BJ’s Restaurants, Inc. — Form 10-Q Summary
Period discrepancy: Request metadata identifies 2017 Q3, but the filing is for the 13 and 39 weeks ended October 1, 2019. Comparisons below are with the periods ended October 2, 2018.
Business context and reporting period
BJ’s operated 208 company-owned restaurants across 28 states as of November 4, 2019. The filing presents unaudited results for the third quarter and first 39 weeks of fiscal 2019.
Financial performance
| Metric | 13 weeks ended Oct. 1, 2019 | 39 weeks ended Oct. 1, 2019 |
|---|---|---|
| Revenue | $278.7 million, up 3.1% | $870.4 million, up 4.1% |
| Comparable restaurant sales | Down 0.3%; traffic down 3.0%, average check up 2.7% | Up 1.3%; traffic down 1.1%, average check up 2.4% |
| Operating income / margin | $3.3 million / 1.2%, versus $7.9 million / 2.9% | $32.8 million / 3.8%, versus $43.4 million / 5.2% |
| Net income | $3.7 million, versus $8.5 million; diluted EPS $0.18 versus $0.39 | $30.7 million, versus $40.1 million; diluted EPS $1.47 versus $1.87 |
| Operating cash flow | Not separately presented in the filing text | $77.7 million, versus $95.0 million |
| Capital expenditures | Not separately presented in the filing text | $65.5 million, versus $42.4 million |
For the 39-week period, costs rose faster than revenue: cost of sales was 25.5% of revenue versus 25.2%; labor and benefits 36.6% versus 36.0%; and occupancy and operating costs 21.9% versus 21.2%. The company attributed pressure to commodity costs and menu mix, higher hourly labor rates and hours, marketing, delivery commissions, maintenance, and lease-accounting effects.
Liquidity, debt and capital allocation
- Cash was $24.4 million at October 1, 2019, down from $29.2 million at January 1, 2019. Net working capital was negative $89.6 million and the current ratio was 0.4:1.0.
- Long-term debt was $158.0 million, compared with $95.0 million at year-end. The $250 million unsecured revolving facility had $77.9 million of available borrowing capacity after $14.1 million of letters of credit. The company was in compliance with its covenants.
- Operating lease assets were $374.1 million and lease obligations totaled $465.5 million, including $26.7 million current. Adoption of the new lease standard added $377.0 million of lease assets and $473.8 million of lease obligations at adoption; prior-year comparisons do not reflect the standard.
- The company repurchased 1.8 million shares for $72.4 million during the 39 weeks, with $49.8 million remaining under the repurchase plan. It paid dividends of $0.36 per share year to date and declared a subsequent quarterly dividend of $0.13 per share.
Outlook, management commentary and risks
- Management expected one additional restaurant opening by fiscal year-end 2019 and 8–10 openings in fiscal 2020. Fiscal 2019 capital expenditures were estimated at approximately $80 million; the company cited higher tariffs and labor costs among development-cost pressures.
- Management expected lease-standard adoption to increase fiscal 2019 rent expense by approximately $2.5 million. The company said growth and shareholder returns would be funded through operating cash flow, cash on hand, landlord allowances, option proceeds and its credit facility; it cautioned that insufficient cash generation or unavailable financing could require reductions in expansion or shareholder returns.
- Key risks include consumer spending and competitive conditions; food, labor and other cost inflation; hiring and wage regulation; delays or costs in restaurant development; weather and seasonality; food-safety or other negative publicity; reliance on information technology; and lease renewal terms. Commodity prices can fluctuate, and management cannot assure that menu pricing will offset cost increases without affecting customer behavior.
- The company reported ordinary-course litigation and self-insured exposures, but did not expect their disposition to materially affect financial position, results or liquidity. It disclosed $1.3 million of unrecognized tax benefits. No off-balance-sheet arrangements were reported.
Most important facts to verify
- Confirm the intended reporting year: the supplied filing is fiscal 2019 Q3, not 2017 Q3.
- Assess whether the decline in traffic and operating margin persists, and whether average-check growth and new restaurant sales can offset it.
- Review cash-flow generation against expansion, capital spending, dividends and repurchases, given negative working capital and increased borrowings.
- Separate the effects of lease-standard adoption from underlying operating trends when comparing balance-sheet and occupancy figures.
- Track execution of the stated opening plans, the expected $80 million fiscal 2019 capital spending, and exposure to food and labor cost increases.