BJ’s Restaurants, Inc. — Form 10-Q Summary
Period clarification: The request metadata says 2016 Q3, but the filing itself is for the thirteen and thirty-nine weeks ended October 2, 2018, compared with October 3, 2017. This summary follows the filing’s stated period.
Business context and reporting period
BJ’s operated 201 restaurants in 27 states as of November 5, 2018. Its restaurants are company-owned, with BJ’s Restaurant & Brewhouse as its primary format and expansion vehicle. The interim financial statements are unaudited and prepared under U.S. GAAP.
Key financial metrics
Amounts below are in millions of dollars, except per-share data and percentages.
| Metric | 13 weeks ended Oct. 2, 2018 | 13 weeks ended Oct. 3, 2017 | 39 weeks ended Oct. 2, 2018 | 39 weeks ended Oct. 3, 2017 |
|---|---|---|---|---|
| Revenue | $270.3 | $247.0 | $836.4 | $770.6 |
| Operating income | $7.9 | $1.6 | $43.4 | $26.9 |
| Net income | $8.5 | $2.4 | $40.1 | $21.3 |
| Diluted EPS | $0.39 | $0.11 | $1.87 | $0.97 |
| Operating margin | 2.9% | 0.6% | 5.2% | 3.5% |
| Net margin | 3.2% | 1.0% | 4.8% | 2.8% |
For the 39-week period, operating cash flow was $95.0 million, investing cash flow was negative $36.9 million, and financing cash flow was negative $56.8 million. Cash increased $1.3 million to $25.6 million. Capital expenditures were $42.4 million, down from $57.4 million.
At October 2, 2018, total assets were $673.0 million, current assets $60.5 million, and current liabilities $122.9 million; net working capital was negative $62.4 million and the current ratio was 0.5:1. Long-term debt was $95.0 million, down from $163.5 million at January 2, 2018. The $250 million unsecured revolving credit facility had $140.5 million available after borrowings and letters of credit. The company reported compliance with its debt covenants.
Quarterly dividends declared were $0.11 per share; the board subsequently declared $0.12 per share, a 9.1% increase. The company repurchased $6.7 million of stock during the 39-week period and reported $35.9 million remaining under its $400 million authorization.
Material changes versus the prior comparable period
- Quarterly revenue grew 9.4%; comparable restaurant sales rose 6.9%, reflecting approximately 4.3% higher average check and 2.6% higher traffic. For the 39-week period, revenue grew 8.5% and comparable sales rose 5.5%.
- Quarterly cost of sales declined to 25.4% of revenue from 26.5%, which management attributed primarily to higher menu pricing and lower commodity costs. For the 39-week period, the ratio fell to 25.2% from 26.0%, reflecting higher pricing and less discounting.
- Quarterly labor and benefits were 36.7% of revenue versus 36.9%; for the 39-week period they remained at 36.0%. Management cited higher hourly wages, incentive compensation and workers’ compensation costs, offset in part by sales leverage.
- Occupancy and operating costs rose to 22.6% of quarterly revenue from 22.4%, partly due to marketing and third-party delivery commissions. For the 39-week period the ratio edged down to 21.2% from 21.3%.
- Six restaurants had opened since the prior-year quarterly comparison; four opened during the 39-week period, compared with eight in the prior-year period. Prior-year results included $0.9 million of hurricane-related costs and $0.4 million of severance and legal settlements.
- The 2018 tax benefit included excess tax benefits from equity awards: $1.7 million for the quarter and $3.8 million year to date. The 39-week effective tax rate was negative 0.9%, versus 15.6% a year earlier.
Outlook, risks and unusual items
- Management expected one additional restaurant opening later in the quarter and seven to nine openings in fiscal 2019. It projected capital expenditures of approximately $60–$65 million for fiscal 2018 and $70–$80 million for fiscal 2019.
- Management said new-restaurant unit economics remained solid and described plans to balance expansion with share repurchases and dividends. It estimated domestic capacity of at least 425 restaurants.
- Funding plans rely on operating cash flow, cash on hand, landlord tenant-improvement allowances and the credit facility. Management cautioned that cash flow may not fully fund planned investments and shareholder returns; unavailable or unacceptable financing could require reductions in expansion, repurchases, dividends or other returns.
- Adoption of the revised revenue-recognition standard in January 2018 produced a $4.6 million cumulative adjustment to opening retained earnings. For the 39-week period, approximately $1.3 million of loyalty-related revenue was deferred and $1.1 million of gift-card breakage was recognized as revenue. The company said the lease-accounting standard effective in fiscal 2019 would materially increase reported assets and liabilities, with likely insignificant income-statement and cash-flow effects.
- Key risks include food, labor and energy cost inflation; labor availability and wage regulation; consumer spending and competitive conditions; weather and seasonality; restaurant-opening and lease risks; food-safety or brand issues; and reliance on information technology. The company also faces floating-rate debt exposure; it estimated a hypothetical 1% rate change would affect annual net income by about $0.7 million.
- The company disclosed ordinary-course legal claims, including self-insured exposures, but did not expect their resolution to materially affect financial position, results or liquidity. It reported $1.5 million of unrecognized tax benefits, of which approximately $1.1 million could affect the effective tax rate if reversed.
Important facts for investors to verify
- Confirm the reporting-period mismatch: the supplied metadata says 2016 Q3, while the filing covers the period ended October 2, 2018.
- Assess whether comparable-sales growth, particularly traffic and average-check gains, continued after the reported quarter.
- Monitor food, wage, delivery-commission and other operating-cost trends, and the company’s ability to offset them through pricing and productivity.
- Review cash generation, capital spending, debt repayments, credit-facility availability and lease obligations, including the balance-sheet effects of lease accounting adoption.
- Evaluate the sustainability of dividends and repurchases relative to expansion needs, available cash and covenant headroom.
- Separate operating performance from tax benefits, revenue-recognition changes and prior-year unusual costs when comparing periods.