BJ’s Restaurants, Inc. — Form 10-Q Summary
Period clarification: The request metadata says 2009 Q3, but the supplied filing is for the 13 weeks ended September 27, 2011, with year-to-date comparisons for the 39 weeks ended September 27, 2011. Comparatives are the corresponding 2010 periods. Amounts below are in millions, except per-share data.
Business context
BJ’s operated 115 restaurants as of November 1, 2011, across 13 states. Revenue is primarily restaurant food and beverage sales. The company was expanding its restaurant base and using contract brewers for much of its proprietary beer.
Financial performance and liquidity
| Metric | 13 weeks ended Sep. 27, 2011 | 13 weeks ended Sep. 28, 2010 | 39 weeks ended Sep. 27, 2011 | 39 weeks ended Sep. 28, 2010 |
|---|---|---|---|---|
| Revenue | $151.4 | $128.8 | $449.2 | $381.0 |
| Income from operations | $8.6 | $7.4 | $29.3 | $21.7 |
| Net income | $6.3 | $5.5 | $21.7 | $16.2 |
| Diluted EPS | $0.22 | $0.20 | $0.75 | $0.58 |
| Operating margin | 5.6% | 5.8% | 6.5% | 5.8% |
| Net margin | 4.1% | 4.3% | 4.8% | 4.3% |
For the quarter, revenue rose 17.6%, including 6.5% comparable-restaurant sales growth; management attributed comparable growth to menu pricing, traffic and favorable mix. For the 39 weeks, revenue rose 17.9%, including 7.1% comparable sales growth. Eleven restaurants had opened since the prior-year comparison period.
- Quarterly cost of sales increased to 24.7% of revenue from 24.3%, principally from higher food and beverage commodity costs. Year-to-date cost of sales was 24.7%, versus 24.4%.
- Quarterly labor and benefits were 34.2% of revenue (34.4% prior year); occupancy and operating costs were 21.1% (21.3%); general and administrative expense was 6.2% (6.4%).
- Operating cash flow for the 39 weeks was $53.9, up from $43.8. Capital expenditures were $64.8, compared with $49.3, resulting in cash use for investment and a $19.6 decrease in cash during the period.
- At September 27, cash and equivalents were $11.9 and marketable securities totaled $37.5. Working capital was $13.9 and the current ratio was 1.2:1.
- No revolving-credit borrowings were outstanding; the $45.0 unsecured facility had $4.4 of letters of credit outstanding. The company reported covenant compliance. Total liabilities were $148.5; operating lease obligations are a significant additional cash commitment and are not presented as funded debt on the balance sheet.
Changes, outlook and notable items
- Quarterly operating income increased, but operating margin declined to 5.6% from 5.8%; net margin also declined. Year-to-date operating and net margins improved versus 2010.
- Management expected fiscal 2011 effective menu-price increases of about 3% annualized and an effective tax rate around 28%. It planned up to 13 restaurant openings in fiscal 2011, expected approximately $85 of full-year capital expenditures, and anticipated up to 15 openings in fiscal 2012. These are expectations, not guarantees.
- Management believed cash, investments, operating cash flow, expected landlord allowances and the credit facility would fund planned spending and operations for the next 12 months. It cautioned that longer-term expansion could require additional financing and might be reduced if financing were unavailable on acceptable terms.
- Food commodity and energy inflation, consumer spending, competition, labor costs, weather, restaurant-opening execution and access to capital were identified as risks. Food costs were expected to remain under significant pressure through the remainder of 2011 and 2012.
- The company recorded $2.0 of year-to-date legal settlement expense for proposed settlements of California employment class actions, subject to court approval and without admission of liability. It also recorded a $0.6 gain from settlement-related recoveries on auction-rate securities.
- Fiscal 2011 included an additional operating week. The filing says quarterly and year-to-date results may not indicate full-year performance.
Key facts for investors to verify
- Confirm the intended filing period: the supplied document is a 2011 third-quarter 10-Q, not a 2009 Q3 filing.
- Track comparable sales, guest traffic, pricing acceptance and whether commodity inflation continues to pressure restaurant margins.
- Compare restaurant-opening plans and capital spending with operating cash generation, landlord contributions and available financing.
- Follow court approval and final costs of the employment settlements, and review the company’s lease and other fixed cash obligations.
- Review liquidity and covenant compliance as the revolving facility approached its September 30, 2012 expiration.