Here's Why You Should Retain BJ's Restaurants (BJRI) Stock
BJ's Restaurants, Inc. BJRI is likely to benefit from menu-refinement initiatives, expansion efforts and cost-saving initiatives. Also, its focus on Beer Club subscription services bodes well. However, uncertain macroeconomic environments are a concern.
Let us discuss the factors that highlight why investors should retain the stock for now.
Factors Driving Growth
BJ’s Restaurants continues to focus on refining and streamlining its menu for improved traffic. During the third quarter of fiscal 2023, BJRI introduced a streamlined menu with 15% fewer items, focusing on popular Brewhouse favorites based on guest research and in-house testing. This strategic reduction led to improved guest satisfaction scores.
The company plans to introduce new limited-time items for the holiday season, including the Brewhouse Blonde garlic shrimp appetizer, a special filet surf-and-turf entree and seasonal cocktails like Tipsy Snowman and Winter Paradise Pomegranate Margarita. These additions align with the company's menu strategy of offering familiar items that made Brewhouse fabulous.
The company has been gaining traction with reference to its Beer Club subscription services in California. To drive incremental visits and spending in its restaurants, the company emphasized creating more iconic brewhouse signature food and drink menu items while elevating its high-quality ingredients and presentation. Going forward, BJRI intends to expand its brewhouse theater experience to the majority of its California restaurants. Also, it is focused on expanding services in additional states.
The company is benefiting from expansion efforts. In 2023, the company opened five new restaurants, including the relocation of our Chandler, AZ restaurant. The company reported solid performances of the restaurants with a weekly sales average of more than $130,000 (or approximately 10% higher than the system average) and overall margins in the mid-to-upper teens. It plans to continue balanced restaurant openings. For 2024, the company intends to open four to six new restaurants along with ongoing remodeling efforts on the back of its promising financial returns. BJRI recognizes that growing sales is the key to enhancing margins and profitability.
The company continues to progress its sales-building initiatives while focusing on productivity and cost savings. During the fiscal third quarter, the company achieved more than $30 million in annualized cost savings by reducing food, labor and operating expenses. Further saving opportunities have been identified and are set to be implemented in the late fourth quarter, aiming to enhance margins and EBITDA on a year-over-year basis. The cost-saving initiative enabled it to make new restaurant opening plans for 2024, which is expected to see an increase in 2025.
Concerns
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In the past year, shares of BJ’s Restaurants have fallen 4% against the industry’s growth of 3.2%. The downside can be attributed to a volatile macroeconomic environment and increased operating expenses.
BJ’s Restaurants is consistently bearing increased expenses, which have been affecting the 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. Also, labor and benefits costs inched up 0.6% to $118.2 million, year over year, mainly due to higher labor management costs and increased taxes and benefits. For the fiscal 2023, the company anticipates labor inflation to increase to mid to upper-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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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 2.6% in the past year.
The Zacks Consensus Estimate for EAT’s fiscal 2024 sales and EPS indicates a 5% and a 26.2% rise, respectively, from the year-ago period’s levels.
FAT Brands Inc. FAT currently carries a Zacks Rank #2 (Buy). It has a trailing four-quarter earnings surprise of 36.6%, on average. The stock has declined 14.5% in the past year.
The Zacks Consensus Estimate for FAT Brands’ 2024 sales and EPS suggests an increase of 35.6% and 27.4%, respectively, from the year-ago period’s levels.
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