BJ’s Restaurants, Inc. — Form 10-Q Summary
Period clarification: The supplied filing is for the 13 and 26 weeks ended June 30, 2020, not 2018 Q2 as stated in the request metadata. Comparisons are to the periods ended July 2, 2019. Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted.
Business context and reporting period
BJ’s operates company-owned casual dining restaurants featuring food, deep-dish pizza and proprietary craft beer. At August 3, 2020, it operated 209 restaurants in 29 states. COVID-19 restrictions sharply curtailed dine-in operations during the quarter; all open locations offered takeout and delivery.
Financial results and liquidity
| Metric | 13 weeks ended June 30, 2020 | Comparable 2019 period |
|---|---|---|
| Revenue | $128.0 | $301.1 |
| Operating income (loss) | ($45.7) | $15.8 |
| Net income (loss) | ($29.0) | $14.2 |
| Diluted earnings (loss) per share | ($1.38) | $0.68 |
| Operating margin | (35.7%) | 5.2% |
- For the 26-week period, revenue was $382.6 million, down 35.3%; operating loss was $53.4 million and net loss was $33.2 million, versus operating income of $29.5 million and net income of $27.1 million a year earlier. Diluted loss per share was $1.66 versus diluted earnings per share of $1.27.
- Quarterly comparable restaurant sales fell 57.2%, driven by an approximately 55.4% traffic decline and 1.8% lower average check. For the half-year, comparable sales declined 36.5%.
- In the quarter, cost of sales was 25.0% of revenue, while labor and benefits were 40.2% and occupancy and operating costs were 35.8%. Fixed-cost deleveraging against sharply lower sales weighed on margins.
- First-half operating cash flow was $14.6 million, down from $64.4 million. Capital expenditures were $24.9 million, compared with $38.8 million.
- At June 30, cash was $86.7 million; current liabilities exceeded current assets by $43.2 million and the current ratio was 0.7. Long-term debt was $166.8 million, with $50.1 million of additional borrowing availability under the credit facility. Operating lease obligations totaled $481.8 million, including current obligations.
- Cash increased by $64.3 million in the first half, principally reflecting financing: $74.6 million net cash provided by financing activities, including borrowings and the May equity placement.
Material changes and unusual items
- The pandemic drove restaurant closures and restrictions, reduced revenue, and prompted layoffs, cost controls and delayed or canceled restaurant development. By June’s end, dining rooms had reopened in about 95% of restaurants; as of August 3, 140 locations offered limited-capacity indoor dining and 68 offered outdoor dining only. One restaurant remained temporarily closed.
- The company recorded $14.3 million in first-half disposal and impairment charges, including $12.0 million of restaurant asset impairments across four locations and a $1.2 million reserve for beer expected to expire. The company warned further impairments could occur.
- On May 5, BJ’s completed a private placement of 3.5 million shares at $20 per share, or $70 million gross, and issued a five-year warrant for 875,000 shares at $27 per share. The filing records approximately $67.4 million of net proceeds allocated between common stock and the warrant.
- The amended credit facility provides $235 million of revolving commitments and matures November 18, 2022. Certain financial covenant tests were suspended until the fourth fiscal quarter of 2020; the company reported compliance at June 30.
- Rent payments were suspended beginning April 1 while lease expense and liabilities continued to be recognized. The company was negotiating rent deferrals or abatements with landlords.
- The quarterly dividend and share repurchases were suspended. The company also suspended employer 401(k) matching contributions and temporarily reduced certain salaries.
- The company replaced its food-distribution agreement with DMA, which expired June 30, with an agreement with US Foods effective June 1 and expiring in July 2023.
Outlook, commentary and risks
Management said current cash, the equity placement and available credit were expected to meet capital expenditure and working capital needs for at least the next 12 months, based on current operations and reduced spending. BJ’s anticipated opening one additional restaurant later in 2020 and had delayed or canceled other planned openings. It provided no specific revenue or earnings guidance and cautioned that easing restrictions may not restore pre-pandemic sales or profits.
Key risks include the duration and severity of COVID-19 and possible renewed restrictions; lower dine-in demand and changing off-premise sales; delivery commissions; liquidity and credit-market access; potential additional asset impairments; and food, labor, occupancy and other cost volatility. A hypothetical 1% change in credit-facility interest rates would have an estimated $1.3 million annual impact on net income.
Important facts for investors to verify
- Confirm the intended reporting period: this filing covers Q2 and the first half of 2020, not 2018.
- Track sales, comparable restaurant trends, operating cash flow and the pace of dine-in recovery against the severe Q2 declines.
- Monitor cash, credit availability, debt and covenant requirements, including when financial covenant testing resumes.
- Assess landlord rent concessions, deferred rent obligations and the possibility of further impairments.
- Verify the timing of any dividend or buyback resumption and planned restaurant openings; neither was assured in the filing.