BJ's Restaurants (BJRI) Banks on Off-premise Sales, Costs High

BJ's Restaurants, Inc. BJRI is likely to benefit from off-premise business, menu-refinement initiatives and expansion efforts. Also, focus on digital initiatives bodes well. However, pandemic-induced soft traffic and higher costs are a concern.

Let us discuss the factors that highlight why investors should retain the stock for the time being.

Factors Driving Growth

Even though BJ’s Restaurants reopened majority of its dining rooms with limited capacity, its off-premise operations continue to be a driving factor for overall sales. Notably, upgrade of kitchen systems along with front-end order and pickup technology has been boosting consumers' convenience and order accuracy. During second-quarter fiscal 2021, off-premise sales came in at approximately $24,000 per week. Going forward, the company expects the momentum to continue as more customers are resonating well with the expanded off-premise offerings along with its connected curbside service.

The company continues to focus on refining and streamlining its menu for improved traffic. During second-quarter fiscal 2021, the company continued testing of its virtual brand — slow roast — at approximately 30 restaurants across California and Texas. The company reported impressive sales and solid customer feedback on the back of slow roast items and other protein-centric product offerings. Going forward, the company continues to focus on menu adjustments and pricing structure, as it intends to establish a broader rollout plan in the upcoming periods.

Apart from this, it continues to drive awareness in its key markets through greater and more targeted marketing. In order to attract more customers, the company rolled out several initiatives like digital check-ins, digital menus and digital payment options. Also, its transition from the current PDF form factor to a dynamic HTML version is encouraging.

The company has been receiving positive reviews with respect to its beer subscription service — Beer Club. It is witnessing high customer engagement, owing to new beer releases along with program benefits. Going forward, the company plans to expand this program at majority of its California restaurants as well as in Texas and Florida.

BJ’s Restaurants is striving to increase its new restaurant openings to achieve a minimum of 5% increase in operating weeks as well as to derive high single-digits revenue growth over the longer term. During the fiscal second quarter, the company opened new restaurants in Merrillville, Indiana and Lansing, MI. It plans to open eight to 10 restaurants in fiscal 2022. Also, the company is steadfast in its commitment toward expanding presence to at least 425 restaurants domestically.

Concerns

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In the past three months, shares of BJ’s Restaurants have fallen 6.9% against the industry’s growth of 4.7%. The dismal performance was primarily caused by the coronavirus pandemic. Although the majority of dinning services are open, traffic is still low compared with pre-pandemic levels. We believe that the Delta variant of coronavirus might hurt traffic and sales in the upcoming periods.

Moreover, the company is persistently shouldering increased expenses, which have been detrimental to margins. Pre-opening costs, marketing expenses and costs related to sales-boosting initiatives are exerting pressure on margins. The company is also facing high general and administrative expenses. During the fiscal second quarter, general and administrative expenses came in at $17 million compared with $14.5 million in the prior-year quarter.

Zacks Rank & Key Picks

BJ’s Restaurants currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the same space are Chipotle Mexican Grill, Inc. CMG, The Wendys Company WEN and Jack in the Box Inc. JACK, each carrying a Zacks Rank #2 (Buy).

Chipotle's 2021 earnings are expected to increase 137.3%.

Wendys has a three-five year earnings per share growth rate of 14%.

Jack in the Box has a trailing four-quarter earnings surprise of 26.4%, on average.

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