Bojangles': A Decent Pick in the Retail-Restaurant Industry

Bojangles' reports strong 3rd quarter and has engaged several initiatives for future growth

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Restaurant stocks are always a hot favorite among people as there are lots of opportunities. A great player playing well in this industry is Bojangles’ Inc. (BOJA, Financial).

This restaurateur has posted excellent quarterly results and has also improved its annual guidance for the fiscal year 2015, which is a 52-week period ending on Dec. 27, 2015. The company has posted 22 consecutive quarters of comparable restaurant sales growth across the system.

Founded in 1977 in Charlotte, North Carolina, Bojangles' is a highly differentiated and growing restaurant operator and franchiser dedicated to serving its customers high-quality, craveable food made from its Southern recipes. The company's restaurants offer biscuits, bone-in fried chicken, fixin's and Legendary Iced Tea.

The company's Bo-Smart menu features salads, grilled chicken sandwiches, roasted chicken bites and fat-free green beans. In addition, the company also offers combos and family meals for parties. On Sept. 27, 2015, Bojangles' had 657 systemwide restaurants, of which 274 were company operated and 383 were franchised restaurants, primarily located in the Southeastern U.S.

Strong third-quarter results

On Nov. 4, 2015, Bojangles’ reported its financial results for the third quarter ended Sept. 27. Systemwide comparable restaurant sales increased 4.1%, consisting of both company-operated and franchised comparable restaurant sales growth of 4.1%.

Total revenues increased 12.7% to $124.3 million in the third fiscal quarter of 2015 from $110.3 million in the prior year quarter. Bojangles’ restaurant revenue and franchise royalty revenues increased 12.8% to $117.5 million and 10.7% to $6.4 million in the third fiscal quarter compared to $104.2 million and $5.8 million in the prior year quarter.

Restaurant contribution, a non-GAAP measure, increased 17.5% to $21.9 million compared to $18.7 million in the prior year quarter. As a percentage of company restaurant revenues, restaurant contribution margin, a non-GAAP measure, increased to 18.7% in the reported quarter from 17.9% in the prior year quarter.

Adjusted EBITDA and net income increased 20% to $20.5 million and $8.9 million compared to $17.1 million and $7.0 million in the year ago quarter. Pro forma net income and pro forma diluted net income per share was $8.5 million and 23 cents compared to $5.7 million and 15 cents in the prior year quarter.

Bojangles’ general and administrative expenses increased $2.1 million to $10.1 million in the reported quarter compared to $7.9 million in the prior year quarter. The reason behind this increase is additional positions that have been added to support an increased number of restaurants in its system and additional costs as a result of operating as a public company.

Further, in the reported quarter, Bojangles’ opened 18 systemwide restaurants (seven company-operated and 11 franchised restaurants). The company ended the quarter with cash and cash equivalents of $15.05 million, long-term debt of $209.19 million and capital lease obligations of $21.82 million. Compared to December 2014, Bojangles’ has increased its cash and cash equivalents and reduced its term loan and capital lease obligations.

Factors that contributed to the third-quarter success

  • Comparable restaurant sales growth increased at company-operated restaurants due to increases in price and mix.
  • Total revenues increased due to an additional net 46 systemwide restaurants at Sept. 27, 2015 compared to Sept. 28, 2014.

Projections for fiscal 2015

Bojangles’ has increased the outlook for fiscal 2015. Total revenues are expected to be in the range of $486.0 million to $488.0 million. The company has plans to open 62 to 64 systemwide restaurants (28 to 29 company-operated and 34 to 35 franchised restaurants).

Restaurant contribution margin and general and administrative expenses are expected to be in the range of 17.7% to 18.0% and $42.8 million to $43.3 million. Further, the company expects pro forma diluted net income per share and adjusted EBITDA of 79 cents to 81 cents and $76.0 million to $77.5 million.

Attractive growth opportunities

Bojangles’ has more than 1,400 restaurants in existing footprint and over 3,500 potential restaurants nationwide. It has a compelling new restaurant model and a solid track record of new restaurant growth. The company has a target of 7% to 8% long term annual unit growth. Further, Bojangles’ market development strategy (includes leveraging market spend and growing brand awareness) has increased its penetration.

Initiatives taken

To strengthen Bojangles’ future, the company has taken the following initiatives:

  1. Investing in its people, which will better uphold its commitment to the Bo-Size Service and build out its menu development capabilities.
  2. Enhancing its technological infrastructure.
  3. Improving its supply chain through a new partnership.
  4. Enhancing its customer engagement while improving execution.
  5. Enhancing product and packaging.
  6. Optimization of labor and service.

(Source: Company Website)

On a concluding note

Overall Bojangles’ is a rock-solid company with highest breakfast daypart average unit volume in the industry. The company’s strengths can be seen in multiple areas such as a solid track record of driving profitability, strong free cash flow and capitalization, high quality and craveable food, diversified daypart mix and a strong management team. Further, Bojangles’ has had strong historical growth both before and after its IPO.

This restaurateur won’t let its customers as well as valued investors down in the future.

Disclosure: I do not hold any position in the company.