BJ’s Restaurants, Inc. — Form 10-Q Summary
Period note: The request metadata says 2011 Q1, but the filing is for the thirteen weeks ended April 2, 2013 (first quarter of fiscal 2013), compared with the thirteen weeks ended April 3, 2012. The filing was signed May 6, 2013.
Business context
BJ’s owned and operated 131 restaurants in 15 states. Its primary expansion format was the BJ’s Restaurant & Brewhouse/Brewery. Three restaurants had on-premise brewing operations; contract brewers supplied most proprietary beer needs.
Financial results
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Revenue | $188.6 million | $167.6 million | Up 12.5% |
| Income from operations | $10.8 million | $11.8 million | Down 7.9% |
| Operating margin | 5.7% | 7.0% | Down 1.3 percentage points |
| Net income | $8.3 million | $8.6 million | Down 4.0% |
| Net margin | 4.4% | 5.1% | Down 0.7 percentage points |
| Diluted EPS | $0.29 | $0.30 | Down $0.01 |
| Operating cash flow | $37.1 million | $21.5 million | Up $15.6 million |
| Capital expenditures | $30.3 million | $18.0 million | Up $12.2 million |
Comparable restaurant sales rose approximately 0.4%: menu pricing contributed about 3.1%, while guest traffic declined approximately 3.0%; favorable menu mix and guest incident rates also contributed. Most total revenue growth came from restaurants outside the comparable-sales base.
Cost of sales was 24.5% of revenue versus 24.6%. Labor and benefits were 35.0% versus 34.9%; occupancy and operating costs were 21.5% versus 20.7%; general and administrative costs were 6.7% versus 6.4%; and depreciation and amortization was 6.1% versus 5.7%. Management attributed cost increases mainly to restaurant growth, higher marketing and insurance costs, support costs, and investment in new restaurants and initiatives.
Balance sheet, liquidity, and debt
- At April 2, 2013, cash and cash equivalents were $23.9 million and marketable securities totaled $24.3 million, or about $48.2 million combined.
- Net working capital was $3.4 million, compared with $0.2 million at January 1, 2013; the current ratio was 1.0:1.0 at both dates.
- Total assets were $576.1 million; total liabilities were $194.5 million; shareholders’ equity was $381.6 million.
- No funded borrowings were outstanding under the $75 million unsecured revolving credit facility. Letters of credit totaled approximately $11.5 million; the company reported compliance with facility covenants.
- The company primarily leases restaurant sites. Operating lease obligations are not presented as funded debt on the balance sheet, but must be met from operating cash flows.
Operating cash flow benefited from more restaurant operating weeks, higher depreciation and timing of receivables and payables. Capital expenditures included $23.9 million for new restaurant construction and equipment, $5.0 million for maintenance and productivity initiatives, and $1.4 million for restaurant and corporate systems.
Outlook, commentary, and risks
- Management targeted approximately 12% growth in total restaurant operating weeks in fiscal 2013 and planned to open as many as 17 restaurants, including one relocation. Three of the 14 signed leases and three purchased sites reported as of May 6 had already opened.
- Fiscal 2013 capital expenditures were estimated at approximately $115 million to $120 million, expected to be funded through cash and investments, operating cash flow, sale-leaseback proceeds, and landlord tenant-improvement allowances.
- Management estimated an effective tax rate of approximately 29% for fiscal 2013; the Q1 rate was 26.2%, versus 29.0% a year earlier, partly due to expiration of statutes on previously reserved expenses.
- Management expected continued upward pressure on food commodity costs in 2013. Costs for some items, including dairy, seafood, and produce, may be difficult to contract for long periods. Menu pricing and productivity initiatives may not fully offset inflation, and price increases could affect customer traffic or purchasing patterns.
- Other stated risks include consumer spending and competition, hiring and wage costs, delays or cost increases in restaurant development, geographic concentration, weather and seasonality, reliance on contract brewers, and the availability of capital and landlord allowances. The filing reported no material change in risks from the prior annual report.
- Jacmar and its affiliates, which the company said owned approximately 11.2% of its shares, supplied $19.7 million of food, beverage, paper products, and supplies during the quarter. The filing described Jacmar as the company’s largest supplier and said prices were considered comparable following competitive bidding.
- The company disclosed ordinary-course legal claims and self-insurance exposure, but did not expect their final disposition to materially affect financial position, results, or liquidity. No material off-balance-sheet arrangements were reported.
Most important facts for investors to verify
- Confirm the reporting period: this filing covers Q1 2013, not Q1 2011.
- Assess whether modest comparable-sales growth and declining traffic can support the expansion plan without further margin compression.
- Track the $115 million–$120 million capital expenditure plan against operating cash flow, landlord allowances, sale-leaseback proceeds, and available credit.
- Review the effect of food, labor, insurance, and occupancy inflation, as well as the company’s ability to offset those pressures through pricing and productivity.
- Consider lease commitments and the supplier relationship with Jacmar alongside reported funded debt and cash liquidity.