BJ's Restaurants Downgraded - Analyst Blog
March 08 2012 - 4:15AM
Zacks
We have recently downgraded our long-term rating on the shares
of BJ's Restaurants Inc. (BJRI) to Neutral from
Outperform due to the higher cost structure for 2012 as well as
tougher sales comparison in the upcoming first quarter.
Boasting a unique position in the commoditized hyper-competitive
bar and grill segment, along with a viable business strategy, BJ’s
Restaurants offer investors one of the strongest growth stories in
the U.S. restaurant industry.
The company’s earnings have been able to beat the consensus over
the trailing four quarters by an average surprise of 15.08%. While
the new menu and beverage ready for rollout this spring and summer
will likely add some flavors to the upcoming quarters’ earnings of
BJ’s, there is set of factors which could put its growth on hold in
the near term.
BJ’s always experiences higher labor costs in the first quarter
of each year due to the resetting of state unemployment taxes and
FICA limits. Management generally incurs increased payroll taxes in
the first and second quarter of each year. BJ’s expects to see some
higher state payroll taxes as many states have increased their
payroll taxes to help fund their unemployment deficit.
There will also be pressure on medical benefits in 2012, which
currently account for approximately 1% of sales. Additionally, the
company continues to witness higher hourly labor, primarily in the
kitchen, due to the complexity of new menu offerings.
Some increases in consulting costs related to certain ongoing
initiatives and higher training as well as recruiting costs related
to expected openings in 2012 are also likely. Total commodity
basket is expected to be up around 4% in 2012. Hence, a higher cost
structure, in turn, will lessen the magnitude of margin
rebound.
Operation for the first quarter of fiscal 2012 began on January
4, 2012 compared to December 29 last year. Hence, the first quarter
of 2012 is seeing tougher comparison with the absence of Christmas
and New Year. This will hurt first quarter comparable restaurant
sales as well as the change in average weekly sales.
Following the earnings, there was a negative sentiment
prevailing among the analysts regarding the upcoming quarters with
majority of estimates moving southward.
BJ's Restaurants, which competes with the likes of
Brinker International Inc. (EAT) and Texas
Roadhouse Inc. (TXRH), currently retains the Zacks #3 Rank
that translates into a short-term Hold rating.
BJ'S RESTAURANT (BJRI): Free Stock Analysis Report
BRINKER INTL (EAT): Free Stock Analysis Report
TEXAS ROADHOUSE (TXRH): Free Stock Analysis Report
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