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BJ’s: Growth, price hikes on the horizon

A Heard on the Call report following 2Q earnings

Continuing its segment-leading momentum, BJ’s Restaurants Inc. is planning to modestly ramp up growth across the country as it attempts to capture a larger market share of the casual-dining sector.

Like most restaurant companies, however, BJ’s is scheduled to increase menu pricing cumulatively about 3 percent for the year to protect margins in light of rising food costs.

In a call to analysts on Thursday following the report of second quarter results, BJ’s said food costs have risen about 5 percent since the end of fiscal 2010, largely as a result of cheese, dairy, produce and meat.

Price increases and a beneficial menu mix — partly from the popularity of new lower-calorie Enlightened Entrees introduced in the spring — have helped offset those costs, said Jerry Deitchle, BJ’s chair and chief executive.

But the brand has room for further price hikes.

“We believe we’re in a very favorable position to carefully deploy some of our pricing power that we’ve been holding in reserve to help us manage through these cost increases and, coupled with our productivity and efficiency initiatives, give us a good opportunity to protect our margins,” Deitchle said.

BJ’s average check remains in the $13.25 range, he said, which is relatively low compared with its casual dining competitors.

“We want to keep our prices as low as we possibly can to our guests,” Deitchle said. “We always want our guests to think that they’re getting the better end of the deal from us.”

The chain’s strategy remains focused on providing a high-quality experience.

By the end of the year, BJ’s expects to have completed its ongoing “deuce seating” strategy, replacing four-person tables with more two-tops to increase unit-level capacity, and a push to add more beer taps will continue.

In the second quarter, same-store sales rose 6.9 percent, of which about 3.3 percent came from pricing and the rest in traffic and average check.

Despite economic challenges, such as high unemployment and high foreclosure rates in key markets like California, same-store sales were positive in all 13 states where the chain operates, though units outside California experienced higher sales than those in BJ’s home state, Greg Levin, executive vice president and chief financial officer, said.

Six new restaurants have opened so far this year, and the company is expecting to open 13 more in 2011. The company has not specified how many new units are anticipated for 2012.

As the chain grows, about one-third will be in California, another third in other Western states and the rest in the Midwest and Florida.

Greg Lynds, executive vice president and chief development officer, projects the potential for more than 300 BJ’s locations nationwide over time.

The company is also working on a long-term strategy to incorporate green building initiatives that will reduce energy and water costs, simplify maintenance needs and improve productivity in future locations, Lynds said.

Still, Deitchle said BJ’s will “resist the temptation to grow for the sake of growth.”

Others in the casual dining segment have “suffered from a steady gravitational pull downward in overall quality and predictability when they became too aggressive in setting the pace of their expansion, even during the better times in the economic cycle,” he said.

BJ’s will focus on ramping up growth gradually within the framework of its economic model and maintaining quality.

Saying that BJ’s has captured only about 1 percent of casual-dining market share, Deitchle added, “The vast majority of growth is ahead of us.”

Contact Lisa Jennings at [email protected].
Follow her on Twitter: @livetodineout

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