BJ’s Restaurants, Inc. — Form 10-Q Summary
Reporting period: Thirteen and twenty-six weeks ended July 3, 2012; filed August 6, 2012. Although the request metadata says 2010 Q2, the filing itself reports the second quarter of 2012. Financial statements are unaudited. Amounts below are in millions of dollars unless otherwise stated.
Business context
BJ’s owned and operated 123 restaurants across 14 states as of August 6, 2012. Its principal expansion format is the larger BJ’s Restaurant and Brewhouse. Revenue comes from restaurant food and beverage sales.
Financial results
| Metric | 13 weeks ended July 3, 2012 | 13 weeks ended June 28, 2011 | 26 weeks ended July 3, 2012 | 26 weeks ended June 28, 2011 |
|---|---|---|---|---|
| Revenue | $180.7 | $152.9 | $348.3 | $297.7 |
| Operating income | $12.3 | $10.6 | $24.0 | $20.7 |
| Net income | $9.0 | $8.2 | $17.6 | $15.4 |
| Diluted EPS | $0.31 | $0.28 | $0.61 | $0.53 |
| Operating margin | 6.8% | 6.9% | 6.9% | 7.0% |
| Net margin | 5.0% | 5.3% | 5.0% | 5.2% |
- Second-quarter revenue rose 18.2%; management attributed approximately $22.2 million to restaurants outside the comparable-sales base and comparable sales growth of 4.4%. Comparable-sales growth reflected approximately 3.2% menu pricing, 0.8% higher traffic, and 0.4% purchase-incidence and mix effects.
- For the first half, revenue increased 17.0%, with approximately $40.3 million from newer restaurants and comparable sales growth of 3.9%—about 3.1% pricing and 0.8% traffic.
- First-half cash provided by operations was $47.8 million, compared with $43.1 million a year earlier. Capital expenditures were $56.1 million versus $41.4 million; operating cash flow less capital expenditures was approximately negative $8.3 million.
- At July 3, cash and cash equivalents were $11.0 million and marketable securities totaled $34.7 million. Working capital was $8.3 million and the current ratio was 1.1:1, down from $12.8 million and 1.2:1 at January 3.
- Total liabilities were $171.3 million. The company reported no funded borrowings on its $75 million revolving credit facility; approximately $8.9 million of letters of credit were outstanding. It was in compliance with facility covenants.
Changes and operating trends
- Second-quarter operating income increased 15.8%, slower than revenue growth, and operating margin declined from 6.9% to 6.8%. First-half operating margin was 6.9%, compared with 7.0%.
- Food cost as a share of revenue edged up to 24.9% in the quarter from 24.8%; labor remained 34.2%; occupancy and operating costs rose to 20.5% from 20.3%. For the first half, food, labor, and occupancy costs were 24.8%, 34.6%, and 20.6%, respectively.
- Growth in new restaurants drove much of the higher revenue and expense totals. The company opened seven restaurants in the first half and reported five second-quarter openings, with another opening shortly thereafter.
- Cash and cash equivalents fell $11.4 million from year-end, while property and equipment, net, rose to $420.2 million from $390.6 million, reflecting continued restaurant investment.
Outlook, risks, and unusual items
- Management’s fiscal 2012 objectives included a low-double-digit increase in total restaurant operating weeks, up to 16 new restaurants including one relocation, and total capital expenditures of approximately $100–$105 million. Expected tenant-improvement allowances were $10–$13 million. Management expected to fund investment with cash and securities, operating cash flow, and landlord allowances.
- Management expected annualized effective menu-price increases of approximately 3% for fiscal 2012 and an effective tax rate of approximately 29%–30%. These are estimates, not guarantees.
- Management warned of likely upward pressure on food commodity costs into 2013, including from severe drought conditions, and cited labor, insurance, energy, construction, and occupancy cost pressures. Pricing may not fully offset these costs without affecting guest traffic or purchasing patterns.
- Management noted that the July 4 calendar shift benefited second-quarter comparable sales by about 0.3% and would adversely affect third-quarter comparisons. Results are also seasonal and affected by weather and the timing of new openings.
- First-half results included a $0.3 million gain from the settlement of auction-rate securities investments. A $0.4 million second-quarter legal settlement related to a trademark dispute was recorded; prior-year legal settlement expense was $1.0 million, primarily for California employment matters.
- Jacmar and affiliates, which management estimated owned 11.5% of shares, were affiliated with the company’s largest foodservice supplier. Purchases through the distribution consortium were $39.2 million for the first half, or 24.8% of cost of sales and operating and occupancy costs. The company was finalizing a new five-year distribution agreement.
- The company disclosed pending or recently settled employment and intellectual-property matters, but said it did not expect the described proceedings to materially affect its financial position. It also reported an unresolved $1.2 million tenant-improvement allowance receivable and related landlord litigation, which management did not expect to materially affect liquidity.
- Key risks include consumer spending and competition, execution and financing of expansion, commodity and labor inflation, restaurant performance and impairment, lease and landlord exposure, weather, and reliance on contract brewers. The filing reported no material change in risks from the prior annual report.
Investor verification priorities
- Confirm the actual reporting period: the filing covers the quarter ended July 3, 2012, not 2010 Q2.
- Track comparable sales, traffic, pricing, and margins to assess whether growth is translating into sustained profitability.
- Compare planned restaurant openings and $100–$105 million capital spending with realized cash generation and landlord allowances.
- Monitor commodity, labor, occupancy, and construction costs, as well as the impact of pricing on guest traffic.
- Review liquidity and credit-facility covenant headroom, lease obligations, supplier concentration and related-party terms, and the outcome of legal and landlord matters.