Will Hurricanes Hurt BJ's Restaurants (BJRI) in Q3 Earnings?

BJ's Restaurants, Inc.BJRI is expected to report third-quarter 2017 earnings results on Oct 18.

The recent hurricanes are likely to impact results for restaurant companies in the third quarter. Shares of a number restaurant companies including BJ's Restaurants plummeted after the storms hit the United States. In the third quarter of 2017, the company's shares lost 18.3%.

Apart from recent hurricane woes, consumer behavior has been volatile and their willingness to spend on most goods, especially eating out, is showing signs of decline over the past few quarters. Most of the restaurateurs are thus bearing the brunt of soft comps and traffic trends. Particularly, negative comps, given sluggish traffic along with rising costs, are taking the sheen out of restaurateurs.

BJ's Restaurants' comp sales have also been down for quite some time now. Comps in the second quarter declined 1.4%, a wider decline than the prior quarter's 1.3% and the year-ago quarter's 0.2%. The company expects a 30-basis point negative impact on comp sales in the third quarter.

Again, higher labor costs and expenses involved with the execution of the initiatives are expected to keep profits under pressure. In fact, per BJ's Restaurants' second-quarter 2017 conference call, management expects increased food and labor costs in the to-be-reported quarter, resulting in cost of sales of around 26% or below.

Moreover, pre-opening costs, higher marketing expenses as well as costs related to sales-boosting initiatives might dent margins. Particularly, additional training on slow roasting ovens and handheld tablets will add to labor costs. BJ's Restaurants has recorded a trailing 12-month net margin of just 3.8%. Given the continual rise in expenses, the trend is not expected to reverse any time soon.

Notably, in the last reported quarter, earnings declined 12.5% from the year-ago figure, primarily due to increased expenses. For the third quarter, the Zacks Consensus Estimate for earnings is pegged at 26 cents, reflecting a decline of 14.8% year over year.

BJ's Restaurants expects G&A expenses for the third quarter to be around $14 million owing to lower incentive compensation for the rest of the year. This is more than $12.9 million reported in the prior-year quarter.

Here is what our quantitative model predicts:

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

Zacks ESP : The Earnings ESP for BJ's Restaurants is -2.18%. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

BJ's Restaurants, Inc. Price and EPS Surprise

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

Zacks Rank : BJ's Restaurants carries a Zacks Rank #3, which increases the predictive power of ESP. However, we also need a positive ESP to be confident of an earnings beat.

Nevertheless, the company's major sales-building initiatives implemented this year can be expected to somewhat offset the weak comps trajectory, in the to-be-reported quarter. Through these, the company aims to differentiate its food quality, improve speed of service as well as leverage its broad menu in the takeout and delivery channel. Furthermore, the company is committed toward raising its operating margins through cost-containment initiatives.

Notably, the Zacks Consensus Estimate for third-quarter revenues is pegged at $249.8 million, reflecting an increase of 6.9% year over year.

Stocks to Consider

Here are some restaurant companies that investors may consider, as our model shows that they have the right combination of elements to post earnings beat this quarter:

McDonald's Corporation MCD has an Earnings ESP of +1.36% and a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Starbucks Corporation SBUX has an Earnings ESP of +0.7% and a Zacks Rank #3.

Shake Shack, Inc. SHAK has an Earnings ESP of +4.67% and a Zacks Rank #3.

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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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