UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended October 3, 2017June 30, 2020
OR
☐ |
|
For the transition period from _______________ to ______
Commission file number 0-21423
BJ’S RESTAURANTS, INC.
(Exact name of registrant as specified in its charter)
California |
|
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
7755 Center Avenue, Suite 300
Huntington Beach, California 92647
(714) 500-2400
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol | Name of each exchange on which registered | ||
Common Stock, No Par Value | BJRI | NASDAQ Global Select Market |
(Address, including zip code, and telephone number, including
area code, of registrant’s principal executive offices)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☑ No ☐.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company, or an emerging growth company. See definition of “accelerated filer,” “large accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer |
|
| Accelerated filer |
☐ | Non-accelerated filer | ☐ | Smaller reporting company | |
☐ | Emerging growth company |
|
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|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑.
As of November 3, 2017,July 31, 2020, there were 20,633,39422,279,980 shares of Common Stock of the Registrant outstanding.
TABLE OF CONTENTS
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PART I. |
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Item 1. |
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3 | |||
4 | |||
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Item 2. |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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PART II. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 6. |
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Item 1. CONSOLIDATED FINANCIAL STATEMENTS
BJ’S RESTAURANTS, INC.
(In thousands)
|
| October 3, 2017 |
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| January 3, 2017 |
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| June 30, 2020 |
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| December 31, 2019 |
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| (unaudited) |
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| (unaudited) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
| $ | 28,694 |
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| $ | 22,761 |
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| $ | 86,741 |
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| $ | 22,394 |
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Accounts and other receivables, net |
|
| 12,537 |
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| 14,698 |
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| 15,492 |
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| 22,197 |
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Inventories, net |
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| 10,226 |
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| 9,907 |
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| 10,504 |
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| 11,102 |
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Prepaid expenses and other current assets |
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| 8,368 |
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| 11,324 |
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| 6,768 |
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| 8,912 |
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Total current assets |
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| 59,825 |
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| 58,690 |
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| 119,505 |
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| 64,605 |
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Property and equipment, net |
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| 599,450 |
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| 601,324 |
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| 560,951 |
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| 583,639 |
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Operating lease assets |
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| 375,593 |
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| 383,355 |
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Goodwill |
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| 4,673 |
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| 4,673 |
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| 4,673 |
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| 4,673 |
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Deferred income taxes |
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| 3,860 |
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| — |
| ||||||||
Other assets, net |
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| 29,118 |
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| 26,625 |
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| 38,148 |
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| 35,812 |
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Total assets |
| $ | 693,066 |
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| $ | 691,312 |
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| $ | 1,102,730 |
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| $ | 1,072,084 |
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Liabilities and Shareholders’ Equity |
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Current liabilities: |
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Accounts payable (1) |
| $ | 23,984 |
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| $ | 31,145 |
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| $ | 43,016 |
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| $ | 23,422 |
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Accrued expenses |
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| 83,634 |
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| 94,553 |
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| 86,385 |
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| 102,815 |
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Current operating lease obligations |
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| 33,306 |
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| 32,194 |
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Total current liabilities |
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| 107,618 |
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| 125,698 |
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| 162,707 |
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| 158,431 |
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Long-term operating lease obligations |
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| 448,497 |
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| 448,333 |
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Long-term debt |
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| 166,800 |
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| 143,000 |
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Deferred income taxes |
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| 37,073 |
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| 37,587 |
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| — |
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| 20,164 |
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Deferred rent |
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| 32,047 |
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| 30,424 |
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Deferred lease incentives |
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| 53,951 |
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| 54,119 |
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Long-term debt |
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| 194,000 |
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| 148,000 |
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Other liabilities |
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| 23,199 |
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| 20,587 |
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| 12,132 |
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| 11,869 |
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Total liabilities |
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| 447,888 |
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| 416,415 |
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| 790,136 |
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| 781,797 |
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Commitments and contingencies |
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Shareholders’ equity: |
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Preferred stock, 5,000 shares authorized, none issued or outstanding |
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| — |
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| — |
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Common stock, no par value, 125,000 shares authorized and 20,746 and 22,332 shares issued and outstanding as of October 3, 2017 and January 3, 2017, respectively |
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| — |
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| — |
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Preferred stock, 5,000 shares authorized, NaN issued or outstanding |
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| — |
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| — |
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Common stock, no par value, 125,000 shares authorized and 22,261 and 19,149 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively |
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| — |
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| — |
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Capital surplus |
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| 68,228 |
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| 66,200 |
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| 68,218 |
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| 67,062 |
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Retained earnings |
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| 176,950 |
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| 208,697 |
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| 244,376 |
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| 223,225 |
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Total shareholders’ equity |
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| 245,178 |
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| 274,897 |
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| 312,594 |
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| 290,287 |
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Total liabilities and shareholders’ equity |
| $ | 693,066 |
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| $ | 691,312 |
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| $ | 1,102,730 |
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| $ | 1,072,084 |
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��
See accompanying notes to unaudited consolidated financial statements.
| (1) | Included in accounts payable as of |
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
|
| For the Thirteen |
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| For the Thirty-Nine |
| ||||||||||
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| Weeks Ended |
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| Weeks Ended |
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| October 3, 2017 |
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| September 27, 2016 |
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| October 3, 2017 |
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| September 27, 2016 |
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Revenues |
| $ | 247,009 |
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| $ | 233,702 |
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| $ | 770,642 |
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| $ | 727,431 |
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Restaurant operating costs (excluding depreciation and amortization): |
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Cost of sales (1) |
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| 65,553 |
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| 59,882 |
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| 200,465 |
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| 183,091 |
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Labor and benefits |
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| 91,228 |
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| 82,034 |
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| 277,724 |
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| 252,793 |
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Occupancy and operating (1) |
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| 55,238 |
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| 50,474 |
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|
| 164,054 |
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| 149,691 |
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General and administrative |
|
| 13,035 |
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| 12,921 |
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| 41,536 |
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|
| 41,050 |
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Depreciation and amortization |
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| 17,430 |
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| 16,292 |
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|
| 51,231 |
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| 47,930 |
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Restaurant opening |
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| 534 |
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| 2,218 |
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| 3,205 |
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|
| 5,216 |
|
Loss on disposal and impairment of assets |
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| 1,070 |
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|
| 810 |
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| 4,168 |
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| 2,266 |
|
Natural disaster and related |
|
| 905 |
|
|
| — |
|
|
| 905 |
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|
| — |
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Severance and legal settlements |
|
| 423 |
|
|
| — |
|
|
| 423 |
|
|
| 369 |
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Total costs and expenses |
|
| 245,416 |
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|
| 224,631 |
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|
| 743,711 |
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| 682,406 |
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Income from operations |
|
| 1,593 |
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|
| 9,071 |
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|
| 26,931 |
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| 45,025 |
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Other (expense) income: |
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Interest expense, net |
|
| (1,177 | ) |
|
| (344 | ) |
|
| (3,178 | ) |
|
| (1,100 | ) |
Other income, net |
|
| 423 |
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|
| 378 |
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|
| 1,474 |
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|
| 813 |
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Total other (expense) income |
|
| (754 | ) |
|
| 34 |
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|
| (1,704 | ) |
|
| (287 | ) |
Income before income taxes |
|
| 839 |
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|
| 9,105 |
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| 25,227 |
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| 44,738 |
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Income tax (benefit) expense |
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| (1,550 | ) |
|
| 1,868 |
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| 3,933 |
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| 12,068 |
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Net income |
| $ | 2,389 |
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| $ | 7,237 |
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| $ | 21,294 |
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| $ | 32,670 |
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Net income per share: |
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Basic |
| $ | 0.11 |
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| $ | 0.30 |
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| $ | 0.98 |
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| $ | 1.35 |
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Diluted |
| $ | 0.11 |
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| $ | 0.30 |
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| $ | 0.97 |
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| $ | 1.33 |
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Weighted average number of shares outstanding: |
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Basic |
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| 21,354 |
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|
| 24,091 |
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| 21,620 |
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|
| 24,172 |
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Diluted |
|
| 21,670 |
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|
| 24,486 |
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|
| 22,032 |
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|
| 24,589 |
|
See accompanying notes to unaudited consolidated financial statements.
|
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UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
| For the Thirty-Nine Weeks Ended |
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|
| October 3, 2017 |
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| September 27, 2016 |
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Cash flows from operating activities: |
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Net income |
| $ | 21,294 |
|
| $ | 32,670 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
|
| 51,231 |
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|
| 47,930 |
|
Deferred income taxes |
|
| (514 | ) |
|
| 4,117 |
|
Stock-based compensation expense |
|
| 5,271 |
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|
| 4,580 |
|
Loss on disposal and impairment of assets |
|
| 4,168 |
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|
| 2,266 |
|
Natural disaster and related |
|
| 194 |
|
|
| — |
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Changes in assets and liabilities: |
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Accounts and other receivables |
|
| 2,559 |
|
|
| 12,844 |
|
Landlord contribution for tenant improvements |
|
| 124 |
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|
| 559 |
|
Inventories, net |
|
| (319 | ) |
|
| (620 | ) |
Prepaid expenses and other current assets |
|
| 2,603 |
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|
| 3,891 |
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Other assets, net |
|
| (3,509 | ) |
|
| (3,729 | ) |
Accounts payable |
|
| (4,788 | ) |
|
| (3,172 | ) |
Accrued expenses |
|
| (10,919 | ) |
|
| 4,895 |
|
Deferred rent |
|
| 1,623 |
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|
| 2,225 |
|
Deferred lease incentives |
|
| (168 | ) |
|
| 660 |
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Other liabilities |
|
| 204 |
|
|
| (485 | ) |
Net cash provided by operating activities |
|
| 69,054 |
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|
| 108,631 |
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Cash flows from investing activities: |
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Purchases of property and equipment |
|
| (57,358 | ) |
|
| (80,682 | ) |
Proceeds from sale of assets |
|
| 4,739 |
|
|
| — |
|
Net cash used in investing activities |
|
| (52,619 | ) |
|
| (80,682 | ) |
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Cash flows from financing activities: |
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Borrowings on line of credit |
|
| 1,604,600 |
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|
| 749,700 |
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Payments on line of credit |
|
| (1,558,600 | ) |
|
| (740,900 | ) |
Excess tax benefit from stock-based compensation |
|
| — |
|
|
| 289 |
|
Taxes paid on vested stock units under employee plans |
|
| (248 | ) |
|
| (208 | ) |
Proceeds from exercise of stock options |
|
| 1,029 |
|
|
| 1,890 |
|
Repurchases of common stock |
|
| (57,283 | ) |
|
| (47,376 | ) |
Net cash used in financing activities |
|
| (10,502 | ) |
|
| (36,605 | ) |
|
|
|
|
|
|
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|
|
Net increase (decrease) in cash and cash equivalents |
|
| 5,933 |
|
|
| (8,656 | ) |
Cash and cash equivalents, beginning of period |
|
| 22,761 |
|
|
| 34,604 |
|
Cash and cash equivalents, end of period |
| $ | 28,694 |
|
| $ | 25,948 |
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Supplemental disclosure of cash flow information: |
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Cash paid for income taxes |
| $ | 4,909 |
|
| $ | 6,786 |
|
Cash paid for interest, net of capitalized interest |
| $ | 2,968 |
|
| $ | 904 |
|
Supplemental disclosure of non-cash investing and financing activities: |
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|
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Property and equipment acquired and included in accounts payable |
| $ | 6,947 |
|
| $ | 14,802 |
|
Stock-based compensation capitalized |
| $ | 218 |
|
| $ | 226 |
|
See accompanying notes to unaudited consolidated financial statements.
UNAUDITEDCONSOLIDATED STATEMENTS OF (LOSS) INCOME
(In thousands, except per share data)
|
| For the Thirteen Weeks Ended |
|
| For the Twenty-Six Weeks Ended |
| ||||||||||
|
| June 30, 2020 |
|
| July 2, 2019 |
|
| June 30, 2020 |
|
| July 2, 2019 |
| ||||
Revenues |
| $ | 128,024 |
|
| $ | 301,090 |
|
| $ | 382,619 |
|
| $ | 591,644 |
|
Restaurant operating costs (excluding depreciation and amortization): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (1) |
|
| 31,988 |
|
|
| 76,861 |
|
|
| 95,794 |
|
|
| 150,187 |
|
Labor and benefits |
|
| 51,524 |
|
|
| 108,505 |
|
|
| 155,353 |
|
|
| 213,726 |
|
Occupancy and operating (1) |
|
| 45,848 |
|
|
| 64,493 |
|
|
| 107,112 |
|
|
| 126,084 |
|
General and administrative |
|
| 14,472 |
|
|
| 15,985 |
|
|
| 26,080 |
|
|
| 32,881 |
|
Depreciation and amortization |
|
| 18,353 |
|
|
| 17,839 |
|
|
| 36,698 |
|
|
| 35,481 |
|
Restaurant opening |
|
| 152 |
|
|
| 610 |
|
|
| 695 |
|
|
| 1,058 |
|
Loss on disposal and impairment of assets |
|
| 11,420 |
|
|
| 1,042 |
|
|
| 14,325 |
|
|
| 2,687 |
|
Total costs and expenses |
|
| 173,757 |
|
|
| 285,335 |
|
|
| 436,057 |
|
|
| 562,104 |
|
(Loss) income from operations |
|
| (45,733 | ) |
|
| 15,755 |
|
|
| (53,438 | ) |
|
| 29,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
| (1,942 | ) |
|
| (1,066 | ) |
|
| (3,413 | ) |
|
| (2,136 | ) |
Other income (expense), net |
|
| 1,661 |
|
|
| 141 |
|
|
| (44 | ) |
|
| 1,238 |
|
Total other (expense) income |
|
| (281 | ) |
|
| (925 | ) |
|
| (3,457 | ) |
|
| (898 | ) |
(Loss) income before income taxes |
|
| (46,014 | ) |
|
| 14,830 |
|
|
| (56,895 | ) |
|
| 28,642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) expense |
|
| (17,064 | ) |
|
| 638 |
|
|
| (23,678 | ) |
|
| 1,586 |
|
Net (loss) income |
| $ | (28,950 | ) |
| $ | 14,192 |
|
| $ | (33,217 | ) |
| $ | 27,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | (1.38 | ) |
| $ | 0.69 |
|
| $ | (1.66 | ) |
| $ | 1.30 |
|
Diluted |
| $ | (1.38 | ) |
| $ | 0.68 |
|
| $ | (1.66 | ) |
| $ | 1.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 20,951 |
|
|
| 20,692 |
|
|
| 20,026 |
|
|
| 20,874 |
|
Diluted |
|
| 20,951 |
|
|
| 20,999 |
|
|
| 20,026 |
|
|
| 21,232 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per common share |
| $ | — |
|
| $ | 0.12 |
|
| $ | — |
|
| $ | 0.24 |
|
(1) | Related party costs included in cost of sales are $9,951 and $22,430 for the thirteen weeks ended June 30, 2020 and July 2, 2019, respectively and $28,070 and $44,192 for the twenty-six weeks ended June 30, 2020 and July 2, 2019, respectively. Related party costs included in occupancy and operating are $1,849 and $2,391 for the thirteen weeks ended June 30, 2020 and July 2, 2019, respectively and $4,058 and $4,818 for the twenty-six weeks ended June 30, 2020 and July 2, 2019, respectively. See Note 6 for further information. |
See accompanying notes to unaudited consolidated financial statements.
BJ’S RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
|
| For the Thirteen Weeks Ended |
| |||||||||||||||||
|
| Common Stock |
|
| Capital |
|
| Retained |
|
|
|
|
| |||||||
|
| Shares |
|
| Amount |
|
| Surplus |
|
| Earnings |
|
| Total |
| |||||
Balance, April 2, 2019 |
|
| 20,909 |
|
| $ | — |
|
| $ | 61,683 |
|
| $ | 267,585 |
|
| $ | 329,268 |
|
Exercise of stock options |
|
| 5 |
|
|
| 261 |
|
|
| (64 | ) |
|
| — |
|
|
| 197 |
|
Issuance of restricted stock units |
|
| 18 |
|
|
| 562 |
|
|
| (560 | ) |
|
| — |
|
|
| 2 |
|
Repurchase and retirement of common stock |
|
| (422 | ) |
|
| (823 | ) |
|
| — |
|
|
| (18,424 | ) |
|
| (19,247 | ) |
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 2,371 |
|
|
| — |
|
|
| 2,371 |
|
Dividends paid or payable, $0.12 per share |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,547 | ) |
|
| (2,547 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 14,192 |
|
|
| 14,192 |
|
Balance, July 2, 2019 |
|
| 20,510 |
|
| $ | — |
|
| $ | 63,430 |
|
| $ | 260,806 |
|
| $ | 324,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2020 |
|
| 18,750 |
|
| $ | — |
|
| $ | 63,126 |
|
| $ | 208,778 |
|
| $ | 271,904 |
|
Issuance of common stock and warrant |
|
| 3,500 |
|
|
| 64,002 |
|
|
| 3,394 |
|
|
| — |
|
|
| 67,396 |
|
Issuance of restricted stock units |
|
| 11 |
|
|
| 542 |
|
|
| (542 | ) |
|
| — |
|
|
| — |
|
Repurchase, retirement and reclassification of common stock |
|
| — |
|
|
| (64,544 | ) |
|
| — |
|
|
| 64,544 |
|
|
| — |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 2,240 |
|
|
| — |
|
|
| 2,240 |
|
Adjustment to dividends previously accrued |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4 |
|
|
| 4 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (28,950 | ) |
|
| (28,950 | ) |
Balance, June 30, 2020 |
|
| 22,261 |
|
| $ | — |
|
| $ | 68,218 |
|
| $ | 244,376 |
|
| $ | 312,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Twenty-Six Weeks Ended |
| |||||||||||||||||
|
| Common Stock |
|
| Capital |
|
| Retained |
|
|
|
|
| |||||||
|
| Shares |
|
| Amount |
|
| Surplus |
|
| Earnings |
|
| Total |
| |||||
Balance, January 1, 2019 |
|
| 21,058 |
|
| $ | — |
|
| $ | 64,342 |
|
| $ | 244,879 |
|
| $ | 309,221 |
|
Exercise of stock options |
|
| 21 |
|
|
| 944 |
|
|
| (233 | ) |
|
| — |
|
|
| 711 |
|
Issuance of restricted stock units |
|
| 102 |
|
|
| 4,211 |
|
|
| (5,212 | ) |
|
| — |
|
|
| (1,001 | ) |
Repurchase and retirement of common stock |
|
| (671 | ) |
|
| (5,155 | ) |
|
| — |
|
|
| (25,986 | ) |
|
| (31,141 | ) |
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 4,533 |
|
|
| — |
|
|
| 4,533 |
|
Cumulative effect of adopting lease standard |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 19,963 |
|
|
| 19,963 |
|
Dividends paid or payable, $0.24 per share |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5,106 | ) |
|
| (5,106 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 27,056 |
|
|
| 27,056 |
|
Balance, July 2, 2019 |
|
| 20,510 |
|
| $ | — |
|
| $ | 63,430 |
|
| $ | 260,806 |
|
| $ | 324,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2019 |
|
| 19,149 |
|
| $ | — |
|
| $ | 67,062 |
|
| $ | 223,225 |
|
| $ | 290,287 |
|
Issuance of common stock and warrant |
|
| 3,500 |
|
|
| 64,002 |
|
|
| 3,394 |
|
|
| — |
|
|
| 67,396 |
|
Issuance of restricted stock units |
|
| 107 |
|
|
| 5,345 |
|
|
| (6,050 | ) |
|
| — |
|
|
| (705 | ) |
Repurchase, retirement and reclassification of common stock |
|
| (495 | ) |
|
| (69,347 | ) |
|
| — |
|
|
| 54,333 |
|
|
| (15,014 | ) |
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 3,812 |
|
|
| — |
|
|
| 3,812 |
|
Adjustment to dividends previously accrued |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 35 |
|
|
| 35 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (33,217 | ) |
|
| (33,217 | ) |
Balance, June 30, 2020 |
|
| 22,261 |
|
| $ | — |
|
| $ | 68,218 |
|
| $ | 244,376 |
|
| $ | 312,594 |
|
See accompanying notes to unaudited consolidated financial statements.
BJ’S RESTAURANTS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
| For the Twenty-Six Weeks Ended |
| |||||
|
| June 30, 2020 |
|
| July 2, 2019 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net (loss) income |
| $ | (33,217 | ) |
| $ | 27,056 |
|
Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 36,698 |
|
|
| 35,481 |
|
Non-cash lease expense |
|
| 14,416 |
|
|
| 13,576 |
|
Amortization of financing costs |
|
| 85 |
|
|
| — |
|
Deferred income taxes |
|
| (24,024 | ) |
|
| (1,607 | ) |
Stock-based compensation expense |
|
| 3,783 |
|
|
| 4,379 |
|
Loss on disposal and impairment of assets |
|
| 14,325 |
|
|
| 2,687 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts and other receivables |
|
| 8,201 |
|
|
| 15,401 |
|
Inventories, net |
|
| 13 |
|
|
| (456 | ) |
Prepaid expenses and other current assets |
|
| 2,020 |
|
|
| 1,805 |
|
Other assets, net |
|
| (2,109 | ) |
|
| (5,873 | ) |
Accounts payable |
|
| 23,322 |
|
|
| (509 | ) |
Accrued expenses |
|
| (16,877 | ) |
|
| (10,352 | ) |
Operating lease obligations |
|
| (12,321 | ) |
|
| (20,179 | ) |
Other liabilities |
|
| 263 |
|
|
| 2,978 |
|
Net cash provided by operating activities |
|
| 14,578 |
|
|
| 64,387 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
| (24,862 | ) |
|
| (38,757 | ) |
Proceeds from sale of assets |
|
| 4 |
|
|
| — |
|
Net cash used in investing activities |
|
| (24,858 | ) |
|
| (38,757 | ) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Borrowings on line of credit |
|
| 672,200 |
|
|
| 516,500 |
|
Payments on line of credit |
|
| (648,400 | ) |
|
| (511,500 | ) |
Payments of debt issuance costs |
|
| (735 | ) |
|
| — |
|
Proceeds from issuance of common stock |
|
| 67,396 |
|
|
| — |
|
Taxes paid on vested stock units under employee plans |
|
| (705 | ) |
|
| (1,002 | ) |
Proceeds from exercise of stock options |
|
| — |
|
|
| 711 |
|
Cash dividends paid |
|
| (115 | ) |
|
| (5,046 | ) |
Repurchases of common stock |
|
| (15,014 | ) |
|
| (31,141 | ) |
Net cash provided by (used in) financing activities |
|
| 74,627 |
|
|
| (31,478 | ) |
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
| 64,347 |
|
|
| (5,848 | ) |
Cash and cash equivalents, beginning of period |
|
| 22,394 |
|
|
| 29,224 |
|
Cash and cash equivalents, end of period |
| $ | 86,741 |
|
| $ | 23,376 |
|
See accompanying notes to unaudited consolidated financial statements.
BJ’S RESTAURANTS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
| For the Twenty-Six Weeks Ended |
| |||||
|
| June 30, 2020 |
|
| July 2, 2019 |
| ||
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for income taxes |
| $ | 998 |
|
| $ | 4,067 |
|
Cash paid for interest, net of capitalized interest |
| $ | 3,034 |
|
| $ | 1,880 |
|
Cash paid for operating lease obligations |
| $ | 28,735 |
|
| $ | 33,559 |
|
Supplemental disclosure of non-cash operating, investing and financing activities: |
|
|
|
|
| |||
Operating lease assets obtained in exchange for operating lease obligations |
| $ | 12,101 |
|
| $ | 13,893 |
|
Property and equipment acquired and included in accounts payable |
| $ | 3,348 |
|
| $ | 7,478 |
|
Stock-based compensation capitalized |
| $ | 29 |
|
| $ | 154 |
|
See accompanying notes to unaudited consolidated financial statements.
BJ’S RESTAURANTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the accounts of BJ’s Restaurants, Inc. (referred to herein as the “Company,” “we,” “us” and “our”) and our wholly owned subsidiaries. The consolidated financial statements presented herein include all material adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of our financial condition, results of operations, shareholders’ equity and cash flows for the period. Our consolidated financial statements and accompanying notes have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Certain information and footnote disclosures normally included in consolidated financial statements in accordance with U.S. GAAP have been omitted pursuant to the U.S. Securities and Exchange Commission (“SEC”) rules.
The preparation of financial statements in accordanceconformity with U.S. GAAP requires us to make certain estimates and assumptions for the reporting periods covered by the financial statements. These estimates and assumptions affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses. Actual amounts could differ from these estimates.Due to the severe impact of the global coronavirus (“COVID-19”) pandemic, operating results for the twenty-six weeks ended June 30, 2020 may not be indicative of operating results for the entire year.
A description of our accounting policies and other financial information is included in our audited consolidated financial statements filed with the SEC on Form 10-K for the year ended January 3, 2017.December 31, 2019, as amended by Amendment No. 1 thereto, filed on April 22, 2020 (collectively, our “2019 Form10-K”). The disclosures included in our accompanying interim consolidated financial statements and footnotes should be read in conjunction with our consolidated financial statements and notes thereto included in the Annual Report onour 2019 Form 10-K and our other reports filed from time to time with the Securities and Exchange Commission.
ReclassificationsImpact of the COVID-19 Pandemic
In early March 2020, the COVID-19 pandemic was declared to be a National Public Health Emergency, and the Centers for Disease Control and Prevention, as well as state and local legislative bodies and health departments, began issuing orders related to social distancing requirements, reduced restaurant seating capacity and other restrictions resulting in a significant reduction in traffic at our restaurants. By April, at the request of most state and local legislative bodies, we closed all of our dining rooms and began to operate in a take-out and delivery only capacity.
In response to these conditions and to increase liquidity and enhance financial flexibility, we drew down the remaining available balance on our revolving Credit Facility in late March. We also suspended (i) our quarterly cash dividends, (ii) our share repurchase activity, (iii) our 401(k) plan employer matching contributions, and (iv) the payment of rent on our leases. Additionally, in April, we temporarily laid off approximately 16,000 hourly team members, temporarily closed four of our restaurants, based on the evaluation of their off-premise sales and associated cash flows, and temporarily reduced restaurant support center salaries for all team members making over $100,000, as well as our Board of Directors. On April 30, 2020, we amended our Credit Facility to modify certain financial covenants through the first quarter of fiscal 2021. To further enhance our liquidity and financial position, on May 5, 2020, we completed a private sale of $70 million of our common stock and issued a warrant to purchase additional shares to one of the investors. See Note 10 for further information. Lastly, with the significant reduction in our revenues, we implemented and continue to implement cost savings initiatives. See the subsection below entitled “Liquidity and Capital Resources” in Part I, Item 2 of this Form 10-Q for further details.
In early May, states began allowing the re-opening of dining rooms in a limited capacity to adhere to social distancing guidelines. By the end of June, we had re-opened dining rooms in approximately 95% of our restaurants and re-opened 3 of our 4 temporarily closed locations. However, in early July, certain states, including California where 62 of our restaurants are located, ordered rollbacks of their dining room re-opening plans. As of August 3, 2020, we have 140 restaurants serving guests in our dining rooms in a limited capacity, and 68 of our restaurants serving guests outdoors only, while adhering to social distancing protocols. Takeout and delivery are available at all our open locations. To support the increase in dining room and outdoor dining, we have also recalled approximately 10,000 of our hourly team members who had previously been temporarily laid off.
The reduced cash flow projections resulting from the COVID-19 pandemic triggered an asset impairment analysis. We normally assess the potential impairment of our long-lived assets whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. The assets are generally reviewed for impairment on a restaurant by restaurant basis, or at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets. As a result of this trigger, we used the adoptionundiscounted cash flow method and assessed the recoverability by comparing the carrying value of the asset to the undiscounted cash flows expected to be generated by the assets. We determine that a restaurant’s long-lived assets are impaired if the forecasted undiscounted cash flows is less than the carrying value of the restaurant’s assets. As a result of this analysis, we determined four of our restaurants were impaired and for the twenty-six weeks ended June 30, 2020, we recorded a $12.0 million charge to operating income for the amount by which the carrying value of the restaurant’s assets exceeded its fair value estimated using the
discounted cash flow method. We are unable to predict how long these conditions will persist, what additional measures may be introduced by governments, or what effect any such additional measures may have on our business. Any measure that encourages potential customers to stay in their homes, engage in social distancing or avoid larger gatherings of people is highly likely to be harmful to the dining industry in general and, consequently, our business, which may result in additional impairment charges.
Recently Adopted Accounting Standards
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-17, Balance Sheet Classification2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Deferred Taxes (Topic 740), reclassificationsCredit Losses on Financial Instruments. This update requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires a consideration of financial statement amounts have been madea broader range of reasonable and supportable information to the prior period to conform to the current period’s presentation.estimate credit losses. We adopted ASU 2016-13 on January 1, 2020. The adoption of this standard resulted in the reclassification of $18.4 million from current to long-term deferred taxesdid not have a material impact on January 3, 2017.
Recently Issued Accounting Standardsour consolidated financial statements.
In February 2016,August 2018, the FASB issued Accounting Standards Update ASU 2016-02, Leases (Topic 842)(“ASU”) 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40). This guidance requiresupdate clarifies the recognitionrequirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. We adopted ASU 2016-13 on January 1, 2020. The adoption of most leases on the balance sheet to give investors, lenders, and other financial statement usersthis standard did not have a more comprehensive view of a company’s long-term financial obligations as well as the assets it owns versus leases. ASU 2016-02 will be effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Currently, all of our restaurant and our restaurant support center leases are accounted for as operating leases, and therefore are not recorded within our balance sheet. We are currently evaluating thematerial impact that this guidance will have on our consolidated financial statements as well as the expected adoption method.statements.
In April 2016, the FASB issued ASU 2016-10, an amendment to ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 provides a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services and expands related disclosure requirements. ASU 2016-10 clarifies ASU 2014-09 to address the potential for diversity in practice at the adoption. ASUs 2016-10 and 2014-09 are effective for annual and interim reporting periods beginning after December 15, 2017, and early application is permitted.
The majority of the Company’s2. REVENUE RECOGNITION
Our revenues are fromprimarily comprised of food and beverage sales at our restaurants. ASU 2014-09 willRevenues from restaurant sales are recognized when payment is tendered. Amounts paid with a credit card are recorded in accounts and other receivables until payment is collected from the credit card processor. We sell gift cards which do not have an impactexpiration date and we do not deduct non-usage fees from outstanding gift card balances. Gift card sales are recorded as a liability and recognized as revenues upon redemption in our restaurants. Based on historical redemption rates, a portion of our gift card sales are not expected to be redeemed and will be recognized as gift card “breakage” over time. Estimated gift card breakage is recorded as revenue recognition relatedand recognized in proportion to our historical redemption pattern, unless there is a legal obligation to remit the unredeemed gift cards to government authorities. The estimated gift card breakage is based on when the likelihood of redemption becomes remote, which has typically been 24 months after the original gift card issuance date.
Our “BJ’s Premier Rewards Plus” customer loyalty program enables participants to earn points for qualifying purchases that can be redeemed for food and beverage sales unlessbeverages in the sales are to a customer participating in our loyalty program. Currently, we measure our total loyalty rewards obligation based on the estimated number of customers who will ultimately claim the rewards earned under the program using the estimated cost of the rewards. Under this approach, we estimate the cost of a loyalty point based on the equivalent cost of the food and beverage earned by our customers. These expenses are accrued for and recorded as marketing expenses and are included in “Occupancy and operating” expenses on our Consolidated Statements of Income. Under ASU 2016-10, we will be required tofuture. We allocate the transaction price between the goods delivered and the future goods that will be delivered, using the loyalty points earned, on a relative standalone selling price basis. The portion ofbasis, and defer the transaction pricerevenues allocated to the future loyalty rewards will be deferredpoints, less expected expirations, until the related loyalty rewardssuch points are redeemed. We will no longer record a marketing expensetemporarily suspended loyalty point expirations in response to the COVID-19 pandemic.
The liability related to loyalty points earned. These new standards will not impact the way we account forour gift card breakage. and loyalty program, included in “Accrued expenses,” on our Consolidated Balance Sheets is as follows (in thousands):
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||
Gift card liability |
| $ | 13,895 |
|
| $ | 19,106 |
|
Deferred loyalty revenue |
| $ | 9,255 |
|
| $ | 8,320 |
|
Revenue recognized for the redemption of gift cards and loyalty rewards deferred at the beginning of each respective fiscal year is as follows (in thousands):
|
| For the Thirteen Weeks Ended |
|
| For the Twenty-Six Weeks Ended |
| ||||||||||
|
| June 30, 2020 |
|
| July 2, 2019 |
|
| June 30, 2020 |
|
| July 2, 2019 |
| ||||
Revenue recognized from gift card liability |
| $ | 1,070 |
|
| $ | 1,978 |
|
| $ | 8,690 |
|
| $ | 9,583 |
|
Revenue recognized from customer loyalty program |
| $ | 378 |
|
| $ | 3,083 |
|
| $ | 5,288 |
|
| $ | 7,156 |
|
3. LEASES
We aredetermine if a contract contains a lease at inception. Our material operating leases consist of restaurant locations and office space. U.S. GAAP requires that our leases be evaluated and classified as operating or finance leases for financial reporting purposes. The classification evaluation begins at the commencement date, and the lease term used in the processevaluation includes the non-cancellable period for which we have the right to use the underlying asset, together with renewal option periods when the exercise of quantifyingthe renewal option is reasonably certain and failure to exercise such option would result in an economic penalty. All of our restaurant leases and office space are classified as operating leases. We do not have any finance leases.
Lease costs included in “Occupancy & operating” on the Consolidated Statements of (Loss) Income consisted of the following (in thousands):
| For the Thirteen Weeks Ended |
|
| For the Twenty-Six Weeks Ended |
| |||||||||||
|
| June 30, 2020 |
|
| July 2, 2019 |
|
| June 30, 2020 |
|
| July 2, 2019 |
| ||||
Lease cost |
| $ | 13,791 |
|
| $ | 13,713 |
|
| $ | 27,641 |
|
| $ | 26,953 |
|
Variable lease cost |
|
| — |
|
|
| 971 |
|
|
| — |
|
|
| 1,826 |
|
Contractual lease concessions |
|
| (311 | ) |
|
| — |
|
|
| (26 | ) |
|
| — |
|
Total lease costs |
| $ | 13,480 |
|
| $ | 14,684 |
|
| $ | 27,615 |
|
| $ | 28,779 |
|
In response to the impact of adopting this new standardthe COVID-19 pandemic on our operations, beginning April 1, 2020, we suspended the payment of rent and did not make lease payments under our existing lease agreements. During the suspension of payments, we continued to recognize expenses and liabilities for lease obligations and corresponding lease assets on the balance sheet in accordance with ASU 2016-02, Leases (Topic 842).
We have engaged in ongoing constructive discussions with our landlords regarding the potential restructuring of lease payments and rent concessions. The negotiated concessions primarily take the form of rent deferrals (full or partial) or abatements. In accordance with the relief issued in April 2020 by the FASB titled ASC Topic 842 and ASC Topic 840, Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic, we did not recognize contractual rent concessions as wella lease contract modification when the total payments required by the modified contract were substantially the same or less than total payments required by the original contract. Lease concessions that provided a substantial increase in the rights of the lessor or our obligations under the lease were accounted for as determining the adoption method.lease modifications in accordance with ASC Topic 842.
2.4. LONG-TERM DEBT
Line of Credit
On April 30, 2020, we entered into an Amended Credit Facility (“Credit Facility”) with Bank of America, N.A. (“BofA”) and JPMorgan Chase Bank, N.A., to amend and restate our existing unsecured revolving line of credit (the “Line of Credit”) in response to disruptions arising from the COVID-19 pandemic and to modify certain financial covenants through the first quarter of fiscal 2021. On June 15, 2020, we further modified our Credit Facility to reduce our Line of Credit by $15.0 million, extend the maturity date by one year, change certain pricing and reset select covenant levels. Our Credit Facility whichnow matures on November 18, 2021,2022, and provides us with revolving loan commitments totaling $250$235 million, of which $50 million may be used for the issuance of letters of credit. Availability under the Credit Facility is reduced by outstanding letters of credit, which are used to support our self-insurance programs. Our obligations under the Credit Facility are unsecured. As of October 3, 2017,June 30, 2020, there were borrowings of $194.0$166.8 million and letters of credit totaling approximately $14.4$18.1 million outstanding under the Credit Facility. Available borrowings under the Credit Facility were $41.6$50.1 million as of October 3, 2017. TheJune 30, 2020.
Borrowings under the Line of Credit Facility bearsbear interest at our choice ofan annual rate equal to either (a) LIBOR plus a percentage not to exceed 1.75%3.00% (with a floor on LIBOR of 1.00%), or at(b) a rate ranging from Bankpercentage not to exceed 2.00% above a Base Rate equal to the highest of America’s prime rate to 0.75% above Bank(i) the Federal Funds Rate plus 1/2 of America’s prime rate, based1.00%, (ii) BofA’s Prime Rate, or (iii) one-month LIBOR plus 1.00%, in either case depending on ourthe level of lease and debt obligations of the Company as compared to EBITDA plusand lease expenses. The weighted average interest rate during the thirty-ninetwenty-six weeks ended October 3, 2017June 30, 2020 was approximately 2.2%3.5%.
The Credit Facility is secured by the Company’s assets and contains provisions requiring us to maintain compliance with certain covenants, including a Fixed Charge Coverage Ratiofixed charge coverage ratio and a Lease Adjusted Leverage Ratio.lease adjusted leverage ratio. The testing of the fixed charge coverage ratio and lease adjusted leverage ratio have been suspended until the fourth fiscal quarter ending December 29, 2020, at which time modified fixed charge ratio and lease adjusted leverage ratio tests will resume. Additionally, through December 29, 2020, a monthly liquidity balance must be maintained, ranging from $50.5 million as of April 30, 2020, and decreasing to $3.0 million by the end of December 2020, including cash and cash equivalents and availability under the Line of Credit. At October 3, 2017,June 30, 2020, we were in compliance with these covenants.
Pursuant to the Line of Credit, we are required to pay certain customary fees and expenses associated with maintenance and use of the Line of Credit, including letter of credit issuance fees and unused commitment fees and interest on the Line of Credit, which are payable monthly. Interest expense and commitment fees under the Credit Facility for the thirty-ninetwenty-six weeks ended October 3, 2017June 30, 2020 and September 27, 2016 wasJuly 2, 2019 were approximately $3.2$3.4 million and $1.1$2.1 million, respectively. We also capitalized approximately $0.1 million and $0.2 million of interest expense related to new restaurant construction during each of the thirty-ninetwenty-six weeks ended October 3, 2017,June 30, 2020 and September 27, 2016, respectively.July 2, 2019. Additionally, for the twenty-six weeks ended June 30, 2020, we capitalized approximately $0.7 million of fees related to the amended and modified credit agreement, which will be amortized over the remaining term of the Credit Facility.
3.5. NET (LOSS) INCOME PER SHARE
Basic net (loss) income per share is computed by dividing net (loss) income by the weighted average number of common shares outstanding during the period. Diluted net loss per share excludes the dilutive effect of equity awards. Diluted net income per share reflects the potential dilution that could occur if in-the-money warrants or stock options issued by us to sell common stock at set prices were exercised and if restrictions on restricted stock units (“RSUs”) issued by us were to lapse (collectively, equity awards) using the treasury stock method. Performance-based restricted stock units have been excluded fromRSUs are considered contingent shares; therefore, at each reporting date we determine the probable number of shares that will vest and we include these contingently issuable shares in our diluted net (loss) income per share computation because thecalculation. Once theses performance-based criteria have not yet been met. RSUs vest, they are included in our basic net (loss) income per share calculation.
The following table presents a reconciliation of basic and diluted net (loss) income per share, including the number of dilutive equity awards that were included in the dilutive net income per share computation (in thousands):
|
| For the Thirteen |
|
| For the Thirty-Nine |
| ||||||||||||||||||||||||||
|
| Weeks Ended |
|
| Weeks Ended |
|
| For the Thirteen Weeks Ended |
|
| For the Twenty-Six Weeks Ended |
| ||||||||||||||||||||
|
| October 3, 2017 |
|
| September 27, 2016 |
|
| October 3, 2017 |
|
| September 27, 2016 |
|
| June 30, 2020 |
|
| July 2, 2019 |
|
| June 30, 2020 |
|
| July 2, 2019 |
| ||||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 2,389 |
|
| $ | 7,237 |
|
| $ | 21,294 |
|
| $ | 32,670 |
| ||||||||||||||||
Net (loss) income |
| $ | (28,950 | ) |
| $ | 14,192 |
|
| $ | (33,217 | ) |
| $ | 27,056 |
| ||||||||||||||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding – basic |
|
| 21,354 |
|
|
| 24,091 |
|
|
| 21,620 |
|
|
| 24,172 |
|
|
| 20,951 |
|
|
| 20,692 |
|
|
| 20,026 |
|
|
| 20,874 |
|
Dilutive effect of equity awards |
|
| 316 |
|
|
| 395 |
|
|
| 412 |
|
|
| 417 |
|
|
| — |
|
|
| 307 |
|
|
| — |
|
|
| 358 |
|
Weighted-average shares outstanding – diluted |
|
| 21,670 |
|
|
| 24,486 |
|
|
| 22,032 |
|
|
| 24,589 |
|
|
| 20,951 |
|
|
| 20,999 |
|
|
| 20,026 |
|
|
| 21,232 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net (loss) income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Basic |
| $ | (1.38 | ) |
| $ | 0.69 |
|
| $ | (1.66 | ) |
| $ | 1.30 |
| ||||||||||||||||
Diluted |
| $ | (1.38 | ) |
| $ | 0.68 |
|
| $ | (1.66 | ) |
| $ | 1.27 |
|
For the thirteen weeks ended October 3, 2017June 30, 2020 and September 27, 2016,July 2, 2019, there were approximately 1.1 million and 0.4 million shares of common stock equivalents, respectively, that were excluded from the calculation of diluted net income per share because they are anti-dilutive. For the thirty-nine weeks ended October 3, 2017 and September 27, 2016, there were approximately 0.51.2 million and 0.3 million shares of common stock equivalents, respectively, that were excluded from the calculation of diluted net (loss) income per share because they are anti-dilutive. For the twenty-six weeks ended June 30, 2020 and July 2, 2019, there were approximately 1.1 million and 0.3 million shares of common stock equivalents, respectively, that were excluded from the calculation of diluted net (loss) income per share because they are anti-dilutive.
4.6. RELATED PARTY
The Jacmar Companies and their affiliates (collectively referred to herein as “Jacmar”) is one of our shareholders and James Dal Pozzo, the Chief Executive OfficerChairman of the Board of the Jacmar Companies (“Jacmar”), is a member of our Board of Directors. Jacmar, through its affiliation with Distribution Market Advantage (“DMA”), a consortium of large, regional food distributors located throughout the United States, is currentlywas our largest supplierdistributor of food, beverage, paper products and supplies. Insupplies from 2006 we began usingthrough June 30, 2020. Our contract with DMA to deliver the majority of our food products to our restaurants. In July 2017,expired on June 30, 2020. Effective June 1, 2020, after conducting a marketan extensive request for proposal process and evaluation, we entered into a new five-yearan agreement with US Foods, replacing DMA. The new agreement expires in July 2023.
Through June 2022.
30, 2020, Jacmar servicesserviced our restaurants in California and Nevada, while other DMA distributors serviceserviced our restaurants in all other states. Under the terms of our agreement with DMA, Jacmar iswas required to sell products to us at the same prices as the other DMA distributors. Jacmar doesdid not provide us with any produce, liquor, wine or beer products, all of which arewere provided by other third party vendors and are included in “Cost of sales” on the Consolidated Statements of (Loss) Income. Effective July 1, 2020, with the expiration of our DMA agreement, Jacmar is no longer considered a related party.
The cost of food, beverage, paper products and supplies provided by Jacmar included within cost of sales and occupancy andrestaurant operating expensescosts consisted of the following (in thousands):
|
| For the Thirteen |
|
| For the Thirty-Nine |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| Weeks Ended |
|
| Weeks Ended |
|
| For the Thirteen Weeks Ended |
|
| For the Twenty-Six Weeks Ended |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| October 3, 2017 |
|
| September 27, 2016 |
|
| October 3, 2017 |
|
| September 27, 2016 |
|
| June 30, 2020 |
|
| July 2, 2019 |
|
| June 30, 2020 |
|
| July 2, 2019 |
| ||||||||||||||||||||||||||||||||||||||||
Cost of sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third party suppliers |
| $ | 45,066 |
|
|
| 68.7 | % |
| $ | 40,642 |
|
|
| 67.9 | % |
| $ | 138,089 |
|
|
| 68.9 | % |
| $ | 122,681 |
|
|
| 67.0 | % |
| $ | 22,037 |
|
|
| 68.9 | % |
| $ | 54,431 |
|
|
| 70.8 | % |
| $ | 67,724 |
|
|
| 70.7 | % |
| $ | 105,995 |
|
|
| 70.6 | % |
Jacmar |
|
| 20,487 |
|
|
| 31.3 |
|
|
| 19,240 |
|
|
| 32.1 |
|
|
| 62,376 |
|
|
| 31.1 |
|
|
| 60,410 |
|
|
| 33.0 |
|
|
| 9,951 |
|
|
| 31.1 |
|
|
| 22,430 |
|
|
| 29.2 |
|
|
| 28,070 |
|
|
| 29.3 |
|
|
| 44,192 |
|
|
| 29.4 |
|
Total cost of sales |
| $ | 65,553 |
|
|
| 100.0 | % |
| $ | 59,882 |
|
|
| 100.0 | % |
| $ | 200,465 |
|
|
| 100.0 | % |
| $ | 183,091 |
|
|
| 100.0 | % |
| $ | 31,988 |
|
|
| 100.0 | % |
| $ | 76,861 |
|
|
| 100.0 | % |
| $ | 95,794 |
|
|
| 100.0 | % |
| $ | 150,187 |
|
|
| 100.0 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Occupancy and operating: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third party suppliers |
| $ | 52,913 |
|
|
| 95.8 | % |
| $ | 48,305 |
|
|
| 95.7 | % |
| $ | 157,186 |
|
|
| 95.8 | % |
| $ | 143,148 |
|
|
| 95.6 | % |
| $ | 43,999 |
|
|
| 96.0 | % |
| $ | 62,102 |
|
|
| 96.3 | % |
| $ | 103,054 |
|
|
| 96.2 | % |
| $ | 121,266 |
|
|
| 96.2 | % |
Jacmar |
|
| 2,325 |
|
|
| 4.2 |
|
|
| 2,169 |
|
|
| 4.3 |
|
|
| 6,868 |
|
|
| 4.2 |
|
|
| 6,543 |
|
|
| 4.4 |
|
|
| 1,849 |
|
|
| 4.0 |
|
|
| 2,391 |
|
|
| 3.7 |
|
|
| 4,058 |
|
|
| 3.8 |
|
|
| 4,818 |
|
|
| 3.8 |
|
Total occupancy and operating |
| $ | 55,238 |
|
|
| 100.0 | % |
| $ | 50,474 |
|
|
| 100.0 | % |
| $ | 164,054 |
|
|
| 100.0 | % |
| $ | 149,691 |
|
|
| 100.0 | % |
| $ | 45,848 |
|
|
| 100.0 | % |
| $ | 64,493 |
|
|
| 100.0 | % |
| $ | 107,112 |
|
|
| 100.0 | % |
| $ | 126,084 |
|
|
| 100.0 | % |
The amounts included in tradeaccounts payables related to Jacmar consisted of the following (in thousands):
|
| October 3, 2017 |
|
| January 3, 2017 |
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||||
Third party suppliers |
| $ | 20,168 |
|
| $ | 25,363 |
|
| $ | 39,003 |
|
| $ | 20,879 |
|
Jacmar |
|
| 3,816 |
|
|
| 5,782 |
|
|
| 4,013 |
|
|
| 2,543 |
|
Total accounts payable |
| $ | 23,984 |
|
| $ | 31,145 |
|
| $ | 43,016 |
|
| $ | 23,422 |
|
5.7. STOCK-BASED COMPENSATION
Our current shareholder approved stock-based compensation plan is the 2005BJ’s Restaurants, Inc. Equity Incentive Plan, (as amended from time to time, “the Plan”). Under the Plan, we may issue shares of our common stock to employees, officers, directors and consultants. We have granted incentive stock options, non-qualified stock options, and performance and time-based restricted stock units. Stock options and stock appreciation rights, if any, are charged against the Plan share reserve on the basis of one1 share for each share granted. OtherCertain other types of grants, including restricted stock units (“RSUs”),RSUs, are currently charged against the Plan share reserve on the basis of 1.5 shares for each share granted. The Plan also contains other limits on the terms of incentive grants such as limits on the number that can be granted to an employee during any fiscal year. All options granted under the Plan expire within 10 years of their date of grant.
Under the Plan, we issue non-qualified stock options as well as time-based and performance-based RSUs and non-qualified stock options to vice presidents and above.above on an annual basis, as well as new hires who are given the option between receiving their full grant as a time-based RSU or split half and half between non-qualified stock options and time-based RSUs. We issue time-based RSUs to our other support employees, and we issue time-based RSUs and/or non-qualified stock options to other support employees.non-employee members of our Board of Directors. We also issue RSUs, and previously issued non-qualified stock options, in connection with the BJ’s Gold Standard Stock Ownership Program (the “GSSOP”). The GSSOP is a long-term equity incentive program for our restaurant general managers, executive kitchen mangers,managers, directors of operations and directors of kitchen operations. GSSOP grants are dependent on the length of each participant’s service with us and position. All GSSOP participants are required to remain in good standing during their servicevesting period.
The Plan permits usour Board of Directors to set the vesting terms and exercise period for awards at ourits discretion. Stock options and time-based RSUs vest ratably over one, three or five years for non-GSSOP participants and either cliff vest at five years or cliff vest at 33% on the third anniversary and 67% on the fifth anniversary for GSSOP participants. Performance-based RSUs generally cliff vest on the third anniversary of the grant date in an amount from 0% to 150% of the grant quantity, dependent on the level of performance target achievement.achieved compared to the target.
The following table presents the stock-based compensation recognized within our consolidated financial statements (in thousands):
|
| For the Thirteen |
|
| For the Thirty-Nine |
| ||||||||||||||||||||||||||
|
| Weeks Ended |
|
| Weeks Ended |
|
| For the Thirteen Weeks Ended |
|
| For the Twenty-Six Weeks Ended |
| ||||||||||||||||||||
|
| October 3, 2017 |
|
| September 27, 2016 |
|
| October 3, 2017 |
|
| September 27, 2016 |
|
| June 30, 2020 |
|
| July 2, 2019 |
|
| June 30, 2020 |
|
| July 2, 2019 |
| ||||||||
Labor and benefits |
| $ | 406 |
|
| $ | 413 |
|
| $ | 1,404 |
|
| $ | 1,321 |
|
| $ | 692 |
|
| $ | 556 |
|
| $ | 1,321 |
|
| $ | 1,014 |
|
General and administrative |
| $ | 1,335 |
|
| $ | 1,061 |
|
| $ | 3,867 |
|
| $ | 3,259 |
|
| $ | 1,547 |
|
| $ | 1,739 |
|
| $ | 2,462 |
|
| $ | 3,365 |
|
Capitalized (1) |
| $ | 75 |
|
| $ | 64 |
|
| $ | 218 |
|
| $ | 226 |
|
| $ | — |
|
| $ | 76 |
|
| $ | 29 |
|
| $ | 154 |
|
| (1) | Capitalized stock-based compensation relates to our restaurant development personnel and is included in “Property and equipment, net” on the Consolidated Balance Sheets. |
Stock Options
The fair value of each stock option was estimated on the grant date using the Black‑Scholes option-pricing model with the following weighted average assumptions:
|
| For the Thirty-Nine Weeks Ended |
|
| For the Twenty-Six Weeks Ended |
| ||||||||||
|
| October 3, 2017 |
|
| September 27, 2016 |
|
| June 30, 2020 |
|
| July 2, 2019 |
| ||||
Expected volatility |
|
| 34.7 | % |
|
| 35.9 | % |
|
| 33.5 | % |
|
| 34.5 | % |
Risk free interest rate |
|
| 1.9 | % |
|
| 1.5 | % |
|
| 1.6 | % |
|
| 2.5 | % |
Expected option life |
| 5 years |
|
| 5 years |
|
| 5 years |
|
| 5 years |
| ||||
Dividend yield |
|
| 0 | % |
|
| 0 | % |
|
| 1.5 | % |
|
| 1.5 | % |
Fair value of options granted |
| $ | 12.12 |
|
| $ | 14.30 |
|
| $ | 10.38 |
|
| $ | 15.67 |
|
U.S. GAAP requires us to make certain assumptions and judgments regarding the grant date fair value. These judgments include expected volatility, risk free interest rate, expected option life, and dividend yield. These estimations and judgments are determined by us using assumptions that, in many cases, are outside of our control. The changes in these variables or trends, including stock price volatility, dividend yield and risk free interest rate may significantly impact the fair value of future grants resulting in a significant impact to our financial results.
The exercise price of our stock options under our stock-based compensation plan is required to equal or exceed the market close fair value of our sharescommon stock at market close on the option grant date or the most recent trading day when grants take place on market holidays. The following table presents stock option activity:
|
| Options Outstanding |
|
| Options Exercisable |
|
| Options Outstanding |
|
| Options Exercisable |
| ||||||||||||||||||||
|
| Shares (in thousands) |
|
| Weighted Average Exercise Price |
|
| Shares (in thousands) |
|
| Weighted Average Exercise Price |
|
| Shares (in thousands) |
|
| Weighted Average Exercise Price |
|
| Shares (in thousands) |
|
| Weighted Average Exercise Price |
| ||||||||
Outstanding at January 3, 2017 |
|
| 1,227 |
|
| $ | 31.95 |
|
|
| 802 |
|
| $ | 27.73 |
| ||||||||||||||||
Outstanding at December 31, 2019 |
|
| 645 |
|
| $ | 41.09 |
|
|
| 340 |
|
| $ | 38.96 |
| ||||||||||||||||
Granted |
|
| 168 |
|
|
| 36.25 |
|
|
|
|
|
|
|
|
|
|
| 161 |
|
|
| 38.37 |
|
|
|
|
|
|
|
|
|
Exercised |
|
| (38 | ) |
|
| 27.08 |
|
|
|
|
|
|
|
|
|
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
Forfeited |
|
| (23 | ) |
|
| 39.67 |
|
|
|
|
|
|
|
|
|
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
Outstanding at October 3, 2017 |
|
| 1,334 |
|
| $ | 32.50 |
|
|
| 880 |
|
| $ | 29.42 |
| ||||||||||||||||
Outstanding at June 30, 2020 |
|
| 806 |
|
| $ | 40.55 |
|
|
| 501 |
|
| $ | 39.90 |
|
As of October 3, 2017, June 30, 2020, total unrecognized stock-based compensation expense related to non-vested stock options was approximately $3.6$2.5 million, which is generally expected to be recognized over the next five years.
Restricted Stock Units
Time-Based Restricted Stock Units
The following table presents time-based restricted stock unit activity:
|
| Shares (in thousands) |
|
| Weighted Average Fair Value |
| ||
Outstanding at January 3, 2017 |
|
| 460 |
|
| $ | 39.75 |
|
Granted |
|
| 157 |
|
|
| 37.26 |
|
Vested or released |
|
| (76 | ) |
|
| 43.70 |
|
Forfeited |
|
| (50 | ) |
|
| 39.82 |
|
Outstanding at October 3, 2017 |
|
| 491 |
|
| $ | 38.34 |
|
|
| Shares (in thousands) |
|
| Weighted Average Fair Value |
| ||
Outstanding at December 31, 2019 |
|
| 509 |
|
| $ | 43.65 |
|
Granted |
|
| 148 |
|
|
| 31.96 |
|
Released |
|
| (98 | ) |
|
| 44.96 |
|
Forfeited |
|
| (15 | ) |
|
| 44.30 |
|
Outstanding at June 30, 2020 |
|
| 544 |
|
| $ | 40.23 |
|
The fair value of our time-based RSUs is equal to the fair value of our common stock at market close on the date of grant or the most recent trading day when grants take place on market holidays. The fair value of each time-based RSU is expensed over the vesting period (e.g., one, three or five years). As of October 3, 2017,June 30, 2020, total unrecognized stock-based compensation expense related to non-vested RSUs was approximately $9.4$10.9 million, which is generally expected to be recognized over the next five years.
Performance-Based Restricted Stock Units
The following table presents performance-based restricted stock unit activity:
|
| Shares (in thousands) |
|
| Weighted Average Fair Value |
| ||
Outstanding at January 3, 2017 |
|
| 54 |
|
| $ | 37.87 |
|
Granted |
|
| 40 |
|
|
| 35.95 |
|
Vested or released |
|
| — |
|
|
| — |
|
Forfeited |
|
| (24 | ) |
|
| 32.49 |
|
Outstanding at October 3, 2017 |
|
| 70 |
|
| $ | 38.68 |
|
|
| Shares (in thousands) |
|
| Weighted Average Fair Value |
| ||
Outstanding at December 31, 2019 |
|
| 105 |
|
| $ | 41.42 |
|
Granted |
|
| 42 |
|
|
| 38.90 |
|
Released |
|
| (29 | ) |
|
| 35.95 |
|
Forfeited |
|
| (9 | ) |
|
| 35.95 |
|
Outstanding at June 30, 2020 |
|
| 109 |
|
| $ | 42.39 |
|
The fair value of our performance-based RSUs is equal to the fair value of our common stock at market close on the date of grant or the most recent trading day when grants take place on market holidays. The fair value of each performance-based RSU is expensed based on management’s current estimate of the level that the performance goal will be achieved. As of October 3, 2017,June 30, 2020, based on the target level of performance, the total unrecognized stock-based compensation expense related to non-vested
performance-based RSUs was approximately $1.2$2.0 million, which is generally expected to be recognized over the next three years.
6.8. INCOME TAXES
We calculate our interim income tax provision in accordance with ASC Topic 270, “Interim Reporting” and ASC Topic 740, “Accounting for Income Taxes.” At the end of each interim period, we estimate the annual effective tax rate and apply that rate to our ordinary year to dateyear-to-date earnings. The related tax expense or benefit is recognized in the interim period in which it occurs. TheIn addition, the effect of changes in enacted tax laws, rates or tax status is recognized in the interim period in which the change is effective.occurs. The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including the expected operating (loss) income for the year, permanent and temporary differences as a result of differences between amounts measured and recognized in accordance with tax laws and financial accounting standards, and the likelihood of recovering deferred tax assets generated in the current fiscal year. The accounting estimates used to compute income tax expense may change as new events occur, additional information is obtained or the tax environment changes.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was enacted. Intended to provide economic relief to those impacted by the COVID-19 pandemic, the CARES Act includes provisions, among others, allowing for the carryback of net operating losses generated in 2018, 2019 and 2020, refunds of alternative minimum tax credits, temporary modifications to the limitations placed on the tax deductibility of net interest expense, and technical amendments regarding the expensing of qualified improvement property (“QIP”). As a result of the CARES Act, the Company is able to carryback losses generated in 2020 and reduce taxes payable for accelerated depreciation on qualified improvements property in 2018 and 2019.
Our effective income tax rate for the twenty-six weeks ended June 30, 2020, reflected a 41.7% tax benefit rate. The recorded tax benefit was greater than the tax benefit calculated at the statutory tax rate primarily due to FICA Tip Credits and the incremental benefit arising from the ability to carryback the 2020 loss to prior years when the tax rate was at 35%. The 14% rate benefit between the current tax rate of 21% versus the NOL carryback year of 35% is reflected partially in the annual effective tax rate and partially as a discrete item in the March 31, 2020 tax rate for the portion related to 2019 temporary deductible tax differences that are estimated to reverse in 2020 and become part of the 2020 loss carryback.
As of October 3, 2017,June 30, 2020, we had unrecognized tax benefits of approximately $1.3$1.5 million, of which approximately $0.9$1.0 million, if reversed, would impact our effective tax rate.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is the following (in thousands):
Balance at January 3, 2017 |
| $ | 1,245 |
|
Decrease for tax positions taken in prior years |
|
| (3 | ) |
Increase for tax positions taken in current year |
|
| 96 |
|
Decrease for statute expiration |
|
| (64 | ) |
Balance at October 3, 2017 |
| $ | 1,274 |
|
|
| For the Twenty-Six Weeks Ended |
| |||||
|
| June 30, 2020 |
|
| July 2, 2019 |
| ||
Gross unrecognized tax benefits at beginning of year |
| $ | 1,345 |
|
| $ | 1,532 |
|
Increases for tax positions taken in prior years |
|
| 148 |
|
|
| — |
|
Decreases for tax positions taken in prior years |
|
| — |
|
|
| (7 | ) |
Increases for tax positions taken in the current year |
|
| 22 |
|
|
| 49 |
|
Gross unrecognized tax benefits at end of year |
| $ | 1,515 |
|
| $ | 1,574 |
|
Our uncertain tax positions are related to tax years that remain subject to examination by tax agencies. As of October 3, 2017,June 30, 2020, the earliest tax year still subject to examination by the Internal Revenue Service is 2014.2015. The earliest year still subject to examination by a significant state or local taxing jurisdiction is 2012.2015.
7.9. LEGAL PROCEEDINGS
We are subject to lawsuits, administrative proceedings and demands that arise in the ordinary course of our business and which typically involve claims from customers, employees and others related to operational, employment, real estate and intellectual property issues common to the foodservice industry. A number of these claims may exist at any given time. We are self-insured for a portion of our general liability, our employee workers’ compensation and our employment practice requirements. We maintain coverage with a third party insurer to limit our total exposure. We believe that most of our customer claims will be covered by our general liability insurance, subject to coverage limits and the portion of such claims that are self-insured. Punitive damages awards and employee unfair practice claims, however, are not covered by our general liability insurance. To date, we have not been ordered to pay punitive damages with respect to any claims, but there can be no assurance that punitive damages will not be awarded with respect to any future claims. We could be affected by adverse publicity resulting from allegations in lawsuits, claims and proceedings, regardless of whether these allegations are valid or whether we are ultimately determined to be liable. We currently believe that the final disposition of these types of lawsuits, proceedings and claims will not have a material adverse effect on our financial position, results of operations or liquidity. It is possible, however, that our future results of operations for a particular quarter or fiscal year could be impacted by changes in circumstances relating to lawsuits, proceedings or claims.
10. SHAREHOLDERS’ EQUITY
8. STOCK REPURCHASESPrivate Placement
On May 5, 2020, we completed the sale of $70 million of our common stock to certain funds and accounts advised by T. Rowe Price Associates, Inc., acting as investment adviser, and to Act III Holdings, LLC (“Act III,” and collectively “the investors”). The investors purchased a total of 3,500,000 shares of BJ’s Restaurants common stock for $20.00 per share in a private placement under Section 4(2) of the Securities Act of 1933, as amended. The Company also issued a five year warrant to purchase 875,000 shares of our common stock with an exercise price of $27.00 per share to Act III. In addition, Act III was granted the right to nominate one director to the Company’s board of directors for so long as it satisfies certain ownership thresholds. The warrant expires on May 4, 2025, five years following the issuance.
We valued the common stock and the warrant issued based on their relative fair values. The fair value of the warrant was estimated using the Black-Scholes pricing model. We recorded the net proceeds of $64.0 million related to the 3,500,000 shares of common stock to “Retained earnings” on our Consolidated Balance Sheets and the net proceeds of $3.4 million related to the warrant to “Capital surplus” on our Consolidated Balance Sheets.
Stock Repurchases
During the thirty-ninetwenty-six weeks ended October 3, 2017,June 30, 2020, we repurchased and retired approximately 1.70.5 million shares of our common stock at an average price of $34.02$30.33 per share for a total of $57.3$15.0 million, which is recorded as a reduction in common stock, with any excess charged to retained earnings. In March 2017,As of June 30, 2020, we have approximately $24.4 million remaining under the current $500 million share repurchase plan approved by our Board of Directors. We have suspended our repurchase program until the Board determines that resumption of repurchases is in the best interest of the Company and its shareholders and is permitted by our Credit Facility.
Cash Dividends
The Company’s Board of Directors approved an expansion of the authorized share repurchase program by $50 million to $400 million in the aggregate. As of October 3, 2017, approximately $52.2 million remains available for additional repurchases under our share repurchase program.
9. SUBSEQUENT EVENTS
On October 24, 2017, our Board of Directors authorized and declared a quarterly cash dividend of $0.11 per share of common stock payable on December 4, 2017, to shareholders of record at the close of business on November 13, 2017. While the Company intends to pay regularhas suspended quarterly cash dividends (including cancelling the dividend of $0.13 per share declared on February 18, 2020) until it is determined that resumption of dividend payments is in future periods, any decisions to pay or to increase or decrease cash dividends will be reviewed quarterlythe best interest of the Company and declaredits shareholders and is permitted by the Board of Directors at its discretion.our Credit Facility.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE
Certain information included in this Form 10-Q and other filings with the Securities and Exchange Commission, in our press releases, in other written communications, and in oral statements made by or with the approval of one of our authorized officers may contain “forward-looking” statements about our current and expected performance trends, growth plans, business goals and other matters. Words or phrases such as “believe,” “plan,” “will likely result,” “expect,” “intend,” “will continue,” “is anticipated,” “estimate,” “project,” “may,” “could,” “would,” “should,” and similar expressions are intended to identify “forward-looking” statements. These statements, and any other statements that are not historical facts, are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995, as codified in Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, as amended from time to time (the “Act”). The cautionary statements made in this Form 10-Q should be read as being applicable to all related “forward-looking” statements wherever they appear in this Form 10-Q.
The following discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto included elsewhere in this Form 10-Q, our Annual Report on2019 Form 10-K, for the fiscal year ended January 3, 2017, and our other reports filed from time to time with the Securities and Exchange Commission. Except for the historical information contained herein, the discussion in this Form 10-Q contains certain “forward-looking” statements that involve known and unknown risks and uncertainties, such as statements of our plans, objectives, expectations, intentions and intentions.our ability to manage difficulties associated with or related to the COVID-19 pandemic and the effects on our business, suppliers, customers and employees. The risks described in this Form 10-Q, as well as the risks identified in Item 1A of our Annual Report on2019 Form 10-K, for the fiscal year ended January 3, 2017, are not the only risks we face. These statements reflect our current perspectives and outlook with respect to the Company’s future expansion plans, key business initiatives, expected operating conditions and other factors. We operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. Additional risks and uncertainties that we are currently unaware of, or that we currently deem immaterial, also may become important factors that affect us. It is not possible for us to predict the impact of all of these factors on our business, financial condition or results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any “forward-looking” statements. Given the volatility of the operating environment and its associated risks and uncertainties, investors should not rely on “forward-looking” statements as any prediction or guarantee of actual results.
“Forward-looking” statements include, among others, statements concerning:
our restaurant concept, its competitive advantages and our strategies for its continued evolution and expansion;
the rate and scope of our future restaurant development;
the total domestic capacity for our restaurants;
dates on which we will commence or complete the development and opening of new restaurants;
expectations for consumer spending on casual dining restaurant occasions;
the availability and cost of key commodities used in our restaurants and brewing operations;
menu price increases and their effect, if any, on revenue and results of operations;
the effectiveness of our planned operational, menu, marketing and capital expenditure initiatives;
capital requirement expectations and actual or available borrowings on our line of credit;
• | our restaurant concept, its competitive advantages and our strategies for its continued evolution and expansion; |
• | the total domestic capacity for our restaurants; |
• | dates on which we will commence or complete the development and opening of new restaurants; |
• | expectations for consumer spending on casual dining restaurant occasions; |
• | the availability and cost of key commodities and labor used in our restaurants and brewing operations; |
• | menu price increases and their effect, if any, on revenue and results of operations; |
• | the effectiveness of our planned operational, menu, marketing and capital expenditure initiatives; |
• | capital requirement expectations and actual or available borrowings on our line of credit; |
• | projected revenues, operating costs, including commodities, labor and other expenses; |
projected shareholder dividend frequency and amount; and
• | projected share repurchases or shareholder dividend frequency and amount; |
• | expectations as to the effects of the COVID-19 pandemic and related governmental actions on our restaurant operations and financial condition; and |
other statements of expectations, beliefs, future plans and strategies, anticipated developments and other matters that are not historical facts.
• | other statements of expectations, beliefs, future plans and strategies, anticipated developments and other matters that are not historical facts. |
These “forward-looking” statements are subject to risks and uncertainties, including financial, regulatory, consumer behavior, demographic, industry growth and trend projections, that may cause actual events or results to differ materially from those expressed or implied by the statements. Significant factors that may prevent us from achieving our stated goals include, but are not limited to:
Failure to maintain a favorable image, credibility and the value of the BJ’s brand and our reputation for offering customers a higher quality more differentiated total dining experience at a good value.
• | Health concerns arising from outbreaks of viruses, such as coronavirus, or other diseases, or regional or global health pandemics and any resulting government response may adversely affect our business. |
Any inability or failure to recognize, respond to and effectively manage the accelerated impact of social media.
• | Changes in off premise sales may affect our revenues, operating results and liquidity. |
Any deterioration in general economic conditions, which may affect consumer spending.
• | Regulations on restaurant operations resulting from the COVID-19 pandemic may reduce restaurant capacity and/or hours of operation, increase costs and have an adverse effect on the profitability of our restaurants. |
Any deterioration in general economic conditions, which may also have a material adverse impact on our landlords or on businesses neighboring our locations.
• | Failure to maintain a favorable image, credibility and the value of the BJ’s brand and our reputation for offering customers a higher quality more differentiated total dining experience at a good value may adversely affect our business. |
Any inability or failure to successfully expand our restaurant operations.
• | Any deterioration in general economic conditions may affect consumer spending and adversely affect our revenues, operating results and liquidity. |
Any inability to open new restaurants on schedule in accordance with our targeted capacity growth or problems associated with securing suitable restaurant locations, leases and licenses, recruiting and training qualified managers and hourly employees and other factors, some of which are beyond our control and difficult to forecast accurately.
Any inability to access sources of capital or to raise required capital in the future.
Any failure of our existing or new restaurants to achieve expected results.
Any strain on our infrastructure and resources due to growth, which may slow our development of new restaurants and adversely affect our ability to manage our existing restaurants.
Any decision to either reduce or accelerate the pace of openings.
Any fluctuation in our future operating results due to the expenditures required to open new restaurants.
Our concentration of a significant number of our restaurants in California, Texas and Florida, which makes us particularly sensitive to economic, regulatory, weather and other risk factors and conditions that are more prevalent in those states.
Any negative publicity about us, our restaurants, other restaurants, or others across the food supply chain, due to food borne illness or other reasons, whether or not accurate.
Any adverse changes in the cost of food, labor and related employee benefits (including, but not limited to, group health insurance coverage for our employees), brewing and energy.
Any inability of our independent third party brewers and manufacturers to timely supply our beer.
Periodic reviews and audits of our internal brewing, independent third party brewing and beer distribution arrangements by various federal, state and local governmental and regulatory agencies, which may be adversely affected by different interpretations of the laws and regulations that govern such arrangements or by new laws and regulations.
Government laws and regulations affecting the operation of our restaurants, including but not limited to those that apply to the acquisition and maintenance of our brewing and retail liquor licenses, minimum wages, federal or state exemption rules, health insurance coverage, or other employment benefits such as paid time off, consumer health and safety, nutritional disclosures, and employment eligibility-related documentation requirements, which may increase our operating costs, cause unexpected disruptions to our operations and restrict our growth.
Heavy dependence of our operations, including our loyalty and employee engagement programs on information technology, which may be adversely affected by any material failure of such technology, including but not limited to cyber-attacks.
• | Any deterioration in general economic conditions, which may have a material adverse impact on our landlords or on businesses neighboring our locations, may adversely affect our revenues and results of operations. |
| • | Any inability or failure to successfully expand our restaurant operations may adversely affect our growth rate and results of operations. |
• | Any inability to open new restaurants on schedule in accordance with our targeted capacity growth or problems associated with securing suitable restaurant locations, leases and licenses, recruiting and training qualified managers and hourly employees and other factors, some of which are beyond our control and difficult to forecast accurately may adversely affect our operations. |
• | Any inability to access sources of capital and or to raise capital in the future may adversely affect our business. |
• | Any failure of our existing or new restaurants to achieve expected results may have a negative impact on our consolidated financial results. |
• | Any strain on our infrastructure and resources due to growth, which may slow our development of new restaurants may adversely affect our ability to manage our existing restaurants. |
• | Any decision to either reduce or accelerate the pace of openings may positively or adversely affect our comparative financial performance. |
• | Expenditures required to open new restaurants may adversely affect our future operating results. |
• | Our corporate office is located in California and a significant number of our restaurants are located in California, Texas and Florida which makes us particularly sensitive to economic, regulatory, weather and other risk factors and conditions that are more prevalent in those states. |
• | Any negative publicity about us, our restaurants, other restaurants, or others across the food supply chain, due to food borne illness or other reasons, whether or not accurate may adversely affect the reputation and popularity of our restaurants and our results of operations. |
• | Any adverse changes in the supply of food, labor, brewing, energy and other expenses may adversely affect our operating results. |
• | Any inability of our internal or independent third party brewers to timely supply our beer may adversely affect our operating results. |
• | Periodic reviews and audits of our internal brewing, independent third party brewing and beer distribution arrangements by various federal, state and local governmental and regulatory agencies may adversely affect our operations and our operating results. |
• | Government laws and regulations affecting the operation of our restaurants, including but not limited to those that apply to the acquisition and maintenance of our brewing and retail liquor licenses, minimum wages, federal or state exemption rules, health insurance coverage, or other employment benefits such as paid time off, consumer health and safety, nutritional disclosures, and employment eligibility-related documentation requirements may cause disruptions to our operations, adversely affect our operating costs and restrict our growth. |
• | Heavy dependence of our operations, including credit card processing and our loyalty and employee engagement programs, on information technology may adversely affect our revenues and impair our ability to efficiently operate our business if there is a material failure of such technology. |
• | Unsolicited takeover proposals, governance change proposals, proxy contests and certain proposals/actions by activist investors |
Any suspension of, or failure to pay regular dividends or to repurchase the Company’s stock up to the maximum amounts permitted under, our previously announced repurchase program, either of which may negatively impact investor perceptions of us.
• | Any suspension of or failure to pay regular dividends or to repurchase the Company’s stock up to the maximum amounts permitted under our previously announced repurchase program, either of which may negatively impact investor perceptions of us and may affect the market price and volatility of our stock. |
For a more detailed description of these risk factors and other considerations, see Part II, Item 1A – “Risk Factors” of our Annual Report on2019 Form 10-K for the fiscal year ended January 3, 2017.10-K.
GENERAL
As of November 6, 2017,August 3, 2020, we ownedown and operated 195operate 209 restaurants located in the 2529 states of Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Florida, Indiana, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas,
Virginia and Washington. Each of our restaurants is operated either as a BJ’s Restaurant & Brewhouse®, a BJ’s Restaurant & Brewery®, a BJ’s Pizza & Grill®, or a BJ’s Grill® restaurant. Currently, the BJ’s Restaurant & Brewhouse® format represents our primary future expansion vehicle. Our proprietary craft beer is produced at several of our BJ’s Restaurant & Brewery® locations, our Temple, Texas brewpub locations and by independent third party brewers using our proprietary recipes. Our BJ’s Pizza & Grill®Due to the COVID-19 pandemic and the related restrictions, one of our 209 restaurants remains temporarily closed, 140 of our restaurants are smaller format, full-service restaurants relative toserving guests in our BJ’s Restaurant & Brewhouse®dining rooms in a limited capacity, and BJ’s Restaurant & Brewery® locations and reflect the original format of the BJ’s restaurant concept that was first introduced in 1978. Our BJ’s Grill® restaurant is a slightly smaller footprint restaurant, compared to our BJ’s Restaurant & Brewhouse® format, featuring all the amenities68 of our Brewhouse locations.restaurants are serving guests only on the patio or in other outdoor seating, while adhering to social distancing protocols. Additionally, all of our currently open restaurants offer take-out and delivery. Over the next several months, national, state and local jurisdictions could begin easing their restrictions on businesses; however, there are no assurances that easing of these restrictions will result in us returning to sales and profit levels we experienced prior to the COVID-19 pandemic. Additionally, the easing of these restrictions may continue to contain certain limitations to dining room capacity, social distancing regulations, personal protective equipment requirements and associated costs, operating hour restrictions and other limitations, and other restrictions or costs on our business that may prevent us from returning to prior sales and profit levels we experienced prior to the COVID-19 pandemic. Additionally, there is no guarantee that state and local jurisdictions will ease their restrictions prior to any vaccine or therapeutics becoming widely available, or that states or local jurisdictions that do ease their restrictions do not reverse or roll-back their restrictions.
The first BJ’s restaurant, which opened in 1978 in Orange County, California, featuringwas a small sit down pizzeria that featured Chicago style deep-dish pizza with a unique California twist. OverOur goal then and still today is to be the yearsbest casual dining concept ever by focusing on high quality menu options at a compelling value, a dining experience that exceeds customers’ expectations for service, hospitality and enjoyment, and an atmosphere that is always welcoming and approachable.
In 1996, we introduced our own proprietary craft beers and expanded the BJ’s concept from its beginnings as a small pizzeria to a full-service, high energy casual dining restaurant with a broad menuwhen we opened our first large format restaurant including our BJ’s award‑winning,own internal brewing operations in Brea, California. Today our restaurants feature a wide variety of menu offerings including: slow roasted entrees, such as, prime rib and tri-tip; EnLIGHTened Entrees® such as our Cherry Chipotle Glazed Salmon; our original signature deep-dish pizza,pizza; the often imitated, but never replicated world-famous Pizookie® dessert; and our award-winning BJ’s proprietary craft beers. Due to the COVID-19 pandemic, dine-in service is currently not available in a majority of our restaurants and other beers, as well as a large selection of appetizers, entrées, pastas, burgersmenu offerings and sandwiches, specialty salads and desserts, including our made to order, warm pizza cookie dessert, the Pizookie®.hours have been limited.
Our revenues are primarily comprised of food and beverage sales at our restaurants. Revenues from restaurant sales are recognized when payment is tendered at the point of sale.tendered. Amounts paid with a credit card are recorded in accounts and other receivables until payment is collected. Revenuescollected from ourthe credit card processor. We sell gift cards which do not have an expiration date and we do not deduct non-usage fees from outstanding gift card balances. Gift card sales are recorded as a liability and recognized as revenues upon redemption in our restaurants. GiftBased on historical redemption rates, a portion of our gift card sales are not expected to be redeemed and will be recognized as gift card “breakage” over time. Estimated gift card breakage is recorded as revenue and recognized asin proportion to our historical redemption pattern, unless there is a component of “Other income, net” on our Consolidated Statements of Income. Giftlegal obligation to remit the unredeemed gift cards to the relevant jurisdiction. The estimated gift card breakage is recordedbased on when the likelihood of redemption becomes remote, which ishas typically afterbeen 24 months fromafter the original gift card issuance date. Our customer loyalty program enables participants to earn points for qualifying purchases that can be redeemed for food and beverages in the future. We allocate the transaction price between the goods delivered and the future goods that will be delivered, on a relative standalone selling price basis, and defer the revenues allocated to the points until such points are redeemed.
All of our restaurants are Company-owned. In calculating comparable restaurant sales, we include a restaurant in the comparable base once it has been open for 18 months. Customer traffic for our restaurants is estimated based on individual customer checks.
Cost of sales is comprised of food and beverage costs, including the cost to produce and distribute our proprietary craft beer, soda and ciders. The components of cost of sales are variable and typically fluctuate directly with sales volumes, but may be impacted by changes in commodity prices, a shift in sales mix to higher cost proteins or other higher cost items, or varying levels of promotional activities.
Labor and benefit costs include direct hourly and management wages, bonuses, payroll taxes, fringe benefits and stock-based compensation and workers’ compensation expense that is directly related to restaurant level employees.
Occupancy and operating expenses include restaurant supplies, credit card fees, third party delivery company commissions, marketing costs, fixed rent, percentage rent, common area maintenance charges, utilities, real estate taxes, repairs and maintenance and other related restaurant costs.
General and administrative costs include all corporate, field supervision and administrative functions that support existing operations and provide infrastructure to facilitate our future growth. Components of this category include corporate management, field supervision and corporate hourly staff salaries and related employee benefits (including stock-based compensation expense and cash-based incentive compensation), travel and relocation costs, information systems, the cost to recruit and train new restaurant management employees, corporate rent, certain brand marketing-related expenses and legal, professional and consulting fees.
Depreciation and amortization are composed primarily of depreciation of capital expenditures for restaurant and brewing equipment and leasehold improvements.
Restaurant opening expenses, which are expensed as incurred, consist of the costs of hiring and training the initial hourly work force for each new restaurant, travel, the cost of food and supplies used in training, grand opening promotional costs, the cost of the initial stock of operating supplies and other direct costs related to the opening of a restaurant, including rent during the construction and in-restaurant training period.
While we currently expect to pursue the renewal of substantially all of our expiring restaurant leases, there is no guarantee that we can mutually agree toobtain a new lease that is satisfactory to our landlord and us or that, if renewed, rents will not increase substantially.
RESULTS OF OPERATIONS
The following table provides, for the periods indicated, our unaudited Consolidated Statements of (Loss) Income expressed as percentages of total revenues. The results of operations for the thirteen and thirty-ninetwenty-six weeks ended October 3, 2017 September 27, 2016,June 30, 2020 and July 2, 2019, are not necessarily indicative of the results to be expected for the full fiscal year. Percentages below may not reconcile due to rounding.
|
| For the Thirteen |
|
| For the Thirty-Nine |
| ||||||||||||||||||||||||||
|
| Weeks Ended |
|
| Weeks Ended |
|
| For the Thirteen Weeks Ended |
|
| For the Twenty-Six Weeks Ended |
| ||||||||||||||||||||
|
| October 3, 2017 |
|
| September 27, 2016 |
|
| October 3, 2017 |
|
| September 27, 2016 |
|
| June 30, 2020 |
|
| July 2, 2019 |
|
| June 30, 2020 |
|
| July 2, 2019 |
| ||||||||
Revenues |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
Restaurant operating costs (excluding depreciation and amortization): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
| 26.5 |
|
|
| 25.6 |
|
|
| 26.0 |
|
|
| 25.2 |
|
|
| 25.0 |
|
|
| 25.5 |
|
|
| 25.0 |
|
|
| 25.4 |
|
Labor and benefits |
|
| 36.9 |
|
|
| 35.1 |
|
|
| 36.0 |
|
|
| 34.8 |
|
|
| 40.2 |
|
|
| 36.0 |
|
|
| 40.6 |
|
|
| 36.1 |
|
Occupancy and operating |
|
| 22.4 |
|
|
| 21.6 |
|
|
| 21.3 |
|
|
| 20.6 |
|
|
| 35.8 |
|
|
| 21.4 |
|
|
| 28.0 |
|
|
| 21.3 |
|
General and administrative |
|
| 5.3 |
|
|
| 5.5 |
|
|
| 5.4 |
|
|
| 5.6 |
|
|
| 11.3 |
|
|
| 5.3 |
|
|
| 6.8 |
|
|
| 5.6 |
|
Depreciation and amortization |
|
| 7.1 |
|
|
| 7.0 |
|
|
| 6.6 |
|
|
| 6.6 |
|
|
| 14.3 |
|
|
| 5.9 |
|
|
| 9.6 |
|
|
| 6.0 |
|
Restaurant opening |
|
| 0.2 |
|
|
| 0.9 |
|
|
| 0.4 |
|
|
| 0.7 |
|
|
| 0.1 |
|
|
| 0.2 |
|
|
| 0.2 |
|
|
| 0.2 |
|
Loss on disposal of assets and impairments |
|
| 0.4 |
|
|
| 0.3 |
|
|
| 0.5 |
|
|
| 0.3 |
| ||||||||||||||||
Natural disaster and related |
|
| 0.4 |
|
|
| — |
|
|
| 0.1 |
|
|
| — |
| ||||||||||||||||
Severance and legal settlements |
|
| 0.2 |
|
|
| — |
|
|
| 0.1 |
|
|
| 0.1 |
| ||||||||||||||||
Loss on disposal and impairment of assets |
|
| 8.9 |
|
|
| 0.3 |
|
|
| 3.7 |
|
|
| 0.5 |
| ||||||||||||||||
Total costs and expenses |
|
| 99.4 |
|
|
| 96.1 |
|
|
| 96.5 |
|
|
| 93.8 |
|
|
| 135.7 |
|
|
| 94.8 |
|
|
| 114.0 |
|
|
| 95.0 |
|
Income from operations |
|
| 0.6 |
|
|
| 3.9 |
|
|
| 3.5 |
|
|
| 6.2 |
| ||||||||||||||||
(Loss) income from operations |
|
| (35.7 | ) |
|
| 5.2 |
|
|
| (14.0 | ) |
|
| 5.0 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
| (0.5 | ) |
|
| (0.1 | ) |
|
| (0.4 | ) |
|
| (0.2 | ) |
|
| (1.5 | ) |
|
| (0.4 | ) |
|
| (0.9 | ) |
|
| (0.4 | ) |
Other income, net |
|
| 0.2 |
|
|
| 0.2 |
|
|
| 0.2 |
|
|
| 0.1 |
| ||||||||||||||||
Other income (expense), net |
|
| 1.3 |
|
|
| — |
|
|
| — |
|
|
| 0.2 |
| ||||||||||||||||
Total other (expense) income |
|
| (0.3 | ) |
|
| — |
|
|
| (0.2 | ) |
|
| — |
|
|
| (0.2 | ) |
|
| (0.3 | ) |
|
| (0.9 | ) |
|
| (0.2 | ) |
Income before income taxes |
|
| 0.3 |
|
|
| 3.9 |
|
|
| 3.3 |
|
|
| 6.2 |
| ||||||||||||||||
(Loss) income before income taxes |
|
| (35.9 | ) |
|
| 4.9 |
|
|
| (14.9 | ) |
|
| 4.8 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| �� |
|
|
|
|
|
|
|
|
Income tax (benefit) expense |
|
| (0.6 | ) |
|
| 0.8 |
|
|
| 0.5 |
|
|
| 1.7 |
|
|
| (13.3 | ) |
|
| 0.2 |
|
|
| (6.2 | ) |
|
| 0.3 |
|
Net income |
|
| 1.0 | % |
|
| 3.1 | % |
|
| 2.8 | % |
|
| 4.5 | % | ||||||||||||||||
Net (loss) income |
|
| (22.6 | )% |
|
| 4.7 | % |
|
| (8.7 | )% |
|
| 4.6 | % |
Thirteen Weeks Ended October 3, 2017June 30, 2020 Compared to Thirteen Weeks Ended September 27, 2016.July 2, 2019
Revenues. Total revenues increaseddecreased by $13.3$173.1 million, or 5.7%57.5%, to $247.0$128.0 million during the thirteen weeks ended October 3, 2017,June 30, 2020, from $233.7$301.1 million during the comparable thirteen week period of 2016.2019. The increasedecrease in revenues primarily consisted of an approximate $17.2a 57.2%, or $167.1 million, increasedecrease in comparable restaurant sales, coupled with a $0.1 million decrease in sales from new restaurants not yet in our comparable restaurant sales base partially offset by an approximate 1.7%, or $3.8and $3.5 million decrease in comparable restaurant sales and a $0.1 million decrease related to restaurants temporarily closed due to the shift in weeks as a result of our 53rd week in fiscal 2016. TheCOVID-19 pandemic. This decrease in comparable restaurant sales resulted from a reductiondecrease in customer traffic of approximately 3.0%55.4%, partially offset by an increasecoupled with a decrease in the average check of 1.3%approximately 1.8%. The decrease in customer traffic is due to the COVID-19 pandemic and the curtailment of our dine-in restaurant operations, and the decrease in average check is due to our menu mix and sales channels, which focused heavily on our deep dish pizza and family feast menu offerings for off premise sales.
Cost of Sales. Cost of sales increaseddecreased by $5.7$44.9 million, or 9.5%58.4%, to $65.6$32.0 million during the thirteen weeks ended October 3, 2017,June 30, 2020, from $59.9$76.9 million during the comparable thirteen week period of 2016.2019. This increasedecrease was primarily due to the openingreduction in sales as a result of 13the COVID-19 pandemic, partially offset by costs related to the six new restaurants opened since the thirteen weeks ended September 27, 2016.July 2, 2019. As a percentage of revenues, cost of sales increaseddecreased to 26.5%25.0% for the current thirteen week period from 25.6%25.5% for the prior year comparable period. The increase inThis percentage decrease is primarily due to menu mix from our limited menu which focused heavily on our deep dish pizza and our family feast menu offerings, which have a lower cost of sales, offset by lower alcohol sales as a percentageresult of revenues, was primarily due to an increase in commodity costs, menu mix shifts related to our new slow roasted items and Daily Brewhouse Specials, as well as increased promotional activities.the COVID-19 pandemic.
Labor and Benefits. Labor and benefit costs for our restaurants increaseddecreased by $9.2$57.0 million, or 11.2%52.5%, to $91.2$51.5 million during the thirteen weeks ended October 3, 2017,June 30, 2020, from $82.0$108.5 million during the comparable thirteen week period of 2016.2019. This increasedecrease was primarily due to a reduction in labor hours and benefits resulting from our dining room closures and efficiencies from our limited menu, partially offset by expenses related to the opening of 13six new restaurants opened since the thirteen weeks ended September 27, 2016.July 2, 2019. As a percentage of revenues, labor and benefit costs increased to 36.9%40.2% for the current thirteen week period from 35.1%36.0% for the prior year comparable period. TheThis percentage increase was driven by higher hourlyis primarily due to the deleveraging of certain fixed labor rates, increased training labor hours related to our major sales building initiatives, and negative comparable restaurant sales.costs, including manager salaries, resulting from a lower revenue base as a result of the COVID-19 pandemic. Included in labor and benefits for the thirteen weeks ended October 3, 2017June 30, 2020 and September 27, 2016,July 2, 2019, was approximately $0.4$0.7 million and $0.6 million, respectively, or 0.5% and 0.2% of revenues, respectively, of stock-based compensation expense related to equity awards granted in accordance with our Gold Standard Stock Ownership Program for certain restaurant management team members. This increase, as a percentage of revenues, is primarily due to a lower revenue base.
Occupancy and Operating. Occupancy and operating expenses increaseddecreased by $4.8$18.6 million, or 9.4%28.9%, to $55.2$45.8 million during the thirteen weeks ended October 3, 2017,June 30, 2020, from $50.5$64.5 million during the comparable thirteen week period of 2016.2019. This increasedecrease was primarily due to cost savings measures related to the openingCOVID-19 pandemic, coupled with less corporate marketing expenses and lower merchant credit card fees and percentage rent due to lower revenue, partially offset by higher commissions to third party delivery companies as a result of 13increased off-premise sales and expenses related to the six new restaurants opened since the thirteen weeks ended September 27, 2016.July 2, 2019. As a percentage of revenues, occupancy and operating expenses increased to 22.4%35.8% for the current thirteen week period from 21.6%21.4% for the prior year comparable period. This percentage increase was primarily due to the deleveraging of thecertain fixed component of these expensesoperating and occupancy costs over a lower revenue base as a result of negative comparable restaurant sales.the COVID-19 pandemic.
General and Administrative. General and administrative expenses increaseddecreased by $0.1$1.5 million, or 0.9%9.5%, to $13.0$14.5 million during the thirteen weeks ended October 3, 2017,June 30, 2020, from $12.9$16.0 million during the comparable thirteen week period of 2016. Also2019. This decrease was primarily from lower costs related to restaurant support center salaries, incentive compensation expense, meeting and related costs and cost savings measures related to the COVID-19 pandemic, partially offset by an increase in deferred compensation expense related to gains in the equity markets during the quarter. This deferred compensation expense increase is offset by higher other income included in “Other income (expense), net” on our Unaudited Consolidated Statements of (Loss) Income related to an increase in the cash surrender value of our life insurance policies under our deferred compensation plan. Included in general and administrative costs for the thirteen weeks ended October 3, 2017June 30, 2020 and September 27, 2016,July 2, 2019, was approximately $1.3$1.5 million and $1.1$1.7 million,respectively, or 0.5%1.2% and 0.6% of revenues, respectively, of stock-based compensation expense. This increase, as a percentage of revenues, is primarily due to a lower revenue base. As a percentage of revenues, general and administrative expenses decreasedincreased to 5.3%11.3% for the current thirteen week period from 5.5%5.3% for the prior year comparable period. This percentage decreaseincrease was primarily due to deleveraging from a lower incentive compensation andrevenue base as a result of the leveraging of our costs over a higher revenue base.COVID-19 pandemic.
Depreciation and Amortization. Depreciation and amortization increased by $1.1$0.5 million, or 7.0%2.9%, to $17.4$18.4 million during the thirteen weeks ended October 3, 2017,June 30, 2020, compared to $16.3$17.8 million during the comparable thirteen week period of 2016.2019. This increase was primarily due to depreciation expense related to the 13six new restaurants opened since the thirteen weeks ended September 27, 2016.July 2, 2019. As a percentage of revenues, depreciation and amortization increased slightly to 7.1%14.3% for the current thirteen week period from 7.0%5.9% for the prior year comparable period. This increase is primarily due to a lower revenue base as a result of the COVID-19 pandemic.
Restaurant Opening. Restaurant opening expense decreased by $1.7$0.5 million, or 75.9%75.1%, to $0.5$0.2 million during the thirteen weeks ended October 3, 2017,June 30, 2020, compared to $2.2$0.6 million during the comparable thirteen week period of 2016.2019. This decrease wasis primarily due to the openingtiming of one newour restaurant openings during the period. We did not open any restaurants during the thirteen weeks ended October 3, 2017,June 30, 2020, compared to five new restaurantstwo restaurant openings during the comparable thirteen week period of 2016.weeks ended July 2, 2019.
Loss on Disposal and Impairment of Assets. Loss on disposal and impairment of assets increased by $0.3 million, or 32.1%, to $1.1was $11.4 million during the thirteen weeks ended October 3, 2017, compared to $0.8June 30, 2020, and $1.0 million during the comparable thirteen week period of 2016.These2019.For the thirteen weeks ended June 30, 2020, these costs primarily related to the disposalthe impairment and reduction in the carrying value of certain unproductivethe long-lived and operating lease assets related to three of our restaurants, coupled with a charge to reserve for beer spoilage due to the sudden decrease in draft beer sales as a result of the COVID-19 pandemic. Our reduced cash flow projections due to the COVID-19 pandemic triggered an impairment analysis for the three restaurants. As a result of this analysis, we determined that the carrying value of the assets exceeded fair value, and therefore, we recorded a charge in the amount of $9.7 million to reduce the carrying value of those restaurants. Additionally, we recorded a $1.2 million charge to reserve for beer that will expire prior to being sold. Due to the uncertainty of when our restaurant assets.dining rooms will re-open and at what sales and cash flow levels, we may incur additional impairment charges for our restaurants and our goodwill. For the comparable thirteen week period of 2019, these costs were primarily related to the disposals of assets in conjunction with initiatives to keep our restaurants up to date.
Natural Disaster and Related. Natural disaster and relatedInterest Expense, Net. Interest expense, ofnet, increased by $0.9 million to $1.9 million during the thirteen weeks ended October 3, 2017, related to property damages, food spoilage, labor and other expenses from Hurricanes Harvey and Irma, in excess of our related insurance coverage.
Severance and Legal Settlements. Severance and legal settlements of $0.4 million during the thirteen weeks ended October 3, 2017, related to the reduction of certain corporate overhead positions primarily related to supporting new restaurant openings.
Interest Expense, Net. Interest expense, net increased by $0.8 million to $1.2 million during the thirteen weeks ended October 3, 2017,June 30, 2020, compared to $0.3$1.1 million during the comparable thirteen week period of 2016.2019. This increase was primarily due to increased borrowings under our Credit Facility.a higher average debt balance during the thirteen weeks ended June 30, 2020, compared to the comparable thirteen week period of 2019.
Other Income (Expense), Net. Other income (expense), net, increased by $1.5 million to $1.7 million of income during the thirteen weeks ended June 30, 2020, compared to $0.1 million of income during the comparable thirteen week period of 2019. This increase was primarily due to the increase in the cash surrender value of certain life insurance policies under our deferred compensation plan. This increase offsets the related deferred compensation expense impact included in “General and administrative” expenses on our Unaudited Consolidated Statements of (Loss) Income.
Income Tax (Benefit) ExpenseBenefit.On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was enacted. Intended to provide economic relief to those impacted by the COVID-19 pandemic, the CARES Act includes provisions, among others, allowing for the carryback of net operating losses generated in 2018, 2019 and 2020, refunds of alternative minimum tax credits, temporary modifications to the limitations placed on the tax deductibility of net interest expense, and technical amendments regarding the expensing of qualified improvement property (“QIP”). As a result of the CARES Act, the Company is able to carryback losses generated in 2020 and reduce taxes payable for accelerated depreciation on qualified improvements property in 2018 and 2019.
Our effective income tax rate for the thirteen weeks ended October 3, 2017, wasJune 30, 2020, reflected a net37.1% tax benefit of $1.6 millionrate compared to an income taxa 4.3% expense of $1.9 millionrate for the comparable thirteen week period of 2016.2019. The incomerecorded tax benefit for the thirteen weeks ended October 3, 2017, June 30, 2020, was a result of a change to our estimated annual effective tax rate principally attributable to a decrease in forecasted income for fiscal 2017. The effective income tax rate for the thirteen weeks ended October 3, 2017, differed fromgreater than the statutory income tax rate primarily due to FICA Tip Credits and the incremental benefit arising from the ability to carryback the 2020 loss to prior years when the tax credits. rate was at 35%. The 14% rate benefit between the current tax rate of 21% versus the NOL carryback year of 35% is reflected partially in the annual effective tax rate and partially as a discrete item in the March 31, 2020 tax rate for the portion related to 2019 temporary deductible tax differences that are estimated to reverse in 2020 and become part of the 2020 loss carryback. The prior year effective tax rate was below the statutory rate primarily due to tax credits and excess tax deductions realized for share based compensation.
Thirty-NineTwenty-Six Weeks Ended October 3, 2017June 30, 2020 Compared to Thirty-NineTwenty-Six Weeks Ended September 27, 2016.July 2, 2019
Revenues. Total revenues increaseddecreased by $43.2$209.0 million, or 5.9%35.3%, to $770.6$382.6 million during the thirty-ninetwenty-six weeks ended October 3, 2017,June 30, 2020, from $727.4$591.6 million during the comparable thirty-ninetwenty-six week period of 2016.2019. The increasedecrease in revenues primarily consisted of a 36.5%, or $211.8 million, decrease in comparable restaurant sales, partially offset by an approximate $56.3$8.1 million increase in sales from new restaurants not yet in our comparable restaurant sales base partially offset by an approximate 1.5%, or $10.2and $3.5 million decrease in comparable restaurant sales, a $2.5 million decrease related to the shift in weeks as a result of our 53rd week in fiscal 2016 and a $0.4 million decrease in restaurant salesrestaurants temporarily closed due to the closure of our Century City, California restaurant in January 2016. TheCOVID-19 pandemic. This decrease in comparable restaurant sales resulted from a reductiondecrease in customer traffic of approximately 3.9%36.4%, partially offset by an increasecoupled with a slight decrease in the average check of 2.4%approximately 0.1%. The decrease in customer traffic is due to the COVID-19 pandemic and the curtailment of our dine-in restaurant operations.
Cost of Sales. Cost of sales increaseddecreased by $17.4$54.4 million, or 9.5%36.2%, to $200.5$95.8 million during the thirty-ninetwenty-six weeks ended October 3, 2017,June 30, 2020, from $183.1$150.2 million during the comparable thirty-ninetwenty-six week period of 2016.2019. This increasedecrease was primarily due to the openingreduction in sales as a result of 13the COVID-19 pandemic, partially offset by costs related to the six new restaurants opened since the thirty-ninetwenty-six weeks ended September 27, 2016.July 2, 2019. As a percentage of revenues, cost of sales increaseddecreased to 26.0 %25.0% for the current thirty-ninetwenty-six week period from 25.2 %25.4% for the prior year comparable period. The increase in cost of sales, as aThis percentage of revenues, wasdecrease is primarily due to an increase in commodity costs,favorable menu mix shifts related to our new slow roasted itemslimited menu which focused on our deep dish pizza and Daily Brewhouse Specials,our family feast offerings as well as increased promotional activities.a result of the COVID-19 pandemic.
Labor and Benefits. Labor and benefit costs for our restaurants increaseddecreased by $24.9$58.4 million, or 9.9%27.3%, to $277.7$155.4 million during the thirty-ninetwenty-six weeks ended October 3, 2017,June 30, 2020, from $252.8$213.7 million during the comparable thirty-ninetwenty-six week period of 2016.2019. This increasedecrease was primarily due to the openingreduction in sales as a result of 13the COVID-19 pandemic, coupled with the reduction in labor hours and benefits resulting from our dining room closures, partially offset by expenses related to the six new restaurants opened since the thirty-ninetwenty-six weeks ended September 27, 2016.July 2, 2019, and our decision to pay accrued sick, vacation and emergency paid time off to the approximately 16,000 hourly restaurant employees who were temporarily laid off in late March 2020. As a percentage of revenues, labor and benefit costs increased to 36.0%40.6% for the current thirty-ninetwenty-six week period from 34.8%36.1% for the prior year comparable period. TheThis percentage increase was drivenis primarily due to the deleveraging of certain fixed labor costs, including manager salaries and benefits, resulting from a lower revenue base, partially offset by higherless dining room and kitchen hourly labor rates, increased training labor hours relatedas the majority of our sales moved to the off-premise channel, coupled with efficiencies from our major sales building initiatives, and negative comparable restaurant sales.limited menu offerings. Included in labor and benefits for the thirty-ninetwenty-six weeks ended October 3, 2017June 30, 2020 and September 27, 2016,July 2, 2019, was approximately $1.4$1.3 million and $1.3$1.0 million, respectively, or 0.3% and 0.2%, of revenues, respectively, of stock-based compensation expense related to equity awards granted in accordance with our Gold Standard Stock Ownership Program for certain restaurant management team members.
Occupancy and Operating. Occupancy and operating expenses increaseddecreased by $14.4$19.0 million, or 9.6%15.0%, to $164.1$107.1 million during the thirty-ninetwenty-six weeks ended October 3, 2017,June 30, 2020, from $149.7$126.1 million during the comparable thirty-ninetwenty-six week period of 2016.2019. This increasedecrease was primarily due to cost savings measures related to the openingCOVID-19 pandemic, coupled with lower merchant credit card fees due to lower revenue, partially offset by higher commissions to third party delivery companies as a result of 13increased off-premise sales, increased costs related to personal protective equipment and additional cleaning supplies, and expenses related to the six new restaurants opened since the thirty-ninetwenty-six weeks ended September 27, 2016.July 2, 2019. As a percentage of revenues, occupancy and operating expenses increased to 21.3%28.0% for the current thirty-ninetwenty-six week period from 20.6%21.3% for the prior year comparable period. This percentage increase was primarily due to the deleveraging of thecertain fixed component of these expensesoperating and occupancy costs over a lower revenue base as a result of negative comparable restaurant sales.the COVID-19 pandemic.
General and Administrative. General and administrative expenses increaseddecreased by $0.5$6.8 million, or 1.2%20.7%, to $41.5$26.1 million during the thirty-ninetwenty-six weeks ended October 3, 2017,June 30, 2020, from $41.1$32.9 million during the comparable thirty-ninetwenty-six week period of 2016. The slight increase in general and administrative costs2019. This decrease was primarily due to higher field supervisionlower incentive compensation and deferred compensation expense, coupled with lower meeting and related costs due to the closure of our restaurant support costscenter and lower restaurant support center salaries as a result of our previously announced salary reductions due to manage our increasing number of restaurantsthe COVID-19 pandemic. The deferred compensation expense decrease is offset by lower corporate incentive compensation. Alsoother income included in “Other (expense) income, net” on our Unaudited Consolidated Statements of (Loss) Income related to a decrease in the cash surrender value of our life insurance policies under our deferred compensation plan. Included in general and administrative costs for the thirty-ninetwenty-six weeks ended October 3, 2017June 30, 2020 and September 27, 2016,July 2, 2019, was approximately $3.9$2.5 million and $3.3$3.4 million,respectively, or 0.5% and 0.4%0.6% of revenues respectively, of stock-based compensation expense. As a percentage of revenues, general and administrative expenses decreasedincreased to 5.4%6.8% for the current thirty-ninetwenty-six week period from 5.6% for the prior year comparable period. This percentage decreaseincrease was primarily due to deleveraging from a lower revenue base as a result of the leveraging of our costs over a higher revenue base.COVID-19 pandemic.
Depreciation and Amortization. Depreciation and amortization increased by $3.3$1.2 million, or 6.9%3.4%, to $51.2$36.7 million during the thirty-ninetwenty-six weeks ended October 3, 2017,June 30, 2020, compared to $47.9$35.5 million during the comparable thirty-ninetwenty-six week period of 2016.2019. This increase was primarily due to depreciation expense related to the 13six new restaurants opened since the thirty-ninetwenty-six weeks ended September 27, 2016.July 2, 2019. As a percentage of revenues, depreciation and amortization remained consistent at 6.6%increased to 9.6% for the current thirty-ninetwenty-six week period andfrom 6.0% for the prior year comparable period. This increase is primarily due to a lower revenue base as a result of the COVID-19 pandemic.
Restaurant Opening. Restaurant opening expense decreased by $2.0$0.4 million, or 38.6%34.4%, to $3.2$0.7 million during the thirty-ninetwenty-six weeks ended October 3, 2017,June 30, 2020, compared to $5.2$1.1 million during the comparable thirty-nine twenty-sixweek period of 2016.2019. This decrease
was is primarily due to the openingdelay or cancelation of eight new restaurantsour restaurant openings for fiscal 2020. We opened one restaurant during thirty-ninethe twenty-six weeks ended October 3, 2017,June 30, 2020, compared to 12 newthree restaurants during the comparable thirty-nine week period of 2016.twenty-six weeks ended July 2, 2019.
Loss on Disposal and Impairment of Assets. The lossLoss on disposal and impairment of assets increased by $1.9 million, or 83.9%, to $4.2was $14.3 million during the thirty-ninetwenty-six weeks ended October 3, 2017, compared to $2.3June 30, 2020, and $2.7 million during the comparable thirty-ninetwenty-six week period of 2016.2019.For the twenty-six weeks ended June 30, 2020, these costs primarily related to the impairment and reduction in the carrying value of the long-lived and operating lease assets related to four of our restaurants, coupled with a charge to reserve for beer spoilage due to the sudden decrease in draft beer sales as a result of the COVID-19 pandemic. Our reduced cash flow projections due to the COVID-19 pandemic triggered an impairment analysis for the four restaurants. As a result of this analysis, we determined that the carrying value of the assets exceeded fair value and, therefore, we recorded a charge in the amount of $12.0 million to reduce the carrying value of these restaurants. Additionally, we recorded a $1.2 million charge to reserve for beer that will expire prior to being sold. Due to the uncertainty of when our restaurant dining rooms will re-open and at what sales and cash flow levels, we may incur additional impairment charges for our restaurants and our goodwill. For the comparable twenty-six week period of 2019, these costs were primarily related to the disposals of assets in conjunction with initiatives to keep our restaurants up to date.
Interest Expense, Net. Interest expense, net, increased by $1.3 million to $3.4 million during thetwenty-six weeks ended June 30, 2020, compared to $2.1 million during the comparable twenty-six week period of 2019. This increase was primarily due to the write-off of the remaining net book value of certain convection ovens and point of sale terminals following the recent rollout of our new slow roasting ovens and server handheld point of sale tablets.
Natural Disaster and Related. Natural disaster and related expense of $0.9 milliona higher average debt balance during the thirty-ninetwenty-six weeks ended October 3, 2017, relatedJune 30, 2020, compared to property damages, food spoilage, labor and other expenses from Hurricanes Harvey and Irma, in excess of our related insurance coverage.
Severance and Legal Settlements. Severance and legal settlements was $0.4 million during the thirty-nine weeks ended October 3, 2017, and for the comparable thirty-ninetwenty-six week period of 2016. For the current thirty-nine week period, this related to the reduction of certain corporate overhead positions primarily related to supporting new restaurant openings, and for the comparable prior year period, it related to the settlement of a wage and hour claim.2019.
Interest Expense,Other Income (Expense), Net. Interest expense,Other income (expense), net, increaseddecreased by $2.1$1.3 million to $3.2$0.04 million of expense during the thirty-ninetwenty-six weeks ended October 3, 2017,June 30, 2020, compared to $1.1$1.2 million of income during the comparable thirty-ninetwenty-six week period of 2016.2019. This increase was due to increased borrowings under our Credit Facility.
Other Income, Net. Other income, net increased by $0.7 million to $1.5 million during the thirty-nine weeks ended October 3, 2017, compared to $0.8 million during the comparable thirty-nine week period of 2016. This increasedecrease was primarily due to greater gift card breakage income coupled with an increasethe decrease in the cash surrender value of certain life insurance programspolicies under our deferred compensation plan. This decrease offsets the related deferred compensation expense impact included in “General and administrative” expenses on our Unaudited Consolidated Statements of (Loss) Income.
Income Tax ExpenseBenefit.On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was enacted. Intended to provide economic relief to those impacted by the COVID-19 pandemic, the CARES Act includes provisions, among others, allowing for the carryback of net operating losses generated in 2018, 2019 and 2020, refunds of alternative minimum tax credits, temporary modifications to the limitations placed on the tax deductibility of net interest expense, and technical amendments regarding the expensing of qualified improvement property (“QIP”). As a result of the CARES Act, the Company is able to carryback losses generated in 2020, and reduce taxes payable for accelerated depreciation on qualified improvements property in 2018 and 2019.
Our effective income tax rate for the thirty-ninetwenty-six weeks ended October 3, 2017, was 15.6%June 30, 2020, reflected a 41.7% tax benefit rate compared to 27.0%a 5.5% expense rate for the comparable thirty-ninetwenty-six week period of 2016.2019. The effective incomerecorded tax ratebenefit for the thirty-ninetwenty-six weeks ended October 3, 2017, differed fromJune 30, 2020, was greater than the statutory income tax rate primarily due to FICA Tip Credits and the incremental benefit arising from the ability to carryback the 2020 loss to prior years when the tax credits. rate was at 35%. The decrease14% rate benefit between the current tax rate of 21% versus the NOL carryback year of 35% is reflected partially in ourthe annual effective tax rate and partially as a discrete item in the March 31, 2020 tax rate for fiscal 2017 comparedthe portion related to fiscal 2016 is a result2019 temporary deductible tax differences that are estimated to reverse in 2020 and become part of lower forecasted incomethe 2020 loss carryback. The prior year effective tax rate was below the statutory rate primarily due to tax credits and excess tax deductions realized for fiscal 2017. share based compensation
LIQUIDITY AND CAPITAL RESOURCES
The following tables provide,table provides, for the periods indicated, a summary of our key liquidity measurements (dollars in thousands):
|
| October 3, 2017 |
|
| January 3, 2017 |
| ||
Cash and cash equivalents |
| $ | 28,694 |
|
| $ | 22,761 |
|
Net working capital |
| $ | (47,793 | ) |
| $ | (67,008 | ) |
Current ratio |
| 0.6:1.0 |
|
| 0.5:1.0 |
|
|
| For the Thirty-Nine Weeks Ended |
| |||||
|
| October 3, 2017 |
|
| September 27, 2016 |
| ||
Cash provided by operating activities |
| $ | 69,054 |
|
| $ | 108,631 |
|
Capital expenditures |
| $ | 57,358 |
|
| $ | 80,682 |
|
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||
Cash and cash equivalents |
| $ | 86,741 |
|
| $ | 22,394 |
|
Net working capital |
| $ | (43,202 | ) |
| $ | (93,826 | ) |
Current ratio |
| 0.7:1.0 |
|
| 0.4:1.0 |
|
OurAs a result of uncertainties in the near-term outlook for our business caused by the COVID-19 pandemic, we have reevaluated all aspects of our spending and continue to focus on cash flow generation. We anticipate opening one additional restaurant later this year. We have delayed or canceled all other future restaurant openings and we have also been in discussion with our landlords regarding restructuring of rent payments to defer or abate (partially or fully) rent payments or to amend our lease terms. We will continue to work with our landlords in this manner. We will also continue to review all of our capital requirementsprojects to ensure that we are driven byonly spending on projects that are deemed to be essential in the current environment and we have taken steps to limit spending on operating expenses. Currently, we have no intention to repurchase shares or pay dividends during the remainder of fiscal 2020, or until it is determined that it is in the best interest of the Company and its shareholders and that it is permitted under our fundamental financial objectiveCredit Facility. We will review and, when appropriate, adjust our overall approach to improve total shareholder return throughcapital allocation as we know more about the length and severity of the COVID-19 pandemic and how the post-pandemic recovery will unfold.
Based upon the current level of operations and reduction on new restaurant expansion plansopenings and restaurant enhancementsother capital expenditure initiatives, we believe that our current cash and initiatives. In addition,cash equivalents and our recently completed $70 million private placement of common stock will be adequate to meet our capital expenditure and working capital needs for at least the next twelve months. As of June 30, 2020, we want to maintain a flexible and prudenthave approximately $86.7 million of cash on our balance sheet, to provide the financial resources necessary to manage the riskswith an additional $50.1 million of borrowings available under our Credit Facility, and uncertainties of conducting our business operations in a mature segment of the restaurant industry. In order to achieve these objectives, we use a combination of operating cash flows, funded debt and landlord allowances. Over the last several yearsare taking what we have been augmenting our cash flow from operations by increasing our funded debt and using these proceeds to return capital to shareholders in the form of share repurchases and, beginning in the fourth quarter of fiscal 2017, quarterly cash dividends.
We currently estimate the total domestic capacity for BJ’s restaurantsbelieve to be at least 425, given the size of our current restaurant prototypenecessary and the current structure of the BJ’s conceptappropriate measures to control costs and menu. We expect to fund our growth plans from our ongoing operations, our cash balance on hand, proceeds from employee stock option exercises, tenant improvement allowances from
our landlords and our $250 million Credit Facility. However, depending on the expected level of new restaurant development, tenant improvement allowances that we receive from our landlords, other planned capital investments including ongoing maintenance capital expenditures, and results from our ongoing operations, we may not generate enough cash flow from operations to completely fund our plans. In addition, share repurchases and our quarterly cash dividend or any significant increases in such repurchases or dividends may impact our available capital resources. Accordingly, we continue to actively monitor overall conditions in the capital and credit markets with respect to the potential sources and the timing of additional financing in order to enhance total shareholder return. However, there can be no assurance that such financingmaximize liquidity. Our future operating performance will be available when required or available on terms acceptablesubject to us. If wefuture economic conditions and to financial, business and other factors, many of which are unable to secure additional capital resources, when needed, we may be required to reducebeyond our planned rate of expansion, share repurchases, quarterly cash dividends or other shareholder return initiatives.control.
Similar to many restaurant chains, we typically utilize operating lease arrangements (principally ground leases) for the majority of our restaurant locations. We believe our operating lease arrangements provide appropriate leverage for our capital structure in a financially efficient manner. However, we are not limited to the use of lease arrangements as our only method of opening new restaurants and from time to time have purchased the underlying land for new restaurants. While our operating lease obligations are not required to be reflected as indebtedness on our Consolidated Balance Sheets, the minimum rents and other related lease obligations, such as common area expenses, under our lease agreements must be satisfied by cash flows from our ongoing operations. Accordingly, our lease arrangements reduce, to some extent, our capacity to utilize debt in our capital structure.
We typically lease our restaurant locations for periods of 10 to 20 years under operating lease arrangements. Our rent structures vary from lease to lease, but generally provide for the payment of both minimum and contingent (percentage) rent based on sales, as well as other expenses related to the leases (for example, our pro-rata share of common area maintenance, property tax and insurance expenses). Many of our lease arrangements include the opportunity to secure tenant improvement allowances to partially offset the cost of developing and opening the related restaurants. Generally, landlords recover the cost of such allowances from increased minimum rents. However, there can be no assurance that such allowances will be available to us on each project. From time to time, we may also decide to purchase the underlying land for a new restaurant if that is the only way to secure a highly desirable site. Currently, we own the underlying land for four of our operating restaurants and our Texas brewpub locations.locations, one of our existing restaurants, and one of our restaurants that was scheduled to be opened in fiscal 2020, which has now been delayed due to the current uncertainty related to the COVID-19 pandemic. We also own two parcels of land adjacent to two of our operating restaurants. It is not our current strategy to own a large number of land parcels that underlie our restaurants. Therefore, in many cases we have subsequently enterentered into sale-leaseback arrangements for land parcels that we may purchase.previously purchased. We disburse cash for certain site-related work, buildings, leasehold improvements, furnishings, fixtures and equipment to build our leased and owned premises. We own substantially all of the equipment, furniture and trade fixtures in our restaurants and currently plan to do so in the future.
We also require capital resources to evolve, maintain and increaseCASH FLOWS
The following tables set forth, for the productive capacity ofperiods indicated, our existing base of restaurants and brewing operations and to further expand and strengthen the capabilities of our corporate and information technology infrastructures. Our requirement for working capital is not significant since our restaurant customers pay for their food and beverage purchases in cash or credit cards at the time of the sale. Thus, we are able to sell many of our inventory items before we are required to pay our suppliers for such items.
Our cash flows from operating, investing, and financing activities as detailed in the Consolidated Statements of(in thousands):
|
| For the Twenty-Six Weeks Ended |
| |||||
|
| June 30, 2020 |
|
| July 2, 2019 |
| ||
Net cash provided by operating activities |
| $ | 14,578 |
|
| $ | 64,387 |
|
Net cash used in investing activities |
|
| (24,858 | ) |
|
| (38,757 | ) |
Net cash provided by (used in) financing activities |
|
| 74,627 |
|
|
| (31,478 | ) |
Net increase (decrease) in cash and cash equivalents |
| $ | 64,347 |
|
| $ | (5,848 | ) |
Operating Cash Flows
Net cash provided $69.1by operating activities was $14.6 million during the thirty-ninetwenty-six weeks ended October 3, 2017,June 30, 2020, representing a $39.6$49.8 million decrease from the $108.6$64.4 million provided during the thirty-ninetwenty-six weeks ended September 27, 2016.July 2, 2019. The decrease over the prior year is primarily due to our net loss as compared to net income, the timing of payments related to accrued expenses and accounts and other receivables collections, partially offset by accounts payable payments.
Investing Cash Flows
Net cash used in cash from operatinginvesting activities forwas $24.9 million during the thirty-ninetwenty-six weeks ended October 3, 2017, in comparisonJune 30, 2020, representing a $13.9 million decrease from the thirty-nine$38.8 million used during the twenty-six weeks ended September 27, 2016,July 2, 2019. The decrease over prior year is primarily due to the collectiondelay or cancelation of new restaurant openings, coupled with the suspension of unessential capital expenditures due to the COVID-19 pandemic.
The following table provides, for the periods indicated, the components of capital expenditures (in thousands):
|
| For the Twenty-Six Weeks Ended |
| |||||
|
| June 30, 2020 |
|
| July 2, 2019 |
| ||
New restaurants |
| $ | 13,577 |
|
| $ | 25,547 |
|
Restaurant maintenance and key productivity initiatives |
|
| 9,668 |
|
|
| 12,637 |
|
Restaurant and corporate systems |
|
| 1,617 |
|
|
| 573 |
|
Total capital expenditures |
| $ | 24,862 |
|
| $ | 38,757 |
|
As of August 3, 2020, we have opened one new restaurant and anticipate opening one additional restaurant later this year. While we have delayed or canceled the remainder of our $6.0new restaurant openings for fiscal 2020, we had incurred construction costs prior to the COVID-19 pandemic for additional restaurant locations. We have also reduced capital expenditures for existing restaurants.
Financing Cash Flows
Net cash provided by financing activities was $74.6 million lease termination fee induring the prior year,twenty-six weeks ended June 30, 2020, representing a $106.1 million increase from the $31.5 million used during the twenty-six weeks ended July 2, 2019. This increase is primarily due to additional borrowings on our Line of Credit coupled with the net proceeds from the sale of our common stock through a reductionprivate placement in payroll related accrualsMay 2020. See Note 10 of Notes to Unaudited Consolidated Financial Statements in Part I, Item I of this report for further information regarding our private placement.
See Note 4 of Notes to Unaudited Consolidated Financial Statements in Part I, Item 1 of this report for further information on our Credit Facility. Prior to amending and restating our Credit Facility and subsequently modifying it, in an abundance of caution and as a result of the impactcurrent circumstances with the COVID-19 pandemic, we drew down all remaining amounts under our Line of the 53rd weekCredit in fiscal 2016late March 2020 before repaying back a portion of it. We have also been taking all necessary and lower net income duringappropriate steps to maximize our liquidity as we manage our business through the current thirty-nine week period.
Forenvironment. In addition to drawing down on our line, we sold $70 million of our common stock on May 5, 2020, eliminated all capital and non-essential spending, including delaying or cancelling our new restaurant openings for fiscal 2020, and have suspended future quarterly dividends and the thirty-nine weeks ended October 3, 2017, total capital expenditures were approximately $57.4 million. Expenditures for the purchaserepurchase of the underlying land for new restaurantsshares, as well as the acquisition of restaurant and brewing equipment and leasehold improvements to construct new restaurants were $31.1 million. These expenditures were primarily related to the construction of our eight new restaurants that opened during the thirty-nine weeks ended October 3, 2017, as well as expenditures related to restaurants expected to open later in fiscal 2017. Total capital expenditures related to the maintenance and key productivity initiatives of existing restaurants and expenditures for restaurant and corporate systems were $25.7 million and $0.6 million, respectively.
We have a $250 million unsecured revolving line of credit that expires on November 18, 2021, and may be used for working capital and other general corporate purposes. We utilize the Credit Facility principally for letters of credit that are required to support certain of our self-insurance programs, to fund a portion of the Company’s stock repurchase program, our recently announced quarterly cash dividend and working capital and construction requirements.
As of November 6, 2017,401(k) plan employer matching contributions. While we believe we have opened eight restaurants and we have two additional restaurants,sufficient liquidity with signed leases, under construction that we expect to open before year end. We expect to open four to six new restaurants in fiscal 2018 and we have entered into signed leases, land purchase agreements or letters of intentour current capital position for all of our potential restaurant locations. While we expect our capital expenditures to remain significant, the reduction of restaurant openings in fiscal 2018 will reduce our capital expenditure spend as compared to fiscal 2017. The decision to continue to reduce our pace of expansion will generate increased free cash flow and provide added financial flexibility. It will also allow us to allocate greater resources to our core base of established restaurants to improve sales and profitability. While our new restaurant unit economics remain solid and warrant continued capital allocation,next twelve months, we will continue to balance this new restaurant growth with our commitment to drive shareholder returns through our share repurchases programmonitor and beginning in the fourth quarter of fiscal 2017, quarterly cash dividends.
We currently anticipate our total capital expenditures for fiscal 2018, includingevaluate all expenditure categories, to be approximately $50 million to $60 million. We expect to fund our anticipated capital expenditures for the remainder of fiscal 2017 and fiscal 2018 with our current cash balance on hand, expected cash flows from operations, proceeds from sale-leaseback transactions, expected tenant improvement allowances and our line of credit. Our future cash requirements will depend on many factors, including the pace of our expansion, conditions in the retail property development market, construction costs, the nature of the specific sites selected for new restaurants, and the nature of the specific leases and associated tenant improvement allowances available, if any,financing alternatives as negotiated with landlords.
From time to time, we will evaluate opportunities to acquire and convert other restaurant locations or entire restaurant chains to the BJ’s restaurant concept. In the future we may consider joint venture arrangements to augment BJ’s expansion into new markets or we may evaluate non-controlling investments in other emerging restaurant concepts that offer complementary growth opportunities to our BJ’s restaurant operations. Currently, we have no binding commitments (other than the signed leases or land purchase agreements set forth in Item 1 - Business - “Restaurant Site Selection and Expansion Objectives” in our Annual Report on Form 10-K for the fiscal year ended January 3, 2017) or agreements to acquire or convert any other restaurant locations or chains to our concept, or to enter into any joint ventures or non-controlling investments. However, we would likely require additional capital resources to take advantage of any of these growth opportunities should they become feasible.
Historically, we have not paid any dividends to our shareholders. However, on October 24, 2017, our Board of Directors authorized and declared a quarterly cash dividend of $0.11 per share of common stock payable on December 4, 2017, to shareholders of record at the close of business on November 13, 2017. While we intend to pay regular quarterly cash dividends in future periods, any future decisions to pay or to increase or decrease cash dividends will be reviewed quarterly and declared by the Board of Directors at its discretion. Our Credit Facility contains, and debt instruments that we enter into in the future may contain, covenants that place limitations on the amount of dividends we may pay.
As of October 3, 2017, we have cumulatively repurchased approximately $347.8 million shares in accordance with our approved share repurchase plan. We repurchased approximately $57.3 million of these shares during the thirty-nine weeks ended October 3, 2017. The share repurchases were executed through open market purchases, and future share repurchases may be completed through the combination of individually negotiated transactions, accelerated share buyback, and/or open market purchases. In March 2017, the Company’s Board of Directors approved an expansion of the share repurchase program by $50 million to $400 million. As of October 3, 2017, we have approximately $52.2 million available under our share repurchase plan. Our Credit Facility does not contain any restrictions on the amount of borrowings that can be used to make share repurchases as long as we are in compliance with our financial and non-financial covenants.unprecedented events evolve.
OFF-BALANCE SHEET ARRANGEMENTS
We do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or variable interest entities (“VIEs”), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow limited purposes. As of October 3, 2017,June 30, 2020, we are not involved in any off-balance sheet arrangements.
IMPACT OF INFLATION
Inflation on food, labor, energy and occupancy costs can significantly affect the profitability of our restaurant operations. Our profitability is dependent, among other things, on our ability to anticipate and react to changes in the cost of key operating resources, including food and other raw materials, labor, energy and other supplies and services. Substantial increases in costs and expenses could impact our operating results to the extent that such increases cannot be passed along to our restaurant customers. While we have taken steps to enter into agreements for some of the commodities used in our restaurant operations, there can be no assurance that future supplies and costs for such commodities will not fluctuate due to weather or other market
conditions outside of our control. We are currently unable to contract for certain commodities, such as fluid dairy, fresh meat or seafood, and most fresh produce items for long periods of time. Consequently, such commodities can be subject to unforeseen supply and cost fluctuations.
A general shortage in the availability of qualified restaurant managers and hourly workers in certain geographic areas in which we operate has caused increases in the costs of recruiting and compensating such employees. Many of our restaurant employees are paid hourly rates subject to the federal, state or local minimum wage requirements. Numerous state and local governments have their own minimum wage and other regulatory requirements for employees that are generally greater than the federal minimum wage and are subject to annual increases based on changes in their local consumer price indices. Additionally, a general shortage in the availability of qualified restaurant management and hourly workers in certain geographic areas in which we operate has caused increases in the costs of recruiting and compensating such employees. Certain operating and other costs, including health benefits in compliance with the Patient Protection and Affordable Care Act, taxes, insurance federal and state exemption rules, and regulatory requirements relating to employees and other outside services continue to increase with the general level of inflation and may also be subject to other cost and supply fluctuations outside of our control.
While we have been able to partially offset inflation and other changes in the costs of key operating resources by gradually increasing prices of our menu items, coupled with more efficient purchasing practices, productivity improvements and greater economies of scale, there can be no assurance that we will be able to continue to do so in the future. From time to time, competitive conditions will limit our menu pricing flexibility. In addition, macroeconomic conditions that impact consumer discretionary spending for food away from home could make additional menu price increases imprudent. There can be no assurance that all of our future cost increases can be offset by higher menu prices or that higher menu prices will be accepted by our restaurant customers without any resulting changes in their visit frequencies or purchasing patterns. Many of the leases for our restaurants provide for contingent rent obligations based on a percentage of sales. As a result, rent expense will absorb a proportionate share of any menu price increases in our restaurants. There can be no assurance that we will continue to generate increases in comparable restaurant sales in amounts sufficient to offset inflationary or other cost pressures.
SEASONALITY AND ADVERSE WEATHER
Our business is impacted by weather and other seasonal factors that typically impact other restaurant operations. Holidays (and shifts in the holiday calendar) and severe weather including hurricanes, tornados, thunderstorms and similar conditions may impact restaurant sales volumes in some of the markets where we operate. Many of our restaurants are located in or near shopping centers and malls that typically experience seasonal fluctuations in sales. Quarterly results have been and will continue to be significantly impacted by the timing of new restaurant openings and their associated restaurant opening expenses. As a result of these and other factors, our financial results for any given quarter may not be indicative of the results that may be achieved for a full fiscal year.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions affecting the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenues and expenses in the reporting period. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. We continually review the estimates and underlying assumptions to ensure they are appropriate for the circumstances. Accounting assumptions and estimates are inherently uncertain and actual results may differ materially from our estimates.
Impairment of Long-Lived Assets
We assess the potential impairment of our long-lived assets whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. The assets are generally reviewed for impairment on a restaurant by restaurant basis, or at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets. The reduced cash flow projections resulting from the COVID-19 pandemic triggered an impairment analysis by us. We used the undiscounted cash flow method and assessed the recoverability by comparing the carrying value of the asset to the undiscounted cash flows expected to be generated by the assets. We determine that a restaurant’s long-lived assets are impaired if the forecasted undiscounted cash flows is less than the carrying value of the restaurant’s assets. As a result of this analysis, we determined four of our restaurants were impaired and for the twenty-six weeks ended June 30, 2020, we recorded a $12.0 million charge to operating income for the amount by which the carrying value of the restaurant’s assets exceeded its fair value estimated using the discounted cash flow method. We are unable to predict how long these conditions will persist, what additional measures may be introduced by governments, or what effect any such additional measures may have on our business. Any measure that encourages potential customers to stay in their homes, engage in social distancing or avoid larger gatherings of people is highly likely to be harmful to the dining industry in general and, consequently, our business, which may result in additional impairment charges.
Goodwill
We perform impairment testing annually, during the fourth quarter, and more frequently if factors and circumstances indicate impairment may have occurred. We determined that the reduced cash flow projections as a result of the COVID-19 pandemic indicate that an impairment loss may have been incurred. Therefore, we qualitatively assessed whether it was more likely than not that the goodwill was impaired as of June 30, 2020. Based on our interim impairment assessment as of June 30, 2020, we have determined that our goodwill is not impaired. However, we are unable to predict how long these conditions will persist, what additional measures may be introduced by governments, or what effect any such additional measures may have on our business. Any measure that encourages
potential customers to stay in their homes, engage in social distancing or avoid larger gatherings of people is highly likely to be harmful to the dining industry in general and, consequently, our business, which may result in additional impairment charges.
A summary of our other critical accounting policies is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our 2019 Form 10-K. During the twenty-six weeks ended June 30, 2020, there were no significant changes in our critical accounting policies.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion of market risks contains “forward-looking” statements. Actual results may differ materially from the following discussion based on general conditions in the financial and commodity markets.
Interest Rate Risk
We have a $250$235 million unsecured Credit Facility, of which $194.0$166.8 million is currently outstanding thatand carries interest at a floating rate. We utilize the Credit Facility principally for letters of credit that are required to support our self-insurance programs, to fund a portion of our announced stockshare repurchase program, which is currently suspended, and for working capital and construction requirements, as needed. We are exposed to interest rate risk through fluctuations in interest rates on our obligations under the Credit Facility. Based on our current outstanding balance, a hypothetical 1% change in the interest rates under our Credit Facility would have an approximate $1.6$1.3 million annual impact on our net (loss) income.
Food and Commodity Price Risks
We purchase food and other commodities for use in our operations based upon market prices established with our suppliers. Many of the commodities purchased by us can be subject to volatility due to market supply and demand factors outside of our control, whether contracted for or not. Costs can also fluctuate due to government regulation. To manage this risk in part, we attempt to enter into fixed-price purchase commitments, with terms typically up to one year, for some of our commodity requirements. However, it may not be possible for us to enter into fixed-price contracts for certain commodities or we may choose not to enter into fixed-price contracts for certain commodities. We believe that substantially all of our food and supplies are available from several sources, which helps to diversify our overall commodity cost risk. We also believe that we have some flexibility and ability to increase certain menu prices, or vary certain menu items offered or promoted, in response to food
commodity price increases. Some of our commodity purchase arrangements may contain contractual features that limit the price paid by establishing certain price floors or caps. We do not use financial instruments to hedge commodity prices, since our purchase arrangements with suppliers, to the extent that we can enter into such arrangements, help control the ultimate cost that we pay.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 promulgated under the Securities Exchange Act of 1934 as amended, as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of October 3, 2017,June 30, 2020, our disclosure controls and procedures are designed and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There has not been any change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our thirdsecond fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
See Note 79 of Notes to Unaudited Consolidated Financial Statements in Part I, Item 1 of this report for a summary of legal proceedings.
A discussion of the significant risks associated with investments in our securities, as well as other matters, is set forth in Item 1A of our Annual Report on2019 Form 10-K for the fiscal year ended January 3, 2017.10-K. A summary of these risks and certain related information is included under “Statement Regarding Forward-Looking Disclosure” in Part I, Item 2 of this Form 10-Q and is incorporated herein by this reference. These cautionary statements are to be used as a reference in connection with any “forward-looking” statements. The factors, risks and uncertainties identified in these cautionary statements are in addition to those contained in any other cautionary statements, written or oral, which may be made or otherwise addressed in connection with a “forward-looking” statement or contained in any of our subsequent filings with the SEC. The risks described in this Form 10-Q and in our Annual Report on Form 10-K are not the only risks we face. New risks and uncertainties arise from time to time, and we cannot predict those events or how they may affect us. There may be other risks and uncertainties that are not currently known or that are currently deemed by us to be immaterial; however, they may ultimately adversely affect our business, financial condition and/or operating results.
These risk factors are intended to be an update to the Risk Factors found in our 2019 Form 10-K.
Health concerns arising from outbreaks of viruses, such as the coronavirus, or other diseases, or regional or global health pandemics and any resulting government response may adversely affect our business.
In the event of a health pandemic, customers might avoid public gathering places, and local, regional or national governments might limit or ban public gatherings to halt or delay the spread of disease. The impact of a health pandemic on us might be disproportionately greater than on other casual dining concepts that have lower customer traffic and that depend less on the gathering of people. To the extent that a virus or disease is food-borne, or perceived to be food-borne, future outbreaks may adversely affect the price and availability of certain food products and cause our customers to eat less of a product.
The United States and other countries have experienced, or may experience in the future, outbreaks of viruses, such as coronavirus (“COVID-19”), norovirus, Avian Flu or “SARS,” and H1N1 or “swine flu,” or other diseases such as bovine spongiform encephalopathy, commonly known as “mad cow disease.” Currently, the global pandemic resulting from the outbreak of the novel COVID-19 has disrupted our restaurant operations beginning in early March 2020. As of the date and time of this Form 10-Q, the majority of our restaurants are operating with limited dine-in seating and/or in a take-out and delivery only capacity, with limited hours and menus. One of our restaurants remains temporarily closed. Local governmental restrictions and public perceptions of the risks associated with the COVID-19 pandemic have caused, and may continue to cause, consumers to avoid or limit gatherings in public places or social interactions, which could continue to adversely affect our business. In addition, our ability to maintain our supply chain and labor force may become challenging as a result of the COVID-19 pandemic. We cannot predict the duration or scope of the COVID-19 pandemic or when un-restricted operations will return. Additionally, due to the restrictions placed on our operations, we may temporarily close more restaurants or dining rooms until local restrictions are lifted. We expect the COVID-19 pandemic to negatively impact our financial results, and such impact could be material to our financial results, condition and prospects based on its longevity and severity.
If the business interruptions caused by COVID-19 last longer than we expect, we may need to seek other sources of liquidity. The COVID-19 pandemic is adversely affecting the availability of liquidity generally in the credit markets, and there can be no guarantee that additional liquidity will be readily available or available on favorable terms, especially the longer the COVID-19 pandemic lasts.
Changes in off premise sales may affect our revenues, operating results and liquidity.
As a result of the COVID-19 pandemic, a higher portion of our sales are from the off-premise channel and are now material to our business. Delivery from our restaurants is primarily accomplished by utilizing third party delivery companies. These third party delivery companies require us to pay them a commission, which lowers our profit margin on those sales. Any negative press, whether true or not, regarding third party delivery companies or a decline in their business model may negatively impact our sales. If these third party delivery companies cease doing business with us, or cannot make their scheduled deliveries, or do not continue their relationship with us on favorable terms, it will have a negative impact on sales or result in increased third party delivery fees.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Due to the COVID-19 pandemic, our share repurchase program is currently suspended until it is in the best interest of the Company and its shareholders to resume, and is permitted by our Credit Facility. As of October 3, 2017,June 30, 2020, we have cumulatively repurchased shares valued at approximately $347.8$475.6 million in accordance with our approved share repurchase plan. Approximately $57.3We repurchased shares valued at
approximately $15.0 million of these shares were repurchased during the thirty-ninetwenty-six weeks ended October 3, 2017.June 30, 2020. The share repurchases were executed through open market purchases, and future share repurchases may be completed through the combination of individually-negotiatedindividually negotiated transactions, accelerated share buyback, and/or open market purchases. In March 2017, the Company’s Board of Directors approved an expansion of the share repurchase program by $50 million. As of October 3, 2017,June 30, 2020, we have approximately $52.2$24.4 million available under the current $400 millionour share repurchase plan approvedplan. Our amended Credit Facility restricts our ability to pay dividends or conduct stock repurchases; therefore, we have suspended our repurchase program until it is permitted by our Board of Directors. Our Credit Facility does not contain any restrictions onand the amountBoard determines that resumption of borrowings that can be used to make share repurchases as long as we areis in compliance with our financialthe best interest of the Company and non-financial covenants.its shareholders.
The following table sets forth information with respect to the repurchase of common shares during the thirty-ninetwenty-six weeks ended October 3, 2017:June 30, 2020:
Period (1) |
| Total Number of Shares Purchased |
|
| Average Price Paid Per Share |
|
| Total Number of Shares Purchased as Part of the Publicly Announced Plans |
|
| Increase in Dollars for Share Repurchase Authorization |
|
| Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
| |||||
01/04/17 – 01/31/17 |
|
| 309,677 |
|
| $ | 36.12 |
|
|
| 309,677 |
|
| $ | — |
|
| $ | 48,279,389 |
|
02/01/17 – 02/28/17 |
|
| 316,423 |
|
| $ | 35.72 |
|
|
| 316,423 |
|
| $ | — |
|
| $ | 36,977,187 |
|
03/01/17 – 04/04/17 |
|
| 170,689 |
|
| $ | 38.12 |
|
|
| 170,689 |
|
| $ | 50,000,000 |
|
| $ | 80,469,746 |
|
04/05/17 – 05/02/17 |
|
| 33,916 |
|
| $ | 40.34 |
|
|
| 33,916 |
|
| $ | — |
|
| $ | 79,101,642 |
|
05/03/17 – 05/30/17 |
|
| 3,143 |
|
| $ | 43.98 |
|
|
| 3,143 |
|
| $ | — |
|
| $ | 78,963,417 |
|
05/31/17 – 07/04/17 |
|
| 36,348 |
|
| $ | 37.42 |
|
|
| 36,348 |
|
| $ | — |
|
| $ | 77,603,349 |
|
07/05/17 – 08/01/17 |
|
| 200,019 |
|
| $ | 35.26 |
|
|
| 200,019 |
|
| $ | — |
|
| $ | 70,550,137 |
|
08/02/17 – 08/29/17 |
|
| 57,968 |
|
| $ | 32.96 |
|
|
| 57,968 |
|
| $ | — |
|
| $ | 68,639,351 |
|
08/30/17 – 10/03/17 |
|
| 555,673 |
|
| $ | 29.62 |
|
|
| 555,673 |
|
| $ | — |
|
| $ | 52,181,393 |
|
Total |
|
| 1,683,856 |
|
|
|
|
|
|
| 1,683,856 |
|
|
|
|
|
|
|
|
|
Period (1) |
| Total Number of Shares Purchased |
|
| Average Price Paid Per Share |
|
| Total Number of Shares Purchased as Part of the Publicly Announced Plans |
|
| Increase in Dollars for Share Repurchase Authorization |
|
| Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
| |||||
01/01/20 – 01/28/20 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
| $ | 39,452,344 |
|
01/29/20 – 02/25/20 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
| $ | 39,452,344 |
|
02/26/20 – 03/31/20 |
|
| 494,948 |
|
| $ | 30.33 |
|
|
| 494,948 |
|
| $ | — |
|
| $ | 24,438,776 |
|
04/01/20 – 04/28/20 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
| $ | 24,438,776 |
|
04/29/20 – 05/26/20 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
| $ | 24,438,776 |
|
05/27/20 – 06/30/20 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
| $ | 24,438,776 |
|
Total |
|
| 494,948 |
|
| $ | — |
|
|
| 494,948 |
|
|
|
|
|
|
|
|
|
| (1) | Period information is presented in accordance with our fiscal months during the |
Exhibit |
| Description |
3.1 |
| |
|
| |
3.2 |
| |
|
| |
3.3 |
| |
|
| |
3.4 |
| |
|
| |
4.1 |
| |
|
|
|
10.1 |
| |
10.2 | ||
10.3 | ||
10.4 | ||
10.5 | ||
10.6 | ||
10.7 | ||
10.8 | ||
|
|
|
31 |
| Section 302 Certification of Chief Executive Officer and Chief Financial |
|
| |
32 |
| Section 906 Certification of Chief Executive Officer and Chief Financial |
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| BJ’S RESTAURANTS, INC. |
|
|
| (Registrant) |
|
|
| By: | /s/ GREGORY A. TROJAN |
|
|
|
| Gregory A. Trojan |
|
|
|
|
|
|
|
|
| (Principal Executive Officer) |
|
|
| By: | /s/ GREGORY S. LEVIN |
|
|
|
| Gregory S. Levin |
|
|
|
|
| |
Chief Financial Officer and Secretary |
| |||
|
|
| (Principal Financial Officer) |
By: | /s/ JACOB J. GUILD | |||
Jacob J. Guild | ||||
Senior Vice President and Chief Accounting Officer | ||||
(Principal Accounting Officer) |
|
28
23