BJ’s Restaurants Inc. (BJRI) posted in line fourth-quarter 2010 results on February 10, 2011, driven by comparable store sales growth. Given below is our report on the recent earnings announcement as well as subsequent analyst estimate revisions over the short and long-term periods.
Earnings Report Flashback
BJ’s Restaurants reported fourth quarter adjusted earnings of 22 cents per share, in line with the Zacks Consensus Estimate, but soared more than three fold from 12 cents earned in the prior-year quarter. The quarter’s earnings results were driven by comparable-store sales growth, which leaped for the fourth consecutive quarter.
Revenues for the quarter under review soared 18% year over year to $132.9 million, but were in line with the Zacks Consensus Estimate of $133.0 million. The upside in revenues was aided by 12% more operating weeks compared with the year-ago quarter.
For a detailed review, read: BJ’S REPORTS IN-LINE 4Q RESULTS
Earnings Estimate Revisions: Overview
Following the release of fourth quarter results, estimate revision trends among the analysts depict a negative outlook for the near term and a relatively improved outlook over the long term. Let’s dig into the earnings estimate details.
Agreement of Estimate Revisions
Over the last 7 days, 8 out of 15 analysts cut their estimates while 2 analysts upped the same. Similarly, 9 analysts out of 15, lowered their estimates for the second quarter, but only one moved in the opposite direction.
The pessimistic approach has slightly subdued on fiscal 2011 earnings estimates with 6 analysts out of 16 reducing their estimates while 4 increasing the same. The positive note was a bit clearer for 2012 as 3out of 16 analysts increased their estimates while 2 analysts moved downward.
The analysts, by and large, are skeptical on a host of headwinds that BJ’s Restaurants will likely suffer in the upcoming two quarters. Like all restaurant companies, BJ’s is susceptible to higher input costs, which could lessen the magnitude of margin rebound. Total commodity basket is expected to be up nearly 3% to 4% for fiscal 2011 versus 2% to 4% previously. Although, the company entered into 80% commodity contracts for around six months to mitigate this pressure, some significant commodities are not under contracts. These are cheese, dairy and some grocery items.
Moreover, management anticipates that higher unemployment taxes will occur in the first and second quarters of the year. The expanded base of diluted shares outstanding also keeps the analysts cautious.
Magnitude of Estimate Revisions
The magnitude of estimate revisions for BJ’s Restaurants has been significant over the last 7 days. Following the release of fourth quarter results, the estimate for first quarter 2011 moved down from 21 cents to 19 cents. The estimates for both second quarter and fiscal 2011 were also slashed by a penny each. Only the estimate for 2012 did not budge.
Currently, the Zacks Consensus Estimate for the first quarter is 19 cents per share. For 2011 and 2012, the Zacks Consensus Estimates are 98 cents and $1.17, respectively.
Our Take
We believe that Orange County, California-based BJ’s Restaurants remains well positioned to sustain its growth momentum while generating improved earnings on the heels of efficient operations and innovative offerings. The company registered a 5.9% same-store sales in the fourth quarter growth against a drop of 0.2% witnessed in the prior-year quarter.
However, stiff competition from other restaurant operators like Cheesecake Factory Inc. (CAKE) cost escalation, wage inflation on account of higher medical benefits and payroll taxes, will likely keep margins under pressure in the near term.
Accordingly, we maintain our conservative outlook on BJ’s shares. This corroborates with the company’s Zacks #3 Rank (short-term Hold recommendation). We also reiterate our long-term Neutral rating.
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/
BJ’S RESTAURANT (BJRI): Free Stock Analysis Report
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