BJ’s Restaurants, Inc. — Form 10-Q Summary
Business context and reporting period
The filing covers the 13 weeks ended April 4, 2017, compared with the 13 weeks ended March 29, 2016. This is the period stated in the filing; it conflicts with the request metadata identifying 2015 Q1. BJ’s operated 192 restaurants in 24 states as of May 8, 2017.
Financial performance and liquidity
| Metric | 13 weeks ended April 4, 2017 | Comparable 2016 period |
|---|---|---|
| Revenue | $257.8 million | $243.4 million |
| Income from operations / operating margin | $12.9 million / 5.0% | $16.4 million / 6.7% |
| Net income / net margin | $9.3 million / 3.6% | $11.6 million / 4.8% |
| Diluted EPS | $0.42 | $0.47 |
| Operating cash flow | $21.4 million | $46.8 million |
| Capital expenditures | $26.3 million | $25.3 million |
- Revenue grew 5.9%, but comparable restaurant sales fell 1.3%; traffic declined about 4.0%, partly offset by a 2.7% increase in average check. Sales from restaurants outside the comparable base contributed approximately $18.6 million of growth.
- Cost pressures reduced profitability: cost of sales rose to 25.4% of revenue from 24.9%, labor and benefits to 35.8% from 34.8%, and occupancy and operating costs to 20.9% from 20.2%. Management cited commodity costs, promotions and menu mix, higher hourly and training labor, and fixed-cost deleverage from weaker comparable sales.
- Cash and equivalents were $23.6 million at April 4, 2017. Long-term debt was $182.7 million, up from $148.0 million at January 3, 2017. The $250 million unsecured revolving facility had $52.8 million available after borrowings and letters of credit; the company was in compliance with its financial covenants.
- Working capital was negative $57.7 million and the current ratio was 0.5:1.0. Operating cash flow was down $25.4 million year over year; management attributed the decrease mainly to a $6.0 million lease termination fee collected in the prior-year period and lower payroll-related accruals.
- The company repurchased about 796,789 shares for $29.0 million during the quarter, at an average $36.39 per share. The board expanded authorization by $50 million; approximately $80.5 million remained available under the $400 million program.
Outlook, commentary, risks and unusual items
- Management expected to open 10 restaurants in fiscal 2017 and projected fiscal-year capital expenditures of approximately $80 million to $85 million. It said a slower opening pace versus fiscal 2016 should reduce capital spending, increase free cash flow and allow more investment in existing restaurants.
- Management expected to fund growth with operating cash flow, cash on hand, landlord contributions, sale-leaseback proceeds and the credit facility; it cautioned that insufficient operating cash or unavailable financing could require reducing expansion or repurchases. No specific revenue or earnings guidance was provided.
- Risks highlighted include consumer spending and comparable-sales weakness; food, labor, energy and occupancy inflation; minimum-wage and other regulatory changes; weather and seasonality; food-safety and reputational risks; competition and execution of expansion; technology and cybersecurity; and dependence on landlord allowances and access to capital. A hypothetical 1% increase in facility interest rates was estimated to have an annual impact of about $1.8 million.
- Ordinary-course lawsuits and claims remain pending; management did not expect their disposition to materially affect financial position, results or liquidity, while noting future quarterly effects are possible. The company is self-insured for portions of liability and workers’ compensation exposure.
- The company adopted share-based payment accounting guidance during the quarter, recording $0.08 million of additional tax expense. It also adopted deferred-tax balance-sheet classification guidance. The impact of forthcoming lease accounting and revenue standards was still being evaluated; the filing notes potential loyalty-program accounting changes.
Most important facts for investors to verify
- Confirm the intended reporting period: the supplied metadata says 2015 Q1, but the filing itself reports the quarter ended April 4, 2017.
- Track whether comparable-sales and traffic trends improve and whether cost inflation and labor pressures continue to compress margins.
- Monitor debt, remaining credit availability, covenant compliance, operating cash flow and the funding of planned capital expenditures and buybacks.
- Assess execution against the 10-restaurant opening plan and $80–$85 million capital-spending outlook, alongside the pace and funding of share repurchases.
- Review subsequent disclosures on legal claims, commodity and labor costs, lease commitments, and the quantified effects of new accounting standards.