BJ's Restaurants (BJRI) Banks on Digital Efforts, Hurt by Costs
BJ's Restaurants, Inc. BJRI will likely benefit from digital initiatives, culinary strategy, and remodeling initiatives. Also, the emphasis on the cost-saving program bodes well. However, inflationary pressures are headwinds.
Let us discuss the factors that highlight why investors should retain the stock for now.
Factors Driving Growth
BJ’s Restaurants is investing in technology-driven initiatives like digital ordering to boost sales. The company emphasized refreshing its e-commerce platform with a new modern user experience and advanced functionality. The new platform focuses on a personalized and one-to-one approach to digital marketing. It also offers personalized content and dynamic recommendations for enhancing guest interaction. With insights gained and ongoing refinements to the program, the company foresees this initiative as a catalyst for driving growth in the coming periods.
Increased focus on culinary strategy bodes well. In the third quarter of fiscal 2023, BJRI implemented a more streamlined menu, reducing items by 15% and focusing on popular Brewhouse favorites determined through guest research and in-house trials. This strategic trimming resulted in enhanced guest satisfaction ratings. For the holiday season, the company plans to introduce new limited-time offerings, such as the Brewhouse Blonde garlic shrimp appetizer, a special filet surf-and-turf dish and seasonal cocktails like Tipsy Snowman and Winter Paradise Pomegranate Margarita. These initiatives, combined with a focus on menu pricing strategy, are expected to positively impact margins in the upcoming periods.
BJ's focuses on remodels to drive growth. Their renovation initiative prioritizes crafting an appropriate ambiance by introducing more seating, refreshing the bar layout, updating lighting, enhancing artistic elements and redesigning booth and table arrangements. The recently revamped bar stands out for its contemporary and brighter look, featuring an impressive 130-inch television showcasing the Brewhouse Theater. The company received positive feedback from customers regarding these renovations. Given the increased guest traffic and positive financial outcomes observed at remodeled locations, the company is optimistic and plans to continue this initiative in the near future. They foresee renovating at least 20% of their restaurants by the 2023-end.
Apart from strategies aimed at boosting sales, BJ's is actively engaged in cost-saving initiatives to improve margins. During third-quarter fiscal 2023, the company achieved annual savings exceeding $30 million by reducing expenses related to food, labor and operations. Further opportunities for savings have been identified and are slated for implementation by the end of the fourth quarter. These efforts are geared toward boosting margins and year-over-year EBITDA. The success of this cost-saving endeavor paved the way for plans to open new restaurants in 2024, with an expected increase in numbers by 2025.
In the past year, shares of the company have gained 37% compared with the industry’s 9.6% rise.
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Concerns
BJ’s Restaurants is consistently bearing increased expenses, which have been affecting margins of late. Occupancy and operating costs in the third quarter of fiscal 2023 came in at $80 million compared with $77 million reported in the prior-year quarter. The uptick was driven by its investment in promotions and awareness campaigns to drive off-premise sales, including catering. Labor and benefits costs inched up 0.6% year over year to $118.2 million, mainly due to higher labor management costs and increased taxes and benefits. For the fiscal 2024, the company anticipates food cost inflation to be in the low-single digits.
Zacks Rank & Key Picks
BJ’s Restaurants currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Retail-Wholesale sector include:
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The Zacks Consensus Estimate for ARCO’s 2024 sales and earnings per share (EPS) indicates 10.6% and 15.5% growth, respectively, from the year-ago period’s levels.
Brinker International, Inc. EAT sports a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 223.6%, on average. Shares of EAT have increased 37.4% in the past year.
The Zacks Consensus Estimate for EAT’s 2024 sales and EPS indicates 5.1% and 26.2% growth, respectively, from the year-ago period’s levels.
Wingstop Inc. WING sports a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 28.9%, on average. The stock has gained 87.4% in the past year.
The Zacks Consensus Estimate for Wingstop’s 2024 sales and EPS suggests rises of 15.8% and 18.2%, respectively, from the year-ago period’s levels.
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