BJ’s Restaurants, Inc. — Form 10-Q Summary
Period and context: The filing covers the 13 and 26 weeks ended June 28, 2016, compared with the periods ended June 30, 2015. This differs from the request metadata, which identifies 2014 Q2. BJ’s operated 177 restaurants in 23 states as of August 3, 2016.
Key financial results
| Metric | 13 weeks ended June 28, 2016 | 26 weeks ended June 28, 2016 | Comparable 2015 |
|---|---|---|---|
| Revenue | $250.3 million | $493.7 million | $232.0 million; $457.1 million |
| Operating income / margin | $19.6 million / 7.8% | $36.0 million / 7.3% | $17.6 million / 7.6%; $30.7 million / 6.7% |
| Net income / diluted EPS | $13.8 million / $0.56 | $25.4 million / $1.03 | $12.4 million / $0.47; $22.1 million / $0.83 |
| Operating cash flow | Not separately reported for the quarter | $70.9 million | $56.5 million |
| Capital expenditures | Not separately reported for the quarter | $50.0 million | $38.9 million |
- Quarterly revenue rose 7.9% and net income rose 10.9% year over year. For the six-month period, revenue increased 8.0% and net income increased 15.3%.
- Six-month comparable restaurant sales rose 0.2%, with average check, menu mix and incident rates up approximately 1.8%, partly offset by traffic down approximately 1.6%. Quarterly comparable sales declined 0.2%, as traffic fell 1.6% and average check, mix and incident rates rose 1.4%.
- For the quarter, cost of sales was 25.0% of revenue versus 24.6% a year earlier; labor and benefits were 34.3% versus 34.0%. Occupancy and operating costs improved to 20.0% from 20.5%, and general and administrative costs to 5.5% from 5.9%. Management attributed some cost-category changes to reclassifying promotional food costs.
Balance sheet, liquidity and capital allocation
- At June 28, 2016, cash was $22.9 million, total assets $680.0 million, and current liabilities $114.3 million. Net working capital was negative $46.1 million and the current ratio was 0.6:1.0.
- Long-term debt was $91.0 million, down from $100.5 million at December 29, 2015. The unsecured $150 million revolving facility had $44.0 million available after $15.0 million of letters of credit; the company was compliant with its financial covenants. The weighted-average borrowing rate was approximately 1.46%.
- Six-month operating cash flow increased to $70.9 million from $56.5 million. After $50.0 million of capital expenditures, cash flow less capital expenditures was approximately $21.0 million. Cash declined by $11.7 million to $22.9 million, including $24.5 million used for share repurchases.
- The company repurchased approximately 587,000 shares at an average $41.76 per share during the first half. In July, the board expanded the repurchase authorization by $100 million, bringing total authorization to $350 million and remaining capacity to $129.9 million.
Outlook, commentary and risks
- Management planned 18–19 restaurant openings in fiscal 2016 and targeted approximately 10% growth in total restaurant operating weeks. Estimated fiscal 2016 capital expenditures were $110–$120 million; seven restaurants had opened in the first half.
- Management expected to fund investment with operating cash flow, cash on hand, landlord tenant-improvement allowances, sale-leaseback proceeds and the credit facility. It cautioned that insufficient cash generation or unavailable financing could require a slower expansion pace. The company estimated domestic capacity of at least 425 restaurants.
- Key pressures include minimum-wage increases, food and commodity cost volatility, consumer spending, competition, weather and seasonality, lease obligations, construction costs, and risks to expansion execution. Management noted limited ability to hedge commodities and that price increases may affect customer traffic.
- Unusual items included a $0.4 million first-half wage-and-hour settlement and $1.5 million in asset disposal and impairment losses. The Century City restaurant closed in January 2016 because of mall redevelopment. Ordinary-course litigation was not expected by management to materially affect financial position, results or liquidity, though outcomes remain uncertain.
- The company disclosed related-party purchasing: Jacmar supplied $45.6 million of products in the first half and was a shareholder affiliate; it represented 20.5% of cost of sales plus occupancy and operating expenses. Operating leases are not recorded as debt on the balance sheet; the filing says the company had no off-balance-sheet arrangements.
Important facts for investors to verify
- Confirm the reporting-period discrepancy: the filing is for the quarter ended June 28, 2016, not 2014 Q2.
- Track comparable-sales traffic and check trends, and assess how much reported growth depends on new restaurants.
- Compare planned 18–19 openings and $110–$120 million of capital spending with actual execution and available funding.
- Monitor labor, food-cost trends, promotional-cost classification, and the effect of wage increases on margins.
- Review credit-facility availability, covenant headroom, lease commitments and the pace of buybacks alongside expansion spending.
- Assess the related-party supplier relationship, legal and self-insurance exposures, and the effect of the enlarged repurchase authorization on liquidity.