Seeking Alpha contributor Marshall Hargrave wrote a good update on the BJ's Restaurants (NASDAQ:BJRI) earnings report, but I think he got a few things wrong. I don't fault him or his opinion especially since he probably submitted it before he had a chance and the benefit to listen to the conference call and/or get the transcript so maybe look at this article as an update to his update.
As Hargrave pointed out, BJ's Restaurants' second quarter results smashed analyst estimates. Earnings per share came in at $0.30 compared to the $0.24 per share estimate, a beating of 25%. In the earnings release, BJ's Restaurants credited a good Father's Day, a good graduation season, and a good World Cup turnout. Overall same-store sales were still negative on a year-over-year basis at -1.7%, but they improved over the sequential quarter just prior.
Hargrave stated something else that drove improvements. He said (my emphasis added),
"BJ's pointed to new menu items (such as Kale and Mediterranean Chicken Pita Tacos) as helping drive more interest in the chain. We believe this is a big part of the long-thesis for BJ's stock; innovation."
I respectfully disagree for several reasons. First, if you've ever been in a BJ's Restaurant and been following the company's stock you know that innovation and selection is the least of the chain's worries. The menu seems as long as the book War and Peace, and BJ's has commented over the last several quarters that the huge amount of options has overcomplicated and slowed down the kitchen. Again, from experience, you probably have experienced a lot of thumb twiddling waiting for your food.
Next, from the earnings release, CEO Greg Trojan states (my emphasis added),
"New menu items such as our Kale and Roasted Brussels Sprouts Salad and our Mediterranean Chicken Pita Tacos have become guest favorites within their respective categories..."
This is also known as within the niche. It wasn't a huge contributor nor should we expect it to be. While BJ's Restaurants has wide appeal to men, women, and children alike; first and foremost it is an upscale-casual brewhouse and sports bar. No doubt healthy alternatives have a solid niche, but also no doubt bar food and its signature Chicago pizza are what drive the vast majority of its sales still.
Think about it. The company cited Father's Day and the World Cup as two key drivers of the quarter. There was no mention of Mother's Day. Can you imagine hoards of macho grown men packing into a brewhouse to watch the game or celebrity being a man and a father and ordering a Kale and Roasted Brussels Sprouts Salad or a Chicken Pita Taco? I'm sure there are some, but don't think for a second that they are anywhere close to the number one driver of business.
Finally, during the conference call Trojan spelled it out. He stated (my emphasis added),
"Looking at the menu, we've intentionally made minimal new introductions this quarter so that our operators could continue to settle in and manage their restaurant's day-to-day execution following the launch of many successful new items just this past February."
That being said, BJ's Restaurants does credit some of its previous innovations for driving traffic now including some healthier options though I'd counter many of these "new" items are just slightly redesigned older items such as the Brewhouse Burger only with a smaller portion and a cheaper price point, many of them below $10 to drive traffic based on a discount deal rather than real innovation. It's therefore not surprising that BJs Restaurant saw a lower per-guest check average.
BJ's Restaurants does overall have a lot of promising initiatives and things implemented such as mobile ordering and paying using your smartphone. That should help the tiresome wait. The company has cut down on a number of other menu items which should help as well though it is still "still significantly larger than most other casual dining operators" so it sounds like there is still plenty of variety without overwhelming the kitchen and the guests as much.
Overall I am interested in BJ's Restaurants the stock (though not in yet) and love BJ's Restaurant the chain. I believe simplicity rather than innovation will help its turnaround. Sure, a few new items are welcomed to keep the menu fresh and keep regulars from getting bored, but at the same time BJ's Restaurants should continue to remove other items while continuing to keep innovation at a minimum unless it's with new craft beers. But that's another story for another time.
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