In-Line 4Q for BJ's Restaurants

BJ’s Restaurants Inc.’s ( BJRI - Analyst Report ) reported fourth-quarter 2012 adjusted earnings of 27 cents per share were in line with the Zacks Consensus Estimate, but were 20.6% lower than the year-ago level. On a reported basis, earnings came in at 24 cents per share, down 29.4% year over year.

Despite a modest increase in the top line, the bottom line skid year over year due to a sharp rise in costs. Additionally, one less operating week compared to the year-ago period affected earnings to some extent. The extra operating week in fiscal 2011 had contributed around 6 cents to earnings per share.

Inside the Headline Numbers

Revenues in the reported quarter grew 8.0% year over year to $184.8 million, which matched the Zacks Consensus Estimate despite tough comparisons as the year-ago quarter included an extra operating week. Excluding the extra operating week, total revenues increased approximately 17%.

Despite macro issues like higher television viewership of the national political debates prior to the presidential election in November and higher prices of gasoline, which deterred consumers from dining out in October, the company witnessed growth in revenues and same store sales. Hurricane Sandy had resulted in store closures for quite some time. However, this did not mar the company’s sales performance to a great extent.

The increase in revenues was attributable to modest growth in both comparable restaurant sales and new restaurant openings. Comparable restaurant sales grew 3.0% compared with 5.1% in the prior-year quarter reflecting growth for the12th consecutive quarter.

Operating margin was down 330 basis points (bps) year over year at 4.3%, reflecting a spike in the overall cost structure partially compensated by a fall in labor and benefits costs.

Full-Year Update

In fiscal 2012, BJ’s Restaurant’s adjusted earnings per share were $1.12, flat year over year. Revenues grew 14% to $709.3 million buoyed by a 3.2% increase in comps as well as higher store base.

Store Update

The company opened five restaurants during the fourth quarter. At quarter-end, the company had 130 units in 15 states.
The company’s 2013 developmental pipeline consists of as many as 17 new restaurants including f shifting of one of the company’s small format "Pizza and Grill" restaurants in Eugene, Ore. to a new site in Eugene, where it can house a larger-format "Brewhouse" restaurant.

Our Take

Although BJ’s delivered a decent fourth quarter in terms of sales, a steep decline in bottom-line keeps us cautious. We believe top-line growth is driven by several sales-building measures, which are pushing up its cost structure.

However, on a positive note, the company remains on an expansion spree, which will provide it with greater scale and consequent cost efficiency, going forward. BJ’s believes that there is room for at least 425 restaurants in the U.S.

The food cost outlook also appears relatively benign for fiscal 2013. The company will also likely take some pricing action in 2013 that could safeguard its bottom line going forward.

BJ’s Restaurants currently retains a Zacks Rank #3 (Hold). Some restaurant companies that are worth a look at the current level are Red Robin Gourmet Burgers Inc. ( RRGB - Analyst Report ) carrying a Zacks Rank #1 (Strong Buy) as well as Burger King Worldwide Inc. ( BKW - Snapshot Report ) and The Cheesecake Factory Inc. ( CAKE - Analyst Report ) both carrying Zacks Rank #2 (Buy).