We maintain our Neutral rating on
BJ's Restaurants Inc.
). While we are optimistic on the company's same-store sales
(comps) momentum, unit growth and potential success from the
loyalty program, the negative impact of commodity inflation as well
as increased cost structures in 2012 compel us to remain on the
We see the company's sustained comps impetus as one of its key
growth drivers. Among the casual dining chains, BJ's Restaurants is
one of the few casual dining chains that has been expanding in an
uncertain economy and is continuously making tangible progress
toward further expansion. In the long run, there still exists the
possibility of opening at least 300 outlets.
In 2012, we expect the company to witness further improvement in
earnings along with profit margins buoyed by several sales building
initiatives like a new guest loyalty program, which has been
successfully tested and will be rolled out by the end of the first
half of 2012 along with a new catering program and price
In terms of headwinds, commodity inflation remains a threat.
During the balance of 2012, management expects its commodity basket
to increase around 3%, which is slightly higher than the inflation
rate experienced in first-quarter 2012. Beef costs have crept up
over the last three years and will continue to be a concern in
2012. BJ's Restaurants will see higher Angus beef and pizza dough
Additionally, increased payroll tax and medical benefits will
also be incurred in 2012. The restaurateur will likely incur higher
marketing spend in the second quarter to promote new menu and
testing television commercials in the Sacramento market.
Over the last two years, BJ's Restaurants mainly expanded in its
existing arena where the company received less tenant improvement
allowance leading to lower construction period rent. Now, the
company is considering other potential markets for entry in 2013.
We believe penetration into new markets will involve some risk for
BJ's Restaurants due to the absence of support infrastructure.
BJ's Restaurants, which competes with the likes of
Yum! Brands Inc.
), currently retains a Zacks #4 Rank (short-term Sell
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