Bojangles’ Inc. spent less in the first quarter on food and labor and generated higher sales, yielding strong profits at the Charlotte-based chicken chain.
Same-store sales increased 2 percent in the period ended March 27, the company said this week, while net income more than doubled to $7.8 million, or 21 cents per share, from $3.4 million or 9 cents in the same period a year ago.
It was the 24th straight quarter of same-store sales growth for the chain.
“We’re very pleased with what we’ve achieved across the board,” Bojangles' CEO Clifton Rutledge said on the company’s earnings call late on Thursday. He said the chain’s same-store sales rose despite “a significant amount of discounting and aggressive promotions by many of our competitors.”
Yet that intensified competitive activity impacted the company in April. Executives said that same-store sales have been flat in the first five weeks of the company’s second quarter, and they said that the discounting environment has worsened in the month.
“We definitely saw competitors discounting and promoting heavily in the first quarter, even more so than what we saw in the previous quarter,” Rutledge said. “We have seen that intensified in the second quarter, a lot.”
He noted that one competitor is selling items at $1 at every daypart. Others are discounting, too. “We’ve got other competitors that are doing the 4 for $4. We’ve got two or three with $5 boxes.”
And Rutledge noted that the discounting isn’t limited to one or two dayparts. “It was pretty much across the board,” he said.
Rutledge said his chain is doing more discounting now than it had in the past, and that it has to “overcome” the lowered check average that comes with such discounting.
At the same time, however, Rutledge stressed that the company would not match the discounts being offered by its competitors. “That discounting war is just not something that we’re going to participate in,” he said. He added that the chain would discount “in select markets and select occasions.”
“You’re not going to see us come out with a dollar menu item or something of that nature.”
Yet Bojangles' has also enjoyed lower food and labor costs. Restaurant contribution margin increased to 17.4 percent of revenues in the quarter from 16.1 percent.
Labor costs decreased to 27.5 percent from 28.1 percent. And food and supplies decreased to 31.7 percent from 33.7 percent. Rutledge noted that costs in the first quarter a year ago were at an “all time high” and that the costs simply fell from there.
Revenues in the quarter increased 11.3 percent to $127.7 million from $114.6 million. The company opened nine restaurants in the quarter. The company now has 671 restaurants systemwide.
The company also increased its revenue guidance for the year and expects revenue of at least $535 million in 2016, up from previous guidance of $533 million.
The revenue guidance and better-than-expected earnings more than offset the concerns about April sales. The stock rose 2 percent in Friday trading.
Breakfast remains a major element for Bojangles'. The chain’s breakfast accounted for 38 percent of its sales. The company also noted that traffic rose 0.8 percent in the first quarter.
Chris O’Cull, analyst with KeyBanc Capital Markets, said in a note that the company has a lot of growth potential in the future.
“A premium valuation is justified by the company’s unit growth prospects, high free cash flow conversion and [earnings] upside potential,” O’Cull wrote.