BJ’s Restaurants, Inc. — Form 10-Q Summary
Reporting period: The filing covers the 13 and 39 weeks ended September 30, 2014, compared with the periods ended October 1, 2013. The request metadata says 2012 Q3, but the supplied filing is for 2014 Q3.
Business context and financial performance
BJ’s operates full-service restaurants and breweries. As of November 3, 2014, it owned and operated 154 restaurants across 18 states. Financial amounts below are in millions unless otherwise noted.
| Metric | Q3 2014 | Q3 2013 | 39 weeks 2014 | 39 weeks 2013 |
|---|---|---|---|---|
| Revenue | $206.5 | $188.2 | $631.7 | $575.4 |
| Operating income | $8.0 | $3.5 | $24.5 | $26.1 |
| Net income | $6.5 | $3.6 | $19.1 | $20.5 |
| Diluted EPS | $0.23 | $0.13 | $0.67 | $0.71 |
| Operating margin | 3.9% | 1.9% | 3.9% | 4.5% |
| Net margin | 3.1% | 1.9% | 3.0% | 3.6% |
- Q3 revenue grew 9.7%; approximately $17.7 million came from restaurants outside the comparable-sales base. Comparable sales rose 0.3%, with traffic up 0.7% and average check down 0.4%.
- For the 39-week period, revenue grew 9.8%, primarily from new restaurants, while comparable sales fell 1.5% (traffic down 1.0%; average check down 0.5%).
- Q3 operating income improved despite higher sales costs; year-to-date operating income and net income declined. Q3 diluted EPS increased, while year-to-date diluted EPS decreased.
- Cost of sales was 25.1% of revenue in Q3 versus 24.8% a year earlier; year-to-date it was 25.0% versus 24.6%. Labor was 35.5% in both Q3 periods, but year-to-date increased from 35.0% to 35.5%. Occupancy and operating costs improved as a share of revenue: 21.7% versus 23.2% in Q3 and 21.6% versus 22.1% year to date.
Cash flow, debt and liquidity
- For the 39 weeks, operating cash flow was $74.4 million, down from $84.7 million. Capital expenditures were $67.6 million, compared with $93.1 million.
- Cash and cash equivalents were $24.4 million at September 30, 2014; marketable securities were fully liquidated during the quarter. The prior year-end balance included $9.8 million of marketable securities.
- Working capital was negative $37.8 million and the current ratio was 0.6:1, compared with negative $21.3 million and 0.8:1 at December 31, 2013.
- The company had $32.0 million outstanding on its unsecured $150 million revolving credit facility and approximately $11.5 million in letters of credit. The facility matures September 3, 2019; the reported weighted-average borrowing rate was about 1.09%. The company reported compliance with its financial covenants.
Outlook, commentary, risks and unusual items
- Management expected at least an 11% increase in total restaurant operating weeks in fiscal 2014 and planned 11 new restaurant openings for the year. It expected to open at least 15 restaurants in fiscal 2015. Estimated fiscal 2014 capital expenditures were approximately $90 million.
- Management estimated a fiscal 2014 effective tax rate of about 24%. Q3’s effective rate was 20.7%, compared with 3.9% in Q3 2013; year-to-date rates were 24.4% and 23.9%, respectively.
- Management cited upward pressure on food commodity costs, labor and other operating expenses, and cautioned that pricing actions may not offset inflation if customers reduce visits or change purchases. Other stated risks include consumer spending, competition, weather, labor availability and costs, restaurant-opening execution, access to capital, and reliance on technology.
- The company repurchased approximately 2.02 million shares for $71.4 million during the 39 weeks at an average $34.50 per share. About $78.6 million remained under the $150 million authorization at September 30.
- Year-to-date legal and other settlement expense of $2.4 million related to a shareholder settlement. The company also recorded $1.1 million of asset disposal losses, including costs associated with closing its Belmont Shore, California restaurant.
- Jacmar, whose CEO sits on BJ’s board, was estimated to own 11.8% of the company and supplied $65.2 million of food, beverage, paper products and supplies during the 39 weeks. The filing says this represented 22.1% of the specified combined cost categories and that pricing was believed comparable to third-party offers.
- Under a settlement with the Texas Alcoholic Beverage Commission, BJ’s agreed to transition Texas proprietary-beer production to two company-owned licensed brewpubs by June 2015; management did not expect a significant liquidity or margin impact.
Important facts for investors to verify
- Confirm the intended reporting year: the supplied filing is for 2014 Q3, not 2012 Q3.
- Assess whether comparable-sales trends and food, labor and occupancy costs support sustainable operating-margin improvement.
- Review funding needs for restaurant growth, planned capital spending, share repurchases and the company’s negative working capital position.
- Monitor credit-facility borrowings, covenant compliance, and the impact of operating lease obligations on financial flexibility.
- Track restaurant opening plans, Texas brewpub commitments, and exposure to commodity prices, minimum-wage increases and related-party supply arrangements.