BJ's Restaurants (BJRI -0.11%) just posted its highest quarterly sales in history. With aggressive growth plans and a recent hiring wave, this brewhouse-style chain is now poised to take a bigger bite of the restaurant market.

To do so, BJ's will have to overcome near-term hurdles such as higher operating costs, supply chain disturbances, and onboarding of a surge of new employees -- amid cutthroat competition in the dining industry.

Friends drinking beer in a brewery restaurant.

Image source: Getty Images.

Reassembling the team

One main strength BJ's Restaurants has shown, and what differentiates it from many restaurant chains out there, is its ability to staff (and restaff) quickly. Since the pandemic started, restaurants have been chief among businesses that struggle to retain their employees.

A self-proclaimed "employer of choice in casual dining," BJ's offers unique perks for its team members. Recently partnering with DailyPay, a provider of on-demand payment solutions for businesses, BJ's can now pay its employees the same day they work a shift.

According to DailyPay, employers who offer on-demand pay can hire up to twice as quickly as those who pay on a traditional schedule. DailyPay also claims that 85% of employees who utilize its services are better able to budget their expenses.

BJ's also offers its hourly employees discounted fitness memberships, paid vacation time, and insurance offerings similar to salaried roles. As a result of its recruiting efforts, the company hired over 6,000 hourly employees during the second quarter. BJ's Restaurants now reports that it's replenished its workforce to near pre-pandemic levels.

With these new team members in place, BJ's can next focus on longer-term growth initiatives that include opening new restaurants and expanding its catering business. 

Near-term challenges

As a result of the mass-hiring efforts, one-quarter of BJ's Restaurants' employees are new hires. This has put a strain on efficiency as new members are onboarded, with training and overtime hours above normal in the second quarter. BJ's cost of labor and benefits was 18% higher in Q2 than a year ago. With labor being BJ's highest expense category, this figure will be one to watch in future earnings reports. 

BJ's cost of sales was also 20% higher in Q2 of this year vs. the same period in 2021. CFO Tom Houdek cited food cost inflation and transportation costs, which were intensified by the war in Ukraine. Houdek reported that food cost inflation amounted to a sobering 10% increase year over year.

With these factors putting undue pressure on BJ's margins, the company plans to raise its menu price by 2% this month. BJ's is also combating inflation by ordering ingredients in larger quantities, helping to save on input costs.

Customers are still hungry

The good news is that BJ's hasn't noticed a significant change in its diners' behavior because of inflation or menu price increases. In fact, Mother's Day week of this year marked BJ's Restaurants' highest-ever sales number, at almost $130,000 per restaurant.

From a revenue standpoint, Q2 of this year was BJ's best quarter ever, raking in $329.7 million, a 13.6% increase year over year. Comparable restaurant sales rose 11.7% above Q2 of last year, helping to offset increased food costs. With 6,000 new team members, BJ's was better equipped to serve more customers. This restored workforce helped boost BJ's margins, 11.9% in Q2 versus 9.8% in the first quarter.

BJ's has thus far been pleased with the performance of the three new restaurants it opened this year and plans to open as many as five more in the second half of 2022. While the company earned $1.1 billion in sales in 2021, CEO Greg Levin has ambitious plans to grow annual sales to $2 billion -- without doubling the company's restaurant count.

Levin's initiatives include elevated productivity, cost savings, and margin improvement, all while retaining the company's new recruits. As Levin puts it, "We are sales drivers, first and foremost."

If BJ's can maintain its "gold standard level of service" through its next growth phase, this restaurant stock could reach new heights for investors.