How BJ's Restaurants is Tackling 'Tall Industry Challenges'
BJ’s Restaurants was off to a strong second quarter before mid-May arrived. That’s when business started to soften and “tall industry challenges” weighed down the casual dining chain, which has seen its same-store sales decline for five straight quarters.
President and CEO Greg Trojan said BJ’s was “disappointed with our current results,” as comparable restaurant sales fell 1.4 percent year-over-year and total revenues grew 6.2 percent to $265.8 million—missing Wall Street estimates by roughly $4.3 million. Net income and diluted net income per share were $9.6 million and 44 cents.
BJ’s surpassed predications in the first quarter, reporting adjusted earnings per share of 42 cents and earnings of $9.3 million, which topped the Zacks Consensus Estimate of 34 cents by more than 20 percent. But positivity has waned since. The chain has seen nearly a quarter of its share value erased, and its stock falter following BJ’s June shareholders meeting.
The troubling second-quarter results came as BJ’s continues to progress on several initiatives, including the slow-roast oven cooking platform, server handheld devices, takeout training, delivery, and added weekday Brewhouse Specials.
“While we are disappointed with our current results, we made important investments in the business during the quarter which we believe will build future sales and maintain our industry leading guest traffic per square foot,” Trojan said in a statement.
During the quarter, BJ’s completed the rollout of its slow-roasting ovens and accelerated the handheld tablet push. Currently, every restaurant in the system deploys the devices, which Trojan said have boosted order times.
In early June, the company also announced a partnership with DoorDash to further its delivery efforts.
“While we are making steady progress against the learning curve related to these initiatives, the majority of the transition, disruption and expense is behind us. As is to be expected with initiatives of this scope, during the quarter we incurred start-up costs and operating inefficiencies to get these systems in place, resulting in additional investments in labor and cost of sales,” Trojan said in a statement. “However, with the implementation of these new platforms solidly in place we can begin leveraging these investments throughout our business to continue delivering higher quality food, service and hospitality to our guests and returns for our shareholders.”
BJ’s opened four restaurants, in Fort Wayne, Indiana, Youngstown, Ohio, Bloomington, Indiana, and Fredericksburg, Virginia, in the quarter, bringing the total to seven new stores in 2017. BJ’s expects to add one more in the third quarter and two in the first half of the fourth. There are currently 194 units open as the brand takes aim at 425 restaurants.
Trojan said in a conference call Thursday that BJ’s heavily marketed its slow-roasted menu in the second quarter, which “diluted the visibility of our promotional efforts.” The slow-roasted items, in other words, are premium products that made it more difficult for BJ’s to convey a direct-value message to less frequent guests and deal-targeting consumers. This is especially true in an industry, Trojan said, where other brands are discounting at a rate nearly two-and-half times more than BJ’s.
It’s a battle the brand is willing to fight, though.
“While there was definitely an impact from the rollout of this new platform … when we look at the expected near- and long-term benefits from this offering, it's a trade we would make again,” he said.
He said the high-quality nature of the seslow-roasted items will gain traction through word-of-mouth and repeat traffic over time. Loyalty guest checks grew more than 50 percent over non-loyalty checks.
BJ’s does have several daily offers and deals its bundling in the “Brewhouse Specials.” These feature Mondays Half-Price Large Pizza, $3 Pizookies during Wine Down Tuesdays, $10 Loaded Burgers, and $4 craft beers on Wednesdays.
Trojan said the success in check growth from the slow-roasted products is allowing BJ’s to invest in value initiatives.
With technology, Trojan said it takes four to five weeks for restaurants to adjust to the handheld ordering devices.
“Again, while we don't expect immediate sales gains, we know that improving our speed of service and overall guest satisfaction is fundamental to our long-term ability to drive sales,” he said.
Off-premise will play a large role moving forward, especially given the whitespace. Trojan said BJ’s off-premise sales average around 5 percent of the company’s total sales, which is around half of the overall casual dining industry’s benchmark. Currently, 64 restaurants are delivering through DoorDash as late as 1 a.m. in some markets. “We believe there's a tremendous opportunity for us to build this part of our business,” he said.