Streamlining Menu And Implementing AI Forecasting Will Improve Future Operations And Customer Satisfaction

Key Takeaways

• Streamlining the menu and implementing AI for operations optimization are expected to enhance efficiency and margins.
  
• Expansion and remodeling efforts focus on market presence and customer satisfaction, potentially fueling revenue growth and retention.
  
• Challenges from inflation and weather events, along with cautious expansion, could pressure margins and slow growth despite strategic marketing investments.

Catalysts

Operates full-service restaurants in the United States.

• BJ's Restaurants is focused on streamlining its menu by removing less profitable items which will allow the company to introduce new innovations and keep core platforms fresh, likely leading to improved revenue and margins.
  
• Implementation of AI forecasting for labor scheduling and food preparation plans is expected to optimize operations, leading to improvements in net margins through enhanced efficiency.
  
• Expansion plans include opening a restaurant in Queens Creek, Arizona, and refocusing on existing markets with brand awareness to strengthen revenue growth and reduce ramp-up times for new openings.
  
• Enhancements to the team member experience, such as improved training and process simplification, are expected to reduce turnover and improve customer service, which could contribute to increased earnings through higher customer satisfaction and retention.
  
• Ongoing efforts to remodel existing locations and maintain a fresh atmosphere are poised to attract more customers, potentially boosting revenue and supporting long-term growth.

BJ's Restaurants Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming BJ's Restaurants's revenue will grow by 3.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.2% today to 3.0% in 3 years time.
• Analysts expect earnings to reach $45.3 million (and earnings per share of $2.14) by about March 2028, up from $16.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 24.5x on those 2028 earnings, down from 48.4x today. This future PE is greater than the current PE for the US Hospitality industry at 23.7x.
• Analysts expect the number of shares outstanding to decline by 2.84% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.27%, as per the Simply Wall St company report.

BJ's Restaurants Future Earnings Per Share Growth

Risks

• The impact of severe weather events, such as wildfires, could disrupt operations and negatively affect consumer foot traffic, impacting overall revenue.
  
• Increased food cost inflation, not entirely offset by menu pricing, could compress net margins if inflationary pressures persist.
  
• The cautious approach to new restaurant openings and the removal of sites from the pipeline could slow growth in revenue and affect long-term earnings potential.
  
• The focus on maintaining competitive pricing might limit margin expansion, particularly if inflationary pressures continue to rise against stagnant consumer traffic.
  
• Higher investments in marketing and brand positioning, while beneficial for brand strength, may strain short-term net income if expected traffic and sales improvements do not materialize.

Valuation

• The analysts have a consensus price target of $42.571 for BJ's Restaurants based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $50.0, and the most bearish reporting a price target of just $36.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.5 billion, earnings will come to $45.3 million, and it would be trading on a PE ratio of 24.5x, assuming you use a discount rate of 9.3%.
  
• Given the current share price of $35.55, the analyst price target of $42.57 is 16.5% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.