BJ’s Restaurants, Inc. — Form 10-K Summary
Period and scope: The supplied filing is for fiscal 2012, ended January 1, 2013, not 2010 Q4 as stated in the request metadata. Fiscal 2012 comprised 52 weeks; fiscal 2011 comprised 53 weeks, including a 14-week fourth quarter, so reported year-over-year comparisons are affected by the different period lengths. BJ’s operated 130 restaurants in 15 states as of February 25, 2013.
Financial performance and liquidity
| Metric | Fiscal 2012 | Fiscal 2011 |
|---|---|---|
| Revenue | $708.3 million | $620.9 million |
| Operating income / margin | $40.9 million / 5.8% | $42.4 million / 6.8% |
| Net income / net margin | $31.4 million / 4.4% | $31.6 million / 5.1% |
| Diluted EPS | $1.09 | $1.08 |
| Cash provided by operations | $87.1 million | $85.5 million |
| Capital expenditures | $106.6 million | $91.5 million |
- Revenue increased 14.1% as reported. Management attributed about $80.6 million of the increase to restaurants not yet in the comparable-sales base; comparable restaurant sales rose 3.2% on a 52-week basis. That increase reflected approximately 3.3% effective menu pricing and favorable mix, partly offset by slightly lower estimated guest traffic.
- Despite higher revenue, operating income and net income were slightly lower. Cost of sales rose to 24.8% of revenue from 24.6%; labor and benefits were 34.6% versus 34.5%; occupancy and operating costs increased to 21.2% from 20.5%. New-store costs, commodities, marketing, insurance, depreciation and the shorter comparison period contributed to expense pressure.
- At year-end, cash and cash equivalents were $15.1 million and marketable securities totaled $25.9 million. Net working capital was $0.2 million and the current ratio was 1.0. Cash and marketable securities declined from a combined $53.1 million a year earlier to $40.9 million.
- The company had no funded long-term debt and no borrowings under its $75 million revolving credit facility, which expires in 2017. Outstanding letters of credit of $11.5 million support insurance programs and reduce facility availability; borrowings are subject to covenants, which the company reported it was meeting.
- Operating cash flow was below capital expenditures by approximately $19.6 million. Fiscal 2012 capital spending included $77.6 million for new restaurants and $29.0 million for existing-restaurant initiatives, systems and other items.
- Operating leases are not recorded as debt on the balance sheet under the accounting rules then in effect. Contractual minimum operating lease payments totaled $400.1 million, including $27.4 million due within one year; an additional $11.6 million related to future restaurant leases was not included in that total.
Fourth-quarter context: Fiscal 2012 fourth-quarter revenue was $184.8 million, operating income $8.0 million, and net income $7.0 million (diluted EPS $0.24). The prior-year fourth quarter reported revenue of $171.8 million, operating income of $13.1 million, and net income of $9.9 million (diluted EPS $0.34), but included 14 weeks versus 13 weeks in fiscal 2012.
Material changes and operating developments
- BJ’s opened 16 restaurants in fiscal 2012, including a relocation, versus 13 in fiscal 2011. Pizza represented approximately 15% of fiscal 2012 restaurant sales; proprietary craft beer represented approximately 9%. Alcoholic beverages overall represented approximately 22% of sales.
- Comparable sales growth decelerated to 3.2% from 6.6% in fiscal 2011 and 5.6% in fiscal 2010. Fiscal 2011 comparisons included an extra week; management also provided 52-week comparable-sales figures.
- Marketing expense rose to approximately $10.6 million from $7.2 million, reflecting greater brand investment and the launch of the BJ’s Premier Rewards loyalty program. The company tested television advertising in selected markets.
- Production increasingly shifted to contract brewers: approximately 70% of proprietary beer was contract-produced in 2012, and management expected about 75% of an estimated 70,000-barrel 2013 requirement to be contract-produced.
- Leadership changed: Gregory Trojan became president in December 2012 and CEO on February 1, 2013.
Outlook, risks and unusual items
- For fiscal 2013, management planned up to 17 restaurant openings, including one relocation, and targeted approximately 12% growth in total restaurant operating weeks. Expected capital expenditures were approximately $120 million.
- Management expected most 2013 revenue growth to come from new restaurants and the carryover effect of partial-year 2012 openings. It warned that casual-dining traffic would remain under significant pressure through 2013 and that commodity costs were likely to face upward pressure. The filing did not provide a specific full-year revenue or earnings forecast.
- Management estimated a fiscal 2013 effective tax rate of approximately 28% and planned to invest 1.5%–2.0% of revenue in marketing-related activities.
- Key risks include consumer spending and traffic weakness; food, labor, energy and construction cost inflation; execution and returns on new locations; geographic concentration (61 restaurants in California, 28 in Texas and 11 in Florida); long-term lease commitments; supplier and contract-brewer dependence; liquor licensing and regulation; and possible increases in labor and health-care costs.
- Legal and other settlements were $1.0 million in fiscal 2012, primarily related to a trademark matter and a California sales-tax audit, compared with $2.0 million in fiscal 2011, primarily California employment-practices matters. The company reported that ordinary-course claims were not expected to have a material adverse effect, while noting outcomes could affect a particular period.
- Fiscal 2012 included a $0.8 million gain from settlement-related recoveries on auction-rate securities and $0.8 million of other income, largely gift-card breakage and life-insurance cash-value changes. No impairment of goodwill or long-lived assets was reported at year-end.
- Ernst & Young issued unqualified opinions on the financial statements and internal controls. Management reported effective disclosure controls and internal control over financial reporting as of January 1, 2013.
Important facts for investors to verify
- Confirm the intended reporting period: the filing covers fiscal 2012, not 2010 Q4; account for the 52-week versus 53-week comparison and the 13-week versus 14-week fourth quarters.
- Assess whether comparable-sales and guest-traffic trends, pricing, and margins support the planned 2013 expansion.
- Review the funding assumptions behind the $120 million capital plan, including operating cash generation, tenant-improvement allowances and sale-leaseback proceeds, and monitor revolver availability and covenants.
- Evaluate lease obligations alongside reported debt: minimum operating lease payments were $400.1 million, with additional future-site commitments.
- Monitor commodity and labor costs, contract-brewer and distributor concentration, geographic exposure, and the impact of health-care and other regulatory changes.
- Check subsequent disclosures for progress on planned openings, settlement developments, and the new CEO’s strategic and operating priorities.