BJ's Restaurants (BJRI) Up 37.1% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for BJ's Restaurants (BJRI). Shares have added about 37.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is BJ's Restaurants due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

BJ's Restaurants Posts Q1 Loss, Lags Sales Estimates

BJ's Restaurants reported first-quarter 2020 results, wherein the bottom line surpassed analysts’ expectation but the top line missed the same. With this, the company’s bottom line surpassed estimates for seven straight quarters, while the top line beat the same in five of the trailing seven quarters.

Adjusted loss (excluding an impairment charge of 12 cents per share) of 10 cents per share was narrower than the Zacks Consensus Estimate of a loss of 38 cents. In the year-ago period, it had reported adjusted earnings of 62 cents per share. On a GAAP basis, the company reported a loss per share of 22 cents in the first quarter.

Revenues & Comps

Total quarterly revenues of $254.6 million missed the consensus estimate of $261.7 million by 2.7%. The top line also declined 12.4% year over year. Lower comparable restaurant sales led to the decline. However, total restaurant operating weeks increased 3.2% from the prior-year quarter.

Comparable restaurant sales declined 15.5% from the prior-year quarter. In the year-ago period, comparable restaurant sales grew 2%. Prior to the COVID-19 pandemic, comparable restaurant sales grew 1.5% in the first eight weeks of the quarter. However, the metric declined 40.4% in the last five weeks of the quarter owing to the pandemic.

Expenses & Operating Margins

Labor costs, as a percentage of sales, increased 460 basis points (bps) year over year to 40.8%. Occupancy and operating costs (as a percentage of sales) were 24.1%, up 290 bps year over year. General and administrative expenses (as a percentage of sales) declined 120 bps to 4.6% in the quarter.

Restaurant-level operating margin was 10.1%, down 730 bps from the year-ago quarter.

Restaurant Count

The company expanded footprint during the reported quarter, courtesy of the opening of its first restaurant in the state of Massachusetts in North Attleboro. Although BJ’s Restaurants had earlier planned to open 8-10 restaurants in 2020, it now expects to open one additional restaurant later this year. It has either canceled or delayed the remaining new restaurant openings for fiscal 2020 due to this uncertainty situation.

As of Mar 31, 2020, BJ’s Restaurants owned and operated 209 casual dining restaurants in 29 states. Due to the COVID-19 crisis, the company has temporarily suspended the dine-in service in the majority of its restaurants. Presently, menu offerings and hours are limited, and four restaurants have been temporarily closed. Nonetheless, the company has been focusing on growing off-premise sales. Recently, it made some enhancements to its mobile app and online ordering platform. It also expanded large party menu and third-party delivery partnerships that enabled it to seamlessly transition to higher off-premise volumes during this pandemic.

Greg Trojan, BJ’s Chief Executive Officer, said, “Once we have resumed normal operations, as conditions permit, we expect to resume our restaurant opening objectives as we continue our national expansion to at least 425 BJ’s restaurants.”

Balance Sheet

As of Mar 31, 2020, cash and cash equivalents totaled $80.3 million compared with $22.4 million on Dec 31, 2019. Total debt increased to $231.8 million as of Mar 31, 2020 from $143 million at 2019-end.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 8.9% due to these changes.

VGM Scores

Currently, BJ's Restaurants has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, BJ's Restaurants has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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