BJ's Restaurants Inc.
) first-quarter 2014 adjusted earnings of 20 cents per share were
down 31.0% year over year due to higher cost and expenses.
However, earnings beat the Zacks Consensus Estimate by 8 cents,
which, in our view, was due to better-than-expected top line.
Behind the Headlines
Revenues in the reported quarter grew 9.1% year over year to
$205.8 million, reflecting about 13% increase in total operating
weeks, partially offset by a decline of about 3.3% in weekly
sales average. Revenues beat the Zacks Consensus Estimate of
$205.0 million by 0.4%.
Comparable restaurant sales declined 2.9% versus an increase of
0.4% in the prior-year quarter and a decline of 2.7% in the
previous quarter. The significant decline reflects a 2.2%
reduction in guest traffic which reflects a shortened holiday
shopping season and the impact of a severe winter.
Restaurant level margin was 17.1%, up from 15.1% in the prior
quarter. The company remains committed to its target of the
restaurant level margin of 19.0%, primarily driven by the cost
savings initiative focused on the non-strategic restaurant
operating cost and support.
The company's cost of sales was 24.9%, up 40 basis points (bps)
year over year, primarily due to commodity cost increases and
changes in menu mix. Labor expenses was 36.1%, which was up 110
bps year over year, a result of the deleveraging from lower sales
on both hourly labor and fixed management wages.
In the first quarter of 2014, BJ's opened two restaurants in
Gainesville, VA and Little Rock, AR. The restaurateur plans to
open three restaurants in the second quarter, of which one has
already been opened in Katy, TX. Based on the timing of the 11
restaurant openings this year, the company expects total
restaurant operating weeks will grow approximately 11% 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 allow it to increase returns on invested capital. The
company currently anticipates opening at least 15 restaurants in
fiscal 2015, all of which will feature the new prototype design.
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 taxes in California and the sluggishly
recovering economy will limit discretionary spending.
Additionally, we remain cautious about the high competition in
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BJ's Restaurants currently has a Zacks Rank #3 (Hold). Some
better-ranked stocks in the restaurant industry include
The Wendy's Company
Burger King Worldwide, Inc.
Buffalo Wild Wings Inc.
). While Wendy's sports a Zacks Rank #1 (Strong Buy), Burger King
and Buffalo Wild carry a Zacks Rank #2 (Buy).