BJ’s Restaurants Inc. BJRI posted better-than-expected third quarter 2015 results wherein its earnings and revenues beat the Zacks Consensus Estimate. Owing to its initiatives to boost sales, the company posted positive comps for the fifth consecutive quarter. Shares of the company went up 9.5% in the aftermarket hours yesterday.
Earnings and Revenue Discussion
Adjusted earnings of 39 cents per share beat the Zacks Consensus Estimate of 31 cents by 25.8% and increased 69.5% year over year. The upside reflects a year-over-year increase in revenues and margins and lower share count.
Revenues of $229.4 million were up approximately 11% year over year owing to an improvement in comps, 10% increase in total operating weeks and 0.7% increase in average weekly sales. Revenues marginally beat the Zacks Consensus Estimate of $229.0 million.
Inside the Headline Numbers
Comps in the quarter were up 2.3% and compared favorably with the year-ago quarter comps growth of 0.3% as well as prior quarter comps growth of 0.5%. The upside reflects an increase in guest check. However, it was partially offset by more than 1% decline in traffic.
The company benefitted from menu enhancements and innovations. Particularly, BJ’s Restaurants’ loaded burgers led by the top selling Hickory Brisket and Bacon Burger, a limited time offering of Peanut Butter and Jelly Pizookie, summer rollout of the Enlightened Keema bowls, Barbacoa Chicken and North Beach Mahi and Shrimp and Temple Of Stone IPA beer. All these received favorable guest feedback and drove the upside this quarter.
Restaurant level margin was 19.7%, up 210 basis points (bps) year over year. The increase was mainly attributable to higher year-over-year sales along with cost containment and Project Q initiatives that focus on improving kitchen productivity and enhancing food quality.
Cost of sales as a percentage of sales fell 60 bps to 24.5% and was also a bit lower than anticipated due to lower commodity costs, primarily of cheese and seafood and continued benefits from menu pricing. Commodity basket as a whole was down slightly year-over-year in the third quarter.
General and administrative (G&A) expenses as a percentage of sales declined 30 bps. Labor costs came in better than expected and declined 110 bps as a percentage of sales owing to improved hourly productivity mainly driven by the Project Q initiative.
Share Repurchase Update
During the quarter, the company repurchased shares worth $18.8 million. Since the inception of the share repurchase program in Apr 2014, the company has repurchased shares worth $165.3 million. Currently, the company has approximately $34.7 million available under its authorized $200 million share repurchase program.
Store Openings in 2015 and Beyond
BJ’s Restaurants targets 16 restaurant openings in 2015, of which the company has already opened 14. The company expects to open 18 to 19 new restaurants in 2016. The company remains committed to open restaurants in double digits in 2017 and 2018 also. Over the long term, it intends to open 425 restaurants in the domestic market.
With double digit new restaurant openings combined with sales momentum and operating and cost disciplines, the company is confident about earnings growth, going forward.
Costs Guidance for Q4 and 2016
The company expects cost of sales as a percentage of sales in the upper 24% range and labor costs as a percentage of sales in the mid-34% range in the fourth quarter. General and administrative expenses are expected in the range of $14.0 million to $14.5 million in the fourth quarter, slightly higher than the third quarter. Meanwhile pre-opening costs are expected in the $1.5 million range.
In 2016, the company expects labor costs to increase owing to minimum wage pressure in various states. However, the company expects to manage labor expenses through prudent menu pricing, menu design and cost savings initiatives on which the company is focusing currently. It also expects some scope for additional labor savings and improved productivity owing to the Project Q initiative.
The company intends to continue to focus on cost saving initiatives. It expects G&A expense in 2016 to increase at a lesser rate than revenues. It expects revenues to benefit from an expected 10% increase in total restaurant operating weeks and modest comparable restaurant sales increases.
BJ’s Restaurants carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks in the same industry include Arcos Dorados Holdings Inc. Cla ARCO, Bob Evans Farms, Inc. BOBE and Carrols Restaurant Group, Inc. TAST. All these stocks sport a Zacks Rank #1 (Strong Buy).
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