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BJ's Restaurants (BJRI) Up 37% in 3 Months: More Upside Left?

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BJ's Restaurants, Inc. (BJRI - Free Report) is benefiting from its digital efforts and off-premise services. Also, increased focus on dine-in capacity bodes well. In the past three months, shares of the company have surged 36.6% compared with the Zacks Retail - Restaurants industry’s 6.3% growth. However, coronavirus-related woes along with rise in operating expenses are a concern.

Let us delve into the factors that highlight why investors should hold on to the stock for the time being.

Factors Driving Growth

BJ’s Restaurants is investing in technology-driven initiatives like digital ordering to boost sales amid the pandemic. This along with the roll out of several initiatives like digital check-ins, digital menus and digital payment options are likely to attract more customers, going forward. Also, the company is transitioning from the current PDF form factor to a dynamic HTML version to boost promotions and guest-driven navigation.

Meanwhile, the company implemented several sales-building initiatives to boost sales from its dine-in services. To this end, the company installed glass partitions in its dining rooms to expand capacity. It also initiated the construction of outside dining spaces in nearly half of its restaurants. Notably, the company expects the changes to be implemented at approximately 170 restaurants by mid-November 2020. In places like California, Texas, Florida, Arizona and Nevada, the company added heaters and breathable panels to its outdoor dining spaces to support extended seating.

Also, the company begun testing of its beer subscription service in a group of Northern California restaurants. Backed by positive customer feedback, the service is likely to drive in-restaurant frequency, thereby boosting sales.

Even though the company reopened majority of its dining rooms with limited capacity, its off-premise operations continue to be a driving factor for overall sales. During the third quarter, the company added individually-portioned group meals to its catering line-up. This along with its expanded family feast and bundle offerings has been a major contributor to off-premise sales. Notably, off-premise sales during the quarter were in the range of $23,000-$25,000 per week.


Although BJ’s Restaurants resumed majority of its operations, it is likely to witness dismal traffic due to the social-distancing protocols. Given the rise in COVID-19 cases along with associated capacity restrictions, the company expects the upcoming quarter results to be negatively impacted.

Moreover, the company is continuously shouldering increased expenses, which are detrimental to margins. Higher marketing expenses and costs related to sales-boosting initiatives are denting margins. The company is also facing high general and administrative expenses.

During the fiscal third quarter, occupancy and operating costs (as a percentage of sales) were 28.4%, up 510 basis points (bps) year over year. General and administrative expenses increased 260 bps to 7.7% in the quarter.

Zacks Rank & Key Picks

BJ’s Restaurants currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the same space are Jack in the Box Inc. (JACK - Free Report) , Arcos Dorados Holdings Inc. (ARCO - Free Report) and Yum! Brands, Inc. (YUM - Free Report) . Jack in the Box sports a Zacks Rank #1, while Arcos Dorados and Yum! Brands carry a Zacks Rank #2 (Buy).

Jack in the Box has a three-five year earnings per share growth rate of 10.6%.

2021 earnings for Arcos Dorados and Yum! Brands are expected to rise 127.3% and 12.1%, respectively.

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