BJ's Restaurants Inc.
) second-quarter 2014 adjusted earnings of 30 cents per share were
down 3.2% year over year due to higher cost and expenses. However,
earnings beat the Zacks Consensus Estimate of 24 cents by 25.0%,
which we believe was due to improvement in restaurant level
BJ's Restaurants, Inc - Earnings Surprise |
Behind the Headlines
Revenues in the reported quarter grew 10.5% year over year to
$219.3 million, reflecting about 13% increase in total operating
weeks. However, revenues missed the Zacks Consensus Estimate of
$220.0 million by a meager 0.5% possibly due to sluggish comps.
Comparable restaurant sales declined 1.7%, which compared favorably
with the prior quarter decline of 2.9% but unfavorably with flat
comps in the year-ago quarter. The sluggish comps reflect 70 basis
points (bps) decline in average check and 100 basis points decline
in traffic. However, these negatives were partially offset in the
second half of June due to Father's Day and the football World Cup
that helped in improving comps.
Restaurant level margin improved sequentially for the second
consecutive quarter and was up 150 bps points sequentially to
18.6%. The company remains committed to its target of achieving
restaurant level margin of 19.0%, primarily driven by the cost
savings initiative focused on non-strategic restaurant operating
cost and support.
The company's cost of sales ratio was 25.1%, up 70 bps year over
year, primarily due to commodity cost increases and unfavorable
changes in menu mix. Labor expense was 25.0% of sales, up 80 bps
year over year.
In the second quarter of 2014, BJ's opened three restaurants in
Katy, TX, Orlando, FL and Palm Beach, FL. The restaurateur plans to
open another three restaurants in the third and fourth quarter each
and achieve its target of 11 restaurant openings and 11.0% increase
in operating weeks in 2014.
More importantly, several of the company's openings in 2014 will be
based on its new 7,400 square-foot prototype. This is expected to
cost approximately $1.0 million less than the current prototype
while maintaining the same level of productivity. This will
hopefully allow it to increase returns on invested capital. The
company currently anticipates at least 15 restaurant openings in
fiscal 2015, all of which will feature the new prototype design.
Third Quarter Guidance
BJ's Restaurants expects positive guest count to be offset by lower
average check in the third quarter, thereby resulting in flat comps
during the quarter. Management announced July comps so far have
been flat to slightly positive.
BJ's Restaurants expects cost of sales to be slightly lower than
25.0%. The company continues to expect commodity inflation in the
third quarter. Though 75.0% of the commodities are hedged for 2014,
the company indicated that a few commodities including ground beef,
steaks and cheese that are not hedged are experiencing
Moreover, the company expects restaurant level margins to decline
sequentially in the third quarter as the second quarter had the
benefit of Mother's Day, Father's Day and graduation celebrations.
Share Repurchase and Capital Expenditure Update for
The company repurchased 0.3 million shares for $10.0 million in the
reported quarter and has $40.0 million available under its current
share repurchase authorization.
Excluding proceeds from tenant allowances and sale leaseback
transactions of approximately $10 million, the company expects
capital expenditure to be $90.0 million in 2014.
Though BJ's revenues marginally missed the Zacks Consensus
Estimate, earnings comfortably surpassed the same. We are
encouraged by BJ's Restaurants' aggressive expansion initiatives to
drive comps growth. However, as the company continues to open
stores in new markets, we expect increased pre-opening expenses.
Though management strives to handle the cost pressure through
marketing and operational initiatives as well as prudent menu price
adjustments, there is still some uncertainty around it.
Further, higher pay roll taxes in California and the sluggishly
recovering economy which would limit discretionary spending remains
a headwind. Additionally, we remain cautious about the stiff
competition in the U.S.
BJ's Restaurants currently has a Zacks Rank #3 (Hold). Some
better-ranked stocks in the restaurant industry include Chipotle
Mexican Grill, Inc. (
), Domino's Pizza, Inc. (
) and Noodles & Company (
). While Chipotle Mexican Grill sports a Zacks Rank #1 (Strong
Buy), Domino's Pizza and Noodles & Company carry a Zacks Rank
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