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BJ's Restaurants (BJRI) Banks on Digital Efforts, High Costs Ail
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BJ's Restaurants, Inc. (BJRI - Free Report) is poised to benefit from digital efforts, off-premise business and menu innovation. Also, increased focus on sales-building initiatives bodes well. However, rise in operating expenses along with the pandemic-induced soft traffic is 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. In order to attract more customers, the company rolled out several initiatives like digital check-ins, digital menus and digital payment options. Notably, the company continues to drive awareness in its key markets through greater and more targeted marketing. To support online ordering, the company is transitioning from the current PDF form factor to a dynamic HTML version, thereby boosting promotions as well as guest-driven navigation. This along with other productivity improvement initiatives such as a centralized call center to capture more online orders are likely to boost the top line, going ahead.
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 fourth-quarter 2020, the company upgraded restaurants with kitchen system technology to improve order visibility and pacing. Also, the company upgraded its front-end order and pickup technology to boost convenience and order accuracy. Notably, the initiatives are likely to benefit the company, going forward.
Meanwhile, BJ’s Restaurants’ continues to focus on refining and streamlining its menu for improved traffic. During the fourth quarter, the company began testing its virtual brand — slow roast — across its 13 restaurants. The delivery-only concept features slow roast items and other protein-centric products. Despite impressive sales and solid customer feedback, the company continues to monitor the test to ensure kitchen efficiency maintenance.
Moreover, the company implemented several sales-building initiatives to boost sales from its dine-in services. Notably, the company began testing its beer subscription service in a group of Northern California restaurants. Notably, high customer engagement is being witnessed on the back of new beer releases along with program benefits. Items that are currently in the pipeline include, Bourbon Barrel Chocolate Stout and Coffee Blonde. Going forward, the company plans to expand this program at majority of its California restaurants and other states as well.
So far this year, shares of the company have gained 52.9% compared with the industry’s 9.9% growth.
Concerns
BJ’s Restaurants is continuously shouldering increased expenses, which has been affecting margins of late. Higher pre-opening costs, marketing expenses and costs related to sales-boosting initiatives are exerting pressure on the company’s margins. Particularly, slow roasting ovens and handheld tablets are adding to the restaurants’ costs. The company is also facing high general and administrative expenses.
During the fiscal fourth quarter, labor costs, as a percentage of sales, came in at 38.4%, up 200 basis points (bps) year over year. Occupancy and operating costs (as a percentage of sales) were 29.1% compared with 22.5% in the year-ago quarter. General and administrative expenses (as a percentage of sales) increased 150 bps to 6.8% in the quarter. Restaurant-level operating margin came in at 6.6% compared with 16% in the year-ago quarter.
Although BJ’s Restaurants resumed majority of its operations, it is likely to witness dismal traffic due to social-distancing protocols. Owing to the uncertainty revolving around the pandemic along with associated capacity restrictions, upcoming quarter’s results are likely to be negatively impacted.
Some better-ranked stocks in the same space are Darden Restaurants, Inc. (DRI - Free Report) , Jack in the Box Inc. (JACK - Free Report) and Chuy's Holdings, Inc. (CHUY - Free Report) . Darden sports a Zacks Rank #1, while Jack in the Box and Chuy's Holdings carry a Zacks Rank #2 (Buy).
Darden 2021 earnings are expected to rise 26.5%.
Jack in the Box has a three-five year earnings per share growth rate of 17%.
Chuy's Holdings has a trailing four-quarter earnings surprise of 126.5%, on average.
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BJ's Restaurants (BJRI) Banks on Digital Efforts, High Costs Ail
BJ's Restaurants, Inc. (BJRI - Free Report) is poised to benefit from digital efforts, off-premise business and menu innovation. Also, increased focus on sales-building initiatives bodes well. However, rise in operating expenses along with the pandemic-induced soft traffic is 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. In order to attract more customers, the company rolled out several initiatives like digital check-ins, digital menus and digital payment options. Notably, the company continues to drive awareness in its key markets through greater and more targeted marketing. To support online ordering, the company is transitioning from the current PDF form factor to a dynamic HTML version, thereby boosting promotions as well as guest-driven navigation. This along with other productivity improvement initiatives such as a centralized call center to capture more online orders are likely to boost the top line, going ahead.
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 fourth-quarter 2020, the company upgraded restaurants with kitchen system technology to improve order visibility and pacing. Also, the company upgraded its front-end order and pickup technology to boost convenience and order accuracy. Notably, the initiatives are likely to benefit the company, going forward.
Meanwhile, BJ’s Restaurants’ continues to focus on refining and streamlining its menu for improved traffic. During the fourth quarter, the company began testing its virtual brand — slow roast — across its 13 restaurants. The delivery-only concept features slow roast items and other protein-centric products. Despite impressive sales and solid customer feedback, the company continues to monitor the test to ensure kitchen efficiency maintenance.
Moreover, the company implemented several sales-building initiatives to boost sales from its dine-in services. Notably, the company began testing its beer subscription service in a group of Northern California restaurants. Notably, high customer engagement is being witnessed on the back of new beer releases along with program benefits. Items that are currently in the pipeline include, Bourbon Barrel Chocolate Stout and Coffee Blonde. Going forward, the company plans to expand this program at majority of its California restaurants and other states as well.
So far this year, shares of the company have gained 52.9% compared with the industry’s 9.9% growth.
Concerns
BJ’s Restaurants is continuously shouldering increased expenses, which has been affecting margins of late. Higher pre-opening costs, marketing expenses and costs related to sales-boosting initiatives are exerting pressure on the company’s margins. Particularly, slow roasting ovens and handheld tablets are adding to the restaurants’ costs. The company is also facing high general and administrative expenses.
During the fiscal fourth quarter, labor costs, as a percentage of sales, came in at 38.4%, up 200 basis points (bps) year over year. Occupancy and operating costs (as a percentage of sales) were 29.1% compared with 22.5% in the year-ago quarter. General and administrative expenses (as a percentage of sales) increased 150 bps to 6.8% in the quarter. Restaurant-level operating margin came in at 6.6% compared with 16% in the year-ago quarter.
Although BJ’s Restaurants resumed majority of its operations, it is likely to witness dismal traffic due to social-distancing protocols. Owing to the uncertainty revolving around the pandemic along with associated capacity restrictions, upcoming quarter’s results are likely to be negatively impacted.
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 Darden Restaurants, Inc. (DRI - Free Report) , Jack in the Box Inc. (JACK - Free Report) and Chuy's Holdings, Inc. (CHUY - Free Report) . Darden sports a Zacks Rank #1, while Jack in the Box and Chuy's Holdings carry a Zacks Rank #2 (Buy).
Darden 2021 earnings are expected to rise 26.5%.
Jack in the Box has a three-five year earnings per share growth rate of 17%.
Chuy's Holdings has a trailing four-quarter earnings surprise of 126.5%, on average.
Infrastructure Stock Boom to Sweep America
A massive push to rebuild the crumbling U.S. infrastructure will soon be underway. It’s bipartisan, urgent, and inevitable. Trillions will be spent. Fortunes will be made.
The only question is “Will you get into the right stocks early when their growth potential is greatest?”
Zacks has released a Special Report to help you do just that, and today it’s free. Discover 7 special companies that look to gain the most from construction and repair to roads, bridges, and buildings, plus cargo hauling and energy transformation on an almost unimaginable scale.
Download FREE: How to Profit from Trillions on Spending for Infrastructure >>