Four-wall margins at BJ’s Restaurants were better than Wall Street was expecting in the first quarter, and the chain credited artificial intelligence for some of the growth.
Margins at the casual-dining chain improved by an impressive 240 basis points, to 15%, in the quarter ended April 2, beating analysts’ estimates of 13% and surprising even BJ’s itself.
The chain’s expenses were favorable up and down the P&L thanks to a number of cost-saving and efficiency initiatives at the 200-unit brand.
That included an AI sales forecasting tool the chain added last year that tells managers how much staff to schedule and how much food to prep. The chain has continued to fine-tune the technology and has been getting more accurate forecasts as a result.
“If you have the right forecast in place, the ability to manage against that, both on cost of sales because you're prepping correctly, works for you and gives you a huge benefit in food cost,” CEO Greg Levin said Thursday, according to a transcript from financial services site AlphaSense.
AI was not the only thing working for BJ’s in the quarter. Changes to its meat-sourcing strategy, for instance, helped offset inflation in chicken wings, chicken and salmon, rendering food costs flat quarter over quarter. And a simplification effort that shrunk BJ’s large menu by 10% has made operations more efficient.
All told, the chain’s cost of sales was 140 basis points lower than a year ago, and labor costs eased by 50 basis points. By some measures, the chain’s labor efficiency was better than it was before the pandemic, said CFO Thomas Houdek.
BJ’s also got a 50-basis-point benefit on the occupancy and operating expenses line, thanks to a new approach to facilities planning and spending, including a scale-back in third-party delivery promotions.
“It really was outperforming what even our expectations were in terms of what our restaurants were able to operate at,” Houdek said, according to the AlphaSense transcript.
Investors were happy with the results: BJ’s stock was up more than 7% early Friday afternoon.
And the chain said it has opportunities to expand its margins further. This month, it began introducing a new service model that splits front-of-house responsibilities across servers, food runners and expediters, allowing servers to get to tables sooner and freeing up managers to spend more time in the dining room.
While it will take a few quarters for restaurants to adjust to the new process, “over time there is additional labor benefit in regards to efficiency, and that should also allow us to drive top-line sales,” Levin said.
It is those top-line sales rather than profits that have been a challenge for BJ’s of late. In the first quarter, same-store sales fell 1.7% year over year, in part due to bad weather in January. But comps improved throughout the quarter, primarily from better traffic.
Traffic was negative 9% in January, but rose to negative mid-single digits in February and March, Houdek said. Through April, traffic was down 3% year over year.
Like others in casual dining, BJ’s has seen some softness and check management among lower-income customers, Levin said. The chain is addressing that problem by slowing the rate of price increases and promoting deals such as half-off large pizzas on Mondays and lunch specials starting at $12.
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