On Aug 10, Zacks Investment Research downgraded restaurant
BJ's Restaurants Inc.
) to a Zacks Rank #5 (Strong Sell) on lower-than-expected
second-quarter 2013 earnings, underperformance in the
core-Californian market and consistent slowdown in comps and
Why the Downgrade?
BJ's Restaurants, which reported its second-quarter 2013 earnings
on Jul 31, missed the Zacks Consensus Estimate on both counts
(earnings and sales). Its adjusted earnings per share skid 3.2%
hurt by flat comps and margin shortfall.
The company has been witnessing a slowdown in comps since the
last two quarters mainly due to a prolonged honeymoon effect at
new stores, which is cannibalizing sales at older stores in the
market. After registering just 0.4% growth in comps in the first
quarter of 2013, comps were flat in the second quarter.
During the first three weeks of July, comps were in the negative
1% to 2% range, indicating a clear downward trend in sales at
established restaurants early in the third quarter. We believe
that there is still some time before the honeymoon effect at new
units comes to an end.
More than two-thirds of BJ's Restaurants are located in areas,
which had been hit hard by the recession. One such market is the
company's home court -- California. Although, the core California
market has started reporting improved same-store sales, it will
still take some time to perform at par with the other
The restaurant chain is also facing a tough time on the margins
front which is significantly hurting the bottom line. Management
believes that BJ's lacks a wider operational scale as well as
advertising strength compared to its major mass market peers.
To boost sales, management invested heavily in marketing
initiatives in the second quarter of 2013, which failed to
trigger comps. Going forward, we believe, it might become
difficult for management to weather a decline in guest traffic
and underperformance at its home-turf California through cost
Other Stocks to Consider
Other players in the restaurant industry, which look attractive
at current levels, include
The Wendy's Co.
Domino's Pizza Inc.
Burger King Worldwide Inc.
), all carrying a Zacks Rank #2 (Buy).
BJ'S RESTAURANT (BJRI): Free Stock Analysis
BURGER KING WWD (BKW): Free Stock Analysis
DOMINOS PIZZA (DPZ): Free Stock Analysis
WENDYS CO/THE (WEN): Free Stock Analysis
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