On Mar 28, we downgraded our recommendation on
BJ's Restaurants Inc.
) from Neutral to Underperform based on sluggish same-store sales
performance in the past few quarters and choppy sales environment
Why the Downgrade?
BJ's Restaurants' comps growth has been sluggish in the past few
quarters. In both the third and fourth quarter of 2012, the
company's same-store sales growth of 2.3% and 3.0%, respectively
slowed down from prior year level of 6.5% and 5.1%. Even in the
first seven weeks of first quarter 2013, comparable restaurant
sales were negative 0.5% in contrast to positive 4% for the same
period last year.
With higher payroll taxes, delayed tax refund and increased
gasoline prices, the sales environment is expected to remain
choppy going forward as consumer spending is low. The chain is
also suffering on the margins front. Management believes that
BJ's Restaurants lacks a wider operational trail and scale as
well as advertising strength compared with its major mass market
BJ's Restaurants also incurs the highest labor cost as a
percentage of sales in the first quarter of each year primarily
due to higher payroll taxes and benefits, which have an adverse
impact on its margins.
Further, after expanding steadily in its existing markets in
California and Texas, the company is considering other potential
new markets for entry in 2013. We believe that penetration into
new markets will involve some risk for BJ's Restaurants. There
will be an attendant headwind of higher pre-opening costs in
these areas compared with matured trade areas, in which the
company already has support infrastructure.
Other Stocks to Consider
Some other restaurant industry stocks with a favorable Zacks Rank
Red Robin Gourmet Burgers Inc.
Burger King Worldwide Inc.
Cracker Barrel Old Country Store Inc.
) While Red Robin holds a Zacks Rank #1 (Strong Buy), Burger King
and Cracker Barrel carry a Zacks Rank #2 (Buy).
BJ'S RESTAURANT (BJRI): Free Stock Analysis
BURGER KING WWD (BKW): Free Stock Analysis
CRACKER BARREL (CBRL): Free Stock Analysis
RED ROBIN GOURM (RRGB): Free Stock Analysis
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