BJ’s Restaurants, Inc. — Form 10-Q Summary
Period: The filing covers the thirteen and thirty-nine weeks ended October 2, 2012, compared with periods ended September 27, 2011. The request metadata says “2010 Q3,” but the filing itself is for 2012 Q3.
Business context and results
The company owned and operated 125 restaurants across 14 states as of October 2, 2012. Its primary expansion format is the larger BJ’s Restaurant & Brewhouse. Results below are in millions of dollars except per-share data.
| Metric | 13 weeks 2012 | 13 weeks 2011 | 39 weeks 2012 | 39 weeks 2011 |
|---|---|---|---|---|
| Revenue | $175.2 | $151.4 | $523.5 | $449.2 |
| Operating income | $8.9 | $8.6 | $32.9 | $29.3 |
| Net income | $6.8 | $6.3 | $24.4 | $21.7 |
| Diluted EPS | $0.24 | $0.22 | $0.85 | $0.75 |
| Operating margin | 5.1% | 5.7% | 6.3% | 6.5% |
| Net margin | 3.9% | 4.2% | 4.7% | 4.8% |
Cash flow, balance sheet and liquidity
- For the thirty-nine weeks, operating cash flow was $77.9 million, compared with $61.0 million a year earlier. Capital expenditures were $85.8 million versus $69.4 million; operating cash flow less capital expenditures was therefore negative $7.8 million, versus negative $8.4 million.
- At October 2, cash and cash equivalents were $19.4 million and marketable securities totaled $30.2 million. Combined cash and securities were approximately $49.6 million.
- Net working capital was $1.0 million and the current ratio was 1.0:1, down from $12.8 million and 1.2:1 at January 3, 2012. Total current assets were $74.2 million and current liabilities $73.2 million.
- Total liabilities were $181.0 million and shareholders’ equity was $362.3 million. The balance sheet reports no funded debt. A $75 million unsecured revolving credit facility had no borrowings outstanding; $8.9 million of letters of credit were outstanding. The company reported compliance with its covenants.
Changes and management commentary
- Quarterly revenue increased 15.7%; management attributed about $20.9 million of the increase to restaurants outside the comparable-sales base and reported comparable sales growth of 2.3%. Menu pricing contributed an estimated 3.4%, partly offset by a 1.1% decline in guest traffic.
- For the thirty-nine weeks, revenue increased 16.6%, including about $61.2 million from non-comparable restaurants. Comparable sales increased 3.3%, from estimated menu pricing of 3.0% and guest traffic growth of 0.3%.
- Fifteen restaurants had opened since the comparable prior-year period; 11 opened during the first thirty-nine weeks of 2012. Management said it was on plan to open as many as 16 restaurants in fiscal 2012, including a relocation.
- Revenue growth outpaced profit growth, and margins declined. In the quarter, labor and benefits rose to 35.0% of revenue from 34.2%; occupancy and operating costs rose to 21.9% from 21.1%. Cost of sales held at 24.7%. Higher labor reflected sales-building programs and menu complexity; higher occupancy and operating costs reflected marketing, repairs and maintenance, and insurance.
- Management expected fiscal 2012 menu pricing to be around 3% on an annualized basis and estimated an approximately 28% effective tax rate for the year. It anticipated food commodity cost pressure through the remainder of 2012 and into 2013, citing agricultural and supply factors, including severe drought conditions.
Outlook, risks and unusual items
- Management targeted low-double-digit growth in restaurant operating weeks in both fiscal 2012 and 2013. It expected up to 17 openings in fiscal 2013, including one relocation, and estimated fiscal 2012 capital expenditures of approximately $120 million. Planned funding sources included cash and investments, operating cash flow, sale-leaseback proceeds and approximately $15 million of tenant improvement allowances.
- The company cautioned that expansion depends on operating cash flow and landlord allowances; if funding is inadequate or unavailable, it may have to slow expansion. Its longer-term estimate for domestic capacity in the brewhouse format was at least 425 restaurants.
- Key disclosed risks include weaker consumer spending or guest traffic, food and labor inflation, minimum-wage increases, competition and discounting, construction and opening delays, weather and seasonality, reliance on contract brewers, and restaurant underperformance or impairment. Most restaurants are leased; lease obligations are not recorded as balance-sheet debt.
- Quarterly results included no legal-settlement expense, versus $1.0 million in the prior-year quarter. Year-to-date 2012 included $0.4 million of legal settlements, compared with $2.0 million a year earlier; the current-year charge related to a trademark matter. The filing also reported $0.3 million of year-to-date gains from settlement-related investment redemptions.
- Jacmar and affiliates, which the company said owned approximately 11.5% of its shares, were associated with its largest foodservice supplier. Purchases through the distribution consortium totaled $58.6 million year to date, or 24.4% of cost of sales and operating and occupancy costs. A new five-year distribution agreement was finalized in July 2012.
- After the quarter, BJ’s announced Gregory A. Trojan would become President and a director in December 2012 and CEO on February 1, 2013, succeeding Gerald W. Deitchle, who would remain Chairman.
- The company reported ordinary-course claims and lawsuits, but did not expect their disposition to materially affect its financial position, results or liquidity. It said there had been no material changes to the risks in its prior annual report. No off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Confirm the reporting period: this filing is for the quarter ended October 2, 2012, notwithstanding the “2010 Q3” request metadata.
- Assess comparable-sales quality and sustainability, particularly the contribution of menu pricing versus guest traffic.
- Track margin trends, commodity inflation, labor costs and whether pricing and efficiency initiatives offset cost pressure.
- Compare planned restaurant openings and approximately $120 million of fiscal 2012 capital spending with actual results, cash generation and landlord funding.
- Review lease commitments, revolving-credit availability and covenant terms when assessing liquidity and expansion capacity.
- Monitor the CEO transition, supplier concentration and related-party governance, as well as tax uncertainties and litigation developments.