where we are with the ever-changing national, state and local restrictions and regulations regarding the dining room limitations. Please remember this commentary is subject to the risks and uncertainties associated with forward-looking statements as discussed in our filings with the Securities and Exchange Commission.

As Greg Trojan mentioned, October started strong for BJ's, with 88% of our dining rooms open and comparable restaurant sales rebounding to down just 20.6%. However, beginning in November, numerous states fallback to dine-in reopenings, then in December, California, where 62 of our 209 investments are located, closed all dining rooms and outdoor patio seating, limiting ourselves in the state to only delivery and take out. As such, comp sales in November and December decreased to negative 27% and negative 45.3%, respectively, and we finished the quarter with comparable restaurant sales down 32.3%. Our total revenues for Q4 were $197 million, and we reported a net loss of $18.1 million and delivered net loss per share of $0.81 on a GAAP basis.

Our fourth-quarter results include a net charge of about $200,000 asset for a gain related to the sale leaseback of our Orange Village, which is in Ohio, and that was offset by an impairment charge for one of our restaurants in the Seattle area. While the Q4 results reflect the November and December reversals in dining capacity, our dedicated team members protected and served our guests while managing the negative leverage in our business, allowing us to generate positive adjusted EBITDA of $2.4 million for the quarter. Given the number of dining rooms and patios that were shut down could lead to discard food because capacity was significantly reduced and the constant and ongoing labor adjustments we made to address the changing rules and regulations, this is a meaningful accomplishment by the industry's best restaurant and field operations management team. In regards to our operating results, the resumption of dining room restriction during the quarter impacted several metrics.

Cost of sales came in at 25.8% for the quarter, a 60-basis-point increase over the prior year, driven primarily by increases in cheese and meat costs. On a quarterly sequential basis, Q4 cost of sales were 140 basis points higher than Q3, which is primarily due to higher meat costs. The higher meat cost is related to both higher seasonal inflation and our conscious decision to promote and discount our prime rib specials throughout the holiday period to move what could have resulted in significant excess inventory of our fresh prime rib as a result of California deciding to shut down all on-premise and patio dining in late November. Our culinary team came up with creative take on family prime rib bundles for the holidays that along with our other prime rib promotions helped us sell approximately 1 million of prime rib products in the last two weeks of December alone.

The demand for our prime rib items, our guests rebalanced our inventory, and as such, we do not have to discard any excess inventory. Labor came in at 38.4%, which was 200 basis points higher than the prior year. From a year-over-year perspective, we continue to leverage hourly labor by driving sales in the off-premise channel while benefiting from our smaller menu. These savings were offset by deleveraging from the lower sales volumes of fixed manager labor, benefits and restaurant-level equity compensation.

Operating and occupancy costs were 29.1% for the quarter, inclusive of 9.6% of sales from marketing. Operating and occupancy costs averaged about $21,100 per restaurant operating week, and that represents a decrease of about 13% compared to last year. Including in operating occupancy costs was over $1.3 million of operating expense for temporary patios and approximately $150,000 for personal protective equipment including supplies to ensure the safety of our team members and guests. Our temporary patios generated over $50 million in revenues for the quarter, making the $1.4 million incremental expense a very high ROI.

G&A for the quarter came in at $13.3 million. On a trend basis, G&A was down approximately $2 million compared to the prior quarter, and that's primarily due to the reversal of incentive compensation in the fourth quarter. Turning to the balance sheet. During the quarter, we paid down an additional $10 million of debt.

As a result, we finished the year with approximately $54 million of cash on our balance sheet and funded debt of approximately $117 million. Even though we have been generating positive cash flow paying down debt and have a solid financial position, we felt it prudent to raise an additional $30 million of equity capital last month. As Greg said, the vaccination is under way and as we look to the future, BJ has the capital necessary to more aggressively pursue both new restaurant expansion and further invest in our sales driving initiatives. Now shifting to today.

As I said at the beginning of my prepared remarks, our sales continue to be governed by the varying capacity indications imposed by local and state regulators. We started January with all of our California restaurants limited to takeout or delivery-only and also had dining room shutdown in our restaurants in the Pacific Northwest, Michigan and a few other states and locations. As such, we had approximately 64% of our dining rooms opened in January and finished January with our weekly sales average of approximately $66,400 per restaurant week. In February to date, California dining rooms remained closed while patios have reopened.

Restrictions have also eased in Michigan, Washington and Maryland. As such, our weekly sales average for the first two weeks of February has increased to around $74,000 per week. At our current weekly sales level of approximately $74,000 per week, we expect to be a modest use of cash of less than $500,000 a week, which is inclusive of restaurant-level manager bonuses, full rent, interest expense and also full maintenance capex and some other investments in our business to drive sales. As we think about this year, it is very difficult to provide sales ranges due to the ever-changing capacity restrictions, curfews and other regulations we face.

At present, capacity restrictions are loosening, which will lead to higher sales. Like everyone, we are hopeful that increasing vaccinations should allow us to get back to 100% capacity sometime in the second half of this year, and we see the opportunity for sales more fully recovering given our differentiation and volume, as well as the broad health and safety measures we've implemented across our platform. With regard to the middle of the P&L, right now, we anticipate commodity inflation between 1% and 2%, with cost of sales in the mid-25% range. However, the level of open dining rooms may result in different promotions or menu mix, and that could drive cost of sales somewhat higher or lower.

We are targeting G&A of approximately $67 million for 2021, which includes more than $6 million for incentive compensation, compared to less than $500,000 booked in 2020 due to the impact of COVID. The G&A budget also includes $7.8 million related to equity compensation, compared to $7 million in 2020. Therefore, if you look at what I would call control of our G&A, or G&A excluding incentive and equity compensation, we expect G&A to increase by approximately $6 million from 2020. However, I think the right way to look at this would be to compare it to 2009, which takes into consideration more normalized operations.

As such, compared to fiscal 2019, our controllable G&A would increase by approximately $500,000 or less. At the current time, we expect to open two restaurants in 2021, as Greg noted, one in Merrillville, Indiana in early May and the other in Lansing, Michigan in early June. We also anticipate reopening our Richmond, Virginia restaurant sometime during 2021, which has been temporarily closed. However, our goal is to open seven to 10 restaurants in 2022 by taking advantage of some of the real estate opportunities to come to drive high ROI expansion.

Therefore, our 2021 capital plan will include our capex dollars for '22 for restaurants that will open in fiscal '22. Overall, I'd expect our fiscal 2021 capex to be between $35 million and $50 million, depending on when we start construction for restaurants we plan to open in fiscal 2022. It is important to note that 2021 capex will also support our sales-driving initiatives, including the beer club, catering and off-premise. As in the past, we continue to have the flexibility to pull back on these cash expenditures based on the operating environment as many of these efforts are discretionary and variable.

As we reflect on 2020, we couldn't be more proud of the resiliency and determination of our key members. Though we incurred unprecedented challenges to our business, we successfully created and implemented enhanced safety protocols for our team members and guests; reimagined our in-restaurant, patio, delivery and takeout functions; modified our menus; engaged guests with unique marketing and loyalty offerings; and leveraged our technology investments to bring the best BJ's experience possible to our loyal guests. Our teams are battle-proven, who have always been the core of our success and long-term growth. Throughout the pandemic, our customers have remained very loyal and attracted to the great food, drinks, service, hospitality and fun times to family, friends and coworkers, tenants and others that BJ delivers.

Whenever we had reopenings or expanded capacity, guests responded enthusiastically with strong volumes, traffic and check. So despite the challenges, we continue to execute on our long-term strategy by reevaluating and reimagining our operational protocols and menu offerings while building on our technology investments to position the company for its next significant growth phase. Trends in February are encouraging, and we believe the rollout of vaccinations will lead to loosened capacity restriction and encourage even more guests to return to our restaurants over the coming quarter. Given the service enhancements and operational changes we have implemented, we stand to achieve meaningful growth as our volumes continue to approach previous levels.

As such, we are highly confident that once the post-COVID normalization materializes, we will realize a sustained margin uplift and resume a more aggressive expansion phase complemented by a range of sales-building initiatives. With that, I will go ahead and open it up for questions, operator.

Questions & Answers:


Operator

We'll now begin the question-and-answer session. We'll go to David Tarantino of Baird.

David Tarantino -- Robert W. Baird -- Analyst

Hi, good afternoon. I have two questions. First for Greg Levin. Greg, I'm wondering if you could give us a little bit of help in thinking about restaurant margin and how that might progress as the volumes rebuild and specifically, as you get back to 100% capacity and the sales level you would expect at that level.

Where would you expect restaurant margin to be in that scenario, given all the changes that have occurred since the start of the pandemic?

Greg Levin -- President and Chief Financial Officer

Yeah. David, I think we've got an opportunity as sales start to recover to get back to margins that we saw really much more in 2018. And so far, from that standpoint, that gets us back into 18-plus percent. And we did a good opportunity for that, if not better.

We continue to drive off-premise sales, which have shown to be very profitable because of the labor benefit there of not having to put a server against that part of your sales to really leverage the kitchen. I think the investments we've made in digital have proven to be really good for us and for our guests, and that will save in regards to expenses around menu printing at our point of purchase materials. And then, I think our cost of sales will continue to kind of bounce around a little bit. But as we have less cost of -- less items out there, we get more efficient, and we'll see some opportunity in that.

And then, we've talked all along about just hourly labor. The fact that we continue to see less hourly labor being used in the back of the house in our kitchen just because of less menu items. I think all those give us a really good opportunity to drive margins to where they were previously, if not better, as sales continue to recover.

David Tarantino -- Robert W. Baird -- Analyst

Great. And on that, Greg, would that assume average weekly sales back at that, I guess, 107, 110 type of range that you're in at that time? Or would you be able to accomplish that margin profile on a lower sales volume?

Greg Levin -- President and Chief Financial Officer

Well, I don't know if I know the answer to that quite yet, Dave. As they start to ramp up, we are seeing some nice leverage come through our business. I think we have the ability to actually get back to our historical margins that maybe a lower weekly sales average. That's kind of based on the fact that, again, less menu items.

We continue to drive the really good takeout part of our business. I think that's a very highly leverageable part of our business. There's an opportunity to get there at a lower sales volume, per se, but we really -- to be perfectly honest, having gone through and try to model out what our sales volume is going to look like in 2022 post-COVID as much as we continue to think about the [Inaudible] in front of us right now in regards to the daily tackling and blocking, so to speak.

Greg Trojan -- Chief Executive Officer

And the only thing I'd add, David, is as we're thinking about this margin opportunity is really in the context of establishing weekly sales averages that are more than our historical levels because we continue to firmly believe the dine-in business is going to come back. Like -- and I think we will see pent-up demand and passion around dining with friends and family, like we've never seen before for some time. And then, the reason we're so focused on keeping and growing this off-premise business is that becomes incremental to those historical sales averages. So we say this all the time, but the easiest way for us to drive higher percentage margins is to leverage a bigger number on the top line for the fixed cost elements of our business.

So I do think Greg is accurate in saying, given all the mix and advantages. It's -- we see an opportunity to have margins return at maybe lower volumes or, said differently, a little higher margin at the same sales levels. But what we are really -- the eye on the prize here is let's establish new levels of sales, weekly sales in our concept to leverage everything. Like that's really the intention.

David Tarantino -- Robert W. Baird -- Analyst

That makes sense. And then, if I could slide one more in on the strategy, Greg. I guess, why are you pursuing the concept of virtual brand at this point? I guess, it's not obvious that you have excess capacity in the kitchen. And I'm just wondering why you wouldn't be more focused on growing the core business?

Greg Trojan -- Chief Executive Officer

Yeah. I think that's, obviously, a good and fair question. But the -- look, as busy as our restaurants are, we get that question a lot in -- from a number of different perspectives of like, well, why wouldn't you prioritize -- I think your question is essentially higher-margin business given how busy your restaurants are. But I always remind people that we flex capacity during the week and during the year all the time.

And when we look at our P&Ls in May and June, when we're running some of our highest weekly sales volumes or in traditional sense, November, December, we're flexing a lot of growth there. And so we -- essentially, the answer to your question is we do have "excess" capacity. And we see this as a way to drive incremental dollars through our system and through, again, the fixed cost structure that we have. So as I alluded to in my remarks, we want to make sure these are truly incremental for the reasons you're asking.

But if that ends up being the conclusion, and obviously, we suspect it is or we wouldn't be doing this, then it is adding incremental value to our business and to our shareholders. The other element I'd add is, and again I alluded to this in the remarks but just to accentuate, is we are pursuing this concept, perhaps a little differently than than others in that we are doing so and engineering it from the kitchen -- starting with the kitchen more than almost starting with the guest. And by that, I mean, we're minimizing disruption in the kitchen first and seeing if that will sell versus what do we think is the optimal guest menu, etc., either in protecting our kitchens, first and foremost, if that makes sense, so that we don't end up impacting the productivity and efficiency of our kitchens and impacting capacity even more. So our point of view is, look, we're not going to do this if we start impacting kitchens in a way that's disproportionate to the volume.

And we'll see what kind of sales we drive with that constraint in place first.

David Tarantino -- Robert W. Baird -- Analyst

Thank you for that detail.

Greg Trojan -- Chief Executive Officer

You're welcome.

Operator

And we'll go to our next question from Jeffrey Bernstein of Barclays.

Jeffrey Bernstein -- Barclays -- Analyst

Great. Thank you very much. Two questions as well. The first one just on the unit growth, which I know comes up pretty regularly in discussion.

I think you said doing two in '21 similar to '20 but encouragingly ramping that to 7% to 10%, I guess, in '22. I'm just looking back at our models. I know you had done 15 to 20 a year, just a few years ago. So I'm just wondering your thought process especially when you talk about the contraction of the casual dining supply.

It would just seem like a huge opportunity, whether or not you're able to turn on that quickly and do it in '21? Or why not maybe '22 wouldn't be a lot more than -- or maybe achieving prior new highs relative to the prior. I'm wondering whether there's any view from your perspective that there's just a quality of site issue or a labor constraint issue. Because again, I know you did it successfully a few years ago and now it would seem like more of an opportunity than even then.

Greg Trojan -- Chief Executive Officer

Well, it's a good question, Jeffrey. And really the bottom line, as we say this all the time, is the constraint is in sight. It really is people. And the pipeline timing really is another one and specifically in context of COVID because we have not turned on -- we have not yet gotten to the point where we have, frankly, the level of confidence that the COVID coast is clear enough where we want to commit to this level of sites.

We're feeling better and better about that. But it takes at least typically 18 months of pipeline before we identify a site and it opens, right, and can be more -- can be a little less at times here. So first and foremost, it's around quality and having the people and the bench strength developed and ready to open that many restaurants. But there also is, like I said, a timing consideration here, where given that it's 18 months, we have -- if we wanted to do more than that, we'd have to start yesterday or before to be opening more restaurants than we are describing here.

And we're just not quite at the point where we're ready to flip the switch and go, where we have a level of confidence from a COVID timing perspective. We're getting closer, but we're there. Now one last thing, and I think Greg can [Inaudible] here is that is to say, though, that we are as happening as ever that we can get back to those kind of numbers. It's a matter of ramping.

And we are excited about the environment and the opportunity clearly here. But for years and years, people have asked us, why can't you go faster? And we're going to err on opening with quality than quantity overall.

Greg Levin -- President and Chief Financial Officer

Yeah. The only thing I was going to add to that, Jeff, is the -- everybody thinks that the flood gates have opened in regards to sites, and they just haven't quite opened yet. I mean, we continue to believe they will in that regard. And our real estate teams are working together a good pipeline.

But we want to make good at the same time we can be opportunistic when sites open. And when we think about really the good AAA sites, we are not quite seeing the softening that maybe people would expect in certain of those markets. If we want to go into B and C sites, we can go to those all day long and open 15 to 20 restaurants. But as Greg Trojan said, we want to do it with quality.

That's been a hallmark of BJ's. We have not had to close a restaurant because of performance in that regard. And even now, even though we're taking some impairment on restaurants, we've had to do that mainly because around COVID and the accounting rules versus where those restaurants were operating a year ago. So again, we've always been quality first, and we'll continue with that.

But at the same time, we're going to be opportunistic when those availability of new sites come about.

Jeffrey Bernstein -- Barclays -- Analyst

Understood. I guess, it's encouraging to hear, like Greg Trojan said you can get back to that 15 to 20, so maybe it's not in '22, but that's on the radar and well within your capabilities.

Greg Trojan -- Chief Executive Officer

Absolutely.

Jeffrey Bernstein -- Barclays -- Analyst

And my follow-up is just on the labor side of things. I mean, clearly, you saved a couple of hundred basis points of pressure this quarter. It seems like a lot of people are talking about these opposing forces, whether it's national minimum wage potentially going up, but on the flip side unemployment high, which often implies ample labor. So I'm just wondering, with that kind of context, love your outlook on the labor cost outlook and availability, maybe your confidence in offsetting the pressures, whether it's through cost savings or technology or whether you have to revert to menu pricing.

Obviously, you operate a lot of restaurants in California. So you have a head start versus many others that had to deal with this. But just trying to get your sense for the the labor outlook, maybe your mix of no major tip credit workers. Any color would be great.

Thank you.

Greg Trojan -- Chief Executive Officer

I will take the first part, and I'll see if Greg has anything to add to it. But because of our geographic setup today, even as minimum wage increases if it's passed and moves through there, we have -- I want to say less than 50% of our restaurants that would be impacted in the first couple of years because of the minimum wage increase. The federal minimum wage is, obviously, big in California and some of the other ones from that standpoint. But we're already, in a lot of our restaurants, significantly above the federal minimum wage.

So there's less impact maybe to BJ's versus a more regional competitor to some of those lower cost states from that standpoint. So I think that kind of puts us in a better footing maybe with some of the others. As we think about, in general, we said this before, that prior to COVID, the real issue on wage rates is not minimum wage increases in California and other states, it would be, at that time, low unemployment. Unemployment, I think, was in the mid-3% range or so, and everybody is fighting for good line cooks and good people in their restaurants overall.

And that, as you've seen -- Jeff, I know you cover a lot of restaurant companies. We're seeing kind of 5%, 6%, 7% increases in wage rates across the board, both kitchen and, obviously, the dining room. As we went through this year, we've seen that, obviously, flatten out. We're not seeing quite the increases that you would see in the kitchen right now that we saw earlier in the year.

However, I would say, at least currently, it's still somewhat challenging to get team members back into the restaurants. Some may have gone to new industries. But others are really just not necessarily comfortable coming back into the working environment yet. And I think that will ease over time as vaccinations get out there.

And as a result, we are going to see, I think, a better labor market than we've seen over the last couple of years, and that will help kind of manage some of the costs within the kitchen and some of the other areas. We will always invest in technology. We always have at BJ's. We've got handhelds out there.

We're moving to tablets and other things for guests to use. But we're not going to sacrifice the service and hospitality that our guest demand. In fact, we're doing a lot of research right now on our guests what they really respect and admire and why they come to BJ's. And frankly, service and hospitality sit at the top of that.

So I wouldn't be sitting here trying to build a model on your end and saying, OK, with wages going up, BJ's will take servers from three, four table stations to eight, nine, 10 table stations. They're going to cut their menu down to 50 items and have everything run through our [Inaudible]. And that's not how we're going to grow top-line sales, which is ultimately the best way to manage labor. So we're going to take more of that authentic approach, but we'll always invest in technology.

If we know what our sales are each week, we can drive really or manage really good labor. The challenge that we've seen through COVID is those schedules go up and down each week. But when there's predictability in our business, we'll get leverage in that, and that's what we need to do, and we'll continue to invest on that aspect of it.

Jeffrey Bernstein -- Barclays -- Analyst

Right. Thank you.

Greg Trojan -- Chief Executive Officer

You're welcome.

Operator

And we'll go to our next question from Nicole Miller of Piper Sandler.

Nicole Miller -- Piper Sandler -- Analyst

Thank you. Good afternoon, Greg and Greg. Thanks for the time. I thought since you offered up Kevin and marketing was also joining and I asked a question headed in his direction.

So I was wondering about marketing from the perspective, number one, of positioning. This is a local favorite brand, but also with the national opportunity to grow and scale. So kind of what's the messaging? And what's the ideal channel? And then, part two, the full service or casual dining segment has been able to really pull back on discounting in the current environment. And do you see any, I guess, change in tactics to succumb to discount marketing again anytime soon? Thank you.

Kevin Mayer -- Chief Marketing Officer

Greg, do you want to jump in on this?

Greg Trojan -- Chief Executive Officer

No. I think he was asking you, Kevin. Go ahead.

Kevin Mayer -- Chief Marketing Officer

OK, thanks. I appreciate the question. So I guess, first on the position area. As Greg was saying, a lot of what we do from a messaging perspective first starts at the experience and the relationship our guests have with our brand.

So a lot of what we do there starts. But we also, of course, have, we'll call it, use cases in the areas of dine-in and catering and delivery. So our message starts really first of that connection. And then, secondarily, we try to extend that into the areas of the need state of the use case.

And so we have positioning not at the brand level, but it's everything from catering to our beer messaging to what we do with delivery, etc. And Greg mentioned we are doing some research right now in what we call the concept assets. And so we're still learning a lot more from our guests, and we think there's still more to cultivate there nationally against the experience and the feeling that people have at BJ's. So that's your answer to number one.

And then, in the discounting space, we have done a lot less here for obvious reasons. But what we are actually going into more is, tactically, is in the value space. So things like our Brewhouse Specials have done so well for us and continued to get played back to us from our guests. What we do in some of the happy hour areas, some of the bundles we put together in the off-premise space have all been highly interesting to our guests and taking advantage of it.

So what we're doing now is looking at more opportunities there, as well as we still leverage a lot of our digital to get that message out. We do a lot of programmatic targeting. And we do a lot of social marketing, of course, our email for our loyalty. So those tend to be our strongest channels right now.

Nicole Miller -- Piper Sandler -- Analyst

OK. Just to make sure I understand that. It's a lot of the value proposition, right, but the value proposition, I was just going to say versus actual discounting. But I'm sorry, I interrupted.

Kevin Mayer -- Chief Marketing Officer

Yes, the value proposition.

Nicole Miller -- Piper Sandler -- Analyst

OK.

Greg Trojan -- Chief Executive Officer

The other element that has grown and then I think intrinsic to the value proposition is the popularity of our loyalty program. And the frequency that it drives and the engagement of our loyalty guests, Nicole, give us an ability to to drive value. I think it's somewhat of a unique way. So I think all of the above is our mindset is around continuing to pull back on "conventional discounting" to the extent that the competitive environment permits us to.

And I think we've got more weapons to keep it that way than we have in the past that are more productive, but also more unique to BJ's.

Nicole Miller -- Piper Sandler -- Analyst

That's a very good point, and thanks for taking my question. That's very helpful update this afternoon. Thanks again.

Greg Trojan -- Chief Executive Officer

Thank you.

Operator

We'll go next to John Glass of Morgan Stanley.

John Glass -- Morgan Stanley -- Analyst

Thanks very much. Greg, just first, how -- you talked a lot about sales declined rapidly and everything you've done. How are you now preparing for that rebound in sales as you mentioned that maybe just as unpredictable as the decline? I'm thinking specifically about how long it takes you to recapture the impact -- the labor back? And is there a lag or a need to retrain folks, for example? Maybe there's other areas, like supply chain that you need to make sure you've got visibility on good supply. I suspect everyone's going to be looking for the same supply at the same rate at the same time.

What are some of the steps you're now preparing for, as you said, to see the other side of this?

Greg Trojan -- Chief Executive Officer

You know what, John, the -- we've seen such ups and downs in our business here and during the past year. It's -- that's not something I lose sleep over, honestly. It's like we are -- our operations ability to train and hire folks and adapt to higher volume. Like that's, obviously, a problem we look forward to having.

Obviously, COVID presented some challenge from a supply chain. We've had disruptions here and there and have had to work around those. But in a normalized environment, I don't -- we have great vendors and a great distribution system. And so it's -- that's what we do.

And I don't envision -- it's not going to happen overnight. We're not going to be at $110,000 a week in three weeks. So I think we've demonstrated as we've opened up dining rooms, you know this, but we'll get it -- we've got notifications on a regular basis on a Thursday that we can open on a Friday. And sometimes we say, look, we want to make sure we can open well, and we need to gather the troops and make sure we have some of our veteran servers ready.

So we'll wait a day or two. But we've been able to ramp up. When you go from a to off-premise only in California to opening up, sit down dining and dining rooms, etc. That's -- it's a pretty big increase in a short period of time, and our operators are able to have been able to do that.

So I don't mean to be dismissive about it. It's a good question, but it's -- I can't wait to have that -- to think about some more.

Greg Levin -- President and Chief Financial Officer

Yeah, John, it's a nice problem to have when sales start to come back to that, which they will. I think there are always going to be some of those issues. I mean, we go back to Q4. And I think it was in yesterday's Wall Street Journal, was the cost of propane gas.

Propane tanks went from $40 to like $90. Those are the things that we will see and continue to see, I think, as restaurants open up. They'll be those incremental costs, just like they were with PPE and getting propane gas or getting a tent put up. Thankfully, we've got a great supply chain team that works that.

We also try to do forecasts for our supply chain team to work with our suppliers to make sure they're thinking down the road in regards to their supply chain to happen in place. And I would probably say those are more like bumps in the night because they do happen here or there in that regard. And then, the other side of it, we've done a really nice job keeping in touch with our hourly team members, trying to make sure and letting them know when we think things will change and be able to bring those back. Generally, I think what you're going to see in this business, though, is as sales go up, businesses will leverage the heck out of those sales because you're just behind it a little bit in regards to keep getting the expenses in timely.

Much like the opposite happened to us in Q4 as sales got shut down, we had incremental costs in our business that we normally wouldn't have if we were always running at, let's call it, $73,000 a week. So I think you're going to see some really nice early on margins for companies, and then they'll slowly get ahead of it a little bit in regards to bringing back the right staffing levels, the right manager levels and so forth. And you'll start to see those flatten out.

John Glass -- Morgan Stanley -- Analyst

Thank you. One other question. When you paused development, you probably had a chance to rethink the formats of the stores. Perhaps as you think about '22, what has changed, right, I mean, when your competitors are thinking about actually adding a drive through? Do you include permanent social distancing or larger partitions in the restaurant? Is this maybe something that lingers? Do you think about a smaller dining room? Have you changed any fundamental aspects of the prototype as you think about '22?

Greg Trojan -- Chief Executive Officer

Another great question. A couple of those are good examples where we think -- we didn't do the quick and cheap version of partitions. We did what I think I referred to as high design, or whatever you want to call it, but these look -- our partitions, a, look like they were there from the beginning, and they don't obstruct a really important part of our restaurant, which is this open feel to them and the fact that you can see our bar statement through just about every seat in the restaurant. And so we were very careful about how we approached the design and actually did some tests in different versions on partitions because I believe they're here to stay for some time to come, years not months.

But most of them have been thinking around the off-premise capacity perspective. So some kitchen engineering and placement of line elements and where we can stage -- more of the product in the kitchen versus in takeout. Those kind of ergonomic productivity elements, I think, are big. There is space, more physical space for -- to accommodate third-party delivery, etc., things like that.

But I put them all in the sort of the capacity bucket, if you will. I thank you for putting on your list shrinking dining rooms. We are not -- we believe dine-in is going to come back bigger and we're going to -- for all the capacity reasons that we are going to need every seat in our dine-in restaurants that we have today. So that is not on our list.

But a lot of the others you speak of are good examples of things we're looking at. Drive through is not one of them. I wouldn't say no, never. But our current thinking is that we can execute if you take out experience in a concierge's kind of way, actually more effectively and faster, given the advantage we have in large parking capabilities that we do then sequentially to filling orders through a drive through.

We're open-minded and are looking at a lot of possibilities there. But at the moment, that's not highest on our list anyway.

John Glass -- Morgan Stanley -- Analyst

Thank you.

Greg Trojan -- Chief Executive Officer

You're welcome.

Operator

And moving on, we'll have a question from Brian Bittner of Oppenheimer.

Brian Bittner -- Oppenheimer & Co. Inc. -- Analyst

Thanks. Hey, guys. When we think about the recent improvement in your average weekly sales volumes that you talked to, getting to around $74,000 last week or for February, can you give us some context as to what the capacity availability on averages across your portfolio in February to achieve that average weekly sales level? I think that would just help us better understand the relationship between capacity and sales.

Greg Levin -- President and Chief Financial Officer

You know, Brian, I don't -- I have to get back to you on that. I just -- honestly, I don't have that in there. I mean, I tend to think about our business and frankly, a little bit of the way you talked about it. But I was tending to look at our business versus, let's call it, October, where we were doing $83,000, $84,000-plus.

And in that month, we had, I want to say, 48 of our California dining rooms open at like 25%. And now we don't have any of those California dining rooms open. And when we can get our dining rooms open in California with our patio, we get effectively to 50% in that regard -- from that standpoint. And right now, with just patios, I think about California is probably around a 25% effective capacity or even a little bit less than that.

So I don't know if that really helps you. I'm sorry, I just don't necessarily have it broken out in that way for the first couple of weeks.

Greg Trojan -- Chief Executive Officer

It's also -- there is dine-in. And then, the effective capacity of outdoor seating is very tricky, obviously, this time of year and with restrictions too. Like, even defining capacity, it's, like I said, it's tricky with weather. And regulatory is easier to figure out, obviously, but that's good.

Brian Bittner -- Oppenheimer & Co. Inc. -- Analyst

But it is safe to say your capacity in February is less than it was in October. Correct?

Greg Levin -- President and Chief Financial Officer

Yeah. Yeah.

Greg Trojan -- Chief Executive Officer

Yeah.

Greg Levin -- President and Chief Financial Officer

If you look at our January 21 release, at least at that time, we said we had like 88% of our dining rooms open. That's also going to have patios. Then obviously, we went down to 64%. Even getting California, patio doesn't put us anywhere close to where we were in October.

Also, I think, places like New Mexico were closed. Oregon and Washington just recently opened. So it's a lot less than the October time frame.

Brian Bittner -- Oppenheimer & Co. Inc. -- Analyst

OK. And just in a scenario where you do get all your capacity back via restrictions going completely away, which, I guess, you suggested it could happen maybe sometime in the second half. In that scenario, would you expect to fully restore your volumes in lockstep with getting to 100% capacity? Or is there some reasons we should be aware of to expect a lag in kind of how your sales volumes follow the capacity increases?

Greg Levin -- President and Chief Financial Officer

I think our sales volumes will be greater than our capacity because of the off-premise and because we will still maintain a certain amount of patios in our business. So you're effectively increasing overall capacity versus, let's call it, 2019.

Greg Trojan -- Chief Executive Officer

The other element to it is -- and we'll see how long this lasts. But when people are going out, and I think this will be for some time, they are spending more. Our incident rates on all elements of our menu when people are dining out, including alcohol, are -- we are driving higher check in every element of our business. But because takeout checks lower on an absolute basis, our check is still growing, but not as much as the percentage increase in each of those channels, if that makes sense, right? But the more important point is just, overall, I think you're going to see, Greg's point, we'll have more effective capacity.

Like people have told us by their actions that they like sitting outside, at least in certain parts of the year in certain parts of the country, particularly California. And I don't think -- I don't -- we're not envisioning all of that going away post-COVID.

Greg Levin -- President and Chief Financial Officer

Yes. And then, coupled with off-premise.

Greg Trojan -- Chief Executive Officer

Yes.

Greg Levin -- President and Chief Financial Officer

And just the things that we created specifically for the off-premise channel, I think there's that opportunity to, as we said, to keep that number up, if not grow it. So I think effectively, you've got an increase in off-premise, which is a capacity increase. And in the way we structure some of these patios, I think puts us above that. And then, frankly, with patios comes the better weather.

It's kind of Greg's question or your question earlier, Brian. So then hard to measure our capacity where we have a patio open, but it's cold out and nobody is sitting on the patio.

Brian Bittner -- Oppenheimer & Co. Inc. -- Analyst

Makes sense. Thanks for all the color, guys.m

Operator

And we'll go to our next question from James Rutherford with Stephens Inc.

James Rutherford -- Stephens Inc. -- Analyst

Hey, thanks for taking the question. I wanted to ask about independent closures. It comes up in every call in the space. But just a different angle on that question, if I may.

You have a meaningful bar business inside your restaurants and many bar-only concepts have been under more pressure than restaurants, given they can't do the off-premise as significantly. Have you observed any meaningful supply contraction from borrowers in your markets? And just what do you think about the real opportunity is to gain market share in that category of your business and if that kind of your subscription sort of play into that as well?

Greg Trojan -- Chief Executive Officer

You know, we don't -- in fact, even in a normal times, our industry doesn't do a great job of tracking this. So it's all anecdotal. Here, I can -- particularly, we are spending more time or less time out and about than we'd like. But here in California, there's definitely been a pullback.

And to your point, I'd say it's been -- the hardest hit have been bars for probably obvious reasons, right? Except for those that are totally ignoring the rules and laws as I was referring to in our remaining indoor service. But I do think that that element of the restaurant businesses isn't going to be the hardest hit there. And it's interesting to say we're developing on -- working on our beer subscription program, not related to that, but that could be a fortuitous coincidence for us and opportunity in that regard.

Greg Levin -- President and Chief Financial Officer

Yeah, James, it is hard to try and get the correct numbers around the closures, knowing Southern California and driving around this area. I think Greg said it well. You see a lot of independent restaurants that are maybe more of a sports bar related, just kind of one-offs that don't have patios out there, have kind of shut their doors. We don't know if it will be permanent or if it's temporary.

But there's a lot, as what I would call, at the independent, more bar-centric restaurants that definitely are close. It's fairly obvious driving around. But it doesn't get quantified in a lot of the national information, so to speak.

James Rutherford -- Stephens Inc. -- Analyst

That color is helpful. The second question is a bit of a follow-up on a previous question. Just digging into state-level trends a little bit. You gave some helpful detail in your business update a few weeks ago on what you were seeing in some of the, I guess, less restricted states in Texas, Florida and so forth and the comps they were doing, and I think negative mid-teens in January.

I'm just curious, what's the bridge to get back to flat there? Do you think in those states, at this point in time, it's purely a capacity constraint? You've got customers just waiting during peak times to get a seat? Or is there still some demand hurdles that it really will take full vaccination or something close to it to get back to normalized or better sales levels compared to pre-COVID?

Greg Trojan -- Chief Executive Officer

It's all about capacity. It's all about capacity. You have to remember, it's not just number of seats, but it's curfews, curtailing late night, dayparts. It's -- in California, you can't have TVs on in the restaurant.

So people aren't showing up to watch a game. So it's all about the lifting of restrictions and establishing capacity.

James Rutherford -- Stephens Inc. -- Analyst

Understood. Thank you very much.

Greg Trojan -- Chief Executive Officer

Thank you.

Operator

And we have time for one more question. We'll go to Brian Mullan of Deutsche Bank.

Brian Mullan -- Deutsche Bank -- Analyst

Just a question about the subscription beer club you just mentioned. But what kind of lift in traffic are you seeing where you put it in place if you'd be willing to quantify or provide color on that? And are you seeing good food attached on that traffic? And then, maybe just remind us, is this a program you see eventually across the entire base of stores? Or is it something you think maybe only works in certain locations? Thanks.

Greg Trojan -- Chief Executive Officer

I'm sorry, Brian. I missed the -- I couldn't hear the middle question of it was what kind of traffic are we seeing, and then there was something between that and the national expansion question.

Brian Mullan -- Deutsche Bank -- Analyst

Yeah, sorry, it was just are you seeing good food attached on traffic that comes in due to the program? And then, does this program work everywhere? Or is it only maybe certain states where you have ambitions for it?

Greg Trojan -- Chief Executive Officer

Yeah. Look, we're not in a position given it's early stage here to start citing specific metrics. I'll give you a few general observations, though, is the first indicator is are people willing to sign up and give you their credit card and subscribe. And look, all of these are caveated of.

We rolled -- we launched this program in September of last year in the midst of all of this, right, with total awareness. So we've had ups and downs. We asked -- we need at least outdoor dining in some form and dining rooms here. So even despite those hurdles, we've seen sign-ups at rates that have been encouraging, is what I'd tell you.

I mean, we are exceeding our expectations in the interest level. Not just interest level, but actually, sales levels at the outset. So that was happening and has been happening faster than we anticipated. And we're also encouraged by the attach rate you're asking about as people are using these benefits.

So I'll give you an example. One of them is the ability to refill a growler for $5, if you're a member. People love refilling growlers for $5. But the good news is over half the people that are doing that are actually buying food or, again, on an attach rate of an appetizer or whatever to go along with that growler, for example.

So we like what we're seeing in terms of overall activity. We want people sort of like the health club business. We want people to use the health club and get on the treadmill. We want people to take advantage of these offers because we want them to stay members, right? So again, I say all of this with -- like super caveat we're in eight restaurants in weeks, not years, year or months, not years.

But we like what we're seeing on those key metrics. But in terms of the national question, we are limited from a TABC or state and local alcohol and tied-house laws of where we can implement the program today. We like the fact that COVID has initiated a number of states or sometimes whatever tied-house laws could be eased in terms of carryout. So we are advocates of maintaining that flexibility in our -- in those states.

So that's -- the plan is that we continue to see these kind of results after California is to start approaching those states.

Greg Levin -- President and Chief Financial Officer

Yes. I think it covers somewhere in the neighborhood of about 70% of our restaurants, where we'd be able to move the beer club too. And depending on if other states open up, we might be able to get that number higher.

Brian Mullan -- Deutsche Bank -- Analyst

Thank you.

Greg Levin -- President and Chief Financial Officer

All right. I believe that was our last question. Is that correct, operator?

Operator

[Operator signoff]

Greg Trojan -- Chief Executive Officer

Thanks, everybody.

Greg Levin -- President and Chief Financial Officer

Thank you.

Duration: 71 minutes

Call participants:

Greg Trojan -- Chief Executive Officer

Rana Schirmer -- Director of SEC Reporting

Greg Levin -- President and Chief Financial Officer

David Tarantino -- Robert W. Baird -- Analyst

Jeffrey Bernstein -- Barclays -- Analyst

Nicole Miller -- Piper Sandler -- Analyst

Kevin Mayer -- Chief Marketing Officer

John Glass -- Morgan Stanley -- Analyst

Brian Bittner -- Oppenheimer & Co. Inc. -- Analyst

James Rutherford -- Stephens Inc. -- Analyst

Brian Mullan -- Deutsche Bank -- Analyst

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