BJ’s Restaurants, Inc. — Form 10-K Summary
Period note: The supplied filing is for the fiscal year ended January 2, 2018 (fiscal 2017), not 2015 Q4 as indicated in the request metadata. Fiscal 2017 had 52 weeks; fiscal 2016 had 53 weeks, so comparisons are not fully like-for-like.
Business context
BJ’s operated 197 company-owned casual-dining restaurants in 26 states as of February 26, 2018. Its main format is BJ’s Restaurant & Brewhouse, with a broad food menu and proprietary craft beer. The company opened 10 restaurants in fiscal 2017. California, Texas and Florida are significant markets.
Financial performance and liquidity
| Metric | FY2017 | FY2016 |
|---|---|---|
| Revenue | $1,031.8 million | $993.1 million |
| Operating income / margin | $37.9 million / 3.7% | $61.6 million / 6.2% |
| Net income | $44.8 million | $45.6 million |
| Diluted EPS | $2.06 | $1.88 |
| Cash from operations | $107.0 million | $138.4 million |
| Capital expenditures | $70.7 million | $109.4 million |
| Cash and cash equivalents | $24.3 million | $22.8 million |
| Long-term debt | $163.5 million | $148.0 million |
Revenue increased 3.9%, principally from new restaurants, but comparable restaurant sales fell approximately 0.7%: traffic declined 2.7%, partly offset by a 2.0% increase in average check. Cost of sales rose to 26.0% of revenue from 25.3%; labor and benefits rose to 36.0% from 34.8%; occupancy and operating costs rose to 21.3% from 20.6%. Operating margin contracted substantially. Net income included a $15.7 million deferred-tax benefit from remeasuring deferred taxes after the 2017 Tax Cuts and Jobs Act; the reported tax provision was a $9.4 million benefit.
Operating cash flow fell by $31.3 million, partly reflecting the tax-related deferred-tax change and prior-year collection of a $6.0 million lease-termination receivable. The company reported negative working capital of $62.2 million and a 0.5:1 current ratio. Its $250 million unsecured revolver had $163.5 million drawn, $14.4 million of letters of credit and $72.1 million available at year-end; the company reported covenant compliance. Substantial operating lease commitments are not included in reported debt: $603.5 million in minimum future rents, plus $7.7 million for leases commencing after year-end.
Material changes and capital returns
- Compared with fiscal 2016, revenue growth was more than offset at the operating-income level by higher restaurant cost ratios, negative comparable sales and other costs. Fiscal 2016 included an extra week, contributing approximately $19.9 million of sales relative to fiscal 2017.
- Fiscal 2017 included $0.9 million of costs related to Hurricanes Harvey and Irma, and $4.8 million of asset-disposal and impairment losses, largely associated with replaced ovens and point-of-sale equipment.
- The company repurchased $66.9 million of shares in fiscal 2017, reducing year-end shares outstanding to 20.5 million from 22.3 million. It began quarterly dividends at $0.11 per share in the fourth quarter; a further $0.11 dividend was declared in February 2018.
- Debt increased by $15.5 million year over year. The company had approximately $42.5 million remaining under its $400 million share-repurchase authorization at year-end.
Outlook, commentary and risks
Management expected four to six new restaurants in fiscal 2018 and approximately $50–$55 million of capital expenditures. It expected most revenue growth to come from new restaurant openings, the carryover contribution of fiscal 2017 openings and menu pricing. Marketing spending was expected to remain around 2%–3% of revenue. Management also stated that mature restaurants generally operate near peak-period capacity, limiting expectations for comparable-sales growth beyond effective menu-price increases if traffic is maintained.
Key risks include persistent traffic weakness and intense restaurant competition; food, labor, benefit and energy cost inflation; execution and returns on new restaurants; geographic concentration; food-safety and reputational events; dependence on suppliers and third-party beer brewers/distributors; liquor licensing and labor regulation; long-term lease obligations; and technology, cybersecurity and data-security failures. The company’s $163.5 million floating-rate debt exposes it to rate changes; management estimated that a 1% rate change would affect annual net income by approximately $1.4 million. Management and the auditor reported effective internal control over financial reporting, and the auditor issued an unqualified opinion on the financial statements.
Important facts for investors to verify
- Confirm the filing period: this 10-K covers fiscal 2017, not 2015 Q4.
- Assess whether traffic declines and restaurant-level cost inflation continued after year-end, and whether menu pricing can offset them without further traffic losses.
- Separate recurring earnings from the one-time tax benefit when evaluating fiscal 2017 net income and EPS.
- Review debt, revolver availability, covenant headroom and the impact of lease obligations on fixed-charge capacity and shareholder returns.
- Track the delivery and returns of the fiscal 2018 opening and capital-expenditure plans, alongside repurchases and quarterly dividends.