BJ's Reports a Decent 2Q

BJ’s Restaurants Inc. (BJRI - Analyst Report) reported second-quarter 2012 adjusted earnings of 32 cents per share, in line with the Zacks Consensus Estimate and above the prior-year earnings of 29 cents a share. On a GAAP basis, earnings came at 31 cents per share versus 28 cents recorded in the year-ago period. The year-over-year upside was attributable to double-digit growth in the top line.

Inside the Headline Numbers

Revenues in the reported quarter grew 18.0% year over year to $180.7 million which beat the Zacks Consensus Estimate of $180.0 million. The increase was attributable to modest increases in both comparable restaurant sales and new restaurant openings. Comparable restaurant sales grew 4.4% compared with 6.9% in the prior-year quarter.

Operating margin was down 10 basis points (bps) year over year at 6.8%, reflecting a 10-bp hike in cost of sales, 20-bp spike in occupancy and operating costs, 20-bp increase in depreciation and amortization and 30-bp rise in restaurant opening costs. These were partially offset by a fall of 20 bps in general and administrative expenses and flat labor and benefits costs.

Store Update

The company opened 5 restaurants during the second quarter. At quarter-end, the company operated 122 units.

BJ’s has already chalked out its unit opening plan for the next two quarters of 2012. Five new units are slated for the third quarter (Of which one has already been unveiled at Wichita, Kansas) while the fourth quarter will see four openings.

Liquidity

BJ’s ended the quarter with cash and cash equivalents of $33.6 million and shareholders equity of $353.9 million. As of July 3, 2012, BJ’s long-term debt liability was nil.

Our Take

BJ’s sustained its top-line growth momentum on the back of operating efficiencies, innovative offerings, several sales-building initiatives and expansion policy, which have helped the casual dining restaurant operator to drive traffic. However, higher cost structure mainly related to payroll taxes and marketing spend as well as an increased level of pre-opening costs is expected in 2012.

BJ’s Restaurants competes with Darden Restaurants Inc. (DRI - Analyst Report) and currently retains the Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. We are maintaining our long-term Neutral recommendation on the stock.