BJ's Restaurants Beats on Q4 Earnings, Comps Improve - Analyst Blog

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BJ's Restaurants Inc. ( BJRI ) recently posted fourth quarter 2014 results wherein earnings beat the Zacks Consensus Estimate and revenues remained in line. As announced during preliminary results in Jan 2015, revenues grew on a yearly basis as did comps and margins. This boosted investors' confidence and share price of this restaurant company climbed 10% in aftermarket trading.

Adjusted earnings of 31 cents per share beat the Zacks Consensus Estimate of 21 cents by 48% and increased significantly from the year-ago figure of 6 cents. The upside reflects improved revenues and margins.

Bj's Restaurants Inc. - Earnings Surprise | FindTheBest

Revenues of $213.9 million were up 7.1% year over year owing to an improvement in comps. It came in line with the consensus mark.

Inside the Headline Numbers

Comps in the quarter were up 1.2% comparing favorably with the prior quarter comps growth of only 0.3% and the year-ago quarter comps decline of 2.7%. The upside reflects higher check of approximately 1.4%, partially offset by 0.2% decline in traffic.

Restaurant level margins were 18.4%, up 330 basis points year over year, mainly due to higher year-over-year sales combined with cost containment and Project Q initiatives, which focused on improving kitchen productivity while enhancing food quality.

Costs of sales as a percentage of sales were 25.6%, up 30 bps year over year due to an increase in commodity costs. Labor costs as a percentage of sales were 34.7%, down 150 bps due to improved hourly productivity, which was largely driven by project Q and a slight increase in average check over 2013. However, this was partially offset by the impact of higher wage rates in California.

Operating margins also improved as general and administrative expenses as a percentage of sales declined 40 basis points to 5.8% of sales.

Store Update

The company opened three restaurants during the fourth quarter. Most of them were the company's new 7,400 square-foot prototype and cost approximately $4 million on a gross basis, approximately $1 million less than its prior prototype.

BJ's Restaurants expects that these restaurant openings coupled with the planned opening of at least 15 restaurants in 2015 will expand its operating weeks by approximately 10% in 2015. The company currently has 158 restaurants in the U.S. and expects to increase its capacity to at least 425 over time.

Full Year Results

Earnings came in at $1.03 per share, up 21% year over year and beat the Zacks Consensus Estimate of 94 cents by 9.6%. Revenues were $845.6 million, up 9% year over year and in line with the consensus mark.

Guidance for First Quarter 2015

BJ's Restaurants expects cost of sales ratio to be in the mid-25% range in the first quarter of 2015. Commodity cost inflation is expected to be up in the range of 1% to 1.5%. Also, state payroll taxes are expected to remain high in the quarter. The company expects labor costs as a percentage of sales in the mid to upper 35% range in the first quarter of 2015.

Margins in 2015 & Beyond

Given its operational efficiency, new menu offerings, launch of new higher return restaurant prototype and continued execution of long-term restaurant expansion plan, the company expects restaurant level margins in the low to mid 18% range in 2015 and targets to reach 19% in 2016.

Our Take

BJ's Restaurants is on an expansion spree. This will provide it with greater scale and cost efficiency, going forward. Further, the company's smaller prototype restaurant should boost its margins in the upcoming quarter. However, higher payroll taxes and food costs could dampen its efforts to improve sales.

BJ's Restaurants currently has a Zacks Rank #2 (Buy). Investors interested in the restaurant industry can also consider Brinker International, Inc. ( EAT ), Bloomin' Brands, Inc. ( BLMN ) and Bob Evans Farms, Inc. ( BOBE ). All these stocks carry a Zacks Rank #2.

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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.

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

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