We have downgraded our recommendation on
BJ's Restaurants Inc.
) to Underperform from Neutral based on a host of factors. These
include lower-than-expected revenue and earnings in the third
quarter, decelerating growth in comps and margins, dearth of
promotional activities compared with its larger peers, lower
visibility for commodity cost outlook and macroeconomic
BJ'S RESTAURANT (BJRI): Free Stock Analysis
YUM! BRANDS INC (YUM): Free Stock Analysis
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BJ's Restaurants' third-quarter 2012 adjusted earnings of 24
cents per share were 4 cents short of the Zacks Consensus
Estimate and in line with the year-ago level. Although revenues
grew 16% year over year, it missed the Zacks Consensus Estimate.
Despite double-digit growth in the top line, the bottom line
failed to match up to expectations due to higher costs.
The slowdown in the company's same-store sales growth is a cause
of concern. Margins too came under pressure in the reported
quarter. In the third quarter of 2012, the company registered
same-store sales growth of 2.3% compared with growth of 6.5%
witnessed in the year-ago quarter and 4.4% in the prior quarter.
Management believes that BJ's Restaurants lacks a wider
operational base and scale as well as advertising strength
compared to its more capitalized mass market peers.
Though we believe that 2013 commodity costs will be higher year
over year, BJ's is yet to provide a clear inflation outlook for
the next year as it is still in the process of negotiating the
price of many key commodities. However, management anticipates
the cost of agro-based commodity basket to increase around 4% in
The sales performance in the fourth quarter of 2012 will likely
be lukewarm. High television viewership of the national political
debates prior to the presidential election in November as well as
the sudden spike in California gasoline prices at the beginning
of October is likely to have subdued comps in October 2012. The
impact of Superstorm Sandy will also mar the fourth quarter due
to store closures for quite a few days.
Over the last 30 days, all 19 analysts slashed fourth quarter
earnings estimates for BJ's Restaurants. The Zacks Consensus
Estimate also fell 8 cents to 27 cents over that period. BJ's
Restaurants currently carries a Zacks #4 Rank, which translates
into a short-term 'Sell' rating. One of its peers
Yum! Brands Inc.
) currently holds a Zacks #3 Rank, which translates into a
short-term 'Hold' rating.