Buffalo Wild Wings Inc
(
BWLD
), a casual dining restaurant and sports bar franchise in the
United States renowned for its Buffalo wings, exited fiscal 2011 on
a positive note on the back of strong top-line growth and unit
growth. The Minneapolis, Minnesota-based company's fourth quarter
earnings of 73 cents per share, surpassed the Zacks Consensus
Estimate of 67 cents per share and also jumped 32.7% from the
year-ago quarter earnings of 55 cents per share.
Buffalo Wild Wings also affirmed its fiscal 2012 outlook of unit
growth target of 12% and net earnings growth of 20% for 2012. The
market reaction was mostly positive as judged from the response of
analysts covering Buffalo Wild Wings.
Highlights from the quarter
During the fourth quarter, the restaurant operator reported
total revenue of $220.5 million, which increased 34.5% year over
year and also outperformed the Zacks Consensus Estimate of $210.0
million.
Sales at the company-operated restaurants rose 36.4% to $202.9
million and franchise royalties and fees grew 15.3% year over year
to $17.5 million. Same-store sales spiked 8.9% and 5.9% at the
company-operated restaurants and franchised restaurants,
respectively.
Restaurant operating margin expanded 10 basis points (bps) to
19.3%, aided by a 10-bp drop in operating costs to 15.5% (as a
percentage of restaurant sales), a 60-bp fall in operating costs to
5.9% and flat labor cost to 29.9, partially offset by a 60-bp hike
in cost of sales to 29.4%.
(Read our full coverage on this earnings report:
BUFFALO WILD WINGS' 4Q RESULTS BEAT
)
Agreement of Estimate Revisions
Revision trends in the last 7 days were skewed toward the
positive side. Out of the 16 analysts covering the stock in the
last 7 days, 12 analysts raised the estimate for the first quarter
of 2012, while one revised the estimates downward for the same
period. Likewise, for fiscal 2012, all the 12 analysts
covering the stock raised their estimates and none reduced the
same. For fiscal 2013, 5 out of the 15 analysts increased
their estimates but none moved in the opposite direction.
Positive revisions are primarily based on the solid fourth
quarter results, continuous expansion and upside in comparable
restaurant sales. Comparable sales grew 12.9% and 10.8% at the
company-operated restaurants and franchised restaurants,
respectively, during the first six-week period of the first quarter
of 2012.
However, for the second quarter of 2012, estimates manifest a
mixed view with 7 (out 16 analysts) downward movements and 6
positive revisions over the last 7 days. The bearish sentiment
appears to indicate the tough wing cost comparison for 2012.
Magnitude of Estimate Revisions
The magnitude of estimate revisions for Buffalo Wild Wings has
been quite significant over the last 7 days. Following the release
of fourth quarter results, estimates for first quarter 2012, fiscal
2012 and fiscal 2013 have enhanced 5 cents, 9 cents and 13 cents to
92 cents, $3.28 and $3.90, respectively. However, given the mixed
revision trend, estimate for the second quarter has remained
unchanged at 63 cents over the last 7 days.
Our Recommendation
We remain encouraged by the company's long and successful track
record, viable business strategy and debt-free balance sheet.
Moreover, the company provides ample growth opportunities given its
plan of opening 1,000 restaurants in the United States by 2013 and
50 in Canada by 2015. Additionally, the company is also on the look
out for expansion opportunities in other international markets like
United Kingdom and Middle East.
Same-store sales also remain impressive driven by menu price
increases, solid national media, strong football season, marketing
spending and operating enhancements. Furthermore, the company is
able to attract customer through radio, digital and social media.
To increase customer visitation, Buffalo Wild Wings continues to
focus on Happy Hour and draft beer sales, gift card sales,
remodeling of restaurant, shutting down of underperforming
restaurants and new menu offerings. The company is also set to
roll-out new online ordering system to boost customer
visitation.
However, we remain cautious on the stock as wing costs could
emerge as a major headwind for 2012, hampering the profitability of
the company. Furthermore, an uncertain economic environment and
fierce competition from other casual dining operators like
Red Robin Gourmet Burgers Inc
(
RRGB
) wooing budget-constrained customers, might weigh on the company's
results.
Accordingly, the company holds a Zacks #3 Rank, which translates
into a short-term Hold rating. Our long-term recommendation for the
stock remains Neutral.
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years
ago that earnings estimate revisions are the most powerful force
impacting stock prices. He turned this ground breaking discovery
into two of the most celebrating stock rating systems in use
today. The Zacks Rank for stock trading in a 1 to 3 month time
horizon and the Zacks Recommendation for long-term investing (6+
months). These "Earnings Estimate Scorecard" articles help
analyze the important aspects of estimate revisions for each
stock after their quarterly earnings announcements. Learn more
about earnings estimates and our proven stock ratings at
http://www.zacks.com/education/
BUFFALO WLD WNG (
BWLD
): Free Stock Analysis Report
RED ROBIN GOURM (
RRGB
): Free Stock Analysis Report
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