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BJ's Restaurants' (BJRI) Efforts to Earn Profits on Track

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We issued an updated research report on BJ's Restaurants, Inc.BJRI on Sep 28, 2015.

Among the casual dining chains, BJ's Restaurants is one of the few that have been expanding even amid a sluggish economy. With the resurgence of consumer confidence, management has accelerated its unit openings and expects to maintain the trend. With capacity growth, the company is gaining scale advantage, which would help in generating cost efficiency in the future.

BJ's Restaurants' earnings have beaten the Zacks Consensus Estimate for six quarters in a row. The company is well-poised to sustain its growth momentum due to improved operating efficiencies and innovative offerings. We believe the company's initiatives like a guest loyalty program, a catering program and focus on supply chain management have borne fruit.

Also, the company's Project Q is helping to reduce kitchen complexity and simplify and improve recipes, thereby enhancing the overall consistency and quality of its menu. The company also focuses on pruning and reducing some of its menu items in order to create additional future menu capacity, innovation in restaurants and enhance the speed of service. Besides menu innovation, the company has been able to streamline its menu and has reduced its offerings from about 184 items to 139. This demonstrates the company's success in reducing kitchen complexity and improving food quality through the Project Q initiative.

Other productivity improvement initiatives such as a centralized call center to capture more online orders and mobile ordering and payment are also expected to boost the top line in the upcoming quarters. These initiatives have helped the company to deliver four consecutive quarters of positive comps.

BJ's Restaurants' is committed to improving its operating margins through cost containment initiatives. In fact, the company has been able to keep its restaurant level margins above 17% since the beginning of 2014. Besides boosting the top line, the company's Project Q initiative is helping it to curtail costs as well. Project Q has resulted in a reduction in average kitchen hours leading to labor efficiencies.

Meanwhile, BJ's Restaurants is focusing more on its smaller new 7,400 square foot prototype restaurants that cost approximately $1 million less than the prior prototype. This helps in reducing operating costs amid a tepid economy. Given its operational efficiency and launch of new higher return restaurant prototype, this Zacks Rank #2 (Buy) company is well poised to grow its margins.

Due to an increase in restaurant weeks, the company expects higher cost of sales and labor costs to hurt margins in the second half of the year. Moreover, marketing and pre-opening costs and higher payroll taxes are also expected to put profits under pressure as the company intends to open more restaurants going forward. Though the higher food cost environment has softened to some extent, it would take a toll on its profits to some extent.

Stocks to Consider

Some better-ranked stocks in the same sector include Bob Evans Farms, Inc. BOBE , Carrols Restaurant Group, Inc. TAST and Darden Restaurants, Inc. DRI . All these stocks sport a Zacks Rank #1(Strong Buy).

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BJ'S RESTAURANT (BJRI): Free Stock Analysis Report

DARDEN RESTRNT (DRI): Free Stock Analysis Report

BOB EVANS FARMS (BOBE): Free Stock Analysis Report

CARROLS RESTRNT (TAST): Free Stock Analysis Report

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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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