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High Costs to Hurt BJ's Restaurants' (BJRI) Earnings in Q2

Zacks Equity Research

BJ's Restaurants, Inc. BJRI is scheduled to report second-quarter 2019 results on Jul 25, after the market closes.

The company has been undertaking various initiatives to improve sales that are expected to have reflected in the to-be-reported quarter’s top line. However, despite vigorous cost-containment initiatives, BJ's Restaurants is unable to curb high expenses, which is likely to have hurt earnings in the second quarter.

Notably, in a year, shares of the company have lost 36.2% against the industry’s rally of 34.8%.


Let’s have a look at how BJ's Restaurants’ revenues and earnings will shape up in the to-be-reported quarter.

Top Line to Gain

In 2018, the company witnessed sales growth of 8.3% year over year. Also, in the first quarter of 2019, BJ’s Restaurants’ revenues grew 4.3% from the year-ago quarter’s number. Given its continued efforts in effectively driving sales, we believe that the upside trend has continued in the second quarter. Subsequently, the Zacks Consensus Estimate for the company’s second-quarter revenues is pegged at $300.3 million, suggesting a 4.4% increase from the year-ago reported figure.

In the second quarter, BJ’s Restaurants is expected to have focused on productivity and efficiency along with a plan of balanced restaurant opening. In fact, owing to initiatives such as advanced cooking methods and modification of restaurant services, the company is expected to witness off-premise sales growth in the to-be-reported quarter.

High Costs to Hurt Earnings

Despite various positives such as cost-saving initiatives, higher marketing expenses and costs related to sales-boosting initiatives have been weighing on BJ’s Restaurants’ margins. In 2018, the company’s total expenses increased 6.6% year over year. The first quarter of 2019 also witnessed increased expenses. The factors that resulted in higher costs are likely to have prevailed in the second quarter.

Particularly, slow roasting ovens and handheld tablets are adding to the restaurants’ labor costs. The company is also facing high general and administrative expenses. We believe that such high expenses may have hurt BJ’s Restaurants’ earnings in the second quarter. Subsequently, estimates for second-quarter earnings of 74 cents suggest a 6.3% decline from the year-ago quarter’s reported figure.

Our Quantitative Model Predicts a Beat

BJ’s Restaurants has the right combination of the two main ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

Earnings ESP: The company has an Earnings ESP of +1.97%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: BJ’s Restaurants currently has a Zacks Rank #3.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

BJ's Restaurants, Inc. Price and EPS Surprise


BJ's Restaurants, Inc. Price and EPS Surprise

BJ's Restaurants, Inc. price-eps-surprise | BJ's Restaurants, Inc. Quote

Other Stocks to Consider

Here are a few other stocks from the Restaurant space that investors may consider as our model shows that these too have the right combination of elements to post an earnings beat in the upcoming releases:

Chipotle Mexican Grill, Inc. CMG currently sports a Zacks Rank #1 (Strong Buy) and has an Earnings ESP of +1.10%. The company is scheduled to report quarterly numbers on Jul 23. You can see the complete list of today’s Zacks #1 Rank stocks here.

Del Frisco's Restaurant Group, Inc. DFRG presently has an Earnings ESP of +100.00% and a Zacks Rank #2 (Buy).

McDonald's Corporation MCD has an Earnings ESP of +0.44% and a Zacks Rank #3 at present. The company is scheduled to report quarterly numbers on Jul 26.

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