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Analyst Blog

On Sep 26, we issued an updated research report on casual dining restaurant chain operator BJ's Restaurants, Inc. (BJRI - Free Report) .

The company posted weak second-quarter 2016 results on Jul 26, wherein both earnings and revenues lagged the Zacks Consensus Estimate. Despite menu innovation and efficiencies derived from Project Q, the company’s comps declined and were softer than anticipated due to a difficult operating environment.

In fact, the company expects traffic and sales to remain soft in the near term owing to various social and political issues, weakening consumer confidence and increasing global uncertainties.

Nonetheless, over the long term, the company is positive about driving top and bottom-line growth given its prudent expansion plans along with various marketing, operational and technology-driven initiatives.

The company’s initiatives like guest loyalty program, catering program and focus on supply chain management have reaped significant benefits. Moreover, the company has been refining and streamlining its menu to make it easier for guests to order and thereby improve traffic. Also, the company is committed toward improving its operating margins through cost containment initiatives.

However, higher cost of sales and labor costs due to higher wages are expected to continue to keep profits under pressure. Also, costs incurred due to the implementation of the Affordable Care Act might dampen profits. Moreover, marketing and pre-opening costs are expected to hurt profits as the company intends to open more restaurants going forward.

Moreover, while several other restaurateurs are capitalizing on the emerging market potential, BJ’s Restaurants seems to be slow on this front. Thus, the company needs to spread its presence beyond the U.S. in order to offset the impact of cutthroat competition in the saturated domestic market.

Zacks Rank & Other Stocks to Consider

BJ's Restaurants currently has a Zacks Rank #5 (Strong Sell). Better-ranked stocks in this sector include Denny's Corporation (DENN - Free Report) , Wingstop Inc. (WING - Free Report) and Papa John's International Inc. (PZZA - Free Report) . All the three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Denny's 2016 earnings moved up nearly 2% over the last 60 days. Further, for full-year 2016, EPS is expected to grow a solid 20.2%.

The Zacks Consensus Estimate for Papa John's 2016 earnings climbed 1.7% over the last 60 days. The company’s earnings have surpassed the Zacks Consensus Estimate in all of the last four quarters, with an average beat of 7.81%.

Wingstop’s earnings have surpassed the Zacks Consensus Estimate in all of the last four quarters, with an average beat of 15.46%. Further, for full-year 2016, EPS is expected to grow 17.6%.

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