BJ’s Restaurants, Inc. — Form 10-K Summary
Period mismatch: The request specifies 2018 Q4, but this filing is the annual report for fiscal 2020, ended December 29, 2020. Fiscal 2020 and 2019 each comprised 52 weeks. The filing also reports fiscal 2020 fourth-quarter results.
Business context and reporting period
BJ’s owns and operates casual-dining restaurants, with a broad menu and proprietary craft beer. At December 29, 2020, it operated 210 restaurants in 29 states; one was temporarily closed. COVID-19 restrictions sharply curtailed dine-in service and shifted sales toward takeout and delivery.
Financial performance and liquidity
| Metric | FY 2020 | FY 2019 |
|---|---|---|
| Revenue | $778.5 million | $1,161.5 million |
| Operating income (loss) | $(86.4) million | $49.1 million |
| Operating margin | (11.1)% | 4.2% |
| Net income (loss) | $(57.9) million | $45.2 million |
| Diluted earnings (loss) per share | $(2.74) | $2.20 |
| Cash from operations | $40.5 million | $116.0 million |
| Capital expenditures | $43.3 million | $82.2 million |
- Revenue fell 33.0%; comparable restaurant sales declined 34.0%. Two restaurants opened in 2020, compared with seven in 2019.
- As a share of revenue, cost of sales improved to 25.1% from 25.4%; labor and benefits increased to 39.3% from 36.5%; occupancy and operating costs increased to 28.4% from 22.1%; and depreciation and amortization increased to 9.4% from 6.2%. Lower sales caused substantial fixed-cost deleveraging.
- Cash and equivalents were $51.7 million at year-end, versus $22.4 million a year earlier. Net working capital was negative $82.6 million and the current ratio was 0.5.
- Long-term debt was $116.8 million, down from $143.0 million. The $235 million revolving credit facility had $97.1 million available at year-end, after $21.1 million of letters of credit. Separately, operating lease obligations had a present value of $493.7 million.
- Financing included a $70 million May 2020 private stock placement. The company raised a further $30 million gross through an ATM offering in January 2021. Operating cash flow was below capital expenditures; cash nevertheless increased, supported by financing and other cash-flow items.
Fiscal 2020 fourth-quarter revenue was $197.0 million, operating loss was $20.3 million, net loss was $18.1 million, and diluted loss per share was $0.81. The filing provides no clear comparable prior-year fourth-quarter breakdown in the supplied quarterly table.
Material changes, outlook, and risks
- COVID-19 drove restaurant closures, capacity restrictions, reduced sales, temporary layoffs and cost-control measures. Management said it expected significant comparable-sales increases in fiscal 2021 as restrictions eased, with most year-over-year revenue growth expected from comparable sales. This was not quantified guidance, and management cautioned that recovery and pre-pandemic sales levels were uncertain.
- Management expected to open two restaurants and reopen the temporarily closed location in fiscal 2021. It believed available cash and liquidity would cover capital expenditure and working-capital needs for at least 12 months, based on current operating conditions and reduced development spending.
- The company suspended dividends, share repurchases and 401(k) employer matching during 2020. It resumed rent payments in July after a temporary suspension and negotiated rent deferrals or abatements for most leases.
- Year-end impairment and disposal charges were $17.1 million, including a $13.7 million long-lived-asset impairment affecting five restaurants and a reserve for spoiled fresh beer. Management warned further impairment, including possible goodwill impairment, could occur if sales and cash flows remained weak. No goodwill impairment was recorded in 2020.
- A $32.1 million income-tax benefit reflected, among other items, CARES Act loss carrybacks and tip-related tax credits. A $2.3 million gain from legal settlements partly offset expenses.
- At December 29, 2020, BJ’s was in violation of two credit-facility financial covenants. A January 15, 2021 amendment cured the violation and suspended testing of those covenants until fiscal Q3 2021, while imposing other liquidity and earnings tests and capital-spending limits. The facility was reduced to $215 million and matures November 18, 2022.
- Key risks include continuing pandemic restrictions and uncertain demand recovery, labor and food-cost inflation, restaurant competition, off-premise delivery commissions, supply-chain and craft-beer availability, lease commitments, regulatory and employment claims, cybersecurity, and floating-rate debt. The company reported no pandemic business-interruption insurance.
- Auditors issued unqualified opinions on the financial statements and internal control over financial reporting. Audit focus areas included restaurant asset impairment and workers’ compensation and general-liability reserves.
Important facts for investors to verify
- Confirm the intended period: this filing covers FY 2020, not 2018 Q4.
- Track comparable sales, dine-in capacity, restaurant reopenings, and whether the anticipated 2021 recovery materialized.
- Review liquidity, covenant compliance, borrowing availability, and the terms and restrictions of the amended credit facility.
- Assess lease obligations alongside debt, and monitor rent concessions, restaurant impairments, and cash generation relative to capital spending.
- Check the effects of the May 2020 private placement, January 2021 ATM issuance, and outstanding warrant on share dilution.