BJ’s Restaurants, Inc. — Form 10-Q Summary
Period discrepancy: The request metadata identifies 2017 Q1, but the filing is for the 13 weeks ended April 2, 2019, with comparative results for the 13 weeks ended April 3, 2018. This summary follows the filing.
Business context and reporting period
BJ’s operated 204 company-owned restaurants in 27 states as of May 6, 2019. Revenue is primarily food and beverage sales. The financial statements are unaudited and prepared under U.S. GAAP.
Financial performance and liquidity
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Revenue | $290.6 million | $278.5 million | Up 4.3% |
| Comparable restaurant sales | Up 2.0% | — | Traffic up 0.7%; average check up 1.3% |
| Operating income | $13.8 million; 4.7% margin | $16.4 million; 5.9% margin | Down 15.8% |
| Net income | $12.9 million | $14.7 million | Down 12.3% |
| Diluted EPS | $0.60 | $0.70 | Down 14.3% |
| Operating cash flow | $22.1 million | $25.8 million | Down $3.7 million |
| Capital expenditures | $17.7 million | $14.1 million | Up $3.6 million |
Cash and cash equivalents were $25.7 million at April 2, 2019, versus $29.2 million at January 1, 2019. Net working capital was negative $89.6 million and the current ratio was 0.4:1. The company reported $102.0 million of borrowings under its $250 million unsecured revolving credit facility, $14.1 million of letters of credit, and $133.9 million of available borrowing capacity. It was in compliance with its credit covenants.
The company adopted lease accounting Topic 842 on January 2, 2019. At quarter-end it reported $380.2 million of operating lease assets and $472.1 million of lease obligations, including $26.0 million current and $446.1 million long-term. Comparative periods were not restated, limiting balance-sheet comparability.
Cost pressures weighed on margins: cost of sales was 25.2% of revenue versus 25.1%; labor and benefits were 36.2% versus 36.1%; occupancy and operating costs were 21.2% versus 20.6%; and general and administrative costs were 5.8% versus 5.4%. Net income margin declined to 4.4% from 5.3%. The company declared quarterly dividends of $0.12 per share, compared with $0.11 in the prior-year quarter.
Material changes versus the prior comparable period
- Revenue increased by $12.0 million, supported by $5.9 million from restaurants outside the comparable-sales base and $5.5 million from comparable-sales growth. Five restaurants had opened since the comparable 2018 period.
- Despite higher sales, operating income fell by $2.6 million. Management cited discounting, commodity costs and menu mix; higher hourly wage rates; increased marketing, delivery commissions and tablet maintenance costs; and the lease-accounting effect on rent expense.
- Net cash from operations declined, while investment in property and equipment increased. Cash declined by $3.6 million during the quarter.
- Long-term debt rose from $95.0 million at January 1, 2019 to $102.0 million at April 2, 2019. The company repurchased approximately 249,000 shares for $11.9 million during the quarter.
- Lease-standard adoption materially increased reported assets and liabilities and produced a $20.0 million cumulative-effect adjustment to retained earnings. Management expects approximately $2.5 million of additional rent expense in fiscal 2019 from the change.
Outlook, commentary, risks and unusual items
- Management expected to open seven to nine restaurants in fiscal 2019 and forecast total capital expenditures of approximately $80 million to $85 million. It said leases, land purchase agreements or letters of intent were in place for all planned 2019 locations.
- Management expects to fund growth with operating cash flow, cash on hand, landlord tenant-improvement allowances and the credit facility. It cautioned that cash flow may not fully fund planned investment and shareholder returns; insufficient financing could lead to reduced expansion, repurchases, dividends or other returns.
- In March 2019, the board expanded the share repurchase authorization by $100 million. Approximately $110.3 million remained available at quarter-end. The board declared a further $0.12-per-share dividend payable May 27, 2019; future dividends and repurchases remain discretionary.
- Key operating risks include food and labor inflation, minimum-wage and other regulatory changes, competition and consumer spending, weather and seasonality, restaurant-opening execution, lease renewals and availability of suitable sites, and disruption or adverse publicity involving food supply or technology.
- The company disclosed ordinary-course customer, employee, real estate and other claims, including self-insured exposures. Management did not expect their resolution to materially affect financial position, results or liquidity, but acknowledged outcomes could affect future periods. It also reported $1.6 million of unrecognized tax benefits.
- Other unusual or non-recurring comparability considerations include the lease-accounting transition, $1.6 million of asset-disposal losses (primarily unproductive restaurant assets), and $1.1 million of other income, primarily from increased cash surrender value of life-insurance policies, offsetting related deferred-compensation expense.
Important facts for investors to verify
- Confirm the intended reporting period: the supplied metadata says 2017 Q1, while the filing covers Q1 2019.
- Assess whether comparable-sales growth and new-unit additions can offset persistent food, wage, occupancy, marketing and delivery-cost pressure.
- Review the lease-accounting impact on expense trends, leverage measures and balance-sheet comparisons; lease obligations were $472.1 million.
- Track planned fiscal 2019 openings and $80–$85 million capital spending against operating cash flow, debt availability, dividends and repurchases.
- Monitor credit-facility covenant compliance, floating-rate exposure, lease renewals, legal claims and uncertain tax positions.