BJ's Restaurants (BJRI) Q2 Earnings Lag On Weaker Comps

BJ’s Restaurants Inc. (NASDAQ:BJRI) posted weak second-quarter 2016 results wherein both earnings and revenues lagged the Zacks Consensus Estimate. Despite menu innovation and efficiencies derived from Project Q, the company’s comps declined and were softer than anticipated due to a difficult operating environment.

Adjusted earnings of 56 cents per share missed the Zacks Consensus Estimate by a penny but increased 19.5% from the year-ago figure of 47 cents. The year-over-year upside reflects improved revenues, continued restaurant growth and ongoing cost savings initiatives, which drove operating income margins.

Revenues of $250.3 million were up 7.9% year over year owing to new restaurant growth. Meanwhile, it lagged the consensus mark of $253 million by 1.1%.

BJ'S RESTAURANT Price, Consensus and EPS Surprise

BJ'S RESTAURANT Price, Consensus and EPS Surprise | BJ'S RESTAURANT Quote

Inside the Headline Numbers

Comps in the quarter declined 0.2% as against prior quarter comps growth of 3.2% and the year-ago quarter comps growth of 0.5%, due to a challenging sales environment for the casual dining sector.

The company outlined various factors which led to the sluggish comps growth, including calendar shifts, weather, and other outside factors. Some of the sales softness is also the result of reallocating TV media spend in Southern California a year ago.

Restaurant level margin was 20.6%, down 30 basis points (bps) year over year. Operating margin however improved 20 bps to 7.8% as general and administrative expenses as a percentage of sales declined 40 bps and occupancy costs as a percentage of sales declined 50 bps. Besides boosting the top line, the company’s Project Q initiative is helping it to curtail costs as well. It resulted in a reduction in average kitchen hours leading to labor efficiencies. However, these costs declines were partially offset by a 40 bps increase in cost of sales.

Going Forward

BJ’s Restaurants believes that the strength of its model and operating leverage positions it well for continued financial growth in 2016.

Meanwhile, the company has planned menu innovations and marketing initiatives in the second half of 2016. These menu innovations include the recent additions to the ‘Loaded Burgers’ lineup, a Monday through Thursday daily ‘Brewhouse Special’ and several new items for the very successful ‘Enlightened Menu’ category. The new ‘Enlighted Menu’ items will focus on today’s more popular ‘superfoods’ and will be rolled out this fall.

However, the company expects sales headwinds in the near term due to social and political issues, weakening consumer confidence and increasingly global uncertainty.

BJ’s Restaurants carries a Zacks Rank #3 (Hold).

Stocks to Consider

Better-ranked stocks in the restaurant industry include Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY) , Famous Dave’s of America, Inc. (NASDAQ:DAVE) and Chuy’s Holdings, Inc. (NASDAQ:CHUY) . While Dave & Buster’s sports a Zacks Rank #1 (Strong Buy), Famous Dave’s and Chuy’s Holdings carry a Zacks Rank #2 (Buy).