Buffalo Wild Wings Beats on Earnings & Revs - Analyst Blog

Leading restaurant chain, Buffalo Wild Wings Inc. BWLD posted solid first quarter 2014 results and provided a positive outlook for 2014.

Adjusted earnings of $1.49 per share for the first quarter beat the Zacks Consensus Estimate of $1.35 by 10.4% and grew 71.2% year over year. Solid top line growth and lower cost of sales backed the earnings upside.

Total revenue increased 20.9% year over year to $367.9 million and comfortably beat the Zacks Consensus Estimate of $363.0 million by 1.4% driven by strong comps and new unit openings.

In fact, sales gained momentum during February and March as more people visited its restaurants to watch the Winter Olympics and NCAA college basketball tournament, the March Madness. The restaurant offers a full bar and up to 40 television sets per outlet and is famous for its bar concept and ‘dine and watch game' facility.

Behind the Headline Numbers

During the first quarter, sales at company-owned restaurants amounted to $344.9 million, up 21.2% year over year, driven by company-owned unit expansion and comps growth. Comps growth was driven by higher guest count.

Buffalo Wild Wings registered company-owned comps growth of 6.6%, far better than an increase of 1.4% in the year-ago quarter and 5.2% in the previous quarter. The strong comps reflect the shift of Easter to the second quarter of the year and the NCAA tournament that pulled crowds to the restaurants.

Franchise royalties and fees increased 14.9% year over year to $22.9 million, led by 55 new restaurant openings at quarter-end. The year-over-year increase in franchise royalties and fees also reflects a 5.0% rise in franchise same-store sales, better than a 2.2% rise in the year-ago quarter and a 3.1% rise last quarter.

Buffalo Wild Wings' cost of sales, as a percentage of revenues, improved 440 basis points (bps) to 28.3% in the first quarter, benefiting from lower wing costs. The restaurateur's initiative to serve wings by portion helped lower cost of sales ratio.

The price of chicken wings had started to ease from the beginning of the second quarter last year. Traditional wing prices were $1.36 per pound in the first quarter, down 35.0% year over year.

Labor expense ratio was up 30 bps due to higher management incentive compensation. Excluding stock-based compensation, general and administrative (G&A) expenses ratio was 6.7%, flat year over year.

2014 Outlook Upped

The company forecasts earnings to increase 25.0% year over year, higher than prior expectation of 20.0%. The projection takes into account strong first quarter results, decline in cost of sales, and second quarter comps to date. Despite Easter falling in the second quarter of 2014, comps at company-owned restaurants and franchised locations have increased an impressive 5.7% and 4.4%, respectively so far in the second quarter.

Our Take

After posting an average positive earnings surprise of 3.38% in 2013, we believe Buffalo Wild Wings is set to report a strong 2014. The company has made a solid start, surpassing the Zacks Consensus Estimate on both lines.

In 2014, the company plans to continue to implement its “guest experience business model” that is expected to increase traffic in the year. Apart from this, the company also stresses on advertising initiatives, installing new point-of-sales programs, improving supply chain management, remodeling initiatives and its loyalty program to augment sales. We believe these initiatives will contribute robustly to Buffalo Wild Wings' business in the near future.

The company presently has a Zacks Rank #3 (Hold). Some better ranked stocks in the restaurant industry include Ignite Restaurant Group, Inc. IRG, The Wendy's Company WEN and Jack in the Box Inc. JACK. While Ignite Restaurant Group, Inc. IRG and The Wendy's sport a Zacks Rank #1 (Strong Buy), Jack in the Box carries a Zacks Rank #2 (Buy).