BJ's Restaurants (BJRI) Banks on Digital Efforts, Hurt by Costs
BJ's Restaurants, Inc. BJRI is poised to benefit from digital efforts, off-premise business and sales-building initiatives. Also, the emphasis on the expansion of the remodel program bodes well. However, the rise in food cost inflation and marketing expenses are headwinds.
Let us delve into the factors that highlight why investors should retain the stock for the time being.
Factors Driving Growth
BJ’s Restaurants is investing in technology-driven initiatives like digital ordering to boost sales. To attract more customers, the company rolled out several initiatives like digital check-ins, digital menus and digital payment options. Notably, the company continues to drive awareness in its key markets through greater and more targeted marketing. This 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 the enhancement of guest interaction. Given the applied learnings coupled with fine-tuning of the program, the company anticipates the initiative to drive growth in the upcoming periods.
Even though the company reopened the majority of its dining rooms with limited capacity, its off-premise operations continue to be a driving factor for overall sales. The company is working on a number of initiatives to boost its off-premise experience. To this end, it initiated the piloting of a digital order tracker and integrated it with the digital curbside check-in portal. Also, the company upgraded its front-end order and pickup technology to boost convenience and order accuracy. The initiatives are likely to benefit the company, going forward.
Moreover, the company implemented several sales-building initiatives to boost sales from its dine-in services. The company began testing its beer subscription service in a group of Northern California restaurants. Notably, high customer engagement is being witnessed on the back of new beer releases along with program benefits. The company plans to expand this program at most of its California restaurants and other states.
The company focuses on pilot remodels, concerning dining room capacity expansion and new design elements, to drive growth. It expanded the initiative to seven restaurants and reported solid sales from the remodeled locations. Backed by positive customer feedback, the company is optimistic in this regard and expects to proceed with the initiative in the upcoming period. It intends to remodel two patios in the fourth quarter to boost its operational capacity and drive growth.
In the past six months, shares of the company have gained 36.8% compared with the industry’s 15% growth.
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BJ’s Restaurants is continuously shouldering increased expenses, which have been detrimental to margins. Higher food inflationary costs, marketing expenses and costs related to sales-boosting initiatives are weighing on the company’s margins. In the fiscal third quarter, labor costs (as a percentage of sales) were 37.7%, up 50 basis points year over year. Occupancy and operating costs (as a percentage of sales) were 24.7%, up from 24.4% reported in the year-ago quarter.
Although most dining services are open, traffic is still low compared with the pre-pandemic level. The company intends to monitor the situation regularly to gauge the impacts of COVID-19.
Zacks Rank & Key Picks
BJ’s Restaurants currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the Zacks Retail-Wholesale sector are Darden Restaurants, Inc. DRI, McDonald's Corporation MCD and Yum! Brands, Inc. YUM.
Darden carries a Zacks Rank #2 (Buy). DRI has a long-term earnings growth rate of 9.8%. Shares of DRI have gained 6.6% in the past year.
The Zacks Consensus Estimate for Darden’s 2023 sales and earnings per share (EPS) suggests growth of 7.9% and 5.4%, respectively, from the year-ago period’s reported levels.
McDonald's carries a Zacks Rank #2. MCD has a long-term earnings growth rate of 8.2%. Shares of MCD have gained 7.9% in the past year.
The Zacks Consensus Estimate for McDonald's 2023 sales and EPS suggests growth of 3.7% and 5.9%, respectively, from the year-ago period’s reported levels.
Yum! Brands currently carries a Zacks Rank #2. YUM has a long-term earnings growth rate of 11.8%. Shares of YUM have gained 7% in the past year.
The Zacks Consensus Estimate for Yum! Brands’ 2023 sales and EPS suggests growth of 6.5% and 16%, respectively, from the year-ago period’s reported levels.
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