BJ’s Restaurants generated mixed results in Q4, including a drop in revenue but a slight improvement (0.6%) in comp sales and better-than-expected restaurant-level margins. The company’s overall performance missed on estimates, but reported favorable trends for the long-term, including the discovery of more cost-savings opportunities from its margin improvement initiative put into place in 2022.
The ultimate goal with the initiative is to get margins back in the pre-Covid, 16% range. In Q4, the company expanded to 14.4%, representing a year-over-year increase of 150 basis points.
“We are encouraged by our continued progress in closing the gap to our 2019 restaurant margins of 16% and maintain our confidence in being able to meet and then surpass historical margin levels,” CFO Tom Houdek said during the earnings call Thursday evening.
Here’s where the company has found cost reduction opportunities:
Labor
In the fourth quarter, BJ’s improved its employee retention for both hourly employees and managers and is now above pre-Covid levels.
“This synergy has led to improved net promoter scores and reduced training and overtime costs, helping to move our restaurant margins in the right direction,” CEO Greg Levin said during the call.
Menu
The company recently rolled out a smaller menu that removed some non-core items that added complexity in the back of house, driving much of those labor savings benefits. Houdek said the simplified menu requires less kitchen prep hours and items per labor hour.
This smaller menu strategy will impact short-term comp sales, Levin admitted, but will benefit the company in the long term. As BJ’s leans into its core products, it plans to upgrade 50% of its menu to have a more “visual wow for guests,” Levin said.
“The changes we made to the menu are resonating with our team and workflow and allowing us to improve overall execution,” he said.
Additionally, food costs were down about 1% quarter over quarter driven by a new meat sourcing program that helped offset inflation on other items. And, the company found a new sauce supplier that yielded “a couple of million dollars of savings,” Houdek said.
Prototype
BJ’s is in the process of remodeling its system, with 36 completed in fiscal year 2023 and another 20 expected this year. By the end of 2024, the company expects half of its over 200 restaurants to be either remodeled or in its newer prototype. Houdek said the new prototype is designed to cost approximately $1 million less to build than the company’s recent new restaurants.
“Going into 2024, we plan to reduce the investment cost for newbuilds by approximately $1 million, which will bring down our investment cost to around $6.1 million net of landlord allowances. At the same time, we are working on further refining our prototype with the goal of reducing our investment cost by another $500,000,” Levin added.
All told, BJ’s has found over $35 million in cost savings on an annualized basis through reduced food, labor, operating, and occupancy costs, which exceeds its original goal of $25 million. BJ’s executives think they can find even more savings this year. The company, for instance, recently moved its janitorial services back in house, which yielded some cost savings.
“I think the margin improvement initiative is working well for us. We have more savings that are coming this year. But frankly, the fact that we have seasoned team members who are operating better and supply chains have normalized, we're expecting margin expansion and expecting to keep our EBITDA going forward and growing year over year,” Levin said.
Consumer pulse check
Cost savings aside, BJ’s is navigating the same challenge most casual dining concepts are navigating – a softening consumer. The company experienced a slowdown in Q4, particularly with lower-income consumers coming in less frequently. Off-premises business has also slowed down, including both incidents and mix, and BJ’s is leaning in on the dining room and bar area accordingly, including through its remodeling program.
“BJ's is an experiential brand, and as such, we intend to direct the majority of our focus on growing our on-premise business. This is where guests can experience the energy of our restaurants, which is elevated by our remodeling investments, along with our gold standard level of service, great food served fresh from our kitchens, and innovative drinks prepared by our bartenders,” Levin said. “We believe that driving a strong on-premise experience creates more affinity for the brand that over time will help drive the off-premise business.”
Contact Alicia Kelso at [email protected]