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Menu Innovation to Aid BJ's Restaurants (BJRI) Q4 Earnings

Zacks Equity Research

BJ’s Restaurants, Inc. BJRI is scheduled to report fourth-quarter 2018 results on Feb 21, 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. Additionally, vigorous cost-containment initiatives are expected to have aided earnings in the fourth quarter.

Moreover, in a year’s time, shares of BJ Restaurants have rallied 36.9%, outperforming the industry’s collective increase of 16.9%.

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

Top-Line Scenario

In the first nine months of 2018, BJ’s Restaurants witnessed sales growth of 8.5% year over year. This upside trend is likely to have continued in the fourth quarter. Subsequently, the Zacks Consensus Estimate for fourth-quarter revenues is pegged at $277.2 million, reflecting a 6.2% year-over-year increase.

The company’s several sales-building initiatives have been bolstering top-line growth. With an increased focus on productivity and efficiency, along with a plan of balanced restaurant opening, the company is heading toward near and long-term operating success.

In 2017, the restaurant crew mastered advanced cooking methods and also became skillful in taking orders via hand-held ordering tablets. In fact, results of these initiatives have been positive so far. Notably, in the third quarter of 2018, off-premise sales increased to 8.7% of the company’s revenues. The trend is likely to have continued in the fourth quarter.

Coming to menu innovation, BJ’s Restaurants’ extensive focus on refining and streamlining menu is the key driver for improved traffic. It has significantly boosted average check, with high incident rates. We believe that with prudent menu pricing, the company is likely to have witnessed comps growth in the fourth quarter. The consensus estimate predicts comps growth of 4.6% in the fourth quarter compared with 1.6% in the prior-year quarter.

Earnings to Gain

BJ’s Restaurants is committed to improving operating margins through cost-containment initiatives. The company is focusing more on smaller prototype restaurants that cost roughly $1 million less than the prior prototype. This helps in reducing operating costs. Due to lesser food wastage and improved labor productivity, these new restaurants generate higher margins. Given its operational efficiency and launch of higher return restaurant prototype, BJ’s Restaurants would continue to witness margin expansion.

Owing to these efforts, the company’s restaurant-level operating margin in the third quarter of 2018 was 15.4%, up 120 bps from the year-ago quarter’s figure. Even earnings in the third quarter surged 160% year over year. We believe this upside trend to have continued in the fourth quarter. Estimates for fourth-quarter earnings of 49 cents suggest 32.4% growth from the year-ago quarter.

Our Quantitative Model Predicts a Beat

BJ’s Restaurants have 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 +2.37%. 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. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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. Quote

Other Stocks to Consider

Here are some other companies in the restaurant space, which, per our model, have the right combination of elements to post an earnings beat this quarter.

Jack in the Box JACK has an Earnings ESP of +1.93% and a Zacks Rank #3. The company is scheduled to report quarterly numbers on Feb 20.

Cracker Barrel CBRL currently carries a Zacks Rank #2 (Buy) and has an Earnings ESP of +0.95%. The company is scheduled to report quarterly numbers on Feb 26.

El Pollo Loco LOCO has an Earnings ESP of +7.14%. The company presently carries a Zacks Rank #2.

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