BJ's Restaurants (BJRI) Down 81.2% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for BJ's Restaurants (BJRI). Shares have lost about 81.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is BJ's Restaurants due for a breakout? 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 catalysts.

BJ's Restaurants Q4 Earnings Beat, Sales Miss Estimates

BJ's Restaurants reported fourth-quarter 2019 results, wherein earnings beat the Zacks Consensus Estimate but revenues missed. This marked the company’s second straight quarter of earnings beat. Meanwhile, the top line missed estimates after beating the same in the preceding eight quarters.

Adjusted earnings of 53 cents per share beat the Zacks Consensus Estimate of 44 cents by 20.5%. Moreover, the bottom line increased 8.2% year over year. On a GAAP basis, earnings per share were 75 cents.

Revenues & Comps

Total quarterly revenues of $291.1 million missed the consensus estimate of $291.5 million by a marginal 0.1%. However, the top line grew 3.8% year over year, driven by a 3% rise in total restaurant operating weeks and a 0.4% increase in average weekly sales.

Comparable restaurant sales improved 0.4% from the prior-year quarter. The increase was mainly attributed to strength in the BJ’s concept and brand, which was further supported by its productivity and sales-driving efforts.

During the reported quarter, the company also gained market share in the casual dining industry, thanks to the re-launch of its catering menu and offerings, the addition of tri-tip sirloin to its slow roast platform, the introduction of $6-take home entrees, and the roll out of the Gold Standard Kitchen Systems.

Expenses & Operating Margins

Labor costs, as a percentage of sales, increased 100 basis points (bps) to 36.4% on higher hourly average wages and an increase in state unemployment taxes, offset by enhanced labor productivity. Occupancy and operating costs (as a percentage of sales) were 22.5%, up 50 bps year over year. The increase was mainly due to the new lease accounting standard and higher facilities costs.

Restaurant-level operating margin was 16%, down 120 bps from the year-ago quarter. The decline can be attributed to continued wage rate pressures and higher-than-expected food cost inflation. However, the company expects to counter the high costs prevalent in the industry through its disciplined cost-saving and efficiency initiatives along with restaurant level execution.

Restaurant Count

During the fourth quarter, the company opened new restaurants in Tulsa, Oklahoma and Lakewood, CO. Further, it closed the smaller format BJ’s Pizza & Grill restaurants in Balboa, CA. In fiscal 2019, the company opened seven restaurants, reaching its target.

Balance Sheet

As of Dec 31, 2019, cash and cash equivalents totaled $22.4 million compared with $29.2 million as of Jan 1, 2019. Total debt increased to $143 million in 2019 from $95 million at 2018-end.

BJ's Restaurants declared a quarterly cash dividend of 13 cents per share, payable on Mar 24.

In fourth-quarter 2019, the company repurchased and retired roughly 0.3 million shares for $10.3 million. With this, it has repurchased and retired nearly 11.8 million shares for $460.5 million since the beginning of its share repurchase plan in April 2014. Currently, it has $39.5 million available under its share repurchase program.

Guidance

BJ’s Restaurants notes that the comparable restaurant sales in the first seven weeks of 2020 have increased 1.7%, including slightly faster trends in California. Notably, the company is witnessing improving trends in California from third-quarter 2019. Further, it outlined its guidance for 2020.

Further, the company plans to open 8-10 restaurants in 2020 along with witnessing new restaurant growth in the low-double digits in 2021. Backed the new restaurant growth target, it envisions comparable restaurant sales of 2-3% in 2020.

However, the company hinted at the continuation of the wage rate inflation in mid-single digits in 2020. Based on the latest trends, it predicts upward pressure on wages for hourly positions and managers of nearly 5%. Nevertheless, the company is working to improve restaurant level operating margins, with its ongoing food-management initiatives.

Moreover, it expects cost of sales in the low to mid 25% range for 2020. Occupancy and operating costs, as a percentage of sales, are likely to be in the mid-to-upper 21% to 22% range. This includes 2-2.5% of marketing spending. Total general & administrative (G&A) expenses are expected to be $70 million in 2020. The company expects effective tax rate of 6% for 2020.

Driven by the aforementioned assumptions and gains of leveraging fixed costs in its business, it expects to deliver high-single-digit to low-double-digit earnings growth in 2020.

For first-quarter 2020, the company anticipates restaurant operating weeks of 2,708. It expects cost of sales to be in the low 25% range. Labor costs, as a percentage of sales, for the first quarter are expected to be in the upper end of 36-37%. Notably, the company witnesses higher labor costs, as a percentage of sales, in the first quarter of every year due to higher payroll taxes and benefits occurring at the beginning of each year.

It expects operating and occupancy costs, as a percentage of sales, in the mid 21% range. G&A expenses are anticipated to be in the mid to upper $16 million range in the first quarter.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -5.7% due to these changes.

VGM Scores

At this time, BJ's Restaurants has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

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

Outlook

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