Here's Why You Should Retain BJ's Restaurants (BJRI) Stock
BJ's Restaurants, Inc. BJRI will likely benefit from digital initiatives, culinary strategy and cost-savings program. Also, the emphasis on restaurant remodels 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. Given the applied learnings and fine-tuning of the program, the company anticipates the initiative to drive growth in the upcoming periods.
Increased focus on culinary strategy bodes well. In July 2023, the company will roll out a new menu (with approximately 10% reduction in menu items). The initiative paves a path for improved execution and prep hours in the kitchen. In alignment with the new approach, the company introduced new menu items, including the big twist pretzel appetizer, Hickory Brisket Nachos and the upgraded version of some of its premium cocktails. This and the emphasis on menu pricing strategy are likely to drive margins in the upcoming periods.
BJ's focuses on remodels to drive growth. During the second quarter of fiscal 2023, the company made solid progress concerning its pilot remodels concerning dining room capacity expansion, updated bar statement, new lighting, artwork, booths and tables. In the past year, the company remodeled nine locations and reported solid feedback with respect to the same. Given the incremental guest traffic and financial return profile of the remodeled locations, the company is optimistic and expects to proceed with the initiative in the upcoming periods. The company expects to remodel 35 to 40 restaurants in fiscal 2023.
In addition to the sales-driving initiatives, BJ's is actively pursuing cost savings programs to increase margins. Last year, the company launched a cross-functional initiative to identify more than $25 million in affordable savings opportunities while maintaining quality standards. The initiative paves a path for improvement in restaurant operating margins while delivering value to the customers.
Concerns
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So far this year, shares of the company have declined 13.5% compared with the industry’s 1.6% fall. Increased operating costs and labor inflation mainly caused the downside.
BJ’s Restaurants is persistently bearing increased expenses, which have been affecting margins of late. Occupancy and operating costs during the second quarter of fiscal 2023 came in at $81.9 million, compared with $76.6 million reported in the prior-year quarter. The uptick was driven by increased rent, restaurant facilities expenses and marketing expenditures. Also, the labor and benefits costs increased 2.8% to $126.5 million, year over year, mainly due to higher labor management costs and increased taxes and benefits. For fiscal 2023, the company anticipates labor inflation in the mid-single-digit. Our model predicts total costs and expenses in fiscal 2023 to rise 3.4% to $1.33 billion year over year.
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:
Kura Sushi USA, Inc. KRUS sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 139.7% on average. Shares of KRUS have declined by 10.2% in the past year. You can see the complete list of today’s Zacks Rank #1 stocks here.
The Zacks Consensus Estimate for KRUS’s 2023 sales and EPS indicates 33.4% and 300% growth, respectively, from the year-ago period’s levels.
El Pollo Loco Holdings, Inc. LOCO currently carries a Zacks Rank #2 (Buy). It has a trailing four-quarter earnings surprise of 23.7%, on average. Shares of LOCO have gained 0.7% in the past year.
The Zacks Consensus Estimate for LOCO’s 2024 sales and EPS indicates a 3.5% and an 18.3% growth, respectively, from the year-ago period’s levels.
Arcos Dorados Holdings Inc. ARCO currently carries a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 35%, on average. The stock has gained 31.6% in the past year.
The Zacks Consensus Estimate for Arcos Dorados’ 2023 sales and EPS suggests rises of 19.2% and 13%, respectively, from the year-ago period’s levels.
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BJ's Restaurants, Inc. (BJRI) : Free Stock Analysis Report
Arcos Dorados Holdings Inc. (ARCO) : Free Stock Analysis Report
El Pollo Loco Holdings, Inc. (LOCO) : Free Stock Analysis Report
Kura Sushi USA, Inc. (KRUS) : Free Stock Analysis Report
