Coming into its second-quarter earnings report, BJ's Restaurants Inc. (NASDAQ:BJRI) had seen nearly a quarter of its share value evaporate since reporting first-quarter earnings. The stock slid steadily after its June shareholders meeting, where the company didn't deliver favorable news, and on concerns about the ongoing "restaurant recession."
Investors hoping the recent pullback would set the stage for a recovery were sorely disappointed with BJ's report today, as comparable sales and earnings fell once again. Here's what you need to know.
BJ's Restaurants results: The raw numbers
|Metric||Q2 2017||Q2 2016||Year-Over-Year Change|
|Sales||$265.8 million||$250.3 million||6.2%|
|Net income from continuing operations||$11.08 million||$13.79 million||(19.7%)|
What happened this quarter
It was an all-around disappointing report for the casual-dining chain, as comparable sales fell 1.4%, marking the fifth-straight quarter that same-store sales slipped. The slide in revenue at established stores came in spite of recent sales-driving initiatives, like a new slow-roasted menu and having servers use handheld tablets. Both initiatives have now been implemented at all restaurants.
Profits fell as expenses increased in each restaurant-level line item, including food, labor, and occupancy. CEO Greg Trojan cited initiatives including the ones above, as well as delivery, for adding to increased food and labor costs. In July, the company launched a partnership with DoorDash, the on-demand, app-based delivery service available in more than 500 cities.
During the quarter, the company opened four new locations and remains on track to add 10 this year, down from its pace in previous years as it focuses on building comparable sales. BJ's also repurchased $2.9 million in stock in the quarter, and shares outstanding decreased by about 10% in the last year, which explains why earnings per share didn't fall as much as net income.
What management had to say
Trojan said that the quarter started off strongly, but sales began to soften in mid-May. He noted that the slow-roasting ovens had boosted the average transaction, while the handheld tablets sped up order times. He also said the company will continue to focus on delivery and take-out, leverage its website and mobile app, and double down on delivery with the DoorDash partnership.
Trojan summed up the company's current position, saying: "While we are making steady progress against the learning curve related to these initiatives, the majority of the transition, disruption and expense is behind us. With the implementation of these new platforms solidly in place we can begin leveraging these investments throughout our business to continue delivering higher quality food, service and hospitality to our guests and returns for our shareholders."
With the slow-roasting and tablet initiatives behind the company, margins may improve, but the continued slide in same-store sales is concerning. According to Black Box Intelligence, same-store sales fell 3% across the restaurant industry in the second quarter with the bar-and-grill segment of casual dining among the worst performers. That may indicate that BJ's is outperforming its casual-dining peers, but it offers little consolation when profits are falling.
The DoorDash partnership may bring in incremental revenue, but delivery is not a cure-all for this casual-dining chain, whose brand is based, in part, on craft beer and providing a place to watch sports. These things cannot be delivered.
Management didn't provide guidance for the current quarter, but said it expected performance to improve in the second half of the year. While margins may improve as the company has finished implementing its recent initiatives, comparable sales seem like they will remain tied to general industry trends, which should mute investor expectations.