Is BJ’s Restaurants Staging a Major Comeback?

During its latest conference call, something extremely interesting happened. BJ's Restaurants (NASDAQ: BJRI  ) executives used the phrase "playing offense" not once, not twice, but three different times on the most recent conference call. Fed up with lackluster growth, the brewhouse chain has launched a series of offense moves that seem to be starting to pay off.


Source:  BJ's Restaurants

The California market
You may not know this, but both The Cheesecake Factory (NASDAQ: CAKE  )  and BJ's Restaurants consider California to be their biggest market. They are both upscale casual chains with unique main features. The Cheesecake Factory specializes in cheesecake, obviously, and BJ's Restaurants specializes in its own brewed craft beer. Arguably to some, both are forms of sinful indulgence.

While Cheesecake Factory only saw a 0.9% increase in same-store sales for the first quarter, the company estimates that severe winter storms had a 2% negative impact. California, along with Texas and Florida, were specifically mentioned in its earnings release as having "exceptional strength."

BJ's pint-sized results
On May 1, BJ's Restaurants reported its fiscal first-quarter results. Revenue jumped 9.1% to $205.8 million. Same-store sales slipped 2.9%. Non-GAAP adjusted net income was $5.8 million or $0.20 per diluted share which was down significantly when compared to the same period last year. On the face of it, the results were rather unimpressive although they did beat analyst estimates by a good clip, as analysts had expected $0.12 in adjusted earnings per share.

Greg Trojan, President and CEO of BJ's Restaurants, blamed the severe weather and industrywide traffic headwinds that prevailed in the beginning of the quarter. Like Cheesecake Factory, he was of course referring mostly to locations outside of California. It was the latter part of the quarter especially inside California that was most promising, however.

Source: BJ's Restaurants

Lunging ahead
David Overton, Chairman and CEO of The Cheesecake Factory, mentioned during the company's conference call that The Cheesecake Factory had its fifth year in a row of same-store sales gains. He pointed out that The Cheesecake Factory did this purely with the strength of its brand and not through promotions or discounting.

Sometimes, though, a brand needs rejuvenating and that's exactly what BJ's Restaurants seems to be doing. First, the company rolled out a major new menu update and new brand positioning with the use of television along with digital and print media toward the end of the quarter. Its new menu introduced 15 new items with "a great value." This sounds like the "promotions" and "discounting" that The Cheesecake Factory is shying away from, but BJ's Restaurants has got to do what it has got to do.

Paying off
BJ's Restaurants' efforts seem to be paying off. While the quarter was disappointing overall as nobody likes to see negative same-store sales, the result came in 1.8% higher than the industry average. Far more importantly, the single month of March saw that 1.8% expand to a 3.2% improvement over the average, according to the BJ's Restaurants conference call.

In the red-hot California market, the result was better at 3.9%. BJ's Restaurant believes that it would have been even higher if not for a "record-setting rainstorm" on the first weekend of March. The company launched a test TV campaign in the Los Angeles area for three weeks and immediately saw a 6.5% sales lift in that area. The campaign idea is working.

BJ's Restaurants has seen a positive response in every market where it has been launching its advertising campaigns. As a result, the company is starting to scale back its discounting and scale up its ad spending as the brand rebuilds.

Foolish final thoughts
Although this sounds like a very promising and exciting time for the company itself, it may be largely priced into the stock for now. Based on the current share price, BJ's Restaurants trades with a P/E of 35 based on analyst estimates for fiscal year 2015. However, if BJ's Restaurants succeeds with its turnaround plan, those estimates could go up significantly before we get to 2015, and the stock could potentially prove to be undervalued. I for one will be watching closely and semi-often I'll be doing it from inside with a pint and a Pizookie.

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