BJ's Restaurants (NASDAQ:BJRI), a casual dining and beer establishment, has had a rough year. The stock price, which is down 18% in 2020, reflects this reality.
Certainly, it is far from the only industry participant that has felt the pinch from these trying days. That raises the question: Does it represent a good value? Alternatively, is the price down because it didn't pivot quickly enough? Should you follow the numbers or have faith in a recovery?
Lots of competition
The restaurant industry is known for its competitive nature. This is certainly true of the casual dining space. There are numerous options for restaurant-goers, such as The Cheesecake Factory and Texas Roadhouse, to name just a couple.
BJ's tries to stand out by offering its own craft beers and providing a broad number of items on the menu (such as 20 different kinds of pizza).
However, this has failed to drive same-store sales (comps) increases recently. Although BJ's 2019 comps rose by 1.1%, this was driven by increased spending. Traffic to its restaurants fell by 1.9%. BJ's can't keep relying on people to spend more money, though. Management claims most of its restaurants are mature and operating near full capacity, but that wouldn't explain the drop in patronage. Ultimately, BJ's needs to get people to visit its restaurants.
Pandemic rears its head
These results were before COVID-19 reared its ugly head and forced BJ's to close its doors to the public. Although all but one of its 210 restaurants have reopened, the majority have limited indoor seating capacity, while some only have outdoor dining. Under these circumstances, it is not too surprising that BJ's third-quarter comps dropped by more than 30%.
Unfortunately, COVID-19 cases are surging in the U.S., and the situation doesn't look likely to dissipate anytime soon. Obviously, this makes things tougher for the company, which has restaurants in 29 states. Governments may reimpose tougher restrictions on eating out, or people may decide to take safety precautions by cooking at home.
Growth plans stall
A key component of management's growth plan is to open new restaurants. However, after opening seven in 2019, the company has only opened one new location this year. Ultimately, BJ's expects to double the number of restaurants, but with the pullback in openings -- which is understandable -- it is unclear how long it will take.
In the near term, BJ's has to contend with COVID-19 hurting results and putting its expansion plans on hold. You could overlook these factors if you felt the company was operating from a position of strength. BJ's lukewarm sales trend heading into the year raises questions about its long-term success, though.
In this ultra-competitive sector, there are likely better options from which to choose. This one doesn't look too appetizing.