The 197-unit brand made some significant strides toward its goal in 2017.

BJ’s Restaurants’ ultimate goal isn’t a complicated one. As chief executive officer Greg Trojan frankly put it, the 197-unit brand is on a “quest to be the best casual-dining concept ever.” To get there, BJ’s understood that 2017 needed to be a transformational 12 months. The company started the calendar with widespread, significant changes intended to drive traffic and sales, and distance itself from competitors and the all-too-familiar ailments facing full-service chains around the country. Simply, BJ’s didn’t want to be like everybody else, not in offerings, and not in tepid performance.

Some of those initiatives began to shine through in the fourth quarter. The company reported same-store sales growth of 1.6 percent, year-over-year, which marked the first quarterly comparable-sales growth in seven quarters for BJ’s. It beat Wall Street predictions across the board, sending shares climbing double-digits on February 23. Quarter to date, BJ’s same-store sales are up 3.5 percent.

Total revenue declined 1.7 percent to $261.1 million, but adjusting for an extra week in the year-ago period, revenue was up 6.9 percent. Regardless, it topped analyst predictions of $259.8 million.

Those are the baseline figures, but Trojan pointed to some underlying numbers that he believes sent BJ’s barreling around the proverbial corner in 2017.

This first is traffic. BJ’s fourth-quarter traffic was 0.7 percent, which easily surpassed TDn2K’s Black Box industry metric by 230 points.

“Looking forward, our goal in 2018 is to take advantage of the traffic momentum we have created and leverage the investments of 2017 to create both traffic and check growth, where we can begin to reestablish operating margins to levels more in line with where they’ve been in the past,” he said.

This traffic is becoming increasingly important as labor (35.8 percent of costs for the fourth quarter, up 90 basis points) cuts into the bottom line. Hourly wages rose about 5 percent quarter-over-quarter. In response, BJ’s earnings per share fell from 55 cents a year ago to 37 cents, the company said. This is nothing new for restaurants and surely not unique to BJ’s. That’s why the company put so much stock into factors it can control.

While Greg Levin, BJ’s chief financial officer, said 90 percent of the chain’s business is still coming from dine-in guests, the incremental lift from off-premise has played a leading role in recent sales lift.

Some form of delivery is currently available in 149 of the chain’s restaurants, with another 23 scheduled to be added by the end of the first quarter. BJ’s grew its off-premise business to about 7 percent of sales, an increase from 5.6 percent a year ago. Trojan added that BJ’s hasn’t seen a significant impact on dine-in business.

“We didn’t have that at the beginning of this year and we started it really in the August timeframe,” Levin said. “So that generally is going to be your more incremental growth there, because it’s a new channel within our business.”

BJ’s has also partnered with third-party delivery companies and, in many cases, has its own delivery platform that comes right to the brand. With that, BJ’s can keep all the data and information rolling in, allowing it to email guests and send offers, even though the food is being delivered by a third-party company.

From a menu standpoint, Trojan said BJ’s invested in “everyday value initiatives,” in 2017 to drive traffic, but also to present an alternative to outright promotional discount offers. BJ’s did this through its daily specials, known as Brewhouse Specials, which run Monday through Thursday. The chain also improved its Happy Hour offerings and increased the use of its traditional promotional offers.

Counterbalancing this strategy was BJ’s continued introduction of a slow-roasted menu. In the second quarter, BJ’s completed the rollout of its slow-roasting ovens. These premium items, which include Prime Rib, Bone-In Pork Chop, Baby Back Pork Ribs, and more, drive higher check average. The brand unveiled handheld point-of-sale devices as well to improve upselling and ease of service. But these key changes took some time to mature.

“Two quarters into the roll out of most of these programs, our restaurant team members are more comfortable in executing more proficiently, while our guests are growing more aware of their benefits as well,” Trojan said. “This is resulting in better traffic, which is complemented by improving trends overall for retail and restaurants. This has allowed us to temper the frequency and depth of our promotions, which has helped generate the kind of check growth we need to offset the cost pressures we’re all facing.”

Additionally, BJ’s believes it can improve the bottom line by slowing its unit growth. The chain opened two restaurants in the fourth quarter—in Bowie Maryland, and Taylor, Michigan—and hit its goal of 10 new restaurants in fiscal 2017. In 2018, BJ’s plans to open just four to six new restaurants.

Trojan said BJ’s sees national capacity for at least 425 restaurants. It just wants to solidify before ramping up. And this makes a lot of sense given the tight restaurant labor market.

“Clearly, the contraction in unit growth rates across all restaurant categories, including casual dining are part of the improving sales story we are seeing, but also beginning to ease the demand pressure on kitchen labor. That said, it’s still a really difficult labor market out there, especially in some of our high density, higher-wage rate markets,” Trojan said.

He added that he’s challenged the company’s design team to push the company’s new restaurant design to “remain current and appealing to current and future guests.”

“Our new 2020 design includes a circular bar element with outdoor patio access, for example,” he said. “It also celebrates our craft beer heritage and core competence without intruding on our class examining family positioning. Those of you that find yourselves in North Olmsted, Ohio, which is in the Cleveland market, Fredericksburg, Virginia, or our new restaurant in Taylor, Michigan, not far from the Detroit Airport, I’d encourage you to take a look for yourselves.”

BJ’s is expecting, thanks to tax reform, for its new tax rate to be in the 15 percent range for fiscal 2018 compared to the company’s historic normalized rate of about 27 percent. That equates to somewhere around $5 million in cash savings.

Trojan said the extra cash flow would be widely invested in areas that “will improve and grow or existing business in a manner that delivers a return on investment beneficial to our shareholders and owners, including initiatives, which benefit our most valued asset of all, our team members.” In other terms, business as usual.

“As we look to 2018, we’ve again taken a thoughtful and analytic approach to our business, brand, concept, and the current environment just as we did coming off of 2013, when the business was also challenging,” Levin said. “We remain highly focused on our innovative food offerings, productivity, restaurant efficiency, and guest service mainly the core strength, which have been fundamental to our measured expansion and long-term bottom-line growth.”

Casual Dining, Chain Restaurants, Feature, Finance, BJ's Restaurants