Balanced Risk-Reward at BJ's Restaurants - Analyst Blog

On May 28, 2014, we issued an updated research report on BJ's Restaurants, Inc. BJRI.

On May 1, this casual diner reported first-quarter results with both earnings and revenues beating the Zacks Consensus Estimate. In fact, the company surpassed our revenue estimate for the first time in the past five quarters. Increased comps in the later part of the quarter drove the beat. Additionally, the company's sales building initiatives like guest loyalty program, catering program and focus on supply chain management have borne fruit. We believe the company will be able to boost its top line in the coming quarters through such initiatives.

BJ's Restaurants remains a turnaround story, in our view. Even though the company's comps have underperformed the Knapp-track industry average in the past two quarters, we believe it is well positioned to turn it around in the coming quarters with easier year-over-year comparisons for the rest of 2014 and gradual economic recovery.

We commend BJ's Restaurants' decision to prudently continue unit development in the next couple of years. The company intends to focus more on its smaller prototype restaurant, thus reducing operating costs amid a tepid economy.

However, going forward, we are aware of the rising commodity, labor and insurance costs. In fact, the company's first-quarter earnings were down 31.0% year over year due to higher costs and expenses.

Meanwhile, as this Zacks Rank #3 (Hold) restaurateur continues to open stores in newer markets, we expect increased pre-opening expenses and stiff competition to act as the headwinds. Also, BJ's Restaurants' limited international presence lowers its chances of gaining a share of the global market. Further, higher taxes in California and increased gasoline prices limit discretionary spending, which might affect sales in the coming quarters.

Other Stocks to Consider

Some better-ranked stocks worth considering in the restaurant industry include Burger King Worldwide, Inc. BKW, Red Robin Gourmet Burgers Inc. RRGB and Fiesta Restaurant Group, Inc. FRGI. All these stocks sport a Zacks Rank #2 (Buy).