BJ's Restaurants, Inc. (BJRI) recently announced preliminary results for fourth-quarter 2014, ended on Dec 30, 2014.
The company’s revenues increased around 7.1% year over year to $213.9 million. Comps increased approximately 1.2%, improving from 0.3% growth in the prior quarter and much better than 2.7% decline in the year-ago quarter.
BJ's Restaurants’ positive comps growth reflects the impact of management’s initiatives focusing on food quality and menu innovation. In fact, BJ's Restaurants posted a turnaround in its comps growth in the second half of 2014, after underperforming the Knapp-track industry average in the first two quarters of the year.
Management expects that comps growth, cost containment and Project Q initiatives, focusing on kitchen productivity and food quality improvement, will continue to aid margins and profitability.
The company’s strong operating cash flow and balance sheet place it favorably to increase new restaurant capacity by at least 10% annually over the long term. BJ's Restaurants opened 11 restaurants, based on the new restaurant design, in 2014.
The restaurant chain expects to open at least 15 units in 2015 and a minimum of 425 over the long term in the U.S. Further, we are encouraged by the company’s decision to launch its smaller prototype restaurants (which requires lower investments) in various markets.
In our view, with commodity costs staying at an all-time high, lower investment by the company will be beneficial to its margins. Also, the company’s focus on expansion without sacrificing margins is laudable. In fact, we expect smaller prototype restaurant to be the primary driver for the company’s long-term goal of a restaurant-level margin of 19%.
Key Picks in the Sector
BJ's Restaurants currently has a Zacks Rank #2 (Buy). Some other stocks in the same industry which look attractive at current levels include Brinker International, Inc. (EAT), Denny's Corp. (DENN) and Darden Restaurants, Inc. (DRI). All these stocks carry a Zacks Rank #2.
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