BJ’s Restaurants, Inc. BJRI announced the launch of its fourth restaurant for fiscal 2018 in Livonia, MI. The restaurant is located at Metro Detroit’s western suburbs, alongside Haggerty Road, and in close proximity to the retail passage. Featuring BJ’s Restaurants’ extensive menu, this eatery seats roughly 230 guests.
The company also announced that it will open its fifth and last restaurant for the current fiscal in November at Cincinnati, OH. This will bring the company’s restaurant count to 12 in the state. Although BJ’s Restaurants plans to slow down its unit growth, evidently, the company hasn’t entirely refrained from it. This is because a massive slowdown in development has the potential to hurt sales.
Notably, strong sales-building initiatives and margin improvement have led the company to witness better-than-expected earnings in three of the trailing four quarters. Backed by an impressive earnings trend, shares of the company have returned a whopping 161% over the past year, outpacing the industry’s collective growth of 8.4%.
Unit Growth Slowdown to Improve Margins
Unlike its peers such as El Pollo Loco (LOCO - Free Report) , Cheesecake Factory (CAKE - Free Report) and Starbucks (SBUX - Free Report) , BJ’s Restaurants decided to put off openings for some time. After reducing the number of restaurant openings to 10 in fiscal 2017 compared with 17 in fiscal 2016, the company planned to open just five restaurants in fiscal 2018. The reduction plan stems from management’s continued belief that the ongoing headwinds in the industry call for a greater focus on traffic and sales building, rather than unit expansion.
We believe that this particular strategy of slowing down its unit growth may turn out to be favorable for the company, as it would provide some margin momentum and maximize its free cash flow. These, when combined with the company’s conservative balance sheet, would provide more flexibility for sales-building capital and share repurchases in the future.
Sales-Building Initiatives in Place
The company has greater focus in building traffic rather than developing units. It has been undertaking various efforts to enhance its delivery and take-out services. In fact, it intends to leverage its high-rated mobile app and website, along with new third-party delivery partners, to drive growth in off-premise sales.
Additionally, the restaurant has also developed a robust pipeline of new menu items, focusing on its EnLIGHTened menu category, featuring its new super food options. The company plans to introduce flavors and improve the quality of its menu items in the future. Notably, BJ’s Restaurants’ higher-priced menu items continue to be popular and management believes that these items would boost check in the near term. In fact, the company expects to offset some of the labor pressure through prudent menu pricing and design. Additionally, its promotional offers, along with bundled lunch offerings, should boost sales and drive guest traffic.
We believe, with an increased focus on productivity and efficiency, along with a plan of balanced restaurant openings, this Zacks Rank #1 (Strong Buy) company is further heading toward near- and long-term operating success.
You can see the complete list of today’s Zacks #1 Rank stocks here.
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