On Aug 14, we issued an updated research report on
Buffalo Wild Wings Inc.
On Jul 29, Buffalo Wild Wings posted strong second-quarter 2014
results with earnings and revenue beating the Zacks Consensus
Estimate. Adjusted earnings of $1.25 per share for the second
quarter grew 42% year over year. Solid top-line growth and lower
cost of sales backed the upside. Total revenue increased 20% year
over year to $366.0 million driven by strong comps and new unit
Buffalo Wild Wings registered company-owned comps growth of 7.7%,
far better than a 3.8% increase in the year-ago quarter and a 6.6%
increase in the previous quarter, owing to improvement in guest
count. Same-store sales were strong during the NBA and NHL
playoffs. Additionally, the 2014 FIFA World Cup added 100 basis
points (bps) to comps growth in the quarter.
The company expects earnings to grow 25% in 2014 and even reach
30% compared to its prior expectation of 20% growth. However,
rising food and other costs remain a matter of concern for the
company. This caught investor attention, resulting in a massive
decline in share price despite strong quarterly results.
Food costs have risen sharply so far in 2014. Chicken prices have
increased due to widespread drought conditions and supply shortages
and are expected to increase further in the second half of the
year, thereby hurting the company's profitability. However, the
company had been benefiting from serving chicken wings by portion
for so long. The company will no longer benefit from this way of
serving chicken in the second half of 2014 as prices continue to
rise. This would tremendously pressurize its margins.
Also, the company's sales initiatives like unit expansion and the
addition of guest experience captains at its restaurants will also
put pressure on margins. These would automatically increase labor
costs and pre-opening expenses.
We believe these costs would make it difficult for Buffalo Wild
Wings to register more than 25% earnings growth for 2014 let alone
record a 30% increase, which translates into earnings of $4.93 per
share. Buffalo Wild Wings carries a Zacks Rank #3 (Hold).
Other Stocks to Consider
Better-ranked stocks in the same industry include BJ's Restaurants,
), Chipotle Mexican Grill, Inc. (
) and Jamba, Inc. (
). All these stocks sport a Zacks Rank #1 (Strong Buy).
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