BJ’s Restaurants, Inc. — Form 10-Q Summary
Period discrepancy: The request metadata says 2018 Q1, but the filing is for the thirteen weeks ended March 31, 2020, with comparison to the thirteen weeks ended April 2, 2019. This summary reflects the filing itself.
Business context and reporting period
BJ’s operated 209 company-owned restaurants across 29 states as of May 11, 2020. The quarter was severely affected by COVID-19: dining rooms closed or operated with restrictions, and the company shifted largely to takeout and delivery. Management cautioned that quarterly results are not indicative of full-year results.
Financial results
| Metric | Q1 2020 | Prior-year quarter |
|---|---|---|
| Revenue | $254.6 million | $290.6 million |
| Operating income (loss) | ($7.7 million) | $13.8 million |
| Net income (loss) | ($4.3 million) | $12.9 million |
| Diluted EPS | ($0.22) | $0.60 |
| Operating cash flow | $1.2 million | $22.1 million |
| Capital expenditures | $16.3 million | $17.7 million |
- Revenue declined 12.4%. Comparable restaurant sales fell 15.5%, reflecting an approximately 18% traffic decline partly offset by a 2.4% higher average check. Comparable sales had risen 1.5% in the eight weeks through February 25, before pandemic effects.
- Operating margin was negative 3.0%, versus positive 4.7% a year earlier; net margin was negative 1.7%, versus positive 4.4%.
- Labor and benefits were 40.8% of revenue, up from 36.2%; occupancy and operating costs were 24.1%, up from 21.2%. These increases largely reflected fixed-cost deleverage on lower sales. Cost of sales was 25.1% of revenue, slightly below 25.2%.
- Cash and equivalents at March 31 were $80.3 million, versus $22.4 million at December 31, 2019. Net working capital was negative $26.2 million; current ratio was 0.8.
- Debt under the revolving credit facility was $231.8 million at March 31, with approximately $18.1 million of letters of credit and only $0.1 million of availability. Long-term operating lease obligations totaled approximately $480.4 million.
- Financing cash flow was positive $73.0 million, mainly from net credit-facility borrowing. The company spent $15.0 million repurchasing shares during the quarter.
Material changes, outlook and risks
- COVID-19 response: The company temporarily closed four restaurants on April 17. As of May 11, 134 restaurants were takeout/delivery only, 71 had reopened dining rooms with limited seating and hours, and four were closed. Future sales and profit recovery remained uncertain.
- Liquidity actions: The company drew substantially all available credit-facility capacity, suspended rent payments while discussing deferrals or abatements with landlords, suspended dividends and share repurchases, paused employer 401(k) matching, reduced support-center salaries, and implemented cost controls. A previously declared $0.13-per-share dividend was cancelled.
- Subsequent financing: On May 5, the company raised $70 million by selling 3.5 million shares at $20 per share. It also issued Act III a five-year warrant for 875,000 shares at $27 and granted it a conditional board nomination right. Management reported approximately $130 million of cash on May 11 and expected available resources to cover capital and working-capital needs for at least 12 months, subject to operating conditions.
- Credit amendment: On April 30, the revolving facility was amended, secured by company assets, and its prior financial covenant tests were suspended through December 29, 2020, when modified tests are scheduled to resume. Monthly minimum liquidity requirements apply through that date. The facility matures November 18, 2021.
- New restaurant openings for fiscal 2020 were delayed or cancelled, except management anticipated one additional opening. Capital spending was curtailed. No specific revenue or earnings guidance was provided.
- The quarter included a $2.3 million impairment charge for one restaurant. Goodwill was assessed and not found impaired, but management warned further impairment charges could occur if conditions persist or worsen.
- The CARES Act supported a tax benefit, including the ability to carry back 2020 losses. The reported income tax benefit was $6.6 million.
- Other risks include prolonged restrictions or weak consumer demand, liquidity and credit-market access, higher costs, labor and supply availability, and potential additional restaurant or goodwill impairments. Management reported no significant supply-chain disruption to date and no material expected effect from ordinary-course legal proceedings.
Important facts for investors to verify
- Confirm the intended reporting period: the supplied filing is Q1 2020, not Q1 2018.
- Track restaurant reopening pace, comparable sales, traffic, and whether limited-capacity operations can cover fixed costs.
- Verify post-placement cash, facility borrowings and availability, liquidity-covenant compliance, and the effect of the amended facility’s secured status and pricing.
- Monitor rent negotiations, lease obligations, and any further impairment charges or restaurant closures.
- Confirm the timing and terms for any resumption of dividends, repurchases, or deferred development spending.