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Buffalo Wild Wings Down on Q3 Earnings Miss, Comps Soft

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Share price of Buffalo Wild Wings Inc.BWLD plunged 14% in aftermarket hours yesterday after the company posted dismal third quarter 2015 results. While an increase in chicken costs hurt profits, fewer sports events in the third quarter of 2015 compared with the year-ago period resulted in soft comps.

Earnings and revenues both missed the Zacks Consensus Estimate. The company now expects single-digit earnings growth in 2015. This further lowered investors' confidence.

Earnings and Revenue Discussion

Adjusted earnings of $1.00 per share in the third quarter fell 12.2% year over year. It also fell short of the Zacks Consensus Estimate of $1.28 by approximately 22%. The downside reflects higher food and labor costs.

Buffalo Wild Wings Inc. (BWLD) - Earnings Surprise | FindTheCompany

Total revenue increased approximately 22% year over year to $455.5 million driven by year-over-year improvement in company-owned restaurant sales and higher franchise royalties and fees. However, it missed the consensus mark of $464.0 million by approximately 1.8%.

Behind the Headline Numbers

During the quarter, company-owned restaurant sales amounted to $431.8 million, up 23.2% year over year, driven by unit expansion and comps growth. Buffalo Wild Wings registered company-owned comps growth of 3.9% that compared unfavorably with prior quarter comps growth of 4.2% as well as the year-ago comps growth of 6%.

Buffalo Wild Wings keeps its guests engaged during major sporting events like March Madness, NFL playoffs, college football bowl games, and college basketball through promotional activities. However, lack of sporting events during the quarter compared with the last year quarter resulted in unfavorable comps comparison. Shift in the sports calendar that led to one less week of football and fewer pay-per-view events compared with the last year negatively impacted comps by 80 basis points.

Franchise royalties and fees increased 23.8% year over year to $3.6 million, thanks to unit expansion and comps growth. Comps growth at franchise locations was 1.2% that compared unfavorably with prior quarter comps growth of 2.5% as well as the year-ago quarter comps growth of 5.7%.

Buffalo Wild Wings' cost of sales, as a percentage of revenues, increased 30 basis points (bps) to 29.4%, due to a 19% year-over-year increase in chicken wing costs. The company's cost of labor, as a percentage of revenues, increased 20 bps to 32.2% due to higher wage rates and benefits costs. Also, the transition of the 41 unit franchise acquisition had a negative impact on labor costs.

Restaurant operating expenses as a percentage of restaurant sales were 14.7%, down 30 bps due to lower advertising cost per restaurant, partially offset by increased repairs and maintenance expense related to the acquisition.

Soft Fourth Quarter Comps So Far

For the first four weeks of fourth quarter 2015, comps at company-owned restaurants and franchised locations increased 2.8% and 0.8%, respectively. This compared unfavorably with comps growth of 5.4% at company-owned restaurants and 5.1% at franchised locations in the year-ago period. Lack of sporting events has resulted in soft comps so far. The first four weeks of the fourth quarter of 2015 had the MLB playoffs, but not the World Series. However, the first four weeks of 2014 had all the playoff games and the World Series.

The company stated that fourth quarter 2015 will have the same number of pay-per-view events compared with fourth quarter 2014. However, calendar shifts (with Halloween falling on a Saturday and Christmas on a Friday) will negatively impact comps in the fourth quarter.

Single-Digit Earnings Growth for 2015

Based on year-to-date results, the company again revised its earnings guidance for 2015. Now, it expects single-digit net earnings growth in 2015 compared with 13% growth expected previously. Taking into account the expenses related to the franchise acquisition, the company had lowered its net earnings growth expectation to 13% in the second quarter compared with the previous expectation of 18%.

Taking into consideration some labor efficiencies from the franchise acquisition, the company expects labor as a percentage of restaurant sales in the fourth quarter of 2015 to be approximately 31%.

Earnings Guidance for 2016

Given the aggressive pace of unit expansion as well as ongoing sales and operational initiatives, the company expects net earnings growth in 2016 to exceed 20%, higher than the long-term target of 15%.

The company presently has a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks in the same industry include Carrols Restaurant Group, Inc. TAST , Dave & Buster's Entertainment, Inc. PLAY and Cracker Barrel Old Country Store, Inc. CBRL . All these stocks sport a Zacks Rank #1 (Strong 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 Nasdaq, Inc.


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

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