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The Orange County, California-based BJ’s Restaurants Inc. ( BJRI - Analyst Report ) recently announced the opening of a new unit in Clearwater, Florida. The new unit marks the first of the company’s targeted 16 new openings for fiscal 2012 and ninth in Florida.
The new restaurant spreads across approximately 9,000 square feet and accommodates around 280 guests. It is located in the spanking new 1.2 million square foot Westfield Countryside Mall and is expected to benefit immensely from its strategic location. The new unit is set to offer a great variety in its menu including BJ’s signature deep-dish pizzas, hand-crafted beers and the coveted Pizookie dessert to attract guests.
The company is strengthening its footprint in Florida emboldened by strong same-store sales growth in the region. The casual dining chain operator plans to open two additional units in Florida in 2012, particularly in the southern part of the state where the company lacks a presence.
BJ’s currently operates 116 restaurants and almost half of those restaurants are located in California. The company remains committed to its expansion strategy and in 2013,the company estimates low double-digit capacity increases per year in the approximate range of 10% to 12%. One third of these openings will be in BJ’s Restaurants’ market home court of California, another third will come up in the Western states outside California and the remaining third in the Florida market or a few new markets. Additionally, 50% of the new stores will be conversions of old retail locations. In the long run, there still exists the possibility of opening at least 300 outlets. Management also plans to expand in relatively new markets like New Mexico and Kansas.
Despite more business from the new units, BJ’s will face stiff competition in Florida from Red Robin Gourmet Burgers Inc. ( RRGB - Analyst Report ) and The Cheesecake Factory Inc. ( CAKE - Analyst Report ) ), which have strong presence in the area.
We believe that BJ’s remains well positioned to sustain its growth momentum while generating improved earnings on the heels of efficient operations and innovative offerings. Moreover, as the economy revives and expansion reaccelerates, 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, increased level of pre-opening costs and stiff competition make us cautious. We maintain a Zacks #3 Rank on BJ’s, which translates into a short-term Hold rating.
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