BJ’s Restaurants, Inc. — Form 10-Q Summary
Reporting period: The filing covers the 13 and 26 weeks ended July 2, 2019, compared with periods ended July 3, 2018. The request metadata says “2017 Q2,” which does not match the filing period; confirm the intended period.
Financial performance
| Metric | 13 weeks ended July 2, 2019 | 13 weeks ended July 3, 2018 | 26 weeks ended July 2, 2019 | 26 weeks ended July 3, 2018 |
|---|---|---|---|---|
| Revenue | $301.1 million | $287.6 million | $591.6 million | $566.2 million |
| Operating income | $15.8 million | $19.1 million | $29.5 million | $35.5 million |
| Operating margin | 5.2% | 6.6% | 5.0% | 6.3% |
| Net income | $14.2 million | $16.9 million | $27.1 million | $31.6 million |
| Diluted EPS | $0.68 | $0.79 | $1.27 | $1.49 |
| Net margin | 4.7% | 5.9% | 4.6% | 5.6% |
- For the quarter, revenue rose 4.7%; comparable restaurant sales increased 2.0%, reflecting a 3.0% higher average check and 1.0% lower traffic. For the first half, revenue rose 4.5%; comparable sales increased 2.0%, with average check up 2.2% and traffic down 0.2%. Five restaurants had opened since the comparable prior-year period.
- Quarterly and first-half net income declined about 16% and 14%, respectively. Food, labor, and occupancy costs rose faster than revenue, reducing operating margin by 1.4 and 1.3 percentage points, respectively.
- First-half operating cash flow was $64.4 million, versus $72.1 million. Capital expenditures were $38.8 million, versus $28.8 million; operating cash flow less capital expenditures was approximately $25.6 million, versus $43.3 million. Cash declined $5.8 million to $23.4 million.
- At July 2, 2019, the company reported $100.0 million of line-of-credit debt, up from $95.0 million at January 1, and $135.9 million of available borrowing capacity. The $250 million unsecured facility matures November 18, 2021; the company was in covenant compliance. First-half weighted-average interest rate was approximately 3.4%.
- Current assets were $57.6 million and current liabilities $156.2 million; working capital was negative $98.6 million and the current ratio was 0.4:1. The balance sheet includes $469.5 million in operating lease obligations and $377.4 million in operating lease assets following adoption of the new lease standard.
Material changes and management commentary
- Cost of sales was 25.5% of revenue for the quarter and 25.4% for the first half, versus 25.0% and 25.1%. Management cited higher avocado and other commodity costs, discounting, and unfavorable menu mix, including the tri-tip rollout.
- Labor and benefits were 36.0% of quarterly revenue and 36.1% for the first half, up from 35.5% and 35.8%. Higher hourly rates and labor hours were partly offset by lower incentive compensation and taxes and benefits.
- Occupancy and operating costs rose to 21.4% of quarterly revenue and 21.3% for the first half, versus 20.5% and 20.6%. Drivers included marketing, delivery commissions, tablet maintenance, and lease-accounting effects.
- Adoption of lease accounting Topic 842 materially increased reported assets and liabilities; comparative periods were not restated. Management expects approximately $2.5 million of additional rent expense in fiscal 2019 from the adoption.
- The company repurchased approximately 671,000 shares for $31.1 million during the first half, at an average $46.42 per share. Approximately $91.1 million remained under the repurchase authorization. A quarterly dividend of $0.12 per share was declared after quarter-end.
Outlook, risks, and contingencies
- Management expected to open seven restaurants in fiscal 2019 and forecast total fiscal-year capital expenditures of approximately $80–$85 million. The company estimated domestic capacity of at least 425 restaurants; it operated 206 as of August 5, 2019.
- Planned spending includes new restaurants, maintenance and productivity initiatives, and a human capital management system. Funding sources include operating cash flow, cash on hand, landlord contributions, stock-option proceeds, and the credit facility. Management cautioned that cash generation may not fully fund its plans and that additional financing may not be available on acceptable terms.
- Key disclosed risks include consumer and economic weakness, competition, food and labor cost inflation, staffing availability, restaurant development and lease costs, weather and seasonality, food-safety or other negative publicity, regulatory requirements, and dependence on information technology and beer supply.
- Ordinary-course lawsuits and claims include customer, employment, real-estate, and intellectual-property matters. The company said it did not expect their disposition to materially affect financial position, results, or liquidity, while noting outcomes could affect future periods. Unrecognized tax benefits were approximately $1.6 million.
Important facts for investors to verify
- Confirm the intended filing period: the supplied filing is for Q2 2019, not Q2 2017.
- Track traffic and comparable-sales trends: comparable sales growth relied on higher average checks while traffic declined.
- Assess whether food, labor, and occupancy cost pressures continue to weigh on margins.
- Review cash generation against capital expenditure, dividends, and repurchases, alongside negative working capital and lease obligations.
- Monitor borrowing, covenant headroom, and execution of the seven-restaurant opening plan and $80–$85 million capital-spending outlook.