Coming into BJ's Restaurants (BJRI -4.25%) fourth-quarter report, investors were hoping to see that the company had moved past the worst of the restaurant recession, as well as the negative effects of hurricanes in the third quarter. There had been some signs of improvement in the industry as reports said that same-store sales in casual dining were starting to increase. Chains like BJ's also have cut back on store openings, and some have even closed locations, easing a tight labor market and competition.
Indeed, BJ's managed to post positive comps for the first time in six quarters as same-store sales ticked up 1.6% and traffic increased 0.7%. Let's take a closer look at what happened with BJ's in the fourth quarter.
BJ's Restaurants: The raw numbers
|Metric||Q4 2017||Q4 2016||Year-Over-Year Change|
|Sales||$261.1 million||$265.6 million*||(1.6%)*|
|Net income from continuing operations||$11 million||$16.6 million||(33.7%)|
|Adjusted earnings per share||$0.37||$0.55||(32.7%)|
What happened this quarter
Although profits fell sharply, as the above table shows, the growth in comparable sales indicates that the company is taking steps in the right direction as delivery, a new slow-roasted menu, and daily brewhouse specials contributed to the return to growth in comparable sales. Still, California is the company's biggest market, and rising labor costs there and in other parts of the country continue to squeeze profits as labor costs rose 90 points in the quarter. Food and occupancy costs were up, as well, by 40 basis points and 70 basis points, respectively.
BJ's also benefited from a $15.7 million, or $0.75 per-share, gain from the new tax law and expects it to significantly lower its tax rate from this year forward. The company also paid its first quarterly dividend, of $0.11 per share, in the quarter and repurchased 300,000 shares in the quarter for $9.6 million. The casual-dining chain reduced its shares outstanding by about 10% over the last year and opened two new locations in the quarter, for a total of 10 during the year.
What management had to say
CEO Greg Trojan was quoted in a company press release as saying, "BJ’s solid fourth quarter comparable restaurant sales growth of 1.6% and strong traffic gains of 0.7% highlight the ongoing progress and initial financial benefits from the sales driving initiatives implemented at the start of 2017." The company has been working on efforts including delivery and handheld tablets for servers.
Management also said that specials like a $3 Pizookie dessert in October and midweek Brewhouse specials helped drive comparable-sales growth. As a result of the company's catering and delivery initiatives, off-premise sales grew by double digits in the quarter and contributed 7% of total sales, up from 5.6% a year ago. Management said the savings from tax reform would go into those initiatives and similar sales-boosting measures. The company also stood by its long-term goal of opening 425 restaurants, despite a recent plan to slow down store openings, and said it could have room for more than 425 locations. It currently has about 200.
Management didn't offer guidance in the press release. The company said it will see profits increase due to the new tax law, but that won't be enough to improve margins over the long term. While the trend in comparable sales is certainly favorable, the company may need to find ways to better control costs so that top-line growth leads to an increase in earnings. With labor costs set to continue rising in California and a tight labor market across much of the country, that may be difficult.
Still, the company succeeded in proving that it was capable of driving sales growth through new initiatives -- which should not be overlooked -- and investors can expect more such programs in 2018.