BJ's is Officially One of the Hottest Restaurants in America

Thanks to digital growth and a differentiated concept, the casual chain is on fire right now.

July 2018 Danny Klein

The calendar might say one thing, but BJ’s Restaurants' struggles feel like they were ages ago. Since the third quarter of fiscal 2017, which ended October 3, 2017, the 200-unit chain has transformed from a brand on a six-quarter negative sales streak into one of the hottest concepts in casual dining.

After a strong start to fiscal 2018, where same-store sales lifted 4.2 percent and traffic 0.4 percent, BJ’s Restaurants cooked up a red-hot second quarter to inject even more optimism into the surging brand. Profit soared 76 percent as comps rose 5.6 percent, year-over-year. Traffic boosted 2.5 percent. Adjusted earnings per share of 79 cents, or net income of $16.9 million, stomped the Zacks Consensus Estimate of 64 cents by 23.4 percent and revenues of $287.6 million beat forecasts of $283 million. The sales outpaced an average of Knapp-Track and Black Box by more than 460 basis points.

BJ's Restaurants Wants to Become 'Best Casual-Dining Concept Ever'

BJ's invites guests to wine and dine at home

To capture how far—and quickly—BJ’s has climbed, here’s one metric: Shares on the stock market have returned 76.1 percent in the past year, crushing the industry’s 4.1 percent growth.

CEO Greg Trojan called the results “a testament to the strength of BJ’s brand and the broad attraction to our unique concept as well as our team members' continued commitment to deliver gold standard service and hospitality each and every day.”

It’s also a positive kickback from the broad directional changes BJ’s introduced throughout the course of 2017. BJ’s slow-roast items, off-premise delivery expansion, and Brewhouse Specials, along with digital and loyalty improvements, allowed the concept to pull back on discounting while driving solid gains and guest traffic, Trojan said.

Just about a year ago this month, in the second quarter of fiscal 2017, BJ’s completed the rollout of its slow-roasting ovens. These premium items, which include Prime Rib, Baby Back Pork Ribs, and more, sagged the brand’s bottom line out the gate. The transition, disruption, and expense, along with start-up costs and operating inefficiencies, resulted in additional investments in labor and cost of sales. “However, with the implementation of these new platforms solidly in place we can begin leveraging these investments throughout our business to continue delivering higher quality food, service and hospitality to our guests and returns for our shareholders,” Trojan said last July.

That statement has aged nicely. BJ’s set 42 daily sales records and 23 weekly sales records this past quarter. Slow-roast entrée incidents hit an all-time high in Q2 to play a starring role in that watershed stretch. The chain’s net check growth was about 3 percent in the quarter, driven by an increase in gross checks of about 2 percent, and less discounting benefitted net sales by about 1 percent.

BJ’s set 42 daily sales records and 23 weekly sales records this past quarter alone.

The slow-roast menu, happy hour specials, and the popular Brewhouse Specials—weekly promotions that change by the day and special occasions (10 loaded burgers on Wednesdays, $3.14 for mini pizzas on this year’s Pi Day for example)—are helping BJ’s drive frequency to different dayparts while improving customer satisfaction scores. Trojan noted that new Brewhouse Specials are in the works to keep the deals fresh and incremental over time. These new initiatives took months and marketing to marinate, not just from an awareness standpoint, but also from an operational one.

“… I think some of those improvements really come down to the fact that last year at this time we were rolling out a lot of initiatives. And our operators are really able to settle in, get through the learning curves, and optimize those initiatives. And when you can give better service and better food together, that's going to grow your comp sales, and I think that's what we're seeing this year in regards to our business,” president and CFO Greg Levin said in the call.

“You know I think the key is just continue to focus on the quality and the uniqueness of the food. And I feel really good about that,” Trojan added.

Another thing BJ’s did was slow down its unit development. The brand has said in the past it sees national capacity for at least 435 restaurants—and is sticking by that—but wanted to hit the brakes a bit in the interim as the labor market tightened up and BJ’s solidified its model. There were 194 units this time a year ago. BJ’s opened two restaurants—in Hagerstown, Maryland, and Albany, New York—in Q2, with the latter marking the third opening so far in 2018. BJ’s said it expects to debut one additional restaurant in each of the third and fourth quarters, giving the chain five 2018 openings.

Trojan said the slowdown has never been related to new-store performance. “It was really the challenges that the industry and we were feeling around driving traffic and comp sales in our existing base of restaurants,” he said. “And we felt strongly [about] that, and given the headwinds and turbulence we wanted our resources, most importantly our human resources, focused on our existing restaurants.”

"When you can give better service and better food together, that's going to grow your comp sales, and I think that's what we're seeing this year in regards to our business,” president and CFO Greg Levin.

BJ’s growth strategy is also showing a higher proportion of new restaurants in fresh markets, rather than the fill-ins across core areas, like Texas, California, and Florida, the company was charting before.

BJ’s expects growth to pick up moving forward. And the business model looks prime to do so. Restaurant-level operating margin expanded 120 basis points to 19 percent in Q2. Food and packaging costs fell 120 basis points. Labor was essentially flat as a percentage of revenue, rising 10 basis points to 35.5 percent.

And BJ’s is telling a compelling digital story right now.

The brand’s off-premises sales, including takeout, large-party catering, and delivery finished Q2 at a run rate of 7.6 percent of sales. Trojan said he believes there’s an opportunity to grow the channel by at least another 50 percent over the next several years. For perspective, it was 5.7 percent a year ago.

Additionally, Trojan said there’s space for technology to play an increasing role in enhancing BJ’s service, hospitality, and efficiency through its app, handheld server tablets, and ongoing website improvements. These were also part of BJ’s 2017 overhaul. The handheld devices, takeout training, and delivery were just starting to break the surface last year. It’s been gaining momentum ever since. Off-premises business grew more than 30 percent in Q1. BJ’s collaborated with DoorDash and even launched alcohol delivery last August in select markets.

Trojan added there’s “still a lot of growth ahead of us in the world of off-premises” thanks to product development and further leverage of its slow-roast platform.

BJ’s upgraded Premier Rewards Plus loyalty program launched at all restaurants in February, and has opened “the door for us to make our guests' interaction with our brand more customized and satisfying than ever. In addition, our overall marketing message and media placement is more targeted than ever, which is helping drive traffic across all of our markets,” Trojan said.

The platform simplified BJ’s reward structure (guests earn points at a rate of 1 point for each $1 spent on food and beverages). It has resulted in an increase in loyalty guests, both in signups and the percent of checks. Loyalty sales are coming in the mid-teen range currently. “All of it has tended to be more sticky and driving more guests into our restaurants,” Levin said.

It’s coexisted nicely with the handheld tablets, too.

“There's no question when we observe and see how handhelds make it easier for the guest and our servers to converse and exchange information relative to loyalty. It's helping us execute our loyalty program in a much more seamless way,” Trojan said.