Casual dining restaurant operator,
BJ's Restaurants Inc.
(
BJRI
), recently announced the opening of a new unit in California. The
new opening marks the second of the company's targeted 16 new
openings for fiscal 2012.
The new restaurant has come up in Salinas, in northern
California, where
BJ's boasts a solid presence and tremendous customers' fondness.
Thus, we believe the new unit will benefit immensely from its
strategic location and likely drive higher sales. Moreover,
an additional unit in the core California market will further
strengthen BJ's position in the region.
Additionally, the core Californian market, which was badly hit
during the housing downturn, has turned around and started
reporting improved same-store sales growth, but we believe it will
still take some time to perform at par with the other markets,
which were less ruffled at the time of recession. Moreover, BJ's
brand awareness is still relatively low even in its home-court
California and plenty of growth opportunities still remain for the
company in its main market.
Furthermore, to ensure positive restaurant comparable sales in
the upcoming quarters, the company continues to take 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, efficiencies
and price increases.
BJ's currently operates 117 restaurants and almost half of those
are located in California. The company remains committed to its
expansion strategy and estimates capacity increases of 10% to 12%
in 2013. Of the new openings, one third will be in California,
another third in the Western states outside California and the
remaining in the Florida market as well as new markets.
Additionally, 50% of the new stores will be conversions of old
retail locations. In the long run, there still exists the
possibility of opening at least 300 outlets. Management also has
plans to expand in the relatively new markets going forward.
However, Orange County, California-based -based BJ's will likely
face stiff competition in that area from several renowned eateries
including
Red Robin Gourmet Burgers Inc.
(
RRGB
).
We believe that BJ's remains well positioned to sustain its
growth momentum while generating improved earnings on the heels of
efficient operations and innovative offerings. However, higher cost
structure mainly related to payroll taxes, increased level of
pre-opening costs and stiff competition make us cautious.
BJ's currently has a Zacks #3 Rank, which implies a Hold rating
over the short term. We reiterate our long-term Neutral
recommendation on the stock.
BJ'S RESTAURANT (
BJRI
): Free Stock Analysis Report
RED ROBIN GOURM (
RRGB
): Free Stock Analysis Report
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