BJ’s Restaurants, Inc. — Form 10-Q Summary
Period discrepancy: The request identifies 2013 Q2, but the filing is for the 13 and 26 weeks ended June 30, 2015, compared with periods ended July 1, 2014. This summary reflects the filing’s stated period.
Business context and reporting period
BJ’s operates casual-dining restaurants featuring pizza, other food and beverages, including proprietary craft beer. As of August 3, 2015, it operated 166 restaurants in 22 states. The filing is unaudited and prepared under U.S. GAAP. Unless noted otherwise, financial amounts below are in millions of dollars.
Financial performance
| Metric | 13 weeks ended June 30, 2015 | 13 weeks ended July 1, 2014 | 26 weeks ended June 30, 2015 | 26 weeks ended July 1, 2014 |
|---|---|---|---|---|
| Revenue | $232.0 | $219.4 | $457.1 | $425.2 |
| Operating income | $17.6 | $10.7 | $30.7 | $16.5 |
| Net income | $12.4 | $8.0 | $22.1 | $12.7 |
| Diluted EPS | $0.47 | $0.28 | $0.83 | $0.44 |
| Operating margin | 7.6% | 4.9% | 6.7% | 3.9% |
| Net margin | 5.4% | 3.6% | 4.8% | 3.0% |
- Second-quarter revenue rose 5.8%; comparable-restaurant sales increased approximately 0.5%. Average check rose 2.9%, offset by an approximately 2.4% decline from menu mix, incident rates and customer traffic. New restaurants contributed about $11.5 million.
- First-half revenue increased 7.5%; comparable-restaurant sales rose approximately 1.8%. Average check increased 3.0%, partly offset by a 1.2% decline from menu mix, incident rates and traffic. New restaurants contributed about $24.7 million.
- Margins improved as cost of sales, labor, occupancy and operating, and general and administrative expenses fell as percentages of revenue. Management cited lower commodity costs, menu pricing, improved labor productivity and expense leverage. Restaurant opening costs increased, while the prior-year periods included $0.9 million of second-quarter and $2.4 million of first-half legal and other settlement costs.
- First-half operating cash flow was $56.5 million, versus $49.4 million; capital expenditures were $38.9 million, versus $48.2 million. Cash declined to $25.5 million from $30.7 million at December 30, 2014.
Balance sheet, debt and liquidity
- At June 30, 2015, total assets were $660.8 million and total liabilities were $326.9 million. Long-term debt was $74.7 million, up from $58.0 million at year-end.
- Working capital was negative $34.8 million and the current ratio was 0.7:1.0, compared with negative $25.7 million and 0.8:1.0 at December 30, 2014.
- The unsecured revolving credit facility totals $150 million and matures September 3, 2019. Borrowings were $74.7 million, with approximately $14.0 million in letters of credit outstanding; the company reported covenant compliance. The weighted-average borrowing rate was approximately 1.41%.
- First-half financing cash flows included $46.5 million of share repurchases. The company repurchased approximately 964,000 shares at an average $48.49 per share; approximately $53.5 million remained authorized for repurchases at June 30.
Outlook, commentary and risks
- Management planned 16 new restaurant openings in fiscal 2015 and targeted approximately 10% annual growth in restaurant operating weeks over the next few years. As of August 3, ten restaurants had opened in 2015; ten signed leases or land purchase agreements were expected to open in 2015 or 2016. Two 10,000-barrel brewpub locations opened in April.
- Fiscal 2015 capital expenditures were estimated at approximately $100 million. Management expected to fund investment with cash, operating cash flow, sale-leaseback proceeds, landlord tenant-improvement allowances and credit-facility borrowings. The filing provides no specific revenue or earnings guidance.
- Management cautioned that expansion funding could be constrained if operating cash flow, landlord contributions or sale-leaseback financing fall short; additional financing may not be available on acceptable terms. The company said it might need to slow expansion if capital resources are insufficient.
- Principal risks include consumer-spending weakness; food, labor, energy and occupancy cost inflation; weather and seasonality; competition and brand/reputation exposure; new-restaurant execution and impairment; regulatory and employment requirements; technology or cyber failures; and geographic concentration, particularly in California, Texas and Florida. Floating-rate debt creates interest-rate exposure; management said a hypothetical 1% adverse rate change would not be material.
- Jacmar-affiliated DMA, whose controlling shareholder is represented on BJ’s board, supplied $44.2 million of food, beverage, paper products and supplies in the first half, equal to 21.3% of cost of sales plus operating and occupancy costs. The company said competitive bidding supported its view that pricing was comparable to third parties.
- The company disclosed ordinary-course claims and self-insurance exposure, but did not expect their disposition to materially affect its financial position, results or liquidity. It reported $2.2 million of unrecognized tax benefits and anticipated a $1.4 million decrease within 12 months, subject to IRS approval of an accounting-method change.
Important facts for investors to verify
- Confirm the intended reporting year: the supplied filing is for Q2 2015, not Q2 2013.
- Track comparable-sales traffic and average-check trends, and whether margin improvement persists as commodity, labor and occupancy costs change.
- Assess funding for the stated $100 million fiscal 2015 capital plan and restaurant-growth targets against cash, credit-facility capacity, tenant allowances and sale-leaseback proceeds.
- Monitor debt, covenant headroom, negative working capital and the use of borrowing to support repurchases alongside expansion.
- Review execution of new restaurant openings and potential exposure from leases, self-insured claims, tax positions and the significant related-party supplier relationship.