BJ’s Restaurants, Inc. — Form 10-Q Summary
Period: The filing covers the thirteen and twenty-six weeks ended July 1, 2014, with comparisons to July 2, 2013. This differs from the request metadata identifying 2012 Q2.
Business context and financial results
BJ’s operated 150 restaurants in 18 states as of August 4, 2014. Revenue comes from restaurant food and beverage sales; the company’s primary expansion format is BJ’s Restaurant & Brewhouse.
| Metric | 13 weeks ended July 1, 2014 | 13 weeks ended July 2, 2013 | 26 weeks ended July 1, 2014 | 26 weeks ended July 2, 2013 |
|---|---|---|---|---|
| Revenue | $219.4 million | $198.5 million | $425.2 million | $387.1 million |
| Operating income | $10.7 million | $11.8 million | $16.5 million | $22.6 million |
| Net income | $8.0 million | $8.6 million | $12.7 million | $16.9 million |
| Diluted EPS | $0.28 | $0.30 | $0.44 | $0.58 |
| Operating margin | 4.9% | 5.9% | 3.9% | 5.8% |
| Net margin | 3.6% | 4.3% | 3.0% | 4.4% |
For the quarter, revenue rose 10.5%, primarily from new restaurants; comparable restaurant sales fell 1.7%, reflecting approximately 1% lower traffic and a 0.7% lower average check. For the first half, revenue increased 9.8%, while comparable sales declined 2.3% (traffic down 0.3%; average check down 1.9%).
Costs, cash flow and liquidity
- Quarterly cost of sales increased to 25.1% of revenue from 24.4%, attributed mainly to commodity costs and menu mix. Labor and benefits increased to 35.0% from 34.2%, primarily reflecting lower comparable sales and higher hourly labor. Depreciation and amortization rose to 6.3% from 6.0%.
- For the first half, operating cash flow was $49.4 million, down from $58.1 million. Capital expenditures were $48.2 million, versus $60.4 million a year earlier. Cash and equivalents ended at $25.9 million; marketable securities totaled $6.2 million.
- Current liabilities exceeded current assets by $23.8 million; the current ratio was 0.7:1. The company had no funded borrowings on its $75 million unsecured revolving credit line, with $11.5 million of letters of credit outstanding. It reported compliance with credit covenants.
- Total assets were $622.5 million and total liabilities $212.6 million at July 1, 2014. The filing reports no funded debt outstanding; operating lease obligations remain significant and are not presented as balance-sheet indebtedness.
Material developments, outlook and risks
- Management’s fiscal 2014 objectives included at least 10% growth in total restaurant operating weeks and 11 new restaurant openings. It expected approximately $90 million of full-year capital expenditures. As of August 4, 13 restaurant leases or land purchase agreements were signed for openings expected in 2014 and 2015.
- Management expected food commodity costs to remain under upward pressure in 2014 and estimated a fiscal 2014 effective tax rate of approximately 27%. These are estimates, not guarantees.
- In April 2014, the board authorized up to $50 million in share repurchases. The company repurchased approximately 291,000 shares for $9.8 million during the first half; approximately $40.2 million remained authorized. Management expected to repurchase approximately $40 million more, subject to available cash, operating cash flow and financing capacity.
- A shareholder settlement agreement dated April 21, 2014 resulted in $2.4 million of first-half legal and other settlement expense, including $0.9 million in the quarter.
- Under a January 2014 settlement with the Texas Alcoholic Beverage Commission, the company agreed to end third-party supply of proprietary beer to Texas restaurants and transition to company-operated brewpubs by June 2015, expecting to build two. Management did not expect a significant liquidity or margin impact.
- Key risks include weaker consumer spending or comparable sales, food and labor inflation, minimum-wage increases, competition and discounting, weather and seasonality, new-restaurant execution and financing needs. Jacmar-affiliated DMA supplied 22.2% of first-half cost of sales and operating and occupancy costs; the filing describes a five-year distribution agreement finalized in 2012.
- Ordinary-course lawsuits and claims are disclosed; management did not expect their final disposition to materially affect financial position, results or liquidity, while noting outcomes could affect a particular period. The filing also reports $0.2 million of unrecognized tax benefits and anticipates a $0.1 million decrease within twelve months.
Important facts for investors to verify
- Confirm the intended filing period: the supplied filing is for Q2 2014, not Q2 2012.
- Track whether comparable-sales declines, particularly traffic and average check, stabilize and whether new-store growth offsets them.
- Monitor food, labor and other cost trends and their impact on restaurant-level and operating margins.
- Assess funding for planned openings and capital spending, including reliance on operating cash flow, landlord allowances, sale-leasebacks and the credit facility.
- Verify progress and costs of the Texas brewpub transition and any developments affecting the shareholder settlement, litigation or share-repurchase plan.