BJ’s Restaurants, Inc. — Form 10-Q Summary
Reporting-period note: The request metadata says 2013 Q3, but the filing is for the 13 and 39 weeks ended September 29, 2015, compared with periods ended September 30, 2014. This summary follows the filing.
Business context and period
BJ’s operated 170 restaurants in 22 states as of November 2, 2015. Revenue comes from food and beverage sales. The filing reports unaudited results under U.S. GAAP.
Financial results
Amounts below are in millions, except per-share data and percentages.
| Metric | 13 weeks 2015 | 13 weeks 2014 | 39 weeks 2015 | 39 weeks 2014 |
|---|---|---|---|---|
| Revenue | $229.4 | $206.5 | $686.5 | $631.7 |
| Operating income | $16.5 | $8.0 | $47.2 | $24.5 |
| Net income | $12.4 | $6.5 | $34.4 | $19.1 |
| Diluted EPS | $0.48 | $0.23 | $1.30 | $0.67 |
| Operating margin | 7.2% | 3.9% | 6.9% | 3.9% |
| Net margin | 5.4% | 3.1% | 5.0% | 3.0% |
Third-quarter revenue grew 11.1%; comparable restaurant sales rose 2.3%, with average check, menu mix and incident rates up about 3.6%, partly offset by traffic down 1.3%. For the 39-week period, revenue grew 8.7% and comparable sales rose 2.0%, as check and mix gains of about 2.8% offset traffic down 0.8%. New restaurants contributed approximately $18.4 million of third-quarter sales and $43.0 million year to date.
For the 39 weeks, operating cash flow was $99.6 million versus $74.4 million; capital expenditures were $63.1 million versus $67.6 million. Cash at September 29 was $26.6 million, down from $30.7 million at December 30, 2014. Current liabilities exceeded current assets by $41.7 million; the current ratio was 0.7. Long-term debt was $67.5 million, drawn on the $150 million unsecured revolving facility; letters of credit were about $14.0 million. The company reported covenant compliance and a weighted-average borrowing rate of about 1.35%.
Material changes and unusual items
- Operating performance improved year over year, with lower cost-of-sales, labor, occupancy and G&A ratios reflecting cost management and leverage on higher sales. Labor and benefits were 34.4% of revenue in the quarter versus 35.5%; cost of sales was 24.5% versus 25.1%.
- Third-quarter and year-to-date results included a $2.9 million net gain on lease termination tied to the planned closure of the Century City, California restaurant by the end of January 2016. The mall redevelopment necessitated the closure, and the landlord will pay a termination fee.
- Year-to-date 2014 included $2.4 million of legal and other settlement costs related to a shareholder settlement; no comparable 2015 charge was reported.
- The company repurchased about 1.375 million shares for $65.3 million during the 39 weeks, at an average $47.52 per share. Approximately $34.7 million remained under the $200 million authorization. Shares outstanding declined from 26.2 million at year-end to 25.3 million.
Outlook, risks and contingencies
- Management planned 16 new restaurants in fiscal 2015; 15 had opened by November 2, with one more under construction. It expected 18–19 openings in fiscal 2016 and approximately $100 million of fiscal 2015 capital expenditures. The company described a longer-term objective of roughly 10% annual growth in restaurant operating weeks.
- Planned expansion funding includes operating cash flow, cash on hand, sale-leaseback proceeds, landlord tenant-improvement allowances and the credit facility. Management cautioned that insufficient cash generation or unavailable financing could slow expansion. The filing gives no specific earnings or comparable-sales forecast.
- Key risks include consumer spending and competition, food and labor inflation, minimum-wage and other regulatory changes, weather and seasonality, restaurant-opening delays and returns, access to capital, and reliance on technology. Commodity prices can fluctuate; the company uses some fixed-price purchasing commitments but does not hedge with financial instruments.
- Ordinary-course claims and proceedings include customer, employment, real-estate and other matters. Management did not expect their disposition to materially affect financial position, results or liquidity, but noted future periods could be affected by changed circumstances. The company is partly self-insured.
- Jacmar-affiliated DMA supplied $66.0 million of food, beverage, paper products and supplies year to date, about 21.1% of cost of sales and occupancy/operating costs; related trade payables were $5.3 million. The filing says pricing is believed comparable to third-party offers following competitive bidding.
Most important facts to verify
- Confirm the intended period: the filing is Q3 2015, not Q3 2013.
- Assess how much of improved earnings reflects recurring operations versus the $2.9 million lease-termination gain and the prior-year settlement expense.
- Track comparable-sales traffic, cost inflation and margins, and whether planned restaurant openings and capital spending meet expectations.
- Review liquidity and capital allocation, including borrowings, lease obligations, share repurchases and the availability of landlord contributions and sale-leaseback funding.
- Monitor the Century City closure, legal and self-insurance exposures, and the related-party supplier relationship.