BJ’s Restaurants Inc. reported an 8-percent increase in third-quarter profit Thursday despite lower-than-expected revenue and headwinds that may continue to hinder efforts to drive traffic, the company said.
For the quarter ended Oct. 2, Huntington Beach, Calif.-based BJ’s recorded net income of $6.8 million, or 24 cents per share, compared with $6.3 million, or 22 cents per share, the prior year.
Revenues rose 16 percent to $175.2 million, which the company said was slightly below expectations. Same-store sales rose 2.3 percent, hurdling a 6.5-percent increase in the third quarter last year despite the negative impact of the July 4 holiday, the Olympics, two political conventions and higher gas prices — particularly in the chain’s core market of California.
However, the same-store sales increase was BJ’s weakest since 2009, representing about a 3.4-percent increase in average check offset by a 1.1-percent decline in traffic.
Jerry Deitchle, BJ’s chair and chief executive, noted that BJ’s was not alone in seeing less-than-anticipated results. The third quarter earnings season has brought a round of disappointing outcomes across the spectrum, from McDonald’s  to Chipotle Mexican Grill , and many public companies are warning that consumers seem increasingly cautious about spending.
In an unusually lengthy two-hour phone call with analysts, Deitchle cited a long list of challenges that impacted casual-dining this summer — from hurricanes and hot weather to lower movie ticket sales and deep discounting by competitors — saying the macro-environment overall was not conducive to increasing guest traffic counts, with gas prices and high cell phone bills tapping discretionary income.
However, he said, the mood may shift after Election Day. “As we move past the election, we’ll all have to see how consumers feel,” he said. “I personally think there will be a sigh of relief when the elections are over and we’ll know where we’re headed as a country.”
BJ’s may be dealing with some internal uncertainty as well. In a report Friday, Wall Street analyst Anton Brenner of Roth Capital Partners indicated that Deitchle has said he plans to step down as CEO — though he may remain chair — and that the board is searching for a replacement. The company did not respond to requests for confirmation by press time.
Continuing core investments
Meanwhile, Deitchle said, BJ’s is “doing a pretty good job of controlling everything that we can control,” he said, and that the chain would not “sacrifice making necessary longer-term investments to the core of BJ’s concept just for the sake of maximizing short-term performance.”
One-time costs during the quarter that were associated with long-term sales-building initiatives include:
• The rollout of a new thinner-crust, hand-tossed pizza line, part of the new fall menu that was pushed up for an earlier debut in September because of early guest acceptance. Deitchle said the guest purchase incidence rate for pizza has increased 6 percent since the launch.
• The debut of a BJ’s Premier Rewards guest loyalty program, which so far has an enrollment of about 300,000. Increased spending by loyalty members has exceeded the company’s break-even model so far, and the company is collecting data that will be mined next year and applied to marketing plans.
• A new “BJ’s Beer Master” education program to strengthen server and bartender knowledge of craft beer. The company said the guest purchase incidence rate for beer has increased about 4 percent following completion of the program.
So far, the fourth quarter is “off to a good start,” with same-store sales rising 2.5 percent for the first three weeks of October, said Greg Levin, BJ’s chief financial officer. However, sales have been choppy throughout the week with “no rhyme or reason,” he noted. “I haven’t been able to ascertain any other pattern out there, except that there is no pattern.”
BJ’s remains focused on its two primary revenue drivers, Deitchle said: Continued execution of a plan to expand the brand nationally, and growing same-store sales.
The company is testing use of a call center to better capture more takeout and off-premise sales. Those types of sales account for about 5 percent of total sales — “But that should be higher,” Deitchle said.
BJ's is on track to open 16 new restaurants this year, with 13 of those open so far. Next year, another 17 are planned, including the conversion of one smaller-format “grill” unit in Eugene, Oregon, to a larger unit. With 127 locations open at the end of the third quarter, Deitchle said he envisions reaching 425 large-format “brewhouse” units domestically.
Deitchle also expressed optimism about the holiday season ahead, saying BJ’s was “locked and loaded for sales building” with plans to expand and improve the chain’s large party and catering program.
Next year, however, BJ’s is expecting commodity inflation to increase about 4 percent, and menu price increases are likely, though Deitchle declined to say how much they'd rise.
BJ’s is also planning to continue the test of TV advertising in certain markets, after seeing positive results in Sacramento, Calif.; Reno, Nev.; and San Antonio, Texas. Deitchle said the company was not ready to devote a large part of its budget to a big media push, but BJ’s will continue to look at TV ads in certain markets “where it’s efficient.”
Deitchle said he’s never seen a more intense period of heavy TV advertising by national chains that are all attempting to drive market share with low price points. So as a response to competitive pressures, BJ's has increased promotional efforts with value messaging, such as newspaper inserts offering guests $2 or $4 off to try the new pizza, which Deitchle described.
But BJ’s will not slip into heavy discounting, as some casual-dining competitors have done, Deitchle noted. “We’re not going to jump head first into that mud pit,” he said. “But there are times when we’ll have to wade in ankle deep.”