BJ's Restaurants, Inc. (BJRI) is slated to report its third quarter 2014 results on Oct 23. Last quarter, it posted a positive surprise of 25% due to an improvement in restaurant level margin. Let’s see how things are shaping up for this announcement.
Factors to Consider
BJ’s Restaurants’ earnings have been consistently beating the Zacks Consensus Estimate for the past few quarters. With a unique position in the commoditized hyper-competitive bar and grill segment, BJ’s Restaurants is well-poised to sustain its growth momentum due to improved operating efficiencies and innovative offerings.
The company’s initiatives like a guest loyalty program, catering program and focus on supply chain management have borne fruit. Other productivity improvement initiatives implemented so far such as investments in kitchen equipment to improve capacity and speed, a more streamlined menu, and testing of a centralized call center to capture more online orders are expected to boost the top line in the upcoming quarters.
Given its prudent expansion and sales boost initiatives, the company expects positive guest count to be offset by lower average check, thereby resulting in flat comps in the third quarter.
However, like all food chains, BJ's Restaurants is not immune to food costs. Similar to 2013, the company expects overall cost environment for food commodities to remain under pressure for the rest of 2014 due to domestic and worldwide agricultural supply and demand imbalance and other macroeconomic factors. The company expects to record the impact of commodity inflation in its third quarter results. The company indicated that a few commodities including ground beef, steaks and cheese are experiencing higher-than-anticipated inflation. This would keep margins under pressure.
BJ's Restaurants expects cost of sales to be slightly below than 25% in the third quarter of the year. While management strives to handle this cost pressure through operational initiatives and prudent menu price adjustments, it is yet to reap the benefits. Moreover, the company expects restaurant level margins to decline sequentially as the second quarter recorded the benefit of Mother's Day, Father's Day and graduation celebrations.
Earnings Whispers?
Our proven model does not conclusively show that BJ's Restaurants will beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here as you will see below.
Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 13 cents per share. Hence, the difference is 0.00%.
Zacks Rank: BJ's Restaurants’ Zacks Rank #3 (Hold) when combined with a 0.00% ESP makes surprise prediction difficult.
We caution against stocks with Zacks Ranks #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Here are some other companies which you may consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Burger King Worldwide, Inc. (BKW) has an Earnings ESP of +3.70% and a Zacks Rank #2 (Buy).
Red Robin Gourmet Burgers Inc. (RRGB) has an Earnings ESP of +2.94% and a Zacks Rank #3.
Buffalo Wild Wings Inc. (BWLD) has an Earnings ESP of +0.94% and a Zacks Rank #3.
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