An early look at Q2 earnings thus far shows some chains continuing to struggle with inflationary pressures that are impacting margins, but that doesn’t seem to be the case for BJ’s Restaurants.
During the company’s Q2 earnings call last week, CEO Greg Levin reported that the company’s restaurant-level margins reached 14.5%, or 260 basis points higher year-over-year (11.9%) and the highest level since the pandemic started. Credit the work of the company’s margin improvement team for much of this progress. The team was put into place shortly after Levin was hired as CEO in mid-2021.
Several factors have helped drive the team’s efforts, including stronger restaurant manager retention, which now exceeds 2019 levels, and improved hourly team member retention.
“As a result of more tenured key members at both manager and hourly ranks, our labor productivity metrics in the second quarter were better than a year ago and better than 2019, highlighting that we cannot only drive record sales, but drive those sales very efficiently,” Levin said during the call Thursday afternoon. “A big part of the increase in margins was really on the labor line.”
In addition to improving retention levels, BJ’s is using AI technology to boost labor productivity, including through sales forecasting, which is providing more accurate scheduling.
A smaller menu is also driving efficiencies. In July, BJ’s introduced a menu with 15% fewer items, which Levin said has reduced prep hours in the kitchen and improved execution.
“We haven’t seen any changes from our guests from that smaller menu, which is the reason we tested it over the last year. We still have to continue to adjust schedules down a bit based on how this new menu is rolling out, and that should give us additional efficiencies as well,” Levin said.
Favorable commodities have also been in play for the company. CFO Tom Houdek said the market has been “a little better than we were expecting,” with deflation on items like prime rib, salmon, ribs and cheese. That said, beef continues to be the wild card and is expected to be at least throughout the duration of the year, executives said.
Another tailwind on margins is the company’s focus on cost savings opportunities; last year BJ’s laid out a plan to identify at least $25 million in such opportunities to benefit operating margins and Levin said that goal was surpassed in Q2. Those opportunities have come from the food and labor lines, but also from working with vendors to lock in lower prices and “going after operating occupancy costs.”
“We’re just being able to go out and bid things like takeout containers, looking at the way we do some of the facilities work and so forth,” Levin said. “It’s a lot of small rocks we’re moving. There is nothing I would say is huge dollar savings; it’s a bunch of little things we just have to continue to execute.
“We still have wood to chop to get back to the high-teens, pre-pandemic levels, but the progress we have made to date confirms the effectiveness of the strategy that we have laid out last year.”
What is the plan for chopping that wood, so to speak? Levin the company is going to reach its margin targets by driving topline sales. BJ’s plans to do this by continuing to focus on “the commodity and the consumer side.”
“We have some great suppliers helping us think through this, that we can figure out ways to bring food costs down providing the same quality that we do. We are not using frozen salmon. We are staying with our fresh salmon,” Levin said. “Those things make a difference for us … So, we are going to continue to do that in the right way to move our margins in the right direction.”
BJ’s Restaurants Q2 highlights:
- Comp sales increase of 4.7%
- Revenue increase of 6.1%, to $349.7 million
- Earnings per share, 50 cents
- BJ’s finished the quarter with 216 restaurants in 30 states. Year to date, the company has opened two new restaurants and expected three new restaurants in FY 2023.
- The company is on track to remodel 35 to 40 restaurants, which executives said have higher traffic levels and strong (high teens to 20%) cash-on-cash returns.
Contact Alicia Kelso at [email protected]
