Here's Why You Should Retain BJ's Restaurants (BJRI) Stock
BJ's Restaurants, Inc. BJRI is likely to benefit from digital initiatives, solid comps growth and off-premise offerings. Also, the emphasis on sales-building initiatives bodes well. However, the rise in food inflationary costs and marketing expenses are headwinds.
Let us discuss the factors that highlight why investors should retain the stock for the time being.
Factors Driving Growth
BJ’s Restaurants is investing in technology-driven initiatives like digital ordering to boost sales. To attract more customers, the company rolled out several initiatives like digital check-ins, digital menus and digital payment options. The company emphasized on 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 the enhancement of guest interaction. Given the applied learnings coupled with fine-tuning of the program, the company anticipates the initiative to drive growth in the upcoming periods.
The company continues to impress investors with robust global same-restaurant sales growth. Comparable restaurant sales in the fiscal fourth quarter increased 6.6% year over year compared with a rise of 45.6% reported in the prior-year quarter. The increase was primarily backed by growth in the dining room guest traffic and incremental menu pricing. For the fiscal first quarter, the company anticipates comps in the high single-digits.
Even though BJ’s Restaurants is witnessing improvement in dining room traffic, its off-premise operations continue to be a driving factor for overall sales. The company stated that its off-premise sales were elevated from the pre-COVID levels. In fourth-quarter fiscal 2022, off-premise sales were at the low $20,000s. Notably, upgrades of kitchen systems, along with front-end order and pickup technology, have been boosting consumers, convenience and order accuracy.
Increased focus on business optimizations bodes well. During the fiscal fourth quarter, the company emphasized on simplifying the menu, reducing menu item count complexity. The initiative paves a path for improved execution and prep hours in the kitchen. The company will roll out a new menu (with approximately 10% reduction in menu items) in July 2023. This and the emphasis on menu pricing strategy are likely to drive margins in the upcoming periods.
The company focuses on pilot remodels concerning dining room capacity expansion and new design elements to drive growth. It expanded the initiative to seven restaurants and reported solid sales from the remodeled locations. Backed by positive customer feedback, the company is optimistic in this regard and expects to proceed with the initiative in the upcoming period. In fiscal 2023, the company intends to remodel more than 30 existing locations.
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In the past six months, shares of the company have gained 11.5% compared with the industry’s 6.2% growth.
BJ’s Restaurants is continuously shouldering increased expenses, which have been detrimental to margins. Higher food inflationary costs, marketing expenses and costs related to sales-boosting initiatives are weighing on the company’s margins. During the fiscal fourth quarter, the company’s cost of sales came in at $92.2 million compared with $79.7 million reported in the prior-year quarter. The increase was primarily due to inflationary pressure on food costs, partially mitigated by menu price increases. Occupancy and operating costs during the quarter came in at $81 million compared with $71.6 million reported in the prior-year quarter. For 2023, the company anticipates food cost inflation in the mid-single-digit. The company intends to monitor the situation regularly to gauge the impacts of COVID-19.
Zacks Rank & Key Picks
BJ’s Restaurants currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the same space include Chuy's Holdings, Inc. CHUY, Arcos Dorados Holdings Inc. ARCO and Bloomin' Brands, Inc. BLMN.
Chuy’s Holdings currently sports a Zacks Rank #1. CHUY has a trailing four-quarter earnings surprise of 19.1%, on average. Shares of CHUY have increased 27% in the past year.
The Zacks Consensus Estimate for Chuy’s Holdings 2023 sales and EPS suggests growth of 10.8% and 19%, respectively, from the corresponding year-ago period’s levels.
Arcos Dorados currently sports a Zacks Rank #1. ARCO has a long-term earnings growth of 7.8%. Shares of the company have declined 0.3% in the past year.
The Zacks Consensus Estimate for Arcos Dorados’ 2024 sales and EPS suggests growth of 8% and 11.4%, respectively, from the year-ago period’s levels.
Bloomin' Brands carries a Zacks Rank #2. BLMN has a long-term earnings growth rate of 12.3%. The stock has gained 19.3% in the past year.
The Zacks Consensus Estimate for Bloomin' Brands 2024 sales and EPS suggests growth of 2.1% and 4.4%, respectively, from the year-ago period’s reported levels.
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