With a stellar second-quarter,
Buffalo Wild Wings Inc.
) was expected to enjoy a home run. (Read: Buffalo Wild Wings Beats
Q2 Earnings as World Cup Drives Comps) However, shares of the
sports bar and hot wings restaurant chain plunged more than 13%
yesterday. Let's find out what's clipping its wings.
Muted Earnings Guidance
Buffalo Wild Wings expects earnings to exceed 25% for 2014 and even
reach 30%. Though the guidance was better than management's
previous expectation of an increase of 25%, it failed to invigorate
We believe that the market was expecting Buffalo Wild Wings to
guide much higher after it delivered robust results in the first
Moreover, even the higher end of the guided range, i.e. 30% growth,
implies that the company is expecting 2014 earnings of $4.93, per
share. This is far behind the Zacks Consensus Estimate of $5.10 per
share representing a 34.6% rise. So it is the muted outlook that
has caused the concern.
Problems Lurking on the Horizon
Rising costs remain a huge concern for Buffalo Wild Wings. The
company's cost of sales in the last quarter was down primarily due
to lower prices of chicken wings. However, chicken prices could
increase in the second half of the year, due to widespread drought
conditions and supply shortage, and dent margins. Higher labor
costs can add fuel to fire.
With rising commodity costs, a price hike for the company would
only be natural. This might lead to lower traffic, thus negatively
Buffalo Wild Wings operates in an intensely competitive
environment. Additionally, being a sports bar, the company depends
heavily on major sporting events. During the first half of the
year, Buffalo Wild Wings benefited from the Winter Olympics, NBA
and the FIFA World Cup, along with the Super Bowl. With fewer
global sporting events scheduled in the second half, comps are
expected to slow down.
Further, the profitability of PizzaRev remains a major cause of
concern in the upcoming quarters. Buffalo Wild Wings made a
minority investment in the restaurant concept last year and opened
the first location last May in Minnesota. However, the concept is
yet to add to the profits of the chain.
However, we believe Buffalo Wild Wings will be able to mitigate the
worries and the stock price will turn around as the week
progresses. Despite the worries, Buffalo Wild Wings remains one of
the fastest growing restaurant chains in the U.S., with solid
The company presently has a Zacks Rank #3 (Hold). Some
better-ranked stocks in the restaurant industry include BJ's
Restaurants, Inc. (
), Chipotle Mexican Grill, Inc. (
) and Domino's Pizza, Inc. (
). While BJ's Restaurants and Chipotle Mexican Grill sport a Zacks
Rank #1 (Strong Buy), Domino's Pizza carries a Zacks Rank #2
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BUFFALO WLD WNG (BWLD): Free Stock Analysis
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