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BJ's Expands Further in California

Zacks Equity Research

Among the casual dining chains, BJ's Restaurants, Inc. (BJRI) is one of the few that has been expanding in an uncertain economy. With the resurgence of consumer confidence, management accelerated its unit openings in 2013. In the long run, the company plans to open at least 425 outlets in the U.S.

The restaurateur recently unveiled a BJ's Restaurant & Brewhouse outlet in San Jose, California, which marks the 11th of the company’s targeted 17 openings in 2013. This is a clear evidence of its strategy of expanding in the lucrative domestic market. The restaurant, positioned in San Jose Market Center at the juncture of Coleman Avenue and SR-87, marks the opening of the second BJ's Restaurant & Brewhouse’s unit in San Jose. The 7,500 square feet unit can accommodate around 265 diners at a time.

California is the home-court of BJ’s and it has plenty of growth opportunities. The company currently operates a total of 130 restaurants across the U.S., of which 63 are located in California. According to the National Restaurant Association, the restaurant industry of California acts as a major catalyst to its economic development. The state’s restaurant industry is projected to generate around $67.4 billion in revenues in 2013.

BJ’s boasts a solid presence and tremendous customers’ fondness in San Jose. Thus, we believe the new unit will benefit immensely from its strategic location and likely drive higher sales. Moreover, an additional unit in the core California market will further strengthen BJ’s position in the region.

Although, the core California market has started reporting improved same-store sales, it will still take some time to perform at par with the other markets, which were less ruffled by the recession. Further, higher sales tax and state income tax in California along with higher gasoline prices compared to other parts of the U.S. are taking a toll on the Zacks Rank #4 (Sell) company’s business. Further, the region is facing greater competitive pressure as the gradual recovery of the economy has resulted in several restaurant openings.

Apart from strengthening its presence in its existing California and Texas markets, BJ’s is now entering into other potential markets. In Sep 2013, the company unveiled a BJ's Restaurant & Brewhouse unit in Dayton, Ohio. With only four restaurants, Ohio is a relatively newer market for the company.

Some other players in the restaurant industry which are expected to perform well, going ahead, include Burger King Worldwide, Inc. (BKW), Buffalo Wild Wings Inc. (BWLD) and Cracker Barrel Old Country Store, Inc. (CBRL). All these stocks carry a Zacks Rank #2 (Buy).

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