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BJ's Restaurants (BJRI) Down 5.8% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for BJ's Restaurants (BJRI). Shares have lost about 5.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is BJ's Restaurants due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

BJ's Restaurants Q2 Earnings Miss, Revenues Beat Estimates

BJ’s Restaurants reported mixed results for the second quarter of 2019, wherein earnings missed the Zacks Consensus Estimate while revenues surpassed the same. With this, the company’s top line surpassed estimates for seven straight quarters while the bottom line exceeded it in five of the trailing seven quarters.

Adjusted earnings of 68 cents missed the Zacks Consensus Estimate for earnings of 74 cents by 8.1%. The bottom line also decreased 13.9% year over year.

BJ’s Restaurants’ earnings in the quarter suffered from pressures of inflationary costs and bad weather conditions. Labor costs and expenses related to the development of the company’s off-premise sales have further added to the woes.

Revenues & Comps

Total quarterly revenues were $301.1 million, which surpassed the consensus estimate of $300 million by 0.3%. The top line also grew 4.7% year over year, driven by increased comps and 2.6% rise in operating weeks.

Comparable restaurant sales in the quarter under review increased 2%. This uptick was driven by 3% increase in average check, partially offset by a 1% decline in traffic. The company stated that robust sales-building efforts and marketing efficiency will continue to drive comps in the quarters to come.

Notably, comps growth in the reported quarter was lower than 4.2% increase recorded in the first quarter of 2019 and compared unfavorably with 5.6% rise in the year-ago quarter.

Expenses & Operating Margins

Labor costs, as a percentage of sales, increased 50 basis points (bps) to 36% in the second quarter while occupancy and operating costs (as a percentage of sales) were 21.4%, up 90 bps year over year.

Restaurant-level operating margin was 17%, down 200 bps from the year-ago quarter number. However, in order to counter high costs prevalent in the industry, the company is undertaking various cost-saving and efficiency initiatives to drive margins.

Balance Sheet

As of Jul 2, 2019, cash and cash equivalents totaled $23.4 million compared with $29.2 million as of Jan 1, 2019.

Total debt increased to $100 million at the end of the second quarter from $95 million at 2018 end.

BJ's Restaurants declared a quarterly cash dividend of 12 cents, payable on Aug 26, 2019, to shareholders of record at the close of business on Aug 12, 2019.

Additionally, in the quarter under review, the company repurchased and retired roughly 422,000 shares of its common stock for $19.2 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -52.82% due to these changes.

VGM Scores

Currently, BJ's Restaurants has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise BJ's Restaurants has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.



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