Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of BJ's Restaurants (NASDAQ: BJRI ) were getting sent back to the kitchen today, finishing down 10% after its third-quarter earnings report came up short.
So what: The casual-dining chain whiffed on both top and bottom lines, as its per-share profit came in at $0.13, below estimates at $0.17, and down from $0.24 a year ago, while sales grew 7.4%, to $188.2 million, off the Wall Street mark at $195 million. Perhaps even worse, same-store sales declined 2.2%, a key metric in restaurants, as it's seen as one of the best indicators of brand strength. Despite the decline, BJ's has continued to open up new locations. Remarking on the quarter, CEO Greg Trojan said, "The overall sales environment for the casual dining industry continues to be very challenging."
Now what: Trojan is correct that the casual-dining industry is struggling, but that may not be a temporary trend. Fast-casual chains like Chipotle have upped the ante for the entire industry, and the foodie culture that's swept the nation has driven demand for fresh, high-quality food items. BJ's is essentially an expansion play, as it plans to double its store count over the next five years; but those new stores won't necessarily add profits if the company is seeing a sales decline in restaurants that are already open. That's why profits have fallen this year, even as revenue increased 10%. For that reason, I named BJ's as one of three restaurants stocks worth selling back in August. I see no reason to change my thesis after today's news.
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