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BJ's Unit Growth on Track

Zacks Equity Research

BJ’s Restaurants Inc (BJRI), which currently owns and operates 120 restaurants, remains on track to open as many as 16 new restaurants in fiscal 2012, of which 5 restaurants have already been opened.

In the first quarter of 2012, 2 new units were opened, one in Clearwater, Florida and the other in Salinas, in northern California. In the second quarter, the casual dining restaurant operator plans to open five restaurants, of which three has already been opened at Dublin, New Braunfels and Santa Rosa, respectively. The remaining two units will come up in Waco and the other one in Round Rock, Texas. Both the units will be opened by the end of June. Additionally, six new units are slated to open in the third quarter while the fourth quarter will see three new openings.

BJ’s Restaurants is one of the few casual dining chains that has been expanding even amid an uncertain economy. With the resurgence of consumer confidence, management has speeded up its unit openings. Besides its plans of opening 16 new restaurants in 2012, the company hopes to relocate an older, smaller-format 'pizza and grill' restaurant to an appropriate site for housing a larger BJ’s restaurant. The expected new openings in 2012 compares favorably with 13 restaurants opened in fiscal 2011 and 10 units in 2010.

Looking forward to 2013, the company plans low double-digit capacity increases per year in the approximate range of 10% to 12%. One third of these openings will be in BJ’s Restaurants’ home court of California, another third will come up in Western states outside California and the remaining third in the Florida market or in a few new markets. Additionally, 50% of new stores will be conversions of old retail locations. In the long run, there still exists the possibility of opening at least 300 outlets.

Furthermore, to ensure positive restaurant comparable sales in the upcoming quarters, the company continues to take several sales building initiatives like a new guest loyalty program, which has been successfully tested and will be rolled out by the end of the first half of 2012; along with a new catering program, efficiencies and price increases.

We believe that BJ’s remains well positioned to sustain its growth momentum while generating improved earnings on the heels of efficient operations and innovative offerings. However, higher cost structure mainly related to payroll taxes, increased level of pre-opening costs and stiff competition from other casual dining operators such as Red Robin Gourmet Burgers Inc. (RRGB) and Buffalo Wild Wings Inc. (BWLD) make us cautious. Additionally, commodity inflation is also expected to be higher in the upcoming second quarter.

BJ’s currently has a Zacks #3 Rank, which implies a Hold rating over the short term. We reiterate our long-term Neutral recommendation on the stock.

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