BJ's Restaurants, Inc. (BJRI Quick QuoteBJRI - Free Report) is benefiting from its focus on accretive investments to enhance its sales-building and remodeling initiatives, accompanied by various technological and digital advancements. Through an effective cost-savings plan, the company has been able to efficiently manage its financial position, ensure business productivity and maintain shareholder value.

However, the downward trending comps performance and high-cost structure are restricting the prospects of the company.

What Makes the Stock Attractive?

Sales-Boosting Initiatives: BJ’s Restaurants continues to progress in its sales-building initiatives while focusing on productivity and cost savings. In April 2024, the company initiated its enhanced service model, which balances the number of tables per server and ensures quality. This model promotes service efficiency by effectively ensuring that the customers’ orders reach the kitchen and bar comparatively faster. Furthermore, the company aims to deliver operational excellence to its guests, thus elevating the table turnover, which further aids in expanding the capacity of the existing platform.

The company, which shares space with Domino's Pizza, Inc. (DPZ Quick QuoteDPZ - Free Report) , Brinker International, Inc. (EAT Quick QuoteEAT - Free Report) and Papa John's International, Inc. (PZZA Quick QuotePZZA - Free Report) , is also benefiting from relatable sales-boosting initiatives, which are driving its top-line growth. On the back of its sales-driving plans, BJ’s Restaurants’ recent sales trends show strong demand for its high-quality dining experience.

Remodeling Strategies: The company is undertaking various remodeling moves across its new and existing restaurants to drive guest traffic and enhance its ability to deliver top-tier dining experiences to its customers. Year to date (as of second-quarter fiscal 2024) it completed 19 remodels and expects to complete approximately five more by 2024 end. By the end of 2024, the company will have remodeled approximately 70 restaurants since the beginning of this initiative.

During the fiscal second quarter, the company mentioned incorporating a new prototype, costing approximately $1 million less than the previous design, into its new restaurants, thereby offering greater operational efficiency and incorporating elements from BJ’s remodel initiative. By 2024-end, management anticipates that about half of its restaurants will either feature the new prototype or undergo recent renovations, thus further enhancing the appeal of its concept to both existing and prospective guests.

Digital & Technological Advancements: BJ’s Restaurants is investing heavily in technology-driven initiatives to boost sales. During the fiscal second quarter, the company revealed that it had been evaluating and testing several technological enhancements to further improve its service efficiency. The enhancements include changing the kitchen display system and informing team members about the customer’s presence when dining in any location of the restaurant.

Furthermore, its loyalty program, “BJ’s Premier Rewards Plus”, has been witnessing increases in loyalty sign-ups and in reward redemptions. The company’s app and digital platforms are allowing it to more effectively and efficiently offer promotions, and drive awareness in its key markets through greater and more targeted marketing.

Factors Marring Growth

Declining Comps: Since the beginning of fiscal 2024, BJ’s Restaurants has been witnessing softer comparable restaurant sales trends. During the first six months of the fiscal year, comparable restaurant sales declined 1.1% year over year, primarily due to an approximately 4.4% decrease in guest traffic

During the beginning of the fiscal year, sales trends were negatively influenced by unusual winter storms, leading to lower industry-wide traffic in January. The ongoing uncertainties in the market, which are restricting consumers from making discretionary spending, are likely to continue in the near term.

High Costs: Although the company has initiated efforts to mitigate inflation and fluctuations in key operational costs by gradually raising menu prices and implementing cost-saving measures, improving purchasing practices, enhancing productivity and leveraging economies of scale, uncertainty persists regarding sustainment. For the fiscal third quarter, it expects food cost inflation between 3% and 4%. Also, an uptick in labor costs is likely to linger in the second half of fiscal 2024, accompanied by other uncertain macroeconomic conditions.

A Brief Review of Other Players

Domino’s: The company is benefiting from the supply chain, courtesy of higher order volumes and an increase in the food basket pricing to stores. Also, net store growth, the new loyalty program, increased delivery times and the Hungry for MORE strategy bode well. During the second quarter, the company’s comps at the U.S. stores and international stores grew year over year by 4.8% and 2.1% respectively.

Brinker: The company is benefiting from increased menu pricing, effective marketing strategies and traffic-driving initiatives. Also, focus on menu adjustments bodes well. It intends to focus on balancing value offerings with margin expansion and adaptability to changing consumer preferences to drive growth. For 2025, EAT will look for more ways to offer convenience, value and a great guest experience by doubling its pipeline of new restaurant openings and expanding its portfolio of brands. Also, the focus on digitalization and remodeling initiatives bodes well.

Papa John’s: The company is aiding from its focus on Back to BETTER 2.0 initiatives, global expansion plans and accretive marketing strategies. In the second quarter, PZZA expanded its North American presence by adding 10 new units. For 2024, the company anticipates gross new openings for North America to increase between 15% and 20% year over year. Also, new product launches and technological enhancements are encouraging for its prospects.