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Buffalo Wild Wings Up Despite Q2 Earnings & Revenue Miss - Analyst Blog

Buffalo Wild Wings Inc.BWLD posted dismal second quarter 2015 results with earnings and revenues missing the respective Zacks Consensus Estimate. While an increase in chicken costs hurt profits, fewer sports events in the second quarter of 2015 compared to last year resulted in soft comps.

Despite weak results, share price of the restaurant company went up approximately 9% in aftermarket hours. The increase was possibly the result of a 26% year-over-year increase in chicken costs, much less than a 41% increase in the first quarter of the year.

Meanwhile, the company intends to increase prices going forward. It also stated during the conference call that it will complete the acquisition of 41 franchised restaurants in Aug 2015. Reportedly, the company-owned restaurants are performing better than franchised restaurants. All these announcements possibly had a positive impact on the share price.

Earnings and Revenue Discussion

Adjusted earnings of $1.12 per share in the second quarter fell 10.4% year over year. It also fell short of the Zacks Consensus Estimate of $1.26 by 11.1%. The downside reflects higher food and labor costs.

Buffalo Wild Wings Inc. - Earnings Surprise | FindTheBest

Total revenue increased approximately 16.5% year over year to $426.4 million on improved company-owned restaurant sales and higher franchise royalties and fees. However, it missed the consensus mark of $430.0 million by approximately 0.8%.

Behind the Headline Numbers

During the quarter, company owned restaurant sales amounted to $401.9 million, up 17.1% year over year, driven by unit expansion and comps growth. Buffalo Wild Wings registered company-owned comps growth of 4.2% that compared unfavorably with the prior quarter comps growth of 7% as well as the year-ago comps growth of 7.7%.

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 to the last quarter led to comparatively unfavorable comps. Compared to the year-ago quarter, there were 14 fewer NBA and NHL playoff games, two fewer pay-per-view boxing events and no men's World Cup.

Franchise royalties and fees increased 7.3% year over year to $24.5 million, thanks to unit expansion and comps growth. Comps growth at franchise locations was 2.5% that compared unfavorably with prior quarter comps growth of 6% as well as the year-ago quarter comps growth of 6.5%.

Buffalo Wild Wings' cost of sales, as a percentage of revenues, increased 110 basis points (bps) to 29.3%, due to a 26% year-over-year increase in chicken wing costs. The company's cost of labor, as a percentage of revenues, increased 90 bps to 32.2% due to higher wage rates and benefits costs and the addition of Guest Experience Captains at all company-owned restaurants.

Soft Third Quarter Comps So Far

For the first four weeks of third quarter 2015, comps at company-owned restaurants and franchised locations increased 4.8% and 2%, respectively. This compared unfavorably with comps growth of 8.2% at company-owned restaurants and 7.4% at franchised locations in the year-ago period. Men's World Cup finals during the same period last year had boosted comps.

Menu Prices to Increase

In order to offset the impact of rising wage rates, draft beer cost increases and elevated wing prices, the company will increase the price of alcohol in August and that of menu items like Wing Tuesday and Boneless Thursday in approximately 25% of company-owned restaurants in September. It will also increase prices of its news menu items in Nov 2015.

Outlook for Second Half 2015

The company expects cost of wings to remain higher in the second half of the year compared to prior expectations. It expects labor as a percentage of restaurant sales to be approximately 32% in the third quarter and higher in full year 2015 compared to the last year. This takes into account labor inefficiencies due to the acquisition of 41 franchised restaurants by the end of August.

Earnings Guidance for 2015

Owing to the expenses related to the franchise acquisition, the company lowered its net earnings growth expectation to 13% for 2015 compared to the previous expectation of 18%.

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 Diversified Restaurant Holdings, Inc. BAGR . All these stocks sport a Zacks Rank #1 (Strong Buy).

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BUFFALO WLD WNG (BWLD): Free Stock Analysis Report

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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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