BJ's Restaurants Spreads in Texas

Casual dining restaurant operator, BJ’s Restaurants Inc. (BJRI - Analyst Report), recently announced the opening of a new unit in Waco, Texas. The opening marks the sixth of the company’s targeted 16 openings for fiscal 2012.

The latest restaurant at Richland Mall, is spread across approximately 8,500 square feet and accommodates around 280 guests. We expect the variety of menu offered at the new unit that includes BJ’s signature deep-dish pizzas, hand-crafted beers and Pizookie dessert to attract guests. Some other restaurants with units in Richland Mall are Starbucks Coffee, China Max, TGI Friday's.

We view the recent opening as a strategic one as Texas has the second largest BJ’s pipeline after Californa and enjoys customers’ fondness. The new spot, Waco, is located between the DFW metroplex and Austin, where the company operates various other restaurants with strong sales record. In fact, another BJ’s unit will come up in Round Rock, Texas later this month. This area is also the northern zone of the Austin market.

Over the last two years ended 2011, BJ’s Restaurants mainly expanded in its existing arenas like California and Texas citing plenty of growth opportunities. According to management, an opening in existing markets gives them the benefit of support infrastructure, familiar market sentiment, less tenant improvement allowance and lower construction period rent. The company currently functions 26 giants in Texas.

While the aforesaid fundamentals come as advantages, there is a disadvantage also. The company’s newer restaurants in existing markets are appearing in mature, thickly populated retail commercial localities. Footfall is likely to be higher in those units. This will likely create a honeymoon effect putting the comparable store sales of the older restaurants at stake.

The Orange County, California-based company is considering other potential new markets for entry in 2013 and 2014 that could involve some risk for BJ’s restaurant.

BJ’s, which competes with the likes of Kona Grill Inc. (KONA - Snapshot Report), currently retains a Zacks #4 Rank that implies a Sell rating over the short term. We reiterate our long-term Neutral recommendation on the stock.