BJ's Restaurants Misses Earnings, Rev

BJ's Restaurants Inc.’s (BJRI) first-quarter 2013 earnings of 29 cents per share beat the Zacks Consensus Estimate by a penny but were 3.3% lower than the year-ago level. Despite a solid increase in the top line, the bottom line skid year over year due to a sharp rise in costs.

Inside the Headline Numbers

Revenues in the reported quarter grew 13.0% year over year to $188.6 million, which lagged the Zacks Consensus Estimate of $190.0 million. Revenues in the quarter benefited from a 13% increase in operating weeks.

The increase in revenues was attributable to higher restaurant operating weeks. Comparable restaurant sales grew 0.4% compared with an increase of 3.3% in the prior-year quarter. Comps comprise an approximate 3% benefit from menu pricing, offset by a 3% decrease in guest traffic and a net favorable mix in incident rate.

Although all of its core markets improved in the quarter, California was a laggard owing to higher sales tax and State income tax in California combined with higher gasoline prices earlier in the quarter.

Operating margin was down 130 basis points (bps) year over year to 5.7%, reflecting a spike in the overall cost structure partially compensated by a fall in cost of sales.

Store Update

The company opened one restaurant during the first quarter. At quarter-end, the company had 132 units in 15 states.

The company plans to open 4 new units in the second quarter. The company’s 2013 developmental pipeline consists of as many as 17 new restaurants including shifting of one of the company’s small format "Pizza and Grill" restaurants in Eugene, Ore. to a new site in Eugene, where it can house a larger-format "Brewhouse" restaurant.

Our Take

Although BJ’s has recorded sales growth in the last two quarters, a decline in the bottom line owing to margin pressure keeps us cautious. Comps growth has been muted. Further, a decline in guest traffic and underperformance at its home-turf California where the restaurateur has a considerable presence are matters of concern.

However, on a positive note, the company remains on an expansion spree, which will provide it with greater scale and cost efficiency, going forward. BJ’s believes that there is room for at least 425 restaurants in the U.S.

BJ’s Restaurants currently retains a Zacks Rank #3 (Hold). Some restaurant companies that are worth a look at the current level are Buffalo Wild Wings Inc. (BWLD), Burger King Worldwide Inc. (BKW) and The Cheesecake Factory Inc. (CAKE) all of which carry a Zacks Rank #2 (Buy).
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