BJ’s Restaurants, Inc. (BJRI - Free Report) recently announced the launch of its sixth restaurant in Maryland. Located in Hagerstown, the restaurant seats roughly 230 guests and features wide-ranging menu. Notably, this is the second unit opening in 2018 and the company also has plans to open its third outlet in June at Albany.
Notably, for quite some time now, BJ’s Restaurants is trying to fend off competition and a difficult sales environment by focusing more on sales-building initiatives. To this end, the company had decided to put off new openings for some time but did not completely refrain from it, as a slowdown in unit growth can potentially dent the restaurant’s sales.
Slowdown in Unit Growth to Aid Margins but Dent Revenues
After reducing the number of restaurant openings to 10 in fiscal 2017 compared with 17 in fiscal 2016, the company plans to open just four to six restaurants in fiscal 2018. The reduction in new openings is due to the company’s continued belief that the sales headwinds in the industry call for greater focus on traffic and sales building initiatives.
We believe that this particular strategy of slowing down its unit growth may turn out to be favorable for the company, as it would provide some margin momentum and maximize its free cash flow. These when combined with the company’s conservative balance sheet would provide more flexibility for sales building capital and share repurchases, going forward.
However, the slowdown in the company’s development plan might somewhat dent its sales growth. As it is, the company’s expanse in the global market is limited. While several other restaurant bigwigs like Yum! Brands (YUM - Free Report) , McDonald’s (MCD - Free Report) and Domino’s (DPZ - Free Report) are capitalizing on the emerging market potential, BJ’s Restaurants seems to be slow on this front. We believe that the company needs to spread its presence beyond the United States in order to offset the impact of cutthroat competition in the saturated domestic market.
What's the Key Growth Driver?
BJ’s Restaurants implemented several major sales building initiatives that have contributed positively to the company’s first-quarter sales. With increased focus on productivity and efficiency, along with a plan of balanced restaurant opening, the company is further heading toward near and long-term operating success.
The company’s key needle-moving initiatives continued to drive substantial revenues in the first quarter of 2018. In 2017, the restaurant crew mastered advanced cooking methods and also became skillful in taking orders via hand-held ordering tablets. In fact, results from these initiatives have been positive so far.
Notably, in the fourth quarter of 2017, off-premise sales increased to 7% of the company’s revenues compared with its industry average of nearly 10-11%. Further, in the first quarter of 2018, BJ’s Restaurants’ off-premise business grew more than 30%, constituting 7.5% of the company’s revenues and is 150 basis points (bps) higher than the prior-year quarter. Looking at this trend, management believes that there is a tremendous opportunity for further building the off-premise part of business.
Meanwhile, BJ’s Restaurants’ extensive focus on refining and streamlining its menu is the key driver for improved traffic. The company’s slow-roasted menu, launched in 2017, has become a huge success. It has significantly boosted average check, with high incident rates.
Owing to such efforts, BJ’s Restaurants’ shares have returned 13.7% over the past year, outpacing the industry’s rally of 1.5%.
The company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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