Aisling Grueninger: Yeah, that makes sense. Thank you for the color. I’ll pass it back.
Operator: The next question is from Jeffrey Bernstein with Barclays. Please go ahead.
Unidentified Analyst: Thanks, guys. This is on for Jeff. I just wanted to dig a little deeper on the 4Q comp. How would you characterize your performance versus internal expectations? And really, just — can you parse out where you’re seeing the greatest change in consumer behavior? Perhaps within the more challenged income cohort. is it really more traffic-related in terms of frequency? Or are you seeing more mix shift on the menu? Thanks. And I have a follow-up.
Greg Levin: Yeah, I’ll go through the . I’m sure Tom could add color into this. So coming out of October were strong comp sales for us in the industry and we continue to outperform. We made some decisions in the quarter. I think Tom mentioned it in regards to how we want to handle Veterans Day, and a couple of other areas doing less discounting, and as a result, offsetting more profitable sales but with less traffic. When we look at the guests coming into our restaurant, the guests are ordering pretty much the same. We’re not seeing huge changes and incidents are mixed within the dining room. We are seeing changes though within off-premise. Off-premise, the incidents and mix are going negative. You’re seeing consumers spend less than off-premise than where they were a year ago, so we’ve seen some of that change.
And then as I said before, we’ve seen — and all we’ve seen a little bit smaller party size year over year. So we look at the size of the party coming in in Q4 of ’23 versus Q4 of ’22. It’s a slightly smaller party. And as we look at the party data coming out of COVID, our party size grew tremendously. I think there’s a lot more celebratory, much more revenge dining, and we’re starting to see it normalized still about 2019s levels, but normalizing versus coming down where it was. And as I mentioned earlier, we have seen less frequency at what we would consider the lower income consumer that visits BJ’s.
Unidentified Analyst: I appreciate that. And maybe, Tom, just a quick one for you in terms of the COGS outlook, I appreciate the more stable inflation outlook in 2024. Can you just help us with the cadence through the year? It seems like there were a lot of inflation peaks and valleys throughout 2023 and I just want to make sure that we’re not missing something big. Thank you.
Thomas Houdek: Sure. On a sequential basis, we’re not expecting much. If you think of past years where inflation has spiked in different at different times and in different categories, this year we’re expecting a lot more stability through the year, partly because some of the items that usually have historically floated for us, like our fresh meats, we’re now able to lock them in for some periods of time and take off some of those peaks and valleys. So I think that would what we’re starting the year with here, really where we ended Q4, is going to be pretty consistent through the year. I don’t think we’re going to see as much balancing as we did through the years coming out of COVID where you really saw it moving around.
Unidentified Analyst: Got it. I appreciate that color. Thanks, guys.
Thomas Houdek: Sure thing.
Operator: The next question is from Sharon Zackfia with William Blair. Please go ahead.
Sharon Zackfia: Hey, good afternoon. I think, Greg, you said something in your comments about it’s even harder to drive comps when you’ve rationalized the menu; I’m paraphrasing. But did you see an impact in the fourth quarter or so far in ’24? I know it’s been weather impacted, but what do you think the menu rationalization has done to sales? I know it’s been good for margins.
Greg Levin: Yeah, I don’t quite know the answer to that, Sharon. I just know being in this business for a long time that adding helps for a long time and then adding stops helping in your setup with complexity. And that’s where you see margins start to deteriorate and come down. When we went through our analysis, there’s a reach and a frequency number, and you’re trying to make sure you manage between both of those, meaning, certain guests come in purely for a reach item, something that might not necessarily be core. And those are those marginal guests, which are important to keep and make sure you’ve got substitutions for them. And at the same time, you get the high frequency items that really tend to drive your business. And we know after studying what we did prior to rolling it out that it wasn’t a decision that we made the change that that’s going to drive a higher PPA, or per person average, or better profitable items.
We really look to see what are the items that have that reach and frequency to make that adjustment. So I’m not sure I can point to anything. Some of the data that we actually analyzed actually showed guests that bought an item and came X amount of times and bought a certain item that no longer was on the menu actually kept coming back. So the data tends to show that really rationalizing the menu didn’t necessarily proved decrease sales per se, but I’m going on 30 — 20-plus years of experience in this business. And in 20-plus years, adding always seems to add sales until it doesn’t. And then you’re like, hey, we’ve got to do something about this.
Sharon Zackfia: Yeah, that’s helpful. I just didn’t know if you’re trying to allude to something that you had quantified it in the quarter when you commented about that. I guess, do you have — I’m assuming most of those customers you don’t have individual data for, I was just wondering if there was any way to use loyalty to try to stimulate people to come into the restaurants that may have been diverting?
Greg Levin: Yeah, we do. Our loyalty program is a robust program. We continue to grow the loyalty program. We know that — specifically, we talked about this at our Analyst Day that we can drive frequency from a loyalty guests. If they come once every eight weeks, we can go out there, inducement to offers or other things to get them to come once every four weeks. So the loyalty program is extremely important to us. And we have leaned into that at different times and we’ll continue to lean into that throughout all of this year. First quarter of this year, like I said, it’s much more weather related and it’s hard to get a read on the business outside of the weather.
Sharon Zackfia: Thanks. I could hear you. I’m in the Arctic Thunder of Chicago. I guess, one last question for me is, you talked about pulling back in some of the promotions in the fourth quarter that weighed on comps. Is there anything notable we should think about as you’re looking for margin that might weigh on comps here as we think about 2024 going forward?
Greg Levin: No. There are just two real big areas. As I said, Veterans Day — we changed up our promotions on Veterans Day and we made a strategic decision of just looking at the consumer, looking what’s going on, and third party delivery and off-premise, that you can either continue to pay X plus every single year to hold sales at Y or you got to continue to see different ways to get yourself more noticeable on the carousel. And that’s what we’re working through on the off-premise. It’s an important aspect of our business. We’ve tried to drive takeout. And that’s a big chunk of what we’re working on, is how do we continue drive takeout aspect and move people there versus maybe in the third-party deliveries side of the business, where, as I said to keep up at $1 sale, you have to pay X amount more each year.
Sharon Zackfia: Okay. Thank you.
Greg Levin: Welcome.
Operator: The next question is from Todd Brooks with The Benchmark Company. Please go ahead.
Todd Brooks: Hey, thanks for taking my questions. First one, just on the unit growth profile, three units this year working on beyond the $1 million, you’ve gotten out of the prototype another $500,000. As I’m hearing this, and we’re really trying to get the prototype nailed down, does that leak into ’25? And do we need to start to think if the returns get there, that ’26 is more of that inflection year from a unit growth standpoint back to the — up to the 5% that you’ve talked?
Greg Levin: It probably plays in there, just because historically, the way we’ve built BJ’s is we’ve gone from a much more new — a much more measured cadence in our growth. So three, I think we’d have the ability to accelerate into the 7-, 8-plus range. I don’t think removing 3 is going to move us up to meaning 3 this year to 12 or 13 the following year. And one thing I do want to emphasize here, our new restaurants are actually generating solid returns for us. We talked about that. The sales are $130,000, margins are in the upper-teens from that perspective. We just know as we continue to build out the next 200 restaurants over time, the ability to continue to move that cost in the right direction is important to us. It allows us to optimize the restaurant, both from an efficiency standpoint, but also from a return on investment standpoint.
Todd Brooks: Okay. Thanks, Greg and Tom, one for you. You talked about generating the $35 million in annualized cost saves over the course of ’23. How much of that carries forward as incremental into ’24, helping to drive the margin story further? And as you’re talking about the additional pool that you’re attacking, I think your ’25 went to ’35. Are you working on another $10 million pool you’re attacking? Or are we getting to really kind of more marginal opportunities for further cost saves from here? Thanks.
Thomas Houdek: Thanks, Todd, and good questions. Just to handle your first question first, if you think of the 14.4% margin that we had in the fourth quarter, there still was cost savings realized during the quarter. So there was — for example, a couple of our sauces, we found a new supplier for it, reformulate it, so that was on an annualized basis, a couple of million dollars of savings that rolled out mid-quarter. We made some changes on the janitorial side to bring it back in house to where we give even a better service than going outside. And there were some cost savings there. So those were some examples of mid-quarter changes that weren’t fully in our Q4 margins. So those types of benefits will be a bigger impact when it’s in a full quarter, or that a full year, running through.
Because when we’re talking $35 million of cost savings, that’s on an annualized basis. Some of those have been in for the full year, many of them still were being realized as 2023 went on. And going to the second part of your question, we do still see some big opportunities for more cost savings. So if it’s another $10 billion or so, it’s possible. There’s some — we’re looking at a number of things that are still a million dollar plus-type of savings opportunities. So the team is still very focused on this initiative. I know we’ve been talking about it for some time with you all. We’re still talking about it weekly and internally as well. So it’s still finding some really nice savings. Some things just take a little longer to roll out to our system.
And that’s where we’re seeing some of these ones that are still rolling out in Q1. But as we go through the year, there’s still some others that I’m really excited about still being able to find even more savings this year.
Todd Brooks: Great. Thanks, Tom. Appreciate it.
Thomas Houdek: Thank you.
Operator: The next question is from Nick Setyan with Wedbush Securities. Please go ahead.
Nick Setyan: Thanks. I’m sorry if I missed this, but did you guys guide G&A for ’24? And then what do you guys expect the marketing expense to be in ’24 as a percentage of sales?
Thomas Houdek: So we did talk about G&A being around $82 million to $84 million for the full year, and then marketing will be somewhere around 2%. That will be up slightly from this year, which I think was upper-1s. But we’ve talked about this at the Investor Day, actually, I think, Nick, just in general. And that is, last year, we had to spend money for production and some other assets that we can use this year. So while marketing will be up a little bit from a percentage of sales standpoint, it will be deployed differently because we have those assets already owned, which means we can deploy them in linear, connected TV, and social, digital, et cetera.
Nick Setyan: Got it. And then, especially now that in Q1 you’re talking about low-13% unit level margins, can you maybe just — Tom, just talk about the different line items in terms of where you expect leverage and how we get to a 14.5%-plus type of margin for the year?
Thomas Houdek: I would point to Q4 as being a good proxy for a full year. So coming out of this year looking at kind of a mid-14s right now, we’re expecting on the food cost line to see pretty moderate inflation. We’re expecting a little more on the labor side. So as we take pricing, I would expect to get a little leverage on the food cost side, being able to hold on the labor side, but I would look at Q4 as a good proxy as we work through the year. Obviously, we had some deleverage and as we started Q1 here, and that was part of the Q1 guidance there. But yeah, if we think of a starting point, I think Q4 is a really good proxy to use.
Nick Setyan: Okay. Thank you.
Thomas Houdek: Thank you.
Operator: Excuse me, this concludes our question-and-answer session. And the conference has also now concluded. Thank you for attending today’s presentation. You may now disconnect.
