BJ's Restaurants May Lose Favor With Growth Investors Following Disappointing Q3

3Q Review

Analyst Jeffrey Bernstein noted that the third-quarter earnings per share of $0.30, representing a 23 percent year-over-year growth, benefited from a $0.02 per share tax credit and were below expectations.

Comparable store sales fell 4 percent versus estimates of a 2 percent drop and also slowing from a 2 percent drop in the first three weeks, the analyst noted. Traffic fell 4.2 percent, although checks rose 0.8 percent on the back of a 2.5 percent increase in pricing. Restaurant margin was underwhelming at 17.7 percent, hurt by food cost pressures.

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Expectations

• Comps. remain volatile, although improving to -1.5 percent in the month-to-date period in October. The metric is expected to remain stable throughout the fourth quarter.
• Unit growth guidance for 2016 was lowered to 17 opens, up 10 percent, from 19. The trimmed two is pushed into the first quarter of 2017.
• Unit growth guidance for 2017 was lowered to 10–15, citing sales headwinds.
• Barclays estimates modest HSD earnings per share growth in 2016, helped by the 53rd week.
• Return to 15 percent, plus, growth in the near term might be challenging, give the large revenue and cost pressures.

Top Investor Question

Barclays believes the top investor question now is whether the company can return to outsized comp growth to justify a re-acceleration in unit growth to support outsized earnings per share growth and a return to premium multiple.

Trimming Estimates, Price Target

Barclays lowered its estimates for the company. As such, the firm maintains its Underweight rating on the shares of the company and lowered its price target to $32 from $38.

In pre-market trading, BJ Restaurants' shares were down 7.54 percent at $33, and at last check, the stock was down 4.62 percent at $34.04.

Full ratings data available on Benzinga Pro.