Buffalo Wild Wings Beats Q2 Earnings as World Cup Drives Comps - Analyst Blog


Buffalo Wild Wings Inc. ( BWLD ) posted solid second-quarter 2014 results and provided a positive outlook for 2014.

Adjusted earnings of $1.25 per share for the second quarter beat the Zacks Consensus Estimate of $1.20 by a nickel and grew 42% year over year. Solid top-line growth and lower cost of sales backed the upside.

Buffalo Wild Wings, Inc - Earnings Surprise | FindTheBest

Total revenue increased 20% year over year to $366.0 million and comfortably beat the Zacks Consensus Estimate of $361.0 million by 1.4% driven by strong comps and new unit openings.

Behind the Headline Numbers

During the quarter, restaurant sales amounted to $343.1 million, up 20.2% 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 7.7%, far better than 3.8% increase in the year-ago quarter and 6.6% in the previous quarter. Same-store sales were strong during the NBA and NHL playoffs. Additionally, the 2014 FIFA World Cup added 100 basis points (bps) to the comps growth in the quarter.

Franchise royalties and fees increased 16.6% year over year to $22.9 million, led by 54 restaurant openings versus the prior-year quarter. The year-over-year increase in franchise royalties and fees also reflects a 6.5% rise in franchise same-store sales, better than 4.1% rise in the year-ago quarter and 5% in the last quarter.

Buffalo Wild Wings' cost of sales, as a percentage of revenues, improved 220 bps to 28.2%, benefiting from lower chicken wing costs.

Labor expense ratio was up 10 bps due to higher management incentive compensation. Excluding stock-based compensation, general and administrative (G&A) expenses ratio was 8.3%, up 60 bps year over year.

2014 Outlook

The company forecasts earnings to increase 30% year over year, higher than prior expectation of 25%. The projection takes into account second-quarter results, decline in the cost of sales and third-quarter comps to date. Comps at company-owned restaurants and franchised locations have increased an impressive 8.2% and 7.4%, respectively, so far in the third quarter on the back of the 330-bps boost provided by the World Cup.

Our Take

We believe that Buffalo Wild Wings is set to report a strong 2014. The company has made a solid start in the first half, surpassing the Zacks Consensus Estimate on both lines. However, we remain concerned about the price of chicken wings, which can go up in the latter half of this year, and dent margins.

In 2014, the company plans to continue to implement its "guest experience business model" that is expected to increase traffic during 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 BJ's Restaurants, Inc. ( BJRI ), Chipotle Mexican Grill, Inc. ( CMG ) and Domino's Pizza, Inc. ( DPZ ). While BJ's Restaurants and Chipotle sport a Zacks Rank #1 (Strong Buy), Domino's carries a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: BWLD , CMG , DPZ , BJRI



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