BJ’s earnings are still falling just not as fast as management suggested. The first quarter looked great relative to the low expectations set by management—an apples-to-apples positive surprise of $0.19 EPS from operations versus the Street (and me) at $0.12. But, the quarter was awful relative to the first quarter of 2013 with net earnings from operations down 32%. Then again, versus BJ’s horrific fourth quarter, there was a lot to like. So take your pick—the first quarter was great, awful, encouraging.
A breakdown of the actual results versus my forecast is below:
As the table makes apparent, the positive surprise in the quarter stemmed from a modest revenue surprise combined with impressive labor and operating expense control. Same store sales declined 2.9% versus my -3.3% with traffic down 2.2% versus my forecast -3.3%. Price added 1.1% while mix clipped 1.8%. The latter is a near term key to the story as management added a number of lower priced options to the menu in February. Mix is likely to pressure SSS until Q4. Same store sales in April were said to be running down 1.5% to 2.0%.
Gross margin at 75.1% dipped from last year’s 75.5% but improved from 74.7% in the fourth quarter. The improvement suggests a pull back from coupons and other price promotions.
Labor leapt from 35.0% of sales in the first quarter last year to 36.1%. That looks bad but it was a lot better than management’s 2/27 guidance of 36.5% to 37.0%. Labor per operating week was flat year over year and 1% less than my forecast. A strong performance given wage pressure in some markets.
Even with marketing expense jumping from $3.4MM in the first quarter last year to $5.2MM, operating expense only rose from 21.5% to 21.9% of revenue as ex-marketing operating expense per operating week fell 1.7% year-over-year. Total operating expense per week at $23,624 was just under management’s guidance at $24,000.
Variances in G&A, D&A and other line items netted out close to zero. The company did take a $1.55MM charge for expenses related to its shareholder agreement with PW Partners and Luxor Capital. This charge was partly offset by tax credits that reduced the effective rate to 24.6% in the quarter. Management had guided to 28% though that guidance was reduced to 27% on the conference call. Adjusting for both the charge and the slug of tax credits, operating EPS in the quarter was $0.19.