On Jan 7, Zacks Investment Research upgraded BJ's Restaurants, Inc. (BJRI) to a Zacks Rank #1 (Strong Buy).
This restaurateur would post solid fourth-quarter 2014 results, which is expected to be reported in Feb this year. The expectation is backed by revenue growth and increase in earnings over the past year. In fact, powered by strong earnings growth of 76.9%, this stock has surged 56% over the past year, outperforming the rise in the S&P 500 Index during the same period.
Robust Third-Quarter Earnings
On Oct 23, BJ’s Restaurants’ third-quarter 2014 earnings of 23 cents per share comfortably beat the Zacks Consensus Estimate as well as the prior-year figure of 13 cents by 76.9%. Revenues also grew 9.7% year over year to $206.5 million backed by comps growth.
Comps increased 0.3% comparing favorably with 2.2% decline in the prior-year quarter. Restaurant level margins were 17.6%, up 130 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.
Such robust earnings in the last-reported quarter indicate strong growth, going forward.
Restaurant-level Margins Improving
We believe the company will perform well in the coming quarters and appears on-track to meet its long-term goal of a restaurant-level margin of 19%. The company’s decision to launch its smaller prototype restaurants (which require lower investments) in various markets bears testimony to this fact.
In our view, with commodity costs at an all-time high, lower investment will be beneficial for the company’s margins. Also, the company’s focus on expansion plans without sacrificing margins is commendable.
Well-Positioned to Sustain Comps Growth
Growing customer visits is important for a restaurateur, especially at a time when consumers are becoming increasingly selective about the food they eat and stiff competition in the restaurant sector. The increase in customer visits, despite reduction in the marketing expenditure by the company, proves that the company is well poised to maintain comps.
Other Stocks to Consider
Other companies with a favorable Zacks Rank include Red Robin Gourmet Burgers Inc. (RRGB), Ruby Tuesday, Inc. (RT) and Domino's Pizza, Inc. (DPZ). All these stock have a Zacks Rank #2 (Buy).
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