BJ’s Restaurants, Inc. — Form 10-Q Summary
Reporting-period discrepancy: The request metadata says 2012 Q1, but the supplied filing is for the thirteen weeks ended April 1, 2014, compared with the thirteen weeks ended April 2, 2013. This summary reflects the filing’s stated period.
Business context and reporting period
BJ’s operated 150 restaurants in 18 states as of May 5, 2014. Revenue is generated from food and beverage sales at its restaurants; the Brewhouse format is its primary expansion vehicle. The financial statements are unaudited and prepared under U.S. GAAP.
Financial performance
| Metric | Q1 2014 | Q1 2013 | Change |
|---|---|---|---|
| Revenue | $205.8 million | $188.6 million | Up 9.1% |
| Operating income | $5.8 million | $10.8 million | Down 46.6% |
| Operating margin | 2.8% | 5.7% | Down 2.9 percentage points |
| Net income | $4.7 million | $8.3 million | Down 43.7% |
| Diluted earnings per share | $0.16 | $0.29 | Down $0.13 |
| Operating cash flow | $29.4 million | $37.1 million | Down $7.7 million |
| Capital expenditures | $24.6 million | $30.3 million | Down $5.6 million |
Net margin was 2.3%, versus 4.4% a year earlier. Cost of sales rose to 24.9% of revenue from 24.5%; labor and benefits rose to 36.1% from 35.0%; occupancy and operating costs rose to 21.9% from 21.5%. General and administrative expense declined to 6.2% of revenue from 6.7%.
At April 1, 2014, cash and cash equivalents were $34.9 million and marketable securities totaled $10.3 million. Working capital was negative $15.5 million and the current ratio was 0.8:1. The company had no funded revolver borrowings, with $11.5 million of letters of credit outstanding against its $75 million facility; it reported compliance with facility covenants. Total liabilities were $216.1 million. The balance sheet reports no funded long-term debt.
Material changes and drivers
- Revenue growth came primarily from restaurants outside the comparable-sales base, including approximately $22.3 million from new restaurants. Comparable restaurant sales fell approximately 2.9% ($5.1 million), as lower guest traffic more than offset an approximately 1.1% menu price increase.
- The company had opened 18 restaurants since the comparable prior-year period, including two in the current quarter. New openings contributed to higher labor, occupancy, depreciation, and opening costs.
- Profitability weakened despite revenue growth: cost pressures and lower comparable sales raised key expense ratios, while depreciation increased with restaurant investment. A $1.55 million charge for professional fees related to a shareholder agreement also affected the quarter.
- Operating cash flow declined, primarily due to timing of receivables, payables, and deferred lease incentives, along with lower net income; accrued expenses and higher depreciation partly offset the decline.
Outlook, risks, and unusual items
- Management targeted at least 10% growth in total restaurant operating weeks in fiscal 2014 and planned 11 new restaurant openings. It estimated fiscal 2014 capital expenditures of approximately $90 million, expected to be funded by cash and investments, operating cash flow, sale-leaseback proceeds, and landlord tenant-improvement allowances.
- Management estimated a fiscal 2014 effective tax rate of approximately 27%. It expected continued upward pressure on food commodity costs and cited labor inflation, including planned California minimum-wage increases, as risks to margins. Price increases may not fully offset higher costs and could affect customer traffic or purchasing.
- On April 21, 2014, after quarter-end, the company agreed with a shareholder group to nominate three independent directors and pursue cost-optimization initiatives. The Board authorized up to $50 million in share repurchases; management expected to repurchase at least $25 million by fiscal year-end. The quarter included approximately $1.6 million of accrued related professional fees.
- Under a settlement with the Texas Alcoholic Beverage Commission, BJ’s agreed to transition Texas proprietary-beer supply to company-operated brewpubs by June 2015, with two brewpubs expected. Management did not expect their construction or operation to significantly affect liquidity or operating margins.
- Other risks include competition and consumer spending, commodity and wage volatility, restaurant-opening and construction execution, weather and seasonality, lease renewal terms, regulatory requirements, and dependence on operating cash flow and landlord contributions to finance expansion. The company reported ordinary-course legal claims and did not expect their disposition to materially affect its financial position, results, or liquidity.
Important facts for investors to verify
- Confirm the intended reporting year: the supplied filing covers Q1 2014, not Q1 2012.
- Track comparable-sales trends and guest traffic, and whether menu pricing can offset cost inflation without further sales pressure.
- Assess execution and funding for the 11 planned openings and approximately $90 million capital-spending outlook.
- Review the timing, funding, and covenant implications of the authorized repurchase program, alongside expansion needs and liquidity.
- Monitor Texas brewpub construction and the effect of commodity, labor, and minimum-wage increases on margins.