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Will Cost Cutting Aid BJ's Restaurants' (BJRI) Q2 Earnings?


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BJ's Restaurants, Inc. BJRI is scheduled to report second-quarter 2018 results on Jul 26, after the market closes .

The company has been undertaking various initiatives to improve sales that are expected to have reflected in the to-be-reported quarter's top line. Additionally, vigorous cost-containment initiatives are expected to have aided earnings in the second quarter.

Moreover, in a year's time, BJ Restaurants' shares have rallied 76.8%, outperforming the industry 's collective increase of 2.8%.

Let's have a look at how the company's revenues and earnings will shape up in the to-be-reported quarter.


Top Line Likely to Grow

BJ's Restaurants has been implementing various initiatives to strengthen its top line. In 2017, the restaurant crew mastered advanced cooking methods and became skillful in taking orders from hand-held ordering tablets. The company's key needle-moving initiatives drove substantial revenues in the first quarter of 2018. The upside trend is expected to continue.

Notably, in the first quarter of 2018, BJ's Restaurants' off-premise business grew more than 30%, constituting 7.5% of the company's revenues and was 150 basis points (bps) higher than the prior-year quarter. In order to fortify its off-premise business, the company has been undertaking various efforts to enhance its delivery and take-out services. In fact, it intends to leverage its highly-rated mobile app and website, along with new third-party delivery partners, to drive growth in off-premise sales.

Coming to the innovation of menu, BJ's Restaurants' extensive focus on refining and streamlining its menu is the key driver for an improved traffic. Its slow-roasted menu, launched in 2017, has become a huge success. It has significantly boosted average check, with high incident rates. We believe that with prudent menu pricing, the company has witnessed sales growth in the second quarter as well.

Subsequent to all the rigorous efforts to drive sales, the Zacks Consensus Estimate for second-quarter revenues is pegged at $282.7 million, reflecting 6.3% year-over-year growth.

Cost Savings to Drive Earnings

BJ's Restaurants is committed to improving its operating margins through cost-containment initiatives. The company is focusing more on its smaller prototype restaurants that cost roughly $1 million less than the prior prototype. This helps in reducing operating costs. Due to lesser food wastage and improved labor productivity, these new restaurants generate higher margins. Given its operational efficiency and the launch of higher return restaurant prototype, the company would, thus, continue to improve its margins. Moreover, in 2017, the company initiated an additional $5 million of efficiency savings in areas such as sourcing, distribution, supplies and maintenance.

Owing to these efforts, the company's restaurant-level operating margin in the first quarter of 2018 was 18.2%, up 30 bps from the year-ago quarter's tally. Even earnings in the first quarter surged 59.5% year over year. We believe this upside trend to have continued in the second quarter as well. Consensus estimates for second-quarter earnings of 64 cents suggest 30.6% growth from the year-ago quarter.

Our Quantitative Model Does Not Predict a Beat

BJ's Restaurants does not have the right combination of two main ingredients - a positive  Earnings ESP  and a Zacks Rank #3 (Hold) or higher - for increasing the odds of an earnings beat.

Zacks ESP:  The company has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they're reported with our  Earnings ESP Filter .

Zacks Rank:  BJ's Restaurants has a Zacks Rank #3. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

BJ's Restaurants, Inc. Price and EPS Surprise

BJ's Restaurants, Inc. Price and EPS Surprise | BJ's Restaurants, Inc. Quote

Stocks to Consider

Here are some companies in the restaurant space, which, per our model, have the right combination of elements to post an earnings beat this quarter.

Cheesecake Factory CAKE has an Earnings ESP of +1.10% and a Zacks Rank #3. The company is scheduled to report its quarterly results on Jul 31.

Wendy's WEN is slated to report quarterly numbers on Aug 7. Carrying a Zacks Rank #2 (Buy), the company has an Earnings ESP of +1.59%.

Brinker EAT holds a Zacks Rank #3 and has an Earnings ESP of +2.03%. The restaurant is expected to release quarterly results on Aug 9.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: CAKE , BJRI , WEN , EAT



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