BJRI BJ’S RESTAURANTS
Sector financial performance:
This company, who is primarily an operator of full service pizza and craft restaurants, has been grouped into pizza -casual dining restaurants sector in foodservice industry.
It seems that significantly slowing down traffic is the major reason contributing to downturn in comparable sales of casual dining restaurants between 2015 and 2017. Data indicates the average increase in comparable sales all across this sector went down from around 1.7% of 2015 to around -0.6% of 2017: the average growth in comparable sales for bar& grill-sub sector went down from -0.9% to -2.4%, from 5% to -0.2% for American family sub sector, from 1.6% to 0.5% for Italian sub-sector, from 3% to -0.7% for Mexican sub-sector, from 1.7% to -0.7% for pizza sub-sector. Correspondingly, what accompanied with declining sales is the decreasing traffic all across the sector during this period. For example, our data of casual dining sector indicates that the average growth in traffic for 2015, 2016 and 2017 was -1.1, -2.3, and -2.4% respectively including: 2%, -1.3%, and -1.3% for family dining restaurants; -1.6%, -3%, and -3.1% for bar& grill restaurants; -1.3%, -1.7% and -1.6% for Italian restaurants; -0.7%, -1%, and -2.3% for Mexican restaurants, -1.4%, -2.6%, and -2.7% for pizza restaurants.
Since 2017, it seems the downward trend in comparable sales (up by average 1.3% in first half of 2018 as compared with -0.6% of 2017) has been halted driven by slower decrease in traffic with rising price among almost all of sectors. In fat, for sectors experiencing continuing decrease in traffic, it has been increasingly difficult by rising price to offset the faster decreasing traffic/transaction. For example, in family dining sector, the average growth in comparable sales down to -0.4% in 2018 from -0.2% of 2017 as traffic went down further; For sectors experiencing recovery of traffic, we see increase in sales with slower rise in price. For example, in Italian & steak sector, the average growth in comparable sales up to 1.3% in 2018 from 0.5% of 2017; in Mexican food sector, the average growth in comparable sales up to 0.3% in 2018 from -0.7% of 2017; in Pizza sector, the average growth in comparable sales up to 5% in 2018 from -0.7% of 2017; in Pizza sector, the average growth in comparable sales up to 5% in 2018 from -0.7% of 2017; in bar& grill sector, the average growth in comparable sales up to 0.7% in 2018 from -2.4% of 2017;
It seems, unlike in fast-casual restaurants, the difference in performance in terms of comparable sales and thus the traffic in this sector presents much smaller variations.
Generally, impacts of unfavourable climate of restaurants industry to traffic since 2015 seem to be less significant to casual dining than to fast-casual restaurants but bigger than QSR as indicated by changes in their growth in traffic. However, probably because there are more powers for casual restaurants than another two restaurants to raise menu price since their menu prices a higher, their sales have been better offset by increased menu price or product mix.
For companies in this industry, franchising seems not to be popularly accepted as compared with QSRs. Except for some bar& grill and family restaurants chains, most of companies are operating their own restaurants and their gross margins vary in similar range as those fast-casual restaurants.
However, due to less spending in G&A of casual restaurants ( average 5.5% compared with 10%) the average operating margins are higher (above 7.5%) than fast-casual restaurants (3%): bar& grill casual dining sector - 5.5% with a G&A as percentage of sales of 7.5%; family sector - 11% with a G&A as percentage of sales of 5%; Italian sector - 8% with a G&A as percentage of sales of 6%; pizza - 5% with a G&A as percentage of sales of 5%; Mexican - 6.5% with a G&A as percentage of sales of 5%.
Unlike in QSR where companies use franchise as buffer, companies’ margins in this sector declined as traffic and thus sales slowing down. However, with higher menu price the typical average gross margin of restaurants in this sector decreased by smaller percentage than those in fast-casual sector, which is about 100 basis points less since 2015.
The average cash flow/share of companies in this sector presents decrease of 8% and 4% for 2017 and 2018.
It seems that the demand for service/products of this company has been declining as indicated by continuing decrease in traffic between 2015 and 2017 while it had still presented ability to raise menu price to offset the decrease in sales. However, it seems that the decrease in traffic may be terminated and turned to go up in 2018 and the comps number jumped accordingly This company continued to expand its business by opening new restaurants.
For the first two quarters of 2018 compared with the same period of 2017(ended 20180703)
Comparable sales (restaurants) increased by 4.9% (5.6% for 2Q) due to increase of 1.4% (2.5% for 2Q) in traffic and increase of 3.5% (3.1% for 2Q) in check size.
The fiscal 2017 compared with the 2016
Comparable sales (restaurants) decreased by 0.7% due to decrease of 2.7% in traffic offset by increase of 2% in check size.
Fiscal 2016 compared with 2015
Comparable sales (restaurants) decreased by 1.3% due to the decrease 2.6% in traffic offset by the increase of 1.3% in check size.
Fiscal 2015 compared with 2014
Comparable sales (restaurants) increased by 1.7% due to increase of 3.1% in check size offset by the decrease 1.4% in traffic.
Its gross margin (primarily company-operated expenses) was down to 10% in 2017 from about 11% of 2014 due to increased labor costs and commodity costs. As its SG&A as percentage of sales has been down by 70 basis points due to increased revenue based as a result of new opened restaurants, its operating margin thus went down to below 5% in 2017. In first half of 2018, as a result of increasing price (menu and less discounting), its gross margin was improved and brought its operating margin back above 5% in 2018.
This stock currently has an enterprise price/EBI ratio of 41. We think that its stock is being relatively fairy valued considering the rebounding traffic as seen in the first half of 2018.
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