BJ’s Restaurants, Inc. — Form 10-K Summary
Reporting-period note: The supplied filing is for the fiscal year ended January 3, 2012 (fiscal 2011), not 2009 Q4. Fiscal 2011 comprised 53 weeks, including a 14-week fourth quarter; fiscal 2010 comprised 52 weeks. The summary below reflects the filing actually provided.
Business context and reporting period
BJ’s operated casual-dining restaurants featuring deep-dish pizza, a broad menu, and proprietary handcrafted beer. It reported 115 restaurants at fiscal year-end and 116 as of February 27, 2012, across 13 states. Its primary expansion format was the BJ’s Restaurant & Brewhouse. Only three restaurants had active on-site brewing; contract brewers supplied most proprietary beer.
Financial and operating performance
| Metric | Fiscal 2011 | Fiscal 2010 |
|---|---|---|
| Revenue | $620.9 million | $513.9 million |
| Operating income | $42.4 million; 6.9% margin | $30.2 million; 6.0% margin |
| Net income | $31.6 million; 5.2% margin | $23.2 million; 4.6% margin |
| Diluted EPS | $1.08 | $0.82 |
| Cash from operations | $88.6 million | $71.7 million |
| Capital expenditures | $94.6 million | $68.0 million |
- Revenue increased 20.8%; management attributed approximately $62.0 million to newer restaurants, $31.1 million to comparable sales growth, and $13.9 million to the extra fiscal week. On a comparable 52-week basis, same-store sales increased 6.6%, driven by estimated menu pricing of 3.0%, traffic of 2.2%, and favorable mix and purchase incidence of 1.4%.
- Cost of sales was 24.6% of revenue versus 24.5%; labor and benefits were 34.5% versus 34.7%; occupancy and operating costs were 20.5% versus 21.3%; and general and administrative expense was 6.4% versus 6.7%.
- Cash and cash equivalents were $22.4 million, with marketable securities of $30.7 million; together these totaled approximately $53.1 million. Net working capital was $12.8 million and the current ratio was 1.2.
- No long-term debt was outstanding at year-end. The company had $8.9 million in letters of credit outstanding under its then-existing facility. In February 2012 it replaced that facility with a $75 million unsecured revolving credit line, expiring January 31, 2017.
- Operating cash flow was below capital expenditures by approximately $6.0 million. Capital spending included $70.3 million for new restaurant construction and equipment, $19.5 million for existing-restaurant maintenance and initiatives, and $4.8 million for systems.
Material changes, outlook, and notable items
- Compared with 2010, revenue, operating income, net income, and diluted EPS rose; operating and net margins also improved. Fiscal 2011’s 53rd week contributed to reported growth, so headline year-over-year comparisons are not on equal-week terms.
- BJ’s opened 13 restaurants in fiscal 2011. For fiscal 2012, management planned as many as 16 openings, including one relocation, and targeted an approximately 11% increase in restaurant operating weeks. It expected revenue growth to be driven mainly by openings and the carryover contribution of 2011 openings.
- Management expected fiscal 2012 menu price increases of about 3% annualized and an effective tax rate of approximately 29%. Planned fiscal 2012 capital expenditures were $90–$95 million, net of anticipated landlord allowances; approximately $10.6 million of tenant improvement allowances were expected.
- Management said it expected cash, investments, operating cash flow, landlord allowances, and the new credit facility to fund planned spending and operations for the next 12 months, while cautioning that expansion could slow if cash generation or financing proved inadequate.
- Fiscal 2011 included $2.0 million of legal settlement expense associated primarily with proposed settlements of two California employment class actions. Settlements were subject to court approval; the company denied liability and considered the terms nonmaterial to its consolidated financial position.
- The company continued shifting beer production toward contract brewers, expecting them to supply 70–75% of approximately 70,000 barrels required in fiscal 2012. Management anticipated potential scale and quality benefits, partly offset by freight costs and supplier-dependence risk.
Risks and contingencies
- Risks include weak consumer spending, intense competition and discounting, food and labor inflation, limits on menu pricing, and execution and profitability risks from new restaurants and new markets.
- Operations are geographically concentrated: 56 of 116 restaurants were in California and 24 in Texas as of February 27, 2012. The filing highlights regional economic, regulatory, weather, and natural-disaster exposure.
- Supply and distribution risks include reliance on limited suppliers for some ingredients, increasing dependence on contract brewers, and reliance on a distributor for proprietary beer delivery to about 60% of restaurants.
- Jacmar and affiliates, which held approximately 11.5% of shares, supplied $68.0 million of products in fiscal 2011, equal to 24.3% of cost of sales and operating and occupancy costs. The filing describes the relationship as competitively bid.
- Operating lease commitments totaled $348.4 million as of January 3, 2012, including $25.2 million due within one year; additional future lease commitments of $16.4 million were not included in that total. Lease obligations are substantial despite the absence of funded debt.
- Two California employment cases had settlements in principle awaiting court approval. The filing also describes routine claims and proceedings, which management did not expect to materially affect financial position, results, or liquidity, while noting that outcomes could affect individual periods.
- Management and the auditor reported effective internal control over financial reporting. The company disclosed a prior late proxy filing and said it added reporting personnel and procedures to reduce the risk of future late filings.
Important facts for investors to verify
- Confirm the intended period: the provided filing is fiscal 2011, not 2009 Q4; also compare results on a consistent 52-week basis.
- Assess whether comparable-sales growth, including pricing and traffic contributions, continued after fiscal 2011.
- Track new-restaurant openings, returns, construction costs, and landlord allowance collections against management’s plans.
- Monitor commodity and labor costs, contract-brewer performance, beer distribution, and the related-party supplier relationship.
- Review liquidity against capital spending and long-term lease commitments; confirm availability and covenant compliance under the $75 million facility.
- Check court approval and final costs of the California employment settlements, and review subsequent disclosures for other material claims or contingencies.