BJRI Expands in Washington

BJ's Restaurants Inc. ( BJRI - Analyst Report ) recently announced the opening of a new restaurant at Puyallup, Wash. The opening marks the first of the company’s 17 targeted openings for 2013. The total targeted openings include the shifting of one of the company’s small format "Pizza and Grill" restaurants to a new site in Eugene, Ore.

The latest restaurant, which is located in suburban Seattle, is spread across approximately 8,500 square feet and accommodates around 270 guests. We expect the variety of menu offered at the new unit and contemporary ambience to attract guests. The new Puyallup unit is the third BJ’s restaurant in the state of Washington.

We have noticed that BJ’s Restaurants has mainly expanded in its existing markets in California and Texas in the last three years citing plenty of growth opportunities. In California, the company currently has 61 restaurants while Texas boasts 28 units.

Now the company is considering other potential new markets for entry in 2013 and 2014 to realize untapped opportunities. According to management, in the long run, there exists the possibility of opening at least 425 outlets in the U.S.

Washington is a relatively newer market with just 3 BJ’s Restaurants. As per the National Restaurant Association, the restaurant industry in Washington plays a vital role in the state’s revenues. According to this research site, Washington’s restaurants are expected to record $10.9 billion in sales in 2013.

While the aforesaid strategy is a positive, there is a flip side to it. Penetration into new markets will involve some risk for BJ’s Restaurants. There will be an attendant headwind of higher pre-opening costs compared with matured trade areas, in which the company already has support infrastructure. BJ’s Restaurants enjoys less tenant improvement allowance and lower construction period rent in its existing markets.

BJ’s Restaurants currently carries a Zacks Rank 4 (Sell). Some other restaurant industry stocks with a favorable Zacks Rank include Red Robin Gourmet Burgers Inc. ( RRGB - Analyst Report ) , Burger King Worldwide Inc. ( BKW - Snapshot Report ) and Cracker Barrel Old Country Store Inc. ( CBRL - Snapshot Report ) . While Red Robin and Cracker Barrel retain a Zacks Rank #1 (Strong Buy), Burger King carries a Zacks Rank #2 (Buy).