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We have recently upgraded our recommendation on BJ's Restaurants Inc. (BJRI - Analyst Report) from Neutral to Outperform. The upgrade was based on solid same-store sales (comps), pricing power, menu innovation, unit expansion and a debt-free balance sheet.

BJ's Restaurants has been exhibiting strong comps momentum for quite some time. All the operating regions of BJ’s Restaurants’ are showing positive restaurant comparable sales.

The company is consistently undertaking several sales building initiatives like a new guest loyalty program, which has been successfully tested and is expected to be rolled out in the first half of 2012, a new catering program as well as efficiencies and price increases, which will more than offset cost escalation.

Over the last two years, BJ’s Restaurants has introduced about 50 new menu items representing about 12% of total sales. The new burger line up unveiled in early November will likely add some more flavors to the fourth quarter’s earnings.

According to management, the company has kept most of its pricing power in reserve during the past couple of years. Given a relatively low guest check average compared to most of its casual dining peers, the company will likely use some of its pricing power in 2012 to fight inflation. The company expects its menu pricing to be around 3% to 3.5% for fiscal 2012.

BJ’s restaurants remains in an expansion mode. For 2012, management plans to open 15 restaurants and all sites are identified. Looking forward to 2013, the company plans low double-digit capacity increases per year in the approximate range of 10% to 12%. The company also boasts a debt-free balance sheet.  

Estimate Revisions

In the last 30 days, 5 out of 16 analysts increased the estimate for the upcoming quarter. Magnitude of estimate was raised by a penny to 32 cents.

BJ’s restaurants, which competes with the likes of Buffalo Wild Wings Inc. (BWLD - Analyst Report) and Sonic Corp. (SONC - Snapshot Report), currently retains a Zacks #1 Rank, which translates into a short-term Strong Buy rating.

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