BJ’s Restaurants Inc. (BJRI) recently announced the opening of a new unit in Jacksonville, Florida. This is the seventh of the company’s targeted 12 to 13 new openings for fiscal 2011.
The new restaurant spreads across approximately 8,500 square feet and accommodates around 280 guests. It is located in the northeast corner of Butler Boulevard and Gate Parkway next to the Costco Warehouse Club and is expected to benefit immensely from its strategic location. We also expect great variety in menu offerings at the new unit that includes BJ’s signature deep-dish pizzas, hand-crafted beers and the much coveted Pizookie dessert to attract guests.
The company is strengthening its footprint in Florida emboldened by strong same-store sales growth in the region. BJ's is currently operating seven restaurants in Florida and none of them are located in the southern part of the state. Hence, we believe growth opportunities in Florida exist and the company plans to open its first restaurant in south Florida by the end of this year.
BJ’s currently operates 109 restaurants and almost half of the restaurants are located in California. The company remains committed to its expansion strategy and for the next two years expects double-digit capacity increase per year in the approximate range of 12% to 13%. Currently, 5 to 6 outlets are in the pipeline and 50% of new stores will be conversions of old retail locations. In the long run, BJ’s expects to open at least 300 outlets.
Despite more business from the new units, BJ’s will face stiff competition in Florida from Red Robin Gourmet Burgers Inc. (RRGB) and The Cheesecake Factory Inc (CAKE), which have strong presence in the area.
We believe BJ’s remains well positioned to sustain its growth momentum, while generating improved earnings on the heels of efficient operations and innovative offerings. The company also boasts a debt-free balance sheet. Moreover, as the economy revives and expansion re-accelerates, we expect the company to witness further improvement in earnings along with profit margins in the coming quarters buoyed by positive sales leverage efficiencies and price increases. However, cost inflation and stiff competition make us cautious.
We maintain a Zacks #2 Rank on BJ’s, which translates into a short-term Buy rating. Our long-term recommendation remains Neutral.
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