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Analyst: BJ’s Restaurants ready for 2010

HUNTINGTON BEACH Calif. An expectation of improved fourth-quarter same-store sales and earnings, as well as upcoming traffic and sales driving plans at BJ’s Restaurants Inc. have at least one analyst bullish on the company’s prospects for 2010.

Brad Ludington of Keybanc Capital Markets Inc. said Wednesday in a research note that he expects BJ’s same-store sales to reach positive territory in the first half of 2010. He highlighted as sales drivers the casual-dining company’s “Deuce Seating” program, as well as plans for expand catering, a new guest loyalty program, back-of-the-house improvements and an upgraded kids’ menu.

“We believe … these initiatives have great potential to drive incremental sales volumes at existing stores,” Ludington said.

“While management will likely remain cautious on the near-term view given continued economic uncertainty and weather issues in [the first quarter], we expect them to provide additional details on an impressive list of sales driving and productivity improvement initiatives slated to roll out in 2010,” he added.

The company’s full fourth quarter and annual results are expected next week, Feb. 11.

Huntington Beach-based BJ’s operates 92 corporate units, mainly throughout the West and Southeast. The chain is known for its beer, sometimes offered through an in-house brewery, and deep-dish pizza. Preliminary figures for its fourth quarter, which ended Dec. 29, show a 13.4-percent increase in revenue, to $112.6 million, and a same-store sales drop of 0.2 percent, well above the declines seen at many casual-dining chains.

In January, BJ’s management said guest traffic trends will remain under pressure in 2010, and post-recession annual same-store sales are expected to grow at a clip of between 1 percent and 3 percent. Chief executive Jerry Deitchle said the brand will use 2010 to continue grabbing market share from other casual-dining brands, especially as BJ’s maintains a focus on the “premium casual” segment and its sales-building initiatives.

With BJ’s “Deuce Seating” program the company has begun to replace between seven and 10 four-person tables with between 15 and 20 two-tops in an effort to increase unit-level capacity by seating two people at the appropriate table, rather than one meant for four guests. Ludington said the program was implemented in eight of the 10 units BJ’s opened in 2009.

“In 2010 we expect all new unit openings to have the “Deuce Seating” program, while we project 25 conversions of existing restaurants,” he said.

Behind the scenes, BJ’s is expected to move forward with a number of cost-cutting moves, including an automated food prep system and computer screens in the kitchens to help reduce errors. In addition, Ludington expects the company to outsource 61 percent of its proprietary beer production, versus the 45 percent it outsourced in 2009.

“This shift should lead to further margin protection … as it slightly reduces the cost per barrel of BJ’s craft beer paid by the company in 2010,” he said.

Ludington rates BJ's Restaurants a "Buy" and KeyBanc expects to receive or intends to seek compensation for investment banking services from BJ's within the next three months.

Contact Mike Dempsey at [email protected].

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