B-Dubs Q4 Even Worse Than Expected; Risks Exist To 2017 Guidance

Wedbush maintained its Neutral rating on Buffalo Wild Wings BWLD after the company’s disappointing fourth quarter results and said risks exist to the restaurant operator’s 2017 outlook.

• EPS of $0.87 was well below $1.27 consensus.
• -4.0 percent same-store sales growth lower than -1.7 percent consensus.
• Unit-level margins at 15.6 percent missed consensus’ 17.5 percent estimate despite in-line wing costs.
• Sees 2017 EPS of $5.60-6.00 vs. $6.47 consensus.
• Expects 2017 same-store sales growth of +1-2 percent (1.5 percent consensus).
• Projects 2017 unit-level margins of 17.8-18 percent (18.3 percent consensus).

“Initial 2017 EPS guidance well below expectations, with margin targets a tough hurdle, in our opinion,” analyst Nick Setyan wrote in a note.

Setyan says 2017 unit-level margin leverage will need to be driven by occupancy given wage and wing inflation. The analyst also believes management’s 2018 unit-level margin target of 20 percent is at risk.

Irrespective of sales driving initiatives in 2017 such as half price wing Tuesdays and online ordering/takeout, the analyst remains cautious around the sustainability of traffic gains given the positive calendar benefit in January.

In this backdrop, Setyan believes refranchising as a realistic alternative to value creation, while providing a near-term valuation floor. Buffalo Wild Wings announced that 10 percent of co-owned units could be refranchised towards the end of 2017 and into 2018.

Setyan also cut his 2017 EPS estimate to $5.74 from $6.05 and trimmed price target by $5 to $150.

n the pre-market hours Wednesday, the stock is down 3.87 percent to $144.