Coming into the third-quarter earnings report, BJ's Restaurants (BJRI 5.86%) shareholders were looking for assurance that the business is still strong. The stock hit an inflection point a year ago as the business began to turn around thanks to initiatives like a new menu of slow-roasted items, handheld server tablets, and delivery, and shares have doubled since then. However, prior to yesterday's quarterly report, the stock had fallen nearly 20% from September, a sign that investors thought it might have gotten overheated.
Nonetheless, the casual-dining chain delivered another impressive quarter with strong growth across the board. Let's take a closer look at the key numbers.
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BJ's Restaurants: The raw numbers
| Metric | Q3 2018 | Q3 2017 | Year-Over-Year Change |
|---|---|---|---|
| Net sales | $270.3 million | $247 million | 9.4% |
| Net income from continuing operations | $7.9 million | $3.2 million | 147% |
| Adjusted diluted earnings per share | $0.31 | $0.15 | 107% |
Data source: BJ's Restaurants.
What happened this quarter
As the numbers above show, BJ's continues to execute in virtually all facets of the business. Comparable-store sales surged 6.9% in the period, its fastest growth in 29 quarters, as traffic increased 2.6%, a solid accomplishment at a time when a lot of restaurant chains are losing traffic. Management also said that its comparable sales growth beat the sector benchmark by a full 5 percentage points, while traffic was better by three points, a sign that its new menu offerings and promotions continue to resonate with customers and that the company is gaining considerable market share. For example, its slow-roasted items saw 16% order growth more than a year after their introduction.
Lapping the hurricanes in Texas and Florida that impacted business last year also helped the company's growth as the bottom line more than doubled. Even excluding the impact of the hurricanes, restaurant-level operating margin improved 120 basis points and overall operating margin went up 170 basis points as growing traffic and price increases have helped the company absorb higher food and labor costs and drive improved profitability.
During the quarter, BJ's opened its 201st restaurant, in Livonia, Michigan, and remains on track to open five restaurants in the year. The company also its raised quarterly dividend by a penny, to $0.12 a share, giving investors a 0.8% yield, the first hike since it initiated the dividend a year ago.
What management had to say
Management touted the company's execution and strong growth in the period, with CEO Greg Trojan saying in a company press release, "The continued momentum from our sales building initiatives, coupled with our higher quality, differentiated market positioning, drove another quarter of strong top- and bottom-line growth." Trojan also noted that the company's net promoter score had improved, a sign that its brand buzz is improving. Trojan said, "Our operators continued to enhance hospitality and service levels in our restaurants, resulting in significant improvements in our guest satisfaction scores during the quarter."
Summing up the company's position heading into 2019, Trojan said, "With the broad attraction to our unique concept and just 201 restaurants open, we remain well positioned for near- and long-term growth given our estimated national capacity for at least 425 BJ's restaurants."
Looking ahead
BJ's said momentum from the third quarter has continued into the fourth, with comparable sales up 4% and traffic up 2% through October. Comparable sales growth will get more difficult from this point as the company laps stronger quarters since its streak of six comparable sales declines came to an end a year ago.
Though BJ's does not provide specific guidance, management did shed some light on its goals for 2019. The company is aiming for seven to nine new restaurant openings with a long-term goal of doubling its current store count, and management is more confident about new store openings following a slowdown this year as it said new restaurants have been performing well. Trojan also reminded investors that new restaurant quality would always take precedence over quantity.
With the consumer economy revving higher, and BJ's Restaurants' new menu and promotions continuing to win favor with customers, the casual-dining chain looks well positioned to carry its current momentum into 2019.
