BJ’s Restaurants Inc.’s (BJRI) 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%. Shares of BJ’s Restaurants climbed 11.5% in response to the significant earnings beat.
Revenues in the reported quarter grew 9.7% year over year to $206.5 million, due to comps growth. However, revenues lagged the Zacks Consensus Estimate of $208.0 million by a meager 0.9%.
Inside the Headline Numbers
Comps in the quarter increased 0.3%, which compared favorably with a decline of 2.2% in the prior-year quarter. Despite a 0.7% increase in guest counts, partially offset by a lower average check, comps suffered in the quarter.
Restaurant level margins were 17.6%, up 130 basis points year over year, mainly due to the higher year-over-year sales combined with the cost containment and Project Q initiatives, which focused on improving kitchen productivity while enhancing food quality.
Store Update
The company opened three restaurants during the third quarter. All of these were the company's new 7,400 square-foot prototype and cost approximately $4 million, on a gross basis, approximately $1 million less than its prior prototype.
With nine restaurants opened year-to-date and an approximate 12% year-over-year increase in operating weeks, the company remains on track to achieve another solid year of double-digit operating week growth. Additionally, by the end of fiscal 2014, the company will open five restaurants in the mid-Atlantic region.
BJ’s Restaurants expects that the benefit of these restaurant openings coupled with the planned opening of at least 15 restaurants in 2015 will expand its operating weeks by approximately 10% in 2015.
Our Take
Although BJ’s Restaurants has been recording sales growth, we believe, it might become difficult for management to weather underperformance in California through cost savings. California, the restaurateur’s home court and its prime market, continued to remain sluggish in the quarter due to higher sales tax and state income tax. Further, many other locations posed challenges in the reported quarter.
However, on a positive note, the company remains on an expansion spree, which will provide it with greater scale and cost efficiency, going forward. Further, the company’s smaller prototype restaurant should boost its margins in the upcoming quarter.
BJ’s Restaurants currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the same industry include Ruby Tuesday, Inc. (RT), Jack in the Box Inc. (JACK) and Jamba, Inc. (JMBA). All these stocks sport a Zacks Rank #1 (Strong Buy).
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