BJ's Restaurants, Inc. ( BJRI Quick Quote BJRI - Free Report) is likely to benefit from solid comps growth, digital initiatives and cost-savings program. Also, the emphasis on menu rationalization initiatives bodes well. However, inflationary pressures are headwinds. Let us discuss the factors that highlight why investors should retain the stock for the time being. Factors Driving Growth
BJ’s Restaurants continues to impress investors with robust global same-restaurant sales growth. Comparable restaurant sales in the first quarter of fiscal 2023 increased 9% year over year compared with a rise of 33.9% reported in the prior-year quarter. The upside was primarily backed by increase in guest traffic, average check, menu price initiatives, partially offset by changes in mix. For fiscal 2023, our model predicts comps to grow 4.4% year over year.
BJ’s Restaurants is investing in technology-driven initiatives like digital ordering to boost sales. The company emphasized on refreshing its e-commerce platform with a new modern user experience and advanced functionality. The new platform focuses on a personalized and one-to-one approach to digital marketing. It also offers personalized content and dynamic recommendations for enhancing guest interaction. Given the applied learnings and fine-tuning of the program, the company anticipates the initiative to drive growth in the upcoming periods. Increased focus on menu rationalization bodes well. During the fiscal first quarter, the company emphasized on simplifying the menu, reducing menu item count complexity. The initiative paves a path for improved execution and prep hours in the kitchen. The company will roll out a new menu (with approximately 10% reduction in menu items) in July 2023. This and the emphasis on menu pricing strategy are likely to drive margins in the upcoming periods. BJ's is working on initiatives to increase sales by prioritizing the guest dining experience. It is implementing measures to enhance dining room and kitchen operations, including improved hospitality procedures and kitchen systems. These efforts aim to boost net promoter scores, drive sales, and improve operational efficiencies. In addition to the sales driving initiatives, BJ's is actively pursuing cost savings programs to increase margins. The company launched a cross-functional initiative last year to identify more than $25 million in affordable savings opportunities while maintaining quality standards. The initiative paves a path for improvement in restaurant operating margins while delivering value to the customers. For the second quarter of fiscal 2023, the company anticipates restaurant level cash flow margins to be in the low to mid 13% range. Image Source: Zacks Investment Research
So far this year, shares of the company have gained 20.3% compared with the
industry’s 9.6% growth. Concerns
BJ’s Restaurants is continuously shouldering increased expenses, which have been detrimental to margins. During the fiscal first quarter, the company’s cost of sales came in at $90.9 million compared with $81.5 million reported in the prior-year quarter. This was primarily due to the increase in commodity cost and costs related to six new restaurants opened during the fiscal 2022. Occupancy and operating costs during the quarter came in at $79.1 million compared with $71.7 million reported in the prior-year quarter. The company is cautious about the ongoing uncertain macroeconomic environment. For fiscal 2023, our model predicts total cost and expenses to rise 2.9% year over year.
Zacks Rank & Key Picks
BJ’s Restaurants currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Retail-Wholesale sector are Chipotle Mexican Grill, Inc. ( CMG Quick Quote CMG - Free Report) , Arcos Dorados Holdings Inc. ( ARCO Quick Quote ARCO - Free Report) and Chuy's Holdings, Inc. ( CHUY Quick Quote CHUY - Free Report) . Chipotle carries a Zacks Rank #1 (Strong Buy). CMG has a long-term earnings growth rate of 31.8%. The stock has improved 59.3% in the past year. You can see the complete list of today’s Zacks Rank #1 stocks here. The Zacks Consensus Estimate for Chipotle’s 2024 sales and EPS suggests growth of 12.4% and 19.6%, respectively, from the year-ago period’s levels. Arcos Dorados carries a Zacks Rank #2 (Buy). ARCO has a long-term earnings growth rate of 9.5%. The stock has gained 16.9% in the past year. The Zacks Consensus Estimate for Arcos Dorados’ 2023 sales and EPS suggests growth of 13.4% and 4.4%, respectively, from the year-ago period’s levels. Chuy’s Holdings carries a Zacks Rank #2. CHUY has a trailing four-quarter earnings surprise of 23.4%, on average. Shares of CHUY have increased 78.8% in the past year. The Zacks Consensus Estimate for Chuy’s Holdings 2023 sales and EPS suggests growth of 9.9% and 24.8%, respectively, from the year-ago period’s levels.