Earnings Call: BJ's Restaurant Sees Increase in Customer Traffic While Facing Profit Margin Pressure

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Earnings Call: BJ's Restaurant Sees Increase in Customer Traffic While Facing Profit Margin Pressure

BJ's Restaurant, Inc. (NASDAQ: BJRI) presented a mixed third quarter financial performance report in its latest earnings call. The company achieved a 2.2% increase in sales to $325.7 million and a 1.7% rise in comparable restaurant sales. This growth was primarily driven by a 1.3% increase in customer traffic, the best performance since 2018.

Despite the rise in sales and customer traffic, BJ's Restaurant faced challenges in improving profit margins. Restaurant-level cash flow margins dropped to 11.7%, a decline of 20 basis points from the previous year.

The company reported a net loss of $2.9 million, or $0.13 per share; however, this reflects an improvement compared to the previous year. Management outlined strategic initiatives aimed at increasing margins and sustaining strong sales growth until 2025.

Key Highlights:

  • BJ's Restaurant's third-quarter sales increased by 2.2% to $325.7 million.
  • Comparable restaurant sales rose by 1.7%, with customer traffic growth of 1.3%.
  • Net loss improved to $2.9 million or $0.13 per share.
  • Restaurant-level cash flow margins decreased to 11.7% due to rising costs and promotions.
  • Management is optimistic, expecting restaurant margins to reach the mid-to-high teens in the fourth quarter.

Company Outlook: BJ's Restaurant anticipates an improvement in restaurant margins in the fourth quarter due to favorable food costs and an effective promotional mix. The company focuses on disciplined capital allocation and enhancing shareholder value.

Negative Highlights:

  • Restaurant margins fell short of the 12% mid-level guidance due to increased promotional activities, high supply chain costs, and labor inefficiencies.

Positive Highlights:

  • Customer traffic growth and sales leverage are attributed to initiatives such as Pizookie Pass and Meal Deals.
  • Management is confident in the brand’s pricing power and strategic initiatives for growth.

Shortcomings:

  • Adjusted EBITDA decreased by $1.1 million year-over-year to $18.5 million.

Q&A Highlights: Oppenheimer's Brian Bittner raised questions regarding the company's margin performance and future guidance. Management addressed the effects of promotions on margins and discussed strategies for margin expansion.

Additional Insights: The company plans to continue its stock buyback program and considers using modest leverage to increase shareholder returns. BJ's Restaurant is improving site selection criteria for new units and focusing on renovating existing locations. Management discussed the need for menu simplification and strategic architecture to enhance brand efficiency. The impact of the Pizookie Meal Deal on average checks is expected to decrease in the fourth quarter.

BJ's Restaurant, Inc. exhibits cautious optimism regarding its strategic locations and sales and profit growth potential. The company's focus on disciplined investment and operational efficiency, combined with a well-considered promotional strategy, positions BJ's to pursue expansion and enhance shareholder value in the current market environment.

InvestingPro Insights: BJ's Restaurant, Inc. (NASDAQ: BJRI) has demonstrated resilience in a challenging market, as evidenced by its recent financial performance and stock activity. According to InvestingPro data, BJRI has shown strong total returns of 12.56% and 20.48% over the last month and three months, respectively. This aligns with the sales growth and customer traffic increases reported by the company, indicating a positive response from investors to BJ's operational improvements.

Despite the net loss reported in the third quarter, InvestingPro Insights suggest that BJRI is expected to be profitable this year. This can be attributed to management's optimistic outlook for the fourth quarter and strategic initiatives aimed at increasing margins. The company’s price-to-earnings (P/E) ratio of 29.77 and its adjusted P/E ratio of 24.36 over the past twelve months indicate that investors are pricing in future growth expectations.

However, as highlighted by an InvestingPro Insight, BJRI suffers from weak gross profit margins. This is reflected in the 14.21% gross profit margin over the trailing twelve months, consistent with the mentioned challenges in improving margins. The company’s focus on disciplined capital allocation and enhancing shareholder value may be a response to these margin pressures.

For investors seeking a more comprehensive analysis, InvestingPro offers 10 additional insights for BJRI, providing a deeper understanding of the company's financial health and market position.