BJ's Restaurants Has Potential For Pre-COVID Economic Recapture, Analyst Says

Wedbush analyst Nick Setyan reiterated an Outperform rating on BJ's Restaurants, Inc. BJRI, raising the price target to $42 from $38.

The company recently reported Q2 results, where total revenues increased 6.1% to $349.7 million.

While the SSS growth and margin upside delivered the Q2 EPS beat, Setyan thinks COGS and labor drove the UL margin upside.

Setyan believes that BJRI can recapture the pre-COVID unit economics and annual growth rates, based on which the company remains on the "Wedbush Best Ideas List."

The analyst now models 4% SSS growth in Q3 but believes that the drivers of upside as the quarter progresses exist.

BJRI is projected to benefit from more remodels (35-40 now vs. ~30 previously), a continued normalization in operating hours (driving late-night), an elevated pricing level, and several throughput initiatives. 

Based on the management's margin commentary following Q2, Setyan slightly increased the Q3 UL margin estimate to 12.5% from 12.4% and maintained a 14.1% Q4 UL margin estimate.

The analyst also continues to view the benefits of the smaller menu (15% smaller; rolled out at the beginning of Q3) as an incremental driver of COGS and labor efficiencies, materializing over the coming months. 

While the targeted $25 million of cost savings have now been achieved, management noted that more savings have been identified (but did not quantify the magnitude).

Considering these, the analyst increased the 2023 EPS estimate to $0.99 from $0.83. 

Setyan also increased the 2024 EPS estimate to $1.43 from $1.31.

Price Action: BJRI shares are trading higher by 9.39% to $36.47 on the last check Friday.