BJ's Spreads in California - Analyst Blog
April 04 2012 - 6:30AM
Zacks
Casual dining restaurant operator,
BJ’s Restaurants Inc. (BJRI), recently announced
the opening of a new unit in California. The new opening marks the
second of the company’s targeted 16 new openings for fiscal
2012.
The new restaurant has come up in
Salinas, in northern California, where BJ’s boasts a solid presence
and tremendous customers’ fondness. Thus, we believe the new unit
will benefit immensely from its strategic location and likely drive
higher sales. Moreover, an additional unit in the core California
market will further strengthen BJ’s position in the region.
Additionally, the core Californian
market, which was badly hit during the housing downturn, has turned
around and started reporting improved same-store sales growth, but
we believe it will still take some time to perform at par with the
other markets, which were less ruffled at the time of recession.
Moreover, BJ's brand awareness is still relatively low even in its
home-court California and plenty of growth opportunities still
remain for the company in its main market.
Furthermore, to ensure positive
restaurant comparable sales in the upcoming quarters, the company
continues to take several sales building initiatives like a new
guest loyalty program, which has been successfully tested and will
be rolled out by the end of the first half of 2012; along with a
new catering program, efficiencies and price increases.
BJ’s currently operates 117
restaurants and almost half of those are located in California. The
company remains committed to its expansion strategy and estimates
capacity increases of 10% to 12% in 2013. Of the new openings, one
third will be in California, another third in the Western states
outside California and the remaining in the Florida market as well
as new markets. Additionally, 50% of the new stores will be
conversions of old retail locations. In the long run, there
still exists the possibility of opening at least 300 outlets.
Management also has plans to expand in the relatively new markets
going forward.
However, Orange County,
California-based -based BJ’s will likely face stiff competition in
that area from several renowned eateries including Red
Robin Gourmet Burgers Inc. (RRGB).
We believe that BJ’s remains well
positioned to sustain its growth momentum while generating improved
earnings on the heels of efficient operations and innovative
offerings. However, higher cost structure mainly related to payroll
taxes, increased level of pre-opening costs and stiff competition
make us cautious.
BJ’s currently has a Zacks #3 Rank,
which implies a Hold rating over the short term. We reiterate our
long-term Neutral recommendation on the stock.
BJ'S RESTAURANT (BJRI): Free Stock Analysis Report
RED ROBIN GOURM (RRGB): Free Stock Analysis Report
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