Source: BJs Restaurants, Inc.
Beleaguered casual restaurateur BJ's Restaurants (BJRI 1.10%) reported third-quarter earnings, and gave investors something they haven't seen in some time: same-restaurant sales growth. Even better, the company's earnings per share came in at $0.23, a 77% increase over last quarter, and well above the $0.13 analysts were expecting. Total sales of $206.5 million was a little light of the $208.25 million analysts were estimating, but was still up 9.7% from last year.
Has BJ's turned the corner to growth? Let's take a closer look at the earnings report.
Project Q making an impact
Low-cost, quick-to-serve items like its flatbreads are driving better margins at lower prices. Source: BJ's Restaurants
BJ's hadn't reported growth in comps since the first quarter of 2013, so even a paltry 0.3% increase is a step in the right direction. Comps had declined 2.7%, 2.9%, and 1.7%, respectively, in each of the three quarters prior.
The average check did decline last quarter, but that's actually OK, since it's by design. Management has been working to make its menu and pricing more attractive, and it looks like maybe it's working. Guest count was up almost 1% last quarter, which is what led to the positive comps.
Restaurant-level margins of 17.6% in the quarter represented a 130-basis-point increase, which CEO Gary Trojan attributed to the menu improvements, and to the company's efforts to increase efficiency in its kitchens.
Leveraging lower-cost design for new locations
The latest restaurant format costs 33% less to build. Source: BJ's Restaurants.
This past quarter, BJ's opened three new restaurants and, in recent weeks, a fourth, which cost about $1 million less to build than the previous design. That calculates out to costing a whopping 33% less per location.
Next year, this will save the company at least $15 million in expansion costs, based on current plans to open 15 new locations in 2015. If the new menu and efficiency programs prove sustainable, the growth that investors have been hoping for might finally get going.
Share buybacks continue at moderate pace
Frankly, I disagree with the share buyback program, which is at least partly the result of a large activist shareholder. The company is early in its expansion plans, and would -- in this writer's opinion -- be better served maintaining its cash position than buying back shares, even if they are well off of the all-time high.
However, as the company has no debt, and isn't using debt to buy back shares, using part of its cash generation to repurchase shares isn't a horrible thing to do. It's just not the best use of cash at this stage. Since April, the company has repurchased and retired 2 million shares for an average price of $35.70, and has board approval to repurchase another $78.6 million in shares.
Looking ahead: Is growth returning?
Frankly, it's just too early to tell if the small positive comp result will carry over to next quarter. However, comps have been gradually improving since this spring, so it's possible that the menu enhancements management has been talking about for most of the year are actually driving more traffic. The menu changes, and the changes in the kitchen that accompanied it, are having a positive impact on margins, though, and that's definitely a good thing to see.
Will it be sustained? Only time will tell.
