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Higher Costs Weigh on BJ's Restaurants' Earnings

By Joe Tenebruso - Jul 26, 2019 at 3:25PM

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The brewhouse-rooted chain is generating solid comp growth, but wage rate pressure is taking a toll on profits.

BJ's Restaurants ( BJRI -2.17% ) reported second-quarter financial results on July 25. Despite a challenging cost environment, the casual-dining chain is expanding its store base, which management believes can grow to more than twice its current size over time.

BJ's Restaurants results: The raw numbers

Metric

Q2 2019

Q2 2018

Change

Revenue

$301.1 million

$287.6 million

5%

Net income

$14.2 million

$16.9 million

(16%)

Earnings per share

$0.68

$0.79

(14%)

Data source: BJ's Restaurants Q2 2019 earnings release.

What happened with BJ's Restaurants this quarter? 

BJ's total revenue rose 5% year over year to $301.1 million, fueled by new restaurant openings and solid comparable-sales growth.

BJ's opened two new restaurants in in the second quarter (in addition to one in the first quarter and one so far in the third quarter), bringing its total store count to 206. That's up from 200 locations at the end of the second quarter of 2018. 

"We expect to open an additional restaurant in the third quarter and two restaurants in the fourth quarter, thereby achieving our goal of opening seven restaurants this year," CEO Greg Trojan said in a press release.

Exterior of a BJ's Restaurants location

BJ's Restaurants is expanding its store base. Image source: BJ's Restaurants. 

BJ's was able to grow its comparable-restaurant sales by 2% despite difficult comparisons to the year-ago quarter. "The 2% growth in comparable restaurant sales represents our seventh consecutive quarter of positive comparable sales and successfully hurdles last year's second-quarter comparable restaurant sales growth of 5.6%," Trojan said.

However, higher labor and commodity costs weighed on the company's profitability. Restaurant-level operating margin fell 2 percentage points to 17%.

"While these inflationary pressures make it challenging to leverage our solid revenue growth, I am very proud of our team's dedication and hard work as they consistently drive industry-leading traffic, quarterly sales growth, and high guest satisfaction scores," Trojan said.

All told, BJ's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) declined 7% to $36.9 million.

Looking forward 

Despite the difficult operating environment, Trojan says BJ's can more than double its store count in the years ahead.

"We remain committed to our long term expansion plan and expanding our platform to over 425 restaurants over time," the CEO said. "Accordingly, our development team is building a solid pipeline for fiscal 2020 and 2021 new restaurant openings."

Moreover, Trojan says BJ's solid sales volumes and cash flow production give it multiple ways to generate returns for investors.

"We are well positioned to invest in our business, continue our national expansion, and return capital to our shareholders through our share repurchases and dividend programs, which together support our goal of enhancing shareholder value," Trojan said.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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