BJ's (BJRI)

American restaurant chain BJ’s Restaurants (NASDAQ:BJRI) met Wall Street’s revenue expectations in Q1 CY2025, with sales up 3.2% year on year to $348 million. Its non-GAAP profit of $0.59 per share was 53.4% above analysts’ consensus estimates.

Company Overview

Founded in 1978 in California, BJ’s Restaurants (NASDAQ:BJRI) is a chain of restaurants whose menu features classic American dishes, often with a twist.

Sit-down restaurants offer a complete dining experience with table service. These establishments span various cuisines and are renowned for their warm hospitality and welcoming ambiance, making them perfect for family gatherings, special occasions, or simply unwinding. Their extensive menus range from appetizers to indulgent desserts and wines and cocktails. This space is extremely fragmented and competition includes everything from publicly-traded companies owning multiple chains to single-location mom-and-pop restaurants.

Competitors offering a full-service, casual family dining experience include Darden (NYSE:DRI), Dine Brands (NYSE:DIN), Brinker International (NYSE:EAT), and The Cheesecake Factory (NASDAQ:CAKE).

Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years.

With $1.37 billion in revenue over the past 12 months, BJ's is a mid-sized restaurant chain, which sometimes brings disadvantages compared to larger competitors benefiting from better brand awareness and economies of scale.

As you can see below, BJ’s sales grew at a sluggish 3.3% compounded annual growth rate over the last six years (we compare to 2019 to normalize for COVID-19 impacts) as its restaurant footprint remained unchanged and it barely increased sales at existing, established dining locations.

This quarter, BJ's grew its revenue by 3.2% year on year, and its $348 million of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 3.3% over the next 12 months, similar to its six-year rate. This projection doesn't excite us and suggests its newer menu offerings will not catalyze better top-line performance yet.

Number of Restaurants

The number of dining locations a restaurant chain operates is a critical driver of how quickly company-level sales can grow.

BJ's operated 219 locations in the latest quarter, and over the last two years, has kept its restaurant count flat while other restaurant businesses have opted for growth.

When a chain doesn’t open many new restaurants, it usually means there’s stable demand for its meals and it’s focused on improving operational efficiency to increase profitability.

Same-Store Sales

A company's restaurant base only paints one part of the picture. When demand is high, it makes sense to open more. But when demand is low, it’s prudent to close some locations and use the money in other ways. Same-store sales is an industry measure of whether revenue is growing at those existing restaurants and is driven by customer visits (often called traffic) and the average spending per customer (ticket).

BJ’s demand within its existing dining locations has been relatively stable over the last two years but was below most restaurant chains. On average, the company’s same-store sales have grown by 1.5% per year. Given its flat restaurant base over the same period, this performance stems from a mixture of higher prices and increased foot traffic at existing locations.

In the latest quarter, BJ’s same-store sales rose 1.7% year on year. This performance was more or less in line with its historical levels.

Gross profit margins are an important measure of a restaurant’s pricing power and differentiation, whether it be the dining experience or quality and taste of food.

BJ's has bad unit economics for a restaurant company, signaling it operates in a competitive market and has little room for error if demand unexpectedly falls. As you can see below, it averaged a 14.3% gross margin over the last two years. Said differently, BJ's had to pay a chunky $85.69 to its suppliers for every $100 in revenue.

This quarter, BJ’s gross profit margin was 16%, up 1 percentage points year on year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as ingredients and transportation expenses) have been stable and it isn’t under pressure to lower prices.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

BJ's was profitable over the last two years but held back by its large cost base. Its average operating margin of 1.6% was weak for a restaurant business. This result isn’t too surprising given its low gross margin as a starting point.

Analyzing the trend in its profitability, BJ’s operating margin might fluctuated slightly but has generally stayed the same over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q1, BJ's generated an operating profit margin of 4.3%, up 1.8 percentage points year on year. The increase was encouraging, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, and administrative overhead.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

BJ's has shown poor cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 1.1%, lousy for a restaurant business.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

BJ's historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 0.6%, lower than the typical cost of capital (how much it costs to raise money) for restaurant companies.

BJ's reported $19 million of cash and $85.5 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $123.1 million of EBITDA over the last 12 months, we view BJ’s 0.5× net-debt-to-EBITDA ratio as safe. We also see its $5.30 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly BJ's blew past analysts’ EPS expectations this quarter. We were also excited its EBITDA outperformed Wall Street’s estimates by a wide margin. On the other hand, its same-store sales was in line. Zooming out, we think this was a solid print. The stock traded up 4.8% to $35.10 immediately following the results.

Updated: May 16, 2025 at 10:40 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in BJ's.

We cheer for all companies serving everyday consumers, but in the case of BJ's, we’ll be cheering from the sidelines. To kick things off, its revenue growth was uninspiring over the last six years, and analysts don’t see anything changing over the next 12 months. And while its decent growth in new restaurants shows it’s staying on track and slowly expanding its presence, the downside is its relatively low ROIC suggests management has struggled to find compelling investment opportunities. On top of that, its gross margins make it more challenging to reach positive operating profits compared to other restaurant businesses.

BJ’s P/E ratio based on the next 12 months is 25.6x. At this valuation, there’s a lot of good news priced in - we think there are better opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $40.83 on the company (compared to the current share price of $44), implying they don’t see much short-term potential in BJ's.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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