BJ's Continues to Open Restaurants

BJ’s Restaurants Inc. (BJRI - Analyst Report) recently announced the opening of a new restaurant in its core market of California. The new opening marks the ninth of the company’s targeted 16 new openings for fiscal 2012.

The latest restaurant, which is located at Countryside Marketplace, is spread across approximately 8,000 square feet and accommodates around 265 guests. We expect the variety of menu offered at the new unit to attract guests

The new restaurant is in Menifee, southern California, where BJ’s already enjoys a strong presence and customer’s loyalty. It is deemed to be a strategic move by the company. An additional unit in its home turf will solidify BJ’s position in the region and increase average unit sales volume.

California still holds plenty of growth opportunities for the company. Moreover, BJ’s currently operates 124 restaurants and almost half of those are located in California.

BJ’s Restaurants is one of the few casual dining chains that have been expanding even amid an uncertain economy. With the resurgence of consumer confidence, management has accelerated its unit openings. Besides opening 16 new restaurants in 2012, the company hopes to relocate an older, smaller-format 'pizza and grill' restaurant in Boulder, Colorado to a more appropriate site in in the city for housing a larger BJ’s restaurant. The expected new openings in 2012 compares favorably with 13 restaurants opened in fiscal 2011 and 10 units in 2010.

Looking forward to 2013, the company plans low double-digit capacity increases per year in the approximate range of 11% to 13%. One third of these openings will be in California, another third will come in the Western states outside California and the remaining third will be distributed amongst Florida and a few new markets. Additionally, 50% of new stores will be conversions of old retail locations. In the long run, there still exists the possibility of opening at least 425 outlets in the U.S.

Furthermore, despite the turbulent economic environment, the company continues to undertake several initiatives like menu innovation, a new guest loyalty program, along with a new catering program, efficiencies and price increases. These initiatives are expected to ensure positive restaurant comparable sales in the upcoming quarters as well as offset cost escalation.

However, the presence of popular eateries like Red Robin Gourmet Burgers Inc. (RRGB - Analyst Report) among others is likely to increase the competition for BJ’s.

BJ’s currently has a Zacks #3 Rank, which implies a Hold rating over the short term. We reiterate our long-term Neutral recommendation on the stock.