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BJ's Restaurants Banks on Off-Premise Sales Amid Coronavirus

Zacks Equity Research
·4-min read

BJ's Restaurants, Inc. BJRI continues to focus on off-premise services, digitization and menu innovation to revive its top line. In the past three months, shares of the company have surged 34.1% compared with the industry’s 14.1% growth. However, decline in restaurant-level margin due to high labor and operating costs, along with coronavirus-related woes pose concerns.

Let us delve deeper into factors highlighting why investors should hold on to the stock for the time being.

Factors Driving Growth

BJ’s Restaurants has implemented several sales-building initiatives which have contributed to the company’s performance over the past few weeks. Recently, the company provided an operational update, thereby witnessing meaningful improvement in its business. Comparable restaurant sales for fiscal second-quarter (through Jun 9, 2020) have decreased nearly 64%. However, for the week ended Jun 9, 2020, comparable restaurant sales were down 42.6%.



Notably, its increased focus on off premise services along with dining reopenings bode well. As of Jun 11, 2020, the company has reopened dining rooms in 178 of its temporarily-closed restaurants and anticipates getting 208 restaurants operational in the times ahead.

Apart from Dining reopenings, the company is also investing in technology-driven initiatives like digital ordering to boost sales. The company’s app and digital platforms are allowing it to offer promotions more effectively and efficiently. It has rolled out several digital initiatives like digitized check-ins, menus and payment options to attract more customers.

Also, productivity-improvement initiatives such as a centralized call center to capture more online orders are expected to boost the top line. The company continues to drive awareness in its key markets through greater and more targeted marketing. During the coronavirus pandemic, digital ordering is likely to be a major growth driver.

Meanwhile, the company plans to introduce new flavors and improve the quality of its menu items. The restaurant developed a robust pipeline of new menu items, focusing on its EnLIGHTened menu category, featuring new super food options. Notably, its extensive focus on refining and streamlining the menu has been a major growth driver.

Concerns

The coronavirus outbreak has rattled the Retail - Restaurants industry, and BJ’s Restaurants has also fallen prey. Although the company has reopened the majority of its restaurants, it is likely to witness dismal traffic due to social distancing protocols. Owing to the uncertainty of the crisis, the company has also suspended its dividend payout and share buyback programs.

Moreover, the company has been continuously shouldering increased expenses, which have been detrimental to margins. Higher marketing expenses and costs related to sales-boosting initiatives are weighing on the company’s margins. The company is also facing high general and administrative expenses.

In first-quarter 2020, labor costs — as a percentage of sales — increased 460 basis points (bps) to 40.8%. Occupancy and operating costs (as a percentage of sales) were 24.1%, up 290 bps year over year.

Zacks Rank & Key Picks

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

Some better-ranked stocks in the same space include Jack in the Box Inc. JACK, Wingstop Inc. WING and Domino's Pizza, Inc. DPZ. Jack in the Box and Wingstop sport a Zacks Rank #1, while Domino's carries a Zacks Rank #2 (Buy).

Earnings in 2021 for Jack in the Box are expected to rise 22.9%.

Wingstop has a three-five year earnings per share growth rate of 11%.

Domino's has a trailing four-quarter positive earnings surprise of 12.7%, on average. The company’s earnings beat the Zacks Consensus Estimate in the last four quarters.

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Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

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Jack In The Box Inc. (JACK) : Free Stock Analysis Report
 
Dominos Pizza Inc (DPZ) : Free Stock Analysis Report
 
BJs Restaurants, Inc. (BJRI) : Free Stock Analysis Report
 
Wingstop Inc. (WING) : Free Stock Analysis Report
 
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Zacks Investment Research