BJ’s Restaurants, Inc. — Form 10-Q Summary
Period: The filing covers the thirteen and twenty-six weeks ended June 28, 2011, compared with periods ended June 29, 2010. This conflicts with the request metadata’s “2009 Q2”; the filing itself is for 2011 Q2. Amounts below are in millions of dollars unless stated otherwise.
Business context and financial performance
BJ’s operated 108 restaurants as of July 29, 2011, across 13 states. Revenue comes principally from restaurant food and beverage sales. Management reported growth from new restaurant openings and higher comparable sales.
| Metric | Q2 2011 | Q2 2010 | First half 2011 | First half 2010 |
|---|---|---|---|---|
| Revenue | $152.9 | $130.5 | $297.7 | $252.2 |
| Operating income | $10.6 | $8.6 | $20.7 | $14.3 |
| Operating margin | 6.9% | 6.5% | 7.0% | 5.5% |
| Net income | $8.2 | $6.3 | $15.4 | $10.7 |
| Diluted EPS | $0.28 | $0.23 | $0.53 | $0.38 |
Q2 revenue increased 17.2%, including approximately $14.0 million from restaurants outside the prior-year comparable-sales base and comparable-sales growth of 6.9%. First-half revenue rose 18.1%; comparable sales increased 7.3%. Management attributed comparable-sales gains to estimated menu price increases of about 3.3%, higher guest traffic and favorable menu mix.
Q2 net margin was 5.3%, versus 4.8% a year earlier; first-half net margin was 5.2%, versus 4.0%. Q2 cost of sales rose to 24.8% of revenue from 24.3%, reflecting commodity inflation. Labor and benefits fell to 34.2% from 34.6%, and occupancy and operating costs fell to 20.3% from 21.3%, supported by sales leverage. First-half cost of sales was 24.7% of revenue versus 24.5%; labor was 34.5% versus 35.1%, and occupancy and operating costs were 20.3% versus 21.4%.
Cash flow, balance sheet and liquidity
- First-half operating cash flow was $38.0 million, compared with $27.4 million. Capital expenditures were $37.6 million, up from $32.1 million; operating cash flow less capital expenditures was approximately $0.4 million.
- At June 28, 2011, cash and cash equivalents were $31.9 million and marketable securities totaled $28.6 million, or approximately $60.5 million combined. Net working capital was $23.4 million and the current ratio was 1.4:1.
- The company reported no borrowings under its $45 million unsecured revolving credit facility; $4.4 million of letters of credit were outstanding. It was in compliance with facility covenants. The facility expires September 30, 2012.
- Total liabilities were $147.2 million and shareholders’ equity was $311.0 million. The filing reports no funded line-of-credit debt, but restaurant operating leases and related commitments are significant and are not recorded as debt on the balance sheet under the accounting then in effect.
Material changes, outlook and risks
- Operating income and earnings increased year over year. The results included a $0.6 million pre-tax gain from settlement-related recoveries on auction-rate securities and $1.0 million of legal settlement expense, primarily tied to California employment-practices lawsuits settled without admission of liability. The filing also reports $0.3 million of Q2 asset-disposal losses.
- Management expected to open as many as 12–13 restaurants in fiscal 2011 and targeted an 11%–13% increase in total restaurant operating weeks. It forecast fiscal 2011 capital expenditures of approximately $75–$80 million, excluding tenant improvement allowances, and anticipated about $5 million of such allowances. As of July 29, eight leases for potential new locations had been signed.
- Management expected annualized effective menu pricing of about 3% for fiscal 2011 and estimated a full-year effective tax rate of 29%–30%. It believed cash, operating cash flow, expected landlord allowances and the credit facility would fund planned activity over the next 12 months, while noting that longer-term expansion could require additional financing and that availability and terms were not assured.
- Management warned that food commodity and energy costs were rising and expected food-cost pressure to persist through the rest of 2011 and into 2012. Menu pricing may not fully offset inflation, and customer acceptance, discretionary spending, labor costs and competition could affect traffic and margins. New restaurant openings, weather and seasonality can also make results fluctuate.
- Contract brewers were expected to supply approximately 60%–70% of the company’s estimated 60,000-barrel proprietary-beer requirement in fiscal 2011. The company identified dependence on contract brewers and regulatory requirements affecting brewing, distribution and liquor licenses as risks.
- The company had approximately $1.2 million of uncollected tenant improvement allowance from a landlord relating to a restaurant opened in 2008; it was pursuing its rights under the lease and said it did not expect a material liquidity impact. Management reported no material change in risk factors from its 2010 Form 10-K and stated disclosure controls were effective.
Important facts for investors to verify
- Confirm the intended reporting year: the supplied metadata says 2009 Q2, but this filing reports Q2 2011.
- Assess whether comparable-sales growth and menu pricing can continue without weakening guest traffic, particularly amid commodity and energy inflation.
- Track actual openings, capital spending, landlord allowances and cash generation against management’s fiscal 2011 plans.
- Review lease obligations, the 2012 credit-facility expiration and the potential need for additional financing to support expansion.
- Monitor the effect of settlement-related gains and legal costs, as well as the outcome of any remaining employment-related claims and the uncollected landlord allowance.