BJ’s Restaurants, Inc. — Form 10-Q Summary
Period clarification: The request identifies 2011 Q3, but the filing is for the 13 weeks ended October 1, 2013, with year-to-date comparisons for the 39 weeks ended October 1, 2013. The prior-year comparison period ended October 2, 2012. Financial amounts below are in millions unless stated otherwise.
Business context and reporting period
BJ’s operated 140 restaurants in 15 states as of October 1, 2013. The filing describes a casual-dining business centered on its Restaurant & Brewhouse format, with new restaurant development as its primary growth vehicle. The unaudited interim statements cover 13 and 39 weeks and should be read with the company’s 2012 Form 10-K.
Financial performance
| Metric | Q3 2013 | Q3 2012 | 39 weeks 2013 | 39 weeks 2012 |
|---|---|---|---|---|
| Revenue | $188.2 | $175.2 | $575.4 | $523.5 |
| Operating income | $3.5 | $8.9 | $26.1 | $32.9 |
| Net income | $3.6 | $6.8 | $20.5 | $24.4 |
| Diluted EPS | $0.13 | $0.24 | $0.71 | $0.85 |
| Operating margin | 1.9% | 5.1% | 4.5% | 6.3% |
| Net margin | 1.9% | 3.9% | 3.6% | 4.7% |
- Q3 revenue increased 7.4%, mainly from new restaurants; comparable restaurant sales fell 2.2% as lower guest traffic outweighed approximately 2.1% menu pricing. For the 39-week period, revenue rose 9.9%, while comparable sales fell 0.6%.
- Q3 operating income fell about 61% and net income about 47% year over year. Costs rose faster than sales: labor and benefits were 35.7% of revenue versus 35.0%, and occupancy and operating costs were 23.2% versus 21.9%. Depreciation also increased with restaurant development and investments.
- For the 39 weeks, cost of sales improved slightly as a share of revenue, to 24.6% from 24.7%, but labor, occupancy and operating costs, and depreciation weighed on margins.
- Operating cash flow for the 39 weeks was $84.7, versus $79.3 a year earlier. Capital expenditures were $93.1, versus $85.8; operating cash flow therefore did not fully cover reported capital spending. Cash and cash equivalents ended at $15.3.
- At October 1, cash and marketable securities totaled approximately $37.7. Current assets were $72.0 and current liabilities $83.8, producing negative working capital of $11.8 and a 0.9 current ratio. No funded borrowings were outstanding on the $75 million revolving credit facility; letters of credit outstanding were about $9.2. The company reported covenant compliance.
- Total assets were $603.6 and shareholders’ equity $397.1. The filing reports substantial operating leases; these are not presented as debt on the balance sheet. Interest expense was minimal.
Changes, outlook and risks
- Six restaurants opened during Q3 and 11 during the first 39 weeks. Management planned 17 new restaurants in fiscal 2013, including a relocation, and expected 17–19 openings in fiscal 2014. Estimated fiscal 2013 capital expenditures were $115–$120 million.
- Management expected to fund planned spending with cash and investments, operating cash flow, sale-leaseback proceeds, and landlord tenant-improvement allowances. It cautioned that unavailable or insufficient financing could require slower expansion. The stated growth objective was a low-double-digit increase in restaurant operating weeks in fiscal 2013 and 2014.
- Management estimated a fiscal 2013 effective tax rate of approximately 25%. Q3’s effective rate was 3.9%, attributed primarily to tax credits and lower-than-expected pretax income; the 39-week rate was 23.9%. Actual tax expense may differ from the estimate.
- Food commodity costs were expected to remain under upward pressure through the remainder of 2013 and into 2014. Management cited labor and benefit inflation, minimum-wage increases, consumer traffic, menu-price acceptance, competition, weather and new-store execution as risks to margins and sales.
- The Texas Alcoholic Beverage Commission was reviewing the company’s third-party brewing relationship. BJ’s said Texas compliance could require internal breweries, increasing future development costs. Three restaurants had on-premise brewing; independent brewers supplied most proprietary beer requirements.
- Jacmar and affiliates, which the filing says owned approximately 11.2% of shares and had a representative on the board, were connected to BJ’s largest foodservice distribution supplier. Jacmar supplied $61.3 million of products in the 39 weeks, equal to 22.8% of cost of sales and operating and occupancy costs. The company said competitive bidding supported comparable pricing.
- The filing describes ordinary-course claims and self-insured exposure, but management did not expect their final disposition to materially affect financial position, results or liquidity. It also reports no off-balance-sheet arrangements and no stock repurchases in the 39-week period.
Important facts for investors to verify
- Confirm the period: the filing is for Q3 2013, not Q3 2011.
- Track comparable-sales trends and guest traffic, and whether menu pricing can offset cost inflation without further traffic declines.
- Assess whether planned openings and $115–$120 million of fiscal 2013 capital spending can be funded as expected, given capital expenditures exceeded operating cash flow year to date.
- Monitor the Texas brewing review, potential incremental brewery costs, and reliance on the Jacmar-linked distribution relationship.
- Review the unusually low Q3 tax rate, management’s approximately 25% full-year estimate, operating-lease obligations, and liquidity alongside the reported current ratio.