BJ’s Restaurants, Inc. — Form 10-Q Summary
Reporting-period note: The request metadata says 2013 Q1, but the supplied filing is for the thirteen weeks ended March 31, 2015, compared with the thirteen weeks ended April 1, 2014. The filing was signed May 4, 2015.
Business context and financial performance
BJ’s operated 159 restaurants in 19 states as of May 4, 2015. Revenue is generated from restaurant food and beverage sales. The company’s primary expansion format is BJ’s Restaurant & Brewhouse.
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Revenue | $225.1 million | $205.8 million |
| Operating income | $13.1 million | $5.8 million |
| Net income | $9.6 million | $4.7 million |
| Diluted earnings per share | $0.36 | $0.16 |
| Cash from operating activities | $30.8 million | $29.4 million |
| Capital expenditures | $15.8 million | $24.6 million |
- Revenue increased 9.4%. Comparable restaurant sales rose approximately 3.2%, reflecting traffic growth of 1.5% and average-check growth of 1.7%; new restaurants outside the comparable base contributed approximately $13.2 million.
- Operating margin increased to 5.8% from 2.8%; net margin rose to 4.3% from 2.3%.
- Cost of sales was 25.0% of revenue versus 24.9%. Labor and benefits improved to 35.4% from 36.1%; occupancy and operating expense improved to 20.7% from 21.9%; general and administrative expense improved to 6.0% from 6.2%.
- Cash and cash equivalents were $26.0 million at quarter-end, down from $30.7 million at December 30, 2014. Net working capital was negative $35.3 million and the current ratio was 0.7:1.
- Long-term debt was $38.6 million, compared with $58.0 million at year-end. The company had a $150 million unsecured revolving facility, approximately $14.0 million of letters of credit outstanding, and reported compliance with its covenants. The facility’s weighted-average interest rate was approximately 1.42%.
Material changes and cash flows
- Net income more than doubled year over year, with higher revenue and the absence of $1.6 million in legal and other settlement expense recorded in the prior-year quarter contributing to the improvement.
- Operating cash flow increased $1.4 million year over year. Investing cash outflow was lower, primarily because capital expenditures declined; financing activities used $19.8 million, including $19.4 million of net line-of-credit repayments and $6.8 million of share repurchases, partly offset by option-exercise proceeds and stock-compensation tax benefits.
- The company repurchased approximately 133,000 shares for $6.8 million during the quarter. Approximately $43.2 million remained available under the $150 million authorization.
Outlook, commentary and risks
- Management planned to open at least 15 restaurants in fiscal 2015, targeting roughly 10% annual growth in restaurant operating weeks over the next few years. It estimated domestic capacity of at least 425 restaurants.
- Fiscal 2015 capital expenditures were expected to be approximately $100 million. Plans included two Texas brewpubs, intended to supply BJ’s proprietary beer to Texas restaurants by July 1, 2015. Management expected to fund investment with cash, operating cash flow, landlord allowances, sale-leasebacks and the credit facility.
- Management cautioned that expansion depends on cash generation, landlord contributions and access to financing; if funding is inadequate, planned growth may need to be reduced. The company had 15 signed leases or land-purchase agreements for locations opened or expected to open in fiscal 2015 and 2016.
- Key risks include consumer-spending weakness, competition, food and labor inflation, minimum-wage and health-benefit costs, weather and seasonality, execution and construction delays, geographic concentration, regulation of restaurant and brewing operations, and information-technology or cybersecurity failures. Commodity prices can be volatile; the company does not use financial instruments to hedge commodity prices.
- Ordinary-course lawsuits and claims were not expected by management to have a material adverse effect, though future developments could affect results. Unrecognized tax benefits were approximately $2.2 million; management anticipated a $1.4 million reduction in that liability within twelve months from statutes of limitation lapsing.
- Jacmar-affiliated DMA supplied $21.6 million of food, beverage, paper products and supplies in the quarter, equal to 21.1% of cost of sales plus operating and occupancy costs. The filing describes Jacmar as a related party and says pricing is considered comparable to third-party offerings based on competitive bidding.
- No dividends were planned for the foreseeable future. The filing says quarterly results may be affected by seasonal and adverse weather conditions and the timing of restaurant openings.
Important facts for investors to verify
- Confirm the intended reporting period: the supplied filing is Q1 2015, not Q1 2013.
- Track whether comparable-sales gains and operating-margin improvement persist, particularly as commodity, labor and benefit costs change.
- Monitor execution of the 2015 restaurant and Texas brewpub plans, capital spending, and the availability of landlord allowances and sale-leaseback proceeds.
- Review liquidity and facility usage alongside lease obligations, letters of credit, share repurchases and covenant compliance.
- Assess the related-party supplier relationship, legal and self-insurance exposures, and the eventual financial-statement effects of the accounting standards discussed in the filing.