With BJ's Restaurants (NASDAQ:BJRI) stock down 30% from its peak last September, investors came into the fourth-quarter report hoping for some news to stem the bleeding. Though its 2018 results have been strong, investors seemed to believe the stock was overvalued, pushing shares down during the market sell-off in the fourth quarter. The casual dining chain turned in another round of solid results, but this time a disappointing first-quarter update seemed to turn off investors, and the stock was down 8% in early Friday trading. Let's take a closer look at BJ's latest quarter.
BJ's Restaurants: The raw numbers
|Metric||Q4 2018||Q4 2017||Year-Over-Year Change|
|Revenue||$280.5 million||$261.1 million||7.4%|
|Net income from continuing operations||$10.7 million||$7.8 million*||37.3%|
|Adjusted diluted earnings per share||$0.49||$0.37||32.4%|
What happened this quarter
As the numbers above show, BJ's delivered another quarter of impressive growth with comparable sales up 4.5%. However, its growth rate in key metrics like revenue, EPS, and comparable sales was actually down from the third quarter. Its 4.5% comparable sales growth was also slower than the 5.3% it delivered for the full year. Guest traffic was up 1.1% in the fourth quarter, below the 2.6% growth it showed in the third quarter.
Lapping initiatives like delivery, a new slow-roasted menu, and operational efficiencies like servers' using tablets to quickly send orders to the kitchen seemed to cool off the company's growth, but it was still ahead of the industry average in casual dining.
The improvement in comparable sales leveraged food and labor expenses, driving restaurant-level operating margin up 50 basis points to 17.2% and overall operating margin up 90 basis points to 5.1%, which was the main reason for the surge in profits.
BJ's opened just one restaurant in the quarter, consistent with its plan to reduce restaurant openings in 2018 while refocusing on areas like new menu items and operational efficiencies to improve comparable sales growth. For the year the company opened five restaurants, bringing the grand total to 202. BJ's plans to accelerate restaurant openings in 2019 with seven to nine new locations.
What management had to say
As in previous quarters, management expressed satisfaction with the company's execution and the results from the latest growth initiatives. CEO Greg Trojan cited the "value being derived from our sales, traffic, and hospitality initiatives."
However, the company signaled that comps growth has slowed in the first quarter due to weather and other conditions outside its control. Here, Trojan said, "The comprehensive range of sales and hospitality initiatives we implemented over the last several years has continued to drive positive comparable restaurant sales in 2019, despite some recent sales momentum challenges from severe weather throughout much of the country."
CFO Greg Levin elaborated on the earnings call, adding, "The rains in California, the polar vortex, and extremely cold weather throughout the Midwest and East Coast, and, more recently, the record snows in the state of Washington a few weeks back have temporarily impacted our sales momentum." Levin also underscored headwinds from loyalty programs, gift cards, and promotions, and said the company expects labor costs to increase due to California's raising its minimum wage and training related to new menu times.
Because of the weather issues and increased promotions, the company said that comps through the first seven weeks of the first quarter were up in the mid-1% range, including positive traffic.
The weather-related headwinds will pass, but higher labor costs seem likely to weigh on profit growth in 2019, as the company said wages would rise around 5%. However, with new menu items such as a slow-roasted tri-tip sirloin set to roll out, accelerated restaurant openings, and other initiatives, including in the fast-growing off-premise segment, BJ's should be able to deliver the steady top-line growth in 2019 that investors have come to expect from the casual dining chain.