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Disappointing 3Q at BJ's

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BJ’s Restaurants Inc. (BJRI - Free Report) reported third-quarter 2012 adjusted earnings of 24 cents per share, which fell short of the Zacks Consensus Estimate of 28 cents, but came in line with the year-ago level.

On GAAP basis, earnings came at 24 cents per share versus 22 cents recorded in the year-ago period. Despite double-digit growth in the top line, the bottom line failed to match up to the expectations due to a higher cost structure.

Inside the Headline Numbers

Revenues in the reported quarter grew 16.0% year over year to $175.2 million, which lagged the Zacks Consensus Estimate of $178.0 million. The increase was attributable to modest growth in both comparable restaurant sales and new restaurant openings. Comparable restaurant sales grew 2.3% compared with 6.5% in the prior-year quarter reflecting growth for the11th consecutive quarter.

To strengthen its position amid a cut-throat setting, BJ’s made notable investments in the quarter like the launch of a loyalty program, pizza upgrade and the rollout of beer education in order to give an impetus to the sales of BJ’s proprietary craft beer.

Operating margin was down 60 basis points (bps) year over year at 5.1%, reflecting an 80-bps spike each in occupancy and operating costs as well as labor and benefits costs, and 30-bps increase in depreciation and amortization. These were partially offset by a fall of 20 bps each in restaurant opening costs as well as general and administrative expenses and flat cost of sales.

Store Update

The company opened four restaurants during the third quarter. At quarter-end, the company operated 125 units.    

BJ’s has already chalked out its unit opening plan for the remaining quarter of 2012. Five new units are slated for the final quarter, of which two units have already been unveiled in Texas and Florida. Rest will be opened before Thanksgiving.

The company’s 2013 developmental pipeline consists of as many as 17 new restaurants. This pipeline also includes the shift of one of the company’s small format "Pizza and Grill" restaurants in Eugene, Oregon to a new site in Eugene, where it can house a larger-format "Brewhouse" restaurant.


BJ’s ended the quarter with cash and cash equivalents of $38.6 million and shareholders’ equity of $362.3 million. As of October 2, 2012, BJ’s long-term debt liability was nil.

Our Take

We remain cautious on the stock at the current level based on the top- and bottom- line miss as well as the decelerating growth in comps and margins. The slump in broader market took a toll on BJ’s performance in the third quarter. A set of macro issues like the national political conventions and higher gasoline prices in California kept consumers pre-occupied and made them dine out less.

However, we believe BJ’s will be able to drive its top-line growth momentum on the back of operating efficiencies, innovative offerings, several sales-building measures over the long term.

BJ’s Restaurants competes with Darden Restaurants Inc. (DRI - Free Report) and currently retains the Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. We are maintaining our long-term Neutral recommendation on the stock.

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