BJ’s Restaurants, Inc. (BJRI), Panera Bread Co (PNRA): These Restaurants Stopped Serving Up Growth

Three restaurant growth stories reported disappointing second quarter numbers, and investors could not get out fast enough – price per share dropped swiftly on heavy volume. The three charts are interchangeable and a potent reminder of just how fast the herd can turn, and the subsequent effects on stock prices.

Ignite fizzles

Ignite Restaurant Group Inc (NASDAQ:IRG) announced preliminary second quarter results that failed to spark investor interest, and the share price shot down precipitously.

Investors react fast and en masse to bad news, as the chart shows. For the rest of us, we have to decide if it’s a buying opportunity or not. In the case of Ignite, probably not yet.

In the second quarter, total revenue increased 72% to $228.1 million versus $132.9 million in 2Q12. The increase includes $86 million from the Macaroni Grill acquisition in April. Without it, revenue increased a disappointing 6.5%. This is considerably slower than the 15.3% growth in revenue for 2012. While the Macaroni Grill revenue and comps were just short of ugly, Ignite scored a beautiful deal on the real estate – $262,000 per restaurant unit. That allows nothing for the value of the Macaroni Grill business, as the figure is close to what the business is/was worth. It’s a severely damaged concept with declining business and a tarnished brand. Ongoing negative comps and slow revenue growth weighed heavily on Ignite’s Q2.

Romano’s Macaroni Grill was acquired in early April 2013 for $55 million. Ignite Restaurant Group Inc (NASDAQ:IRG) estimates Q2 comps for the legacy business increased 1.3% – a 0.7% increase at Joe’s Crab Shack and a 6.4% increase for Brick House Tavern + Tap. These results were a letdown after the promising 7% comps for 2012. Comp sales for the Macaroni Grill restaurant were down 7.4%, and something of an improvement over its pre-acquisition numbers. Spending was well above predictions and Ignite now expects a diluted net loss per share between $0.10-$0.12 in Q2, compared to $0.25 a year ago. The Macaroni Grill ate up excess spending in marketing and reorganization of staff to the tune of a $2 million overage. If and when the Macaroni Grill is rehabilitated, this may prove to be money well spent. The turnaround is taking longer than Ignite was expecting, and is now just four months out. I anticipated it might take years.

From the press release:

Our vision for the potential of the Macaroni Grill brand and its benefit to the Ignite business are unchanged, however, it will likely take longer to prove accretive to our earnings than originally anticipated.

With the push that could come from the low capital invested in the Macaroni Grill restaurants, there may come a time when its anticipated improved performance makes Ignite a good investment. Not yet.

BJ’s blows it

BJ’s Restaurants, Inc. (NASDAQ:BJRI) had a good news/bad news second quarter. The company stated that these are the highlights. Can you guess which of these highlights is good news?

Highlights for the second quarter of fiscal 2013 were as follows:

1. Total revenue increased approximately 10% to $198.5 million
2. Total restaurant operating weeks increased 11%
3. Four new restaurants opened
4. Comparable restaurant sales were flat
5. Net income and diluted net income per share were $8.6 million and $0.30, respectively

BJ's Restaurants, Inc. (NASDAQ:BJRI)The good news is revenue increased by 9.8%. The bad news is operating income and net income declined 4%, as operating expenses increased and margins decreased. BJ’s Restaurants, Inc. (NASDAQ:BJRI) opened four new restaurants, creating some growth, a key part of the story for any growth stock. The bad news is that new restaurants with initially high weekly sales saw those sales drop when added to the comp base. That high growth period, called a honeymoon, is not lasting long enough to help comps. Decreasing traffic in mature restaurants is the force behind declining comps. The California is reaching saturation with 62 restaurants (136 total BJ’s Restaurants, Inc. (NASDAQ:BJRI) stores) clustered around Santa Rosa and Los Angeles, and the resulting cannibalization steals traffic from older units.

In the second quarter, comparable sales were only 0.3%, reflecting a more than 2% increase in pricing offset by a 3% decrease in traffic. The first quarter results were not much better. BJ’s had 0.4% comps and a 3% decrease in traffic. If the company can’t get customers in the door, it’s impossible to be a growth stock. The share price dropped on high volume when second quarter results were announced.

BJ’s Restaurants, Inc. (NASDAQ:BJRI)’s comps are down – lost customers, higher pricing, and a moatless concept in the micro-brewery/pizza universe may be responsible. Is it fixable?

In the first half of 2013, guest traffic has decreased 3% – an unwelcome trend that management is attempting to correct with advertising, new menu items, and speedy service. Investors will be focused on whether the company has the right plan in place and can improve these numbers, before sending the share price back to all-time highs around $54.

Panera Bread doesn’t rise

Panera Bread Co (NASDAQ:PNRA) was the best of the trio of restaurants. It has been an ultra-steady growth story, rarely falling short of estimates and not known for disappointing investors. In 2Q13, it came up short of estimates with revenue at $589 million and EPS of $1.74 – $0.05 shy of expectations. Comparable store sales were a slow 3.7% for all stores and 3.8% at company restaurants. Check amounts increased 4.3%, mainly from price increases, and traffic was a negative 0.5%. Much like the other two flagging restaurants, Panera Bread Co (NASDAQ:PNRA) is having its own problems getting customers to stop by and eat. One bad quarter does not make Panera a disaster, but there is a troublesome downward trend developing this spring and summer:

Restaurant comps

* April 4.7%
* May 4.1%
* June2.6%
* July 2.1%

Of more concern is the decline in traffic. Comps supported by price increases are weak and unsustainable. Restaurants that relentlessly rely on raising menu prices run the risk of alienating customers. The downward spiral continued in 2013.

The proposed fix is nearly identical to everyone else’s: tinker with the menu, speed up service, and market aggressively.

As usual with a growth story that misses expectations, the sell-off was marked and heavy.

Investors looking for an opportunity took advantage of the fast drop and bought, sending the price back up modestly. Ignite and BJ’s apparently have more to prove. Panera Bread Co (NASDAQ:PNRA) has been a great growth stock for a few years and investors were in the mood to forgive just a little.

Is it an opportunity now? Guidance is conservative and 2013 figures have been revised down.

From the conference call:

The company revised full year EPS growth downward to $6.75-$6.85 per share and lowered comp store to 3%-5% from 4%-5%.

If Panera Bread Co (NASDAQ:PNRA) pulls off a positive surprise, this would be the time to buy. However, management does not have a reputation for low-balling guidance, and if it comes in at estimates, then we can’t expect much in the way of gains this year.

jean graham has no position in any stocks mentioned. The Motley Fool recommends BJ’s Restaurants and Panera Bread. The Motley Fool owns shares of BJ’s Restaurants and Panera Bread Co (NASDAQ:PNRA). jean is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article These 3 Restaurants Stopped Serving Up Growth originally appeared on and is written by jean graham.

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