Shares of BJ's Restaurants (NASDAQ:BJRI) have been heating up this year. After a rough patch in 2017, the stock had gained nearly 75% year to date coming into the second-quarter earnings report. Investors have responded to improving performance from new initiatives like its slow-cooked menu, delivery, and handheld server tablets, which have resonated with customers.
The California-based casual-dining chain did not disappoint this time around, as the chain continued to heat up. BJ's Restaurants stock added to its 2018 gains following the earnings report on Thursday afternoon, as the company delivered strong comparable sales and earnings growth. Let's take a closer look at the results.
BJ's Restaurants: The raw numbers
|Metric||Q2 2018||Q2 2017||Year-Over-Year Change|
|Net sales||$287.6 million||$265.8 million||8.2%|
|Net income from continuing operations||$16.9 million||$9.6 million||75.8%|
|Diluted earnings per share||$0.79||$0.44||80.7%|
What happened this quarter
BJ's growth continued to accelerate last quarter, as comparable sales jumped 5.6% on a 2.5% increase in traffic: the company's best performance in several quarters. Management credited the customer response to its slow-roasted menu, Daily Brewhouse Specials, and off-premise sales. Recently, the company has focused on growing delivery and take-out, in part through third-party apps.
Thanks to improving comparable sales, restaurant-level operating margin expanded 120 basis points to 19.0%. Food and packaging costs fell 120 basis points, while labor -- the company's biggest expense line item -- was essentially flat as a percentage of revenue, rising 10 basis points to 35.5%. The bottom line also benefited from a lower tax rate, mainly thanks to the Tax Cuts and Jobs Act.
Additionally, BJ's Restaurants repurchased 24,000 shares for $1.1 million in the quarter and repaid $48.5 million in borrowings under its credit facility. The company now has $110 million in debt on the balance sheet and expects to use cash flow to pay down debt rather than buy back shares as the stock price is now elevated.
BJ's also opened two new restaurants in the quarter, including its 200th restaurant, tracking with its goal of opening five new locations this year. Management reaffirmed its long-term goal of opening more than 400 locations nationwide. BJ's plans to accelerate restaurant openings next year as it had temporarily slowed them down to focus on its new brand-building initiatives.
What management had to say
CEO Greg Trojan gave credit to many of the same factors that have driven the company's momentum over the last three quarters. "Our sales building and hospitality initiatives drove strong second quarter growth in guest traffic and comparable restaurant sales," Trojan said.
As a testament to the company's strong performance, Trojan noted that "42 of our restaurants set daily sales records and 23 of our restaurants set weekly sales records, demonstrating robust and consistent growth across our entire restaurant base."
He was also optimistic about the second half of the year. "As we move into the second half of 2018, we remain focused on driving sales and traffic and taking market share in the casual dining segment of the restaurant industry," Trojan said. "We plan on testing new Brewhouse Specials and Slow Roast menu items, further optimizing our off-premise sales channel and leveraging the data from our upgraded Premier Rewards loyalty program."
BJ's doesn't provide specific guidance, but it's clear that management expects the current momentum to continue into the second half of the year. CFO Gregory Levin touted strong results on the Fourth of July, which is part of the third quarter. Comparisons will get tougher toward the end of the year as the company starts to lap periods of comparable sales gains. But with the brewhouse chain gaining market share, growing comparable sales by more than 5%, and nearly doubling its profit, BJ's is executing more effectively than it has in a long time.