We are upgrading our rating on California-based BJ’s Restaurants Inc. (BJRI) to Outperform from Neutral. The rating was upgraded on a host of factors including strong third quarter results, unit expansion, and positive same-store sales growth as well as a revival in underperforming markets.
BJ’s owns and operates a chain of high-end casual dining restaurants in the United States that serves its signature deep-dish pizzas, salads, sandwiches, burgers, pastas, steaks, and its own hand-crafted beers.
BJ’s Restaurants reported third-quarter earnings of 20 cents per share, surpassing the Zacks Consensus Estimate of 15 cents and the year-earlier earnings of 12 cents. The better-than-expected results were driven by comparable-store sales growth and higher traffic, both of which leaped for the third consecutive quarter.
Revenues soared 24% year over year to $128.8 million in the third quarter and also outperformed the Zacks Consensus Estimate of $124.0 million. The upside in revenues was driven by 14% more operating weeks, compared with the year-ago quarter. Comparable-restaurant sales for the quarter grew substantially by 6.7% versus a drop of 1.6% witnessed in the prior-year quarter.
Among the casual dining chains, BJ’s Restaurants is one of the few casual dining chains that has been expanding in an uncertain economy. BJ’s opened 4 restaurants during the third quarter. With the expected resurgence of consumer confidence, management plans to open 12 to 13 restaurants in fiscal 2011 compared with 10 restaurants in fiscal 2010. In the long run, there still exists room to open at least 300 outlets.
The core California market, which has lagged during the recession, started to turn around and report modest same-store sales in the third quarter. Stronger performance in certain areas of California outperformed the company average in the quarter. Management sees plenty of quality growth opportunities in the California and Texas markets.
Last but not the least, the company boasts of strong financials with a debt-free balance sheet. Based on the above fundamentals, we expect the shares to fetch above-market returns and thereby upgrade the stock from Neutral to Outperform for the long term. BJ’s Restaurants currently retains a Zacks #2 Rank, which translates into a short-term Buy rating.
