BJRI BJs Restaurants Inc

A casual dinning restaurant chain, BJ’s Restaurants, Inc (BJRI) is slated to release its second quarter 2011 results on Thursday, July 20, after the closing bell. The current Zacks Consensus Estimate for the second quarter of 2011 is pegged at 27 cents per share, representing an annualized growth of 17.68%.

With respect to earnings surprises, BJ’s Restaurants has outperformed the Zacks Consensus Estimate in all the four trailing quarters. The earnings surprise ranges from flat to 31.6%, with the average at 23.9%. This implies that the company has surpassed the Zacks Consensus Estimate by the same magnitude over the last four quarters.

Previous Quarter Recap

BJ’s first quarter 2011 earnings of 25 cents per share surpassed the Zacks Consensus Estimate of 19 cents, and increased 56.0% from 16 cents per share reported in the prior-year quarter.

The better-than-expected results were primarily driven by strong comparable restaurant sales growth.

Revenues in the quarter shot up 19% year over year to $144.9 million while comparable store sales rose 7.8% in the quarter from 4.4% in the prior-year quarter.

Operating margin climbed 230 basis points (bps) from the year-ago quarter to 7.0%, reflecting a 90-bp plunge in labor and benefits costs, 120-bp decline in occupancy and operating costs, and a 20-bp fall in general and administrative expenses.

Estimate Revision Trend

Estimates for the upcoming quarter remained unchanged over the last 60 days, implying that the analysts are maintaining their outlook following the release of its first quarter results. The current Zacks Consensus Estimates for 2011 and 2012 are pegged at $1.06 per share (reflecting a year-over-year growth of 32.6%) and $1.27 per share (reflecting a year-over-year growth of 20.1%), respectively.

Agreement of Estimate Revisions

In the last 30 days, 1 out of the 15 analysts covering the stock raised the EPS estimate for both the second quarter and fiscal 2011 while none moved downward.  Similarly, for fiscal 2012, 2 out of the 15 analysts covering the stock hiked their estimates in the last 30 days while none moved in the opposite direction. Thus analysts’ revision trends reflect a positive inclination.

Over the last 7 days, none of the analysts moved their estimates upward or downward for the second quarter, 2011 and 2012, respectively, which implies the absence of any near-term catalyst.

The analysts by and large are impressed with the company’s improving traffic trends, efficient operations, higher comps growth expectations and unit growth potential. To ensure sales momentum, BJ’s continues to focus on innovative offerings. Moreover, to combat rising food costs and labor inflation to ensure margin expansion, the company intends to implement a price rise of about 3% in the second quarter and in the mid 2% range in both the third and fourth quarters of 2011.

Magnitude of Estimate Revisions

Over the past 60 days, BJ’s estimates for the second quarter of 2011 have not budged. Therefore, the analysts expect the company to report in line.

However, the analysts remain optimistic regarding fiscal 2011 and 2012. In the last 60 days, estimates for both 2011 and 2012 inched up 1 cent to $1.06 and $1.27, respectively.

Our Take

Currently, we expect BJ’s to post second quarter results in line with estimates.

We have a Neutral recommendation on BJ’s as the company boasts a unique position in the commoditized hyper-competitive bar and grill segment, coupled with a viable business strategy. BJ’s offer investors one of the strongest growth stories in this space. The company remains well positioned to sustain its growth momentum on the back of operating efficiencies and innovative offerings.

The company also boasts a debt-free balance sheet. It remains committed to its unit growth in 2011 and beyond, and seeks to open at least 300 restaurants going forward.  Additionally, the core Californian market, which had been badly hit by the housing downturn, has also begun to recover.

However, we remain skeptical on the stock as BJ’s is susceptible to higher input costs, which will lessen the magnitude of margin rebound. The total commodity basket is expected to grow 4% in the second half of fiscal 2011. The company also faces stiff competition from other players and expects to incur higher unemployment taxes in the second quarter of the year.

Consequently, BJ’s has a Zacks #2 Rank, implying a short-term Buy recommendation on the stock. One of BJ’s primary competitors, Ruth’s Hospitality Group Inc. (RUTH) will report its second quarter 2011 results on July 27, 2011.

 
BJ'S RESTAURANT (BJRI): Free Stock Analysis Report
 
RUTHS HOSPITLTY (RUTH): Free Stock Analysis Report
 
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