Orange County, California-based BJ’s Restaurants, Inc (BJRI), which operates around 112 restaurants, remains on track to open as many as 12 to 13 new restaurants in fiscal 2011, of which ten restaurants have already been opened.
Out of the ten new openings, the company has opened three restaurants in Texas and California, two restaurants in Florida, one in Las Vegas and one in Ohio.
Geographically, BJ’s witnessed strength across all the thirteen states where it operates in the recently concluded second quarter with each delivering positive comparable sales. As the economy revives and expansion reaccelerates, we expect the company to witness further improvement in earnings along with profit margins in the upcoming quarters buoyed by positive sales leverage, efficiencies and price increases, which will more than offset cost escalation.
The company remains committed to its expansion strategy and expects year-over-year double-digit capacity increase in the range of 12% to 13% for the next two years. One third of these openings will be in BJ’s Restaurants’ market home court of California, another third will come up in the Western states outside California and the remaining third in the Florida market or in a few new markets. Additionally, 50% of the new stores will be conversions of the old retail locations. In the long run, there still exists the possibility of opening at least 300 outlets.
We believe the company should continue to open new restaurants in order to enhance its market share as industry peers such as Red Robin Gourmet Burgers Inc. (RRGB) and The Cheesecake Factory Inc. (CAKE) are also on a modest expansion mode.
BJ’s is well positioned to sustain its growth momentum while generating improved earnings spurred by operating efficiencies and innovative offerings. These also help the company to drive traffic and post robust same-store sales growth. The company also boasts a debt-free balance sheet and plans to enhance pricing to mitigate input cost pressure. Additionally, the core Californian market, which had been badly hit during the housing downturn, has also begun to turnaround. The gradual development of this market, which is one of the major operational locations for the company, is an important tailwind for BJ. However, cost inflation and stiff competition make us cautious.
Hence, we maintain a Zacks #3 Rank on BJ’s, which translates into a short-term Hold rating. Our long-term recommendation also remains Neutral.
BJ’S RESTAURANT (BJRI): Free Stock Analysis Report
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