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Executives

Mary J. Twinem - Chief Financial Officer, Executive Vice President, Treasurer

Sally J. Smith - President, Chief Executive Officer, Director

Analysts

David Tarantino - Robert W. Baird

Matt DiFrisco - Oppenheimer

Paul Westra - Cowen & Company

Bryan Elliott - Raymond James

Dustin Tompkins - Morgan Keegan

Nicole Miller - Piper Jaffray

Brad Luddington - Keybanc Capital Markets

Dan Lewis - RBC Capital Markets

Greg McKinley - Dougherty & Company

Stephen Anderson - MKM Partners

Buffalo Wild Wings (BWLD) Q2 2009 Earnings Call July 27, 2009 5:00 PM ET

Operator

Good afternoon, ladies and gentlemen. Welcome to the Buffalo Wild Wings second quarter 2009 conference call. (Operator Instructions) I will now turn the conference over to Mary Twinem, Chief Financial Officer and Executive Vice President of Buffalo Wild Wings. Please go ahead.

Mary J. Twinem

Good afternoon and thank you for joining us as we review our second quarter 2009 results. I am Mary Twinem, Chief Financial Officer and Executive Vice President of Buffalo Wild Wings. Joining me today is Sally Smith, our President and Chief Executive Officer.

By now, everyone should have access to our second quarter earnings release, which went out after the market closed today. If you have not received the release, it is available on the investor relations section of our website at buffalowildwings.com. A script of our prepared remarks will also be posted on our website after the call.

Before we get started, I want to remind you that during the course of today’s call, there is remarks we make about future expectations, plans, and prospects for the company constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may vary materially from those contained in forward-looking statements based on a number of factors, including without limitation our ability to achieve and manage our planned expansions, the number of locations opening during the remainder of 2009 and beyond, the sales at these and our other company-owned and franchised locations, our ability to successfully operate in new markets, unforeseen obstacles in developing non-traditional sites, the costs of commodities, such as fresh chicken wings, the success of our marketing initiative, our ability to control restaurant labor, and other restaurant operating costs, economic conditions, including changes in consumer preferences or consumer discretionary spending, and other factors disclosed from time to time in our filings with the U.S. Securities and Exchange Commission.

On today’s call, Sally will provide an overview of the second quarter. After that, I will provide further detail on our recent financial performance and comment on trends in the third quarter. Finally, Sally will share some thoughts about the remainder of 2009. We will then answer questions.

So with that, I will turn things over to Sally.

Sally J. Smith

Good afternoon, everyone. I am very pleased to share the details of our ongoing success and strong second quarter results. In the casual dining category, we continue to stand apart with our strong unit and revenue growth and positive same-store sales trend.

Our second quarter revenue growth of 32.4% produced impressive net earnings growth of 24.2% over the same period in the prior year, achieving earnings per diluted share of $0.39.

Our performance is a testament to the sound foundation from which we operate and to a brand that provides an unparalleled dining experience to our guests. The tenacious commitment to excellence by our franchisees and team members is evident in our results and I thank the entire Buffalo Wild Wings team for their contributions in delivering strong operational and financial performance.

Our second quarter results lay a solid foundation toward achieving our annual growth goals. Two weeks ago, one of our franchisees opened the first Buffalo Wild Wings grill and bar in Hawaii, giving us a presence in 41 states. Another franchisee opened our first restaurant in the San Francisco market, marking another step toward expanding our presence in California.

In addition, we are pleased to share that on July 20th, we surpassed the 600 unit mark. This momentum is evidence of our ability to build the Buffalo Wild Wings brand and keep us well-positioned to achieve our 1,000 unit goal in 2013.

We are enjoying the success of our new unit openings, thanks to the tireless effort of our development and new restaurant opening teams. We are keenly focused on providing our guests with a compelling experience and in the second quarter, our guest experience management program again indicated that our guests are rating their experience higher than in the past.

We believe these scores are predictive indicators of future sales performance. Our ability to provide a rewarding guest experience is also evident in our second quarter same-store sales which increased 2.8% at company owned locations and 3.7% at franchise locations, compared to last year, even with an estimated 70 basis point reduction in same-store sales at company-owned locations due to the shift of Easter to April this year.

In the second quarter, we focused on building key sales opportunities, like the night hunger day part, where we provide a gathering spot for friends and have delicious, shareable food available later at night than the majority of our casual dining competitors.

After the solid launch of our night hunger campaign last year, we reminded our guests again that our kitchen doesn’t close until we do with a June radio campaign. In addition, our operations team focused on promoting our takeout business and a [dab-and-grab] gift card campaign.

The second quarter saw continued innovation with new menu items. Our limited time offer menu included chicken tender slammers, a twisted chicken salad, and a new margarita flatbread. And building on the success of recent years, our margarita mayhem promotion returned and featured three new signature margaritas, the Primo, the MVP, and the Twisted Margarita.

Along with driving sales, we remain diligent in our efforts to control costs, which is evident in the 24.2% net earnings increase for the second quarter. Although wing prices remained high, we were able to boost our restaurant level cash flow by 40 basis points.

It is the combination of all of these factors, along with our consistent commitment to superior execution that resulted in an impressive quarter.

Mary will now provide additional details on the quarter’s performance and then I will return to talk about the third quarter and the remainder of the year.

Mary J. Twinem

Thank you. We’ve had a tremendous first half of the year and as we enter into the last half of 2009, we are solidly on track to achieve all of our annual goals.

Starting with revenue, our second quarter increased 32.4% to $129.6 million versus $97.9 million in the second quarter of 2008. Company-owned restaurant sales for the quarter increased to $117.8 million, a 34.6% increase over the same period in the prior year. Contributing to this increase was a same-store sales increase of 2.8%, trending over prior year comps of 8.3% for the quarter. We estimate the shift of Easter to April this year negatively impacted our quarterly same-store sales results by about 70 basis points.

In addition, the inclusion of the Las Vegas market and company-owned same-store sales pulled this quarter same-store sales percentage down by 70 basis points.

Menu price increases over the past 12 months at company-owned restaurants account for approximately 3% of the same-store sales increase for the quarter.

We had 46 additional company-owned restaurants in operation by the end of second quarter versus the same period last year, and average weekly sales increased by 5.8%, outpacing our same-store sales increase by 300 basis points.

We believe this is indicative of our ability to attract new guests in both our new and existing markets.

Our royalty and franchise fee revenue for the second quarter also showed strong growth of 14% to $11.9 million versus $10.4 million last year. Franchise locations had a 3.7% increase in same-store sales, comping over 4.5% in the prior year.

Also, an additional 37 franchise units were in operation at the end of second quarter compared to 2008.

Now let’s discuss the performance of our company-owned restaurants, which again showed nice margin gains year over year.

Cost of sales for the second quarter were 30.5%, 50 basis points higher than prior year. Traditional wings averaged $1.69 per pound, which is $0.52 higher, or 44% higher than last year’s average of $1.17. An operational focus on product preparation and weight control, along with menu price increases, combined to partially offset this higher cost.

The steady shift from traditional wings to boneless wings and our menu diversification strategy also helped mitigate the increase we have seen this year in the cost of traditional wings. Traditional wings accounted for 20% of our restaurant sales during the second quarter of 2009, down from 22% in the same period in 2008.

Boneless wings, which in the second quarter were a better margin item than traditional wings, increased to 19% of sales from 16% in the prior year. Sales of new products like slammers, wild flatbreads and alcohol-free beverages also provided better margin.

Cost of labor for the second quarter was 30.6% of restaurant sales, 30 basis points lower than second quarter last year. Efficiencies in hourly wages were offset by a slight increase in workers’ compensation costs.

Restaurant operating expenses as a percentage of restaurant sales leveraged by 50 basis points to 15.3% of restaurant sales in the second quarter, mainly due to lower natural gas costs.

Occupancy costs as a percentage of revenue sales were flat to the prior year at 6.7%.

In summary, our focus on providing a unique experience for our guests and dedication to strengthening processes that optimize unit performance resulted in a 40-basis point improvement over the second quarter of last year. Restaurant level cash flow, which is calculated before depreciation and pre-opening expenses, was $19.9 million, or 6.9% of restaurant sales, versus $14.4 million, or 16.5% in the second quarter last year.

Depreciation and amortization for the second quarter was 6.1%, up 50 basis points from last year. Of this amount, 10 basis points relates to the amortizing of intangibles acquired as part of the purchase of the Las Vegas franchise restaurants in September of last year. The remainder is attributed to ongoing upgrades of our audio and video technology in our restaurants, remodels and patio upgrades at numerous locations, and higher depreciation due to the higher capital investment associated with freestanding locations.

General and administrative expenses grew to $11.8 million in the second quarter, or 9.1% of total revenue compared to $9 million or 9.2% last year. Excluding stock-based compensation, which was $1.7 million this year compared to $904,000 last year, G&A expenses for the current quarter totaled $10.1 million, or 7.8% of revenue, a 50 basis point decrease over prior year.

We opened nine new company-owned restaurants in the second quarter of 2009 compared to five new locations in 2008. Pre-opening expenses for the quarter totaled $1.7 million versus $1.8 million last year. The $1.7 million includes $143,000 of pre-opening expenses for locations that were open in the second half of 2009, while in the second quarter last year we incurred $674,000 related to future openings.

Investment income totaled $413,000 for the second quarter of 2009, compared to investment income of $400,000 in 2008. During the last two quarters, this line included investment losses for funds that were set aside for future pay-outs under our deferred compensation program. Due to a slight market rebound, this line includes a net investment gain for the second quarter.

Our effective tax rate during the second quarter was 34% compared to 34.3% from the prior year. Our full-year 2009 tax rate is estimated to be about 34%.

In summary, another successful quarter. We produced a net earnings increase of 24.2% and delivered earnings per share of $0.39.

From a balance sheet standpoint, on June 28, 2009 our cash and marketable securities totaled $49 million compared to $44.5 million at the end of the 2008 fiscal year. We ended the quarter with $264 million of total assets and $190 million in stockholders’ equity.

Cash flow from operations was $37.3 million for the first six months of 2009 and we spent $33.1 million on capital expenditures.

Our performance in the first half of the year provides powerful momentum towards achieving our 2009 growth goal.

Now, a few trends and details on the third quarter of 2009 -- for the first four weeks of the third quarter, our same-store sales are about 1.2% for company-owned restaurants and about 1.8% for franchised locations, up over same-store sales of 6% and 2% respectively for the same period in 2008. We expect the combined potential benefit in the third quarter for food and alcohol menu price increases to be about 3% for company-owned restaurants. This includes a small menu price increase that is rolling out with the new menus to company-owned restaurants this week. It also includes an increase in Wing Tuesday’s pricing from $0.40 to $0.45 that was taken in our company-owned locations during the last few months.

We note that in reviewing the third quarter football season timing compared to last year, there will be one less week of NFL regular season games in the third quarter, which will give us one additional week of games in the first quarter of 2010. The college football season also starts a week later this year but finishes the regular season during our fourth quarter as usual.

We have opened one company-owned and two franchise restaurants to date in the third quarter and we will maintain our fast-paced growth with an additional four company-owned restaurants and about 15 franchise locations before the end of September.

To date in 2009, pre-opening costs have averaged $230,000 per new company-owned restaurant.

For cost of sales, the anticipated average price per pound of fresh chicken wings for July and August is $1.67 versus $1.17 for third quarter last year. If the third quarter averages $1.67 per pound, we would expect the cost of sales percentage to be up over prior year, similar to the 50 basis point increase over prior year that we experienced in the second quarter. This year has certainly not seen typical wing pricing but we are pleased with our ability to stay focused on the expenses we can control.

With the recent softness in other commodities sparking contract updates, we expect to realize some additional savings on our soft goods and paper products in the second half of the year.

For the third quarter, we believe our overall cost of labor percentage should be down slightly to last year, even with an expected 20 basis point impact from federal and state minimum wage increases.

Restaurant operating expenses as a percentage of sales should again be down slightly to prior year.

We anticipate that our G&A expenses in the third quarter exclusive of stock-based compensation will be approximately $10.4 million. We estimate the full year 2009 stock-based compensation expense to be approximately $5.4 million, with third quarter expense of $1.5 million.

In the third quarter of 2008, stock-based compensation expense was $1.3 million.

We reiterate our annual goals for 2009 of 15% unit, 25% revenue, and 20% to 25% net earnings growth. We are confident in our new restaurant openings, our ability to drive sales through incremental advertising spending, and our operational focus on delivering the you-have-to-be-here experience to our guests.

Please review the risk sections outlined in our SEC filings, including our 10-Q for the second quarter, which will be filed in early August, as well as our Safe Harbor statement for factors affecting our forward-looking statements.

And with that, I will turn it back to Sally.

Sally J. Smith

Thank you, Mary. We are pleased to be meeting and exceeding each of our annual growth goals, which were set back in October of 2008. Our performance for the first half of 2009 validates our team’s [capacity] to achieve our annual goals for the year.

Our financial strength enables us to continue to drive our business forward and sets us apart. We are investing in our unique brand with facility upgrades, new product offerings, expanded national media campaigns, and entertainment enhancements.

Even with an unsettling and ever-changing economic backdrop, we are in the fortunate position to continue to invest in the future of our brands and our people.

We are enhancing the physical environment of our restaurants with 10 remodels to company-owned locations expected to be completed prior to football season. Our marketing efforts are expanding to increase awareness and drive sales as relevant messages that both showcase the fun and camaraderie of our restaurant experience and highlight the value we provide our guests.

We are heading into our favorite time of the year for Buffalo Wild Wings, football season. Just as the pros have been training for this upcoming season, we’ve been busy preparing our team as well. We believe it starts with making sure we have the right players in place to lead our restaurant teams. We are seeing positive results from our general manager selection program, which focuses on key attributes that contribute to the success of our company.

Now we are expanding this impactful program to include our assistant general manager position as well. Our field leaders are making sure our [inaudible] teams are preparing great tasting foods to our specifications and that our [inaudible] team make a genuine connection with our guests.

We know that well-prepared and happy team members are the foundation of a great dining experience. We are very pleased that our turnover is down and our guest satisfaction is up as we head into football season.

Our season begins with our fantasy draft party promotion, which rewards leagues who host their draft party at the restaurant. Buffalo Wild Wings has also increased exposure for our brand with our September and October media flights. We expect a 25% increase in media spending for the third quarter and 22% increase in the fourth quarter to drive incremental sales during the last half of 2009.

Our exclusive TV programming integrations, like the top college football plays of the last 30 years on ABC that will run throughout the NFL season, and the BCF Championship Game, coupled with our upcoming half-time sponsorship on the Big 10 network, are sure to capture the attention of viewers and a new digital media campaign will add an incremental layer to our traditional media mix of NFL, college sports, NASCAR, and network late night.

In addition to promoting our football experience, we will remind our guests that even when budgets are tight, Buffalo Wild Wings offers a great value on craveable foods in a one-of-a-kind atmosphere as we promote our Boneless Thursday and Wing Tuesday value event on radio in September and October.

Today we launched a new menu with two new limited time offers. Our new sauce, called Pepper Infusion, is a flavorful blend of peppers that challenges your taste buds with a slow but enduring heat. And our first ever system-wide dry rub wings seasoning called Desert Heat combines smokey, sweet, and chili pepper flavors in a sensational dry rub seasoning. Both are fabulous with our traditional and boneless wings.

A perfect pairing with football, our limited time drink lineup features three flavorful new Bloody Marys. The Frosty Mary is made with our signature honey barbeque sauce for a unique taste twist to spice up the Game Day experience.

Our energy and enthusiasm are high as we get ready for our busiest time of the year. We have a portfolio of great products and marketing campaigns to generate sales. Our operations team is positioned for exceptional execution. The passion of our brand is evident in the loyalty of our guests and our team members.

With a terrific first half of the year, we are eager to kick off football season and we believe we can achieve our annual goals of 15% unit, 25% revenue, and 20% to 25% net earnings growth.

On the development side, we continue on pace to meet our 2009 annual unit growth goal. We have a solid pipeline in place for 2010 for company-owned restaurants and we expect to continue the strategy of opening approximately half of our units in the first half of the year.

On the franchise side, we have 163 franchise restaurants contractually obligated to open in 2010 and beyond. In addition, earlier this year we signed an agreement with FFC America for the development of 20 airport locations over the next five years, with the first one scheduled to open at JFK Airport this fall.

Since going public nearly six years ago, you’ve heard us speak about our goal of becoming a restaurant chain of 1,000 units in the United States, which we believe will achieve in 2013. We continue expansion into all 50 states, which will include small towns and urban markets, and development of non-traditional sites such as airports.

With the groundwork underway for international development, this 1,000 unit goal is a stepping stone on our way of becoming a global brand.

We are proud of our success. We are dedicated to investing in our future and holding true to the strategies we believe will deliver long-term growth and success for our brand. The momentum of our results renews our conviction in our ability to produce value for our shareholders.

Again, I applaud the entire Buffalo Wild Wings team for an impressive quarter. We look forward to sharing our third quarter results with you in October.

Operator, we will now open the call to questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of David Tarantino with Robert W. Baird.

David Tarantino - Robert W. Baird

Congratulations on another good quarter. My question first is about the July comps trend that you mentioned. I was just wondering if you could maybe provide a little perspective on what you think might be going on in terms of this lower trend -- is it really related to the economy or is it maybe a shift in your marketing programs? Or maybe if you could just explain what you think might be the cause of that.

Sally J. Smith

Sure. You know, July is typically, or summer is typically a lower sales volume time for us and we are going up over some pretty nice comps from the prior year. Our marketing focus has not changed July ’09 over July ’08. We rely on our teams in the field to do a lot of local store marketing. We are gearing up, however, for our busiest time and look forward to a strong football season. I am sure that the economic headwinds probably are affecting us a little bit but again, on the positive same-store sales throughout the month of July, we’re pleased with that. The Fourth of July, we don’t think had a significant impact. It was a Friday instead of a Saturday, could’ve seen a little bit there. A little bit of cannibalization as we've opened some stores close to some of our high-volume units, and then a couple of restaurants that we looked at in particular that are coming into the -- had very high openings and had restaurants open nearby -- Buffalo Wild Wings open nearby.

So it’s a bunch of little things but again, July typically tends to be a slower time period for us.

David Tarantino - Robert W. Baird

Thanks, that’s helpful and then Mary, maybe if you could provide a little perspective on -- I know you don’t want to give comps guidance for the second half but if you could give us a flavor for whether you’d be able to achieve your full-year earnings growth targets, if that sort of low single-digit comp trend continues in the back half of the year.

Mary J. Twinem

Yes, we definitely do. Our annual guidance of 20% to 25% net earnings growth had implied in it just a very small positive same-store sales for the year. Obviously when we are going into the first six months of the year, we are firmly -- we are at 27% net earnings growth for the first half of the year so we feel very confident about hitting the bottom line target that we have for the rest of the year.

David Tarantino - Robert W. Baird

Okay. Thank you.

Operator

Your next question comes from the line of Matt DiFrisco with Oppenheimer.

Matt DiFrisco - Oppenheimer

Thank you. Just as a follow-up to that, can you give us what the price increase is in the quarter-to-date same-store sales trends? I heard you say 3% is the assumption for the price you are going to be carrying for the remainder of 3Q with the menu to come and with the wing price increase to $0.45 from $0.40, so what are we running -- what was implied in that below 2% comp quarter to date as far as price?

Mary J. Twinem

In the July number, it’s pretty close to that 3%. It does go up a little bit in August and then we have some stuff that rolls off, so September comes back down a little bit but we are talking small basis point differences month to month.

Matt DiFrisco - Oppenheimer

Okay, and was there any difference as far as is there any impact to weather or anything that we -- given year over year or nothing meaningful that you feel like mentioning?

Mary J. Twinem

Yeah, like Sally said, there’s just a lot of little things. We have a couple of remodels that are having some pretty negative trends because they either closed early or they are only partially opened right now. The Fourth of July, you know, when we look at that weekend, we thought we were down a little bit more than we have been before and after that.

You know, not -- but we would say we have stuff like that all the time. We definitely take -- you know, we look at these trends, operations is very focused on the local marketing piece of things. Our new menu just rolls out this week. Generate some additional excitement and then we, you know, we just have to execute at the unit level.

Matt DiFrisco - Oppenheimer

Okay, and then can you give us lastly an update on the investment cost? You’ve been one of those companies I think talking about potentially the opportunity for moderation in the investment cost in the quarters [inaudible] for some new store openings and I guess could we -- but you are you still holding up those high average weekly sales numbers. Is that a model that can continue for the back half as far as greater average weekly sales gains than you’d expect then your same-store sales gains in somewhat of a moderating investment cost environment the next couple of quarters.

Sally J. Smith

I’ll speak first to the average weekly sales volume, or average unit volume -- we fully expect to continue opening strong. That has been a focus of ours and we’ve seen that as we look at the second quarter numbers, that our average weekly volumes continue to outpace same-store sales. We don’t expect that to change.

Moderating cost in terms of a build-out, I wouldn’t say we are seeing significant moderating cost. We continue to work on the best deal possible when looking at rent and development but not seeing a tremendous amount of that coming through.

Matt DiFrisco - Oppenheimer

Okay. Thank you very much.

Operator

Your next question comes from the line of Paul Westra with Cowen & Company.

Paul Westra - Cowen & Company

I have a couple of questions -- I guess first just to hit on maybe some more color, if you could share with us, Sally -- you mentioned the guest experience monitoring and you said it was up. Could you give us some quantification -- where has that been trending, maybe some numbers around that, get a feel about the -- you know, how the stores are being run?

Sally J. Smith

You know, without going through a whole discussion on our guest experience management system, I think the numbers would be -- would not be meaningful. However, we are seeing them up a point or two which that is typically what we’ve seen in the past and [have been] slowly increasing over time.

I think one of the things that’s interesting from the guest experience management is it allows us [pause] alert when we do something really well or if we really need to address a customer need. We’ve also put in place a guest experience management blog between our stores, so if one store had an issue in an area, they can put out questions and get feedback immediately from other general managers.

So just a nice slow trend up in our guest loyalty index, saying that the likelihood to return to Buffalo Wild Wings and the likelihood to recommend Buffalo Wild Wings.

Paul Westra - Cowen & Company

Okay. And then a question just going down to sort of your labor, management -- obviously you guys mentioned the minimum wage. I think you mentioned it was a 20 basis point hit, you believe, in your third quarter guidance. Could you sort of quantify what that means as far as your expected wage rate inflation?

Mary J. Twinem

That’s the potential increase we’d have there. We do think that there’s efficiencies in our labor module that we’ve seen in the second quarter that we can replicate again in the third quarter, so we would think that we would be down on our labor even with the minimum wage impact on a year-over-year basis.

Paul Westra - Cowen & Company

That was actually my biggest question -- actually I was going to mention that a lot of other companies are talking about tightening up and running with less labor, given the recession and the productivity gains sort of brought about by the macro environment. Are you seeing any other -- if you talk about what gains you saw in the second and can you grow upon them or --

Mary J. Twinem

Well, in the second quarter in the hourly labor piece, we had about 30 basis points improvement, or a little more. And I would say ours is not so much cutting back on the economy as it is having people follow what we think is kind of the ultimate staffing level that a restaurant should be at based on their actual sales performance.

So we are very pleased with the attention that the people at the store level have given to that system and that’s why we think we can still get some efficiencies in the third quarter.

Paul Westra - Cowen & Company

Moving on to the last, the operating expense line, you mentioned almost the entire 50 basis point year-over-year [trough] was natural gas. Is that -- did I correctly understand that?

Mary J. Twinem

It is. You know, in the second quarter, we don’t have a whole lot of cable programming like we do later in the year with the bigger NFL and college football packages. We do have we think some year-over-year savings still in natural gas to happen in the third quarter, because we are still seeing lower rates year over year and then we have the potential perhaps to have some leveraging on our cable packaging as well.

Paul Westra - Cowen & Company

Great, and lastly could you quantify what that net gain was in your interest expense line? Was that something that’s going to happen on an annual basis? You just don’t know which quarter it’s going to show up or is that sort of more of a one-time event?

Mary J. Twinem

Yeah, I -- you know, I’m not going to have the breakdown in front of me on that. I’m going to say that the biggest piece of that was, if you look back at our first quarter investment income, we were more in the $75,000 range down that line and the rates that we are earning on our investments obviously are lower year-over-year, so I’m going to say it would be more in the 200 --

Paul Westra - Cowen & Company

That --

Mary J. Twinem

Of the breakdown, about $129,000 was the interest piece and the 285 was the investment gain.

Paul Westra - Cowen & Company

Great, that’s helpful. Great, congrats on another great quarter. Thanks.

Operator

Your next question comes from the line of Bryan Elliott with Raymond James.

Bryan Elliott - Raymond James

Good afternoon. I just wanted to get first some color on sales we saw in the quarter, maybe just some day part and regional differences, if you saw any -- I know you’ve been working on the late night and the lunch. I wonder if that is -- either of those are growing relative to the sales growth as a whole.

Sally J. Smith

I would say in day parts overall, we were positive in all of them. I don’t know if we -- I can’t really call out which piece would have been more or less. I would say as it relates to the second quarter, that May and June 2008 were our highest same-store sales months of the year, so we did have our highest comparisons to be going over in May and June, and we had shared that our trend in April for company stores had been about 1.8 with the Easter shift at that time being about a 2.5% effect. So we would have been in April at about a 4 to 5 kind of rate when you add back the Easter effect, then for the full quarter, we’d be seeing that about a 3.5% rate on our same-store sales. So we did go down as we went into the latter part of the quarter.

Bryan Elliott - Raymond James

How about regional -- are things steady state there or have you seen weakness or strength in any regions that you operate?

Sally J. Smith

Not that we can tell -- you know, there are certainly some stores that in certain regions that as we came into the comp base, they opened very strongly. They might [come into the comp group] flat or slightly negative but that occurs throughout the country. No region stands out in my mind as being particularly strong or weak.

Bryan Elliott - Raymond James

Okay, great. Thank you. A couple of model questions -- does $75 million probably still a decent guesstimate on CapEx?

Mary J. Twinem

Yes, it is. We think we are going to have about 10 remodels through this year. We had thought we’d see as high as 15 remodels but we do have some other smaller R&M projects in place, so I think 75 is a pretty good number.

Bryan Elliott - Raymond James

Okay, and lastly the G&A guidance you gave, if I got it right, it looks like a fairly low number, some growth sequentially but year-on-year it looks like it’s down as a percent of sales quite a bit. Are there any timing issues there or are we kind of leveling off the overhead number at this point?

Mary J. Twinem

Well, from a -- you know, taking the stock comp piece out of it, we’ll be moving from a $10.1 million in second quarter to an estimate of $10.4 million in third quarter, so we are seeing about $300,000 more in the second quarter.

You know, we have done a really nice job. We have leveraged well on the base headcount kind of costs on our G&A piece and I think that just comes with having a top line that’s growing at a 32% rate with a company owned restaurant development.

Bryan Elliott - Raymond James

Okay, very good. Thank you.

Operator

Your next question comes from the line of Dustin Tompkins with Morgan Keegan.

Dustin Tompkins - Morgan Keegan

Thank you. I just have a few follow-ups -- one on the labor expense. I just want to make sure I understood you correctly -- you said you do expect the labor improvement for the year-over-year improvement to continue into the third quarter, is that right?

Mary J. Twinem

We do.

Dustin Tompkins - Morgan Keegan

Okay. And then on pre-opening expense, it looked like, if I use the 230 per location, and as well as knowing that you expected to have more stores open in the first half, it seemed a little bit lower than maybe it had been tracking recently. Was there a shift in timing with the pre-opening expenses?

Mary J. Twinem

I would say mostly when I look back to my comments in the April conference call was that I though it would be about $2.2 million for the second quarter. Pretty much right on line with the $230,000 per opening but the timing of the expenses we are seeing for the third quarter and fourth quarter construction piece is pushed back a bit, so I think you are going to see more of that happening in the third and fourth quarters.

We have five company stores planned to open in the third quarters and in the fourth quarter, in order to get to the 35 for the year, for company-owned stores we’d have 12, and so we will have some of that expense occurring in the third quarter.

Dustin Tompkins - Morgan Keegan

Okay, that’s helpful. And then on the timing, the shift in timing of the football schedule, is there any way or have you guys thought through handicapping what kind of same-store sales impact you might see from that one less week in the third quarter that will shift into the fourth quarter?

Mary J. Twinem

You know, the jury is still out on that one. From the NFL football schedule, it is -- it really does look like it’s a week different in the scheduling and then we gain it back in 2010. You know, ballpark estimate, somewhere between nothing and 30 to 40 basis points perhaps on our sales, or effect on same-store sales.

As it relates to college, that one is a little harder to tell. We do have all of the games pretty much made up by the end of the fourth quarter and in weeks where teams last year would have had bys, this year they won't have the by week, so our feeling is that we can still drag that same guest in to watch all of those games just with one less week to do it in.

Dustin Tompkins - Morgan Keegan

Okay, and one more, if I may -- earlier in the year we had talked about franchise development and it sounds like at least your full-year targets, you still feel comfortable with but any additional detail as far as franchise openings. Are you seeing anything new as far as easier to find sites or are they -- still feel pretty good about the development pipeline on the franchise side?

Sally J. Smith

I feel very good about the franchise development pipeline. We have a lot of inquiries. We have franchisees that are existing in the system that would like to add additional territory. I just signed the first of two area development agreements for Boston. Not hearing quite as much about the -- on the franchise financing side. I think we’ve taken that into consideration as we look at our pipeline.

I think they are getting a peek at the same good sites that we are and are able to act on it and as I said, we would try to review all the contractual openings, look at who is coming into or expressed inquiries in developing or adding on. And so I am very pleased with where we stand from franchising and from company-owned at this point.

Dustin Tompkins - Morgan Keegan

Great. Thank you very much.

Operator

Your next question comes from the line of Nicole Miller with Piper Jaffray. Please go ahead.

Nicole Miller - Piper Jaffray

Good afternoon. When you look at the back half of the third quarter of last year, do the comparisons get harder or easier?

Sally J. Smith

I’m going to say it was pretty similar. We shared in the July conference call last year that our trends at that point in time were 6% and when we ended the quarter, it seems to me that we were at 6.8%, so they couldn’t have been too much different.

Nicole Miller - Piper Jaffray

Okay. And you talk about 3% price in the fourth quarter, or third quarter, excuse me -- how much do you expect to have in the fourth quarter?

Sally J. Smith

It ends up being just a little over 2, I believe. Because we still do have 1% that’s rolling off.

Nicole Miller - Piper Jaffray

Okay, and then can you just talk to us more about the strategy of pricing specifically as you look at the Wing Tuesdays going up? I guess it’s maybe about 10%. Are you using a third party or what tools or services are you using to think about price?

Sally J. Smith

Well, excluding wings and our promotional days, the kids day and Thursday, we do look at what our competitors in various markets are pricing similar type menu items, but not wings -- mainly sandwiches, hamburgers, appetizers, sodas, that kind of thing.

With regard to Wing Tuesday and making the change from $0.40 to $0.45, we really just look at the price of wings and the price per pound, and it has remained high and so that -- and we didn’t have any visibility to any change that is going to occur anytime soon, so we thought it was appropriate to make that price increase. It’s still a great value. It is I think just under 50% off from regular pricing on Tuesday.

Nicole Miller - Piper Jaffray

Thank you.

Operator

Your next question comes from the line of Brad Luddington with Keybanc Capital Markets.

Brad Luddington - Keybanc Capital Markets

Thank you. You know, to follow-up on the price increase question, I wanted to ask on the increase on the Wing Tuesdays, $0.40 to $0.45, is that about 25 basis points in effective price?

Mary J. Twinem

I’m not going to know off the top of my head. It did roll in in our company stores, we took -- stores made changes in May, June, and July, so we are accounting for all of that when we hit August.

Brad Luddington - Keybanc Capital Markets

Okay.

Mary J. Twinem

But I don’t have it called out how much of it would be related to wings. It only -- the wings and the new menu that rolls out this week combined were only 1%, so -- but I don’t have the breakdown between the two.

Brad Luddington - Keybanc Capital Markets

Okay. And talking about the Olympics last year, I can’t remember, I think you said it wasn’t that impactful but do you expect that to just make a little bit more difficult comparison in August? I mean, should we expect that maybe August remains a little light with facing the Olympics?

Sally J. Smith

You know, it’s hard to -- as we went back and analyzed August last year, it looked like when Phelps was swimming for the final medals, we saw some -- certainly some increased sales but otherwise typically pre-season football is starting to kick in by then and probably has a greater impact. It’s hard to say with August. We are going up over still pretty nice comps from the prior year. Our quarter was 6.8 for the third quarter and we were up over 6% in July. You know our goal and the responsibility at the store level and everyone at the home office is to continue to figure out how to drive sales. We have a robust advertising campaign starting in September and October but we’ll be reminding our guests that Buffalo Wild Wings is the place to watch the game for football, both college and NFL in that.

And I think that is primarily all September -- I don’t know that it falls into August at all, so [inaudible] at the store level.

Brad Luddington - Keybanc Capital Markets

Okay, and then just a clarification -- did you say 17 total franchise openings in the third quarter or was -- were there some already open and that was incremental?

Mary J. Twinem

Yes, 17 total. Yes, I think we there were two already open, 15 more to go.

Brad Luddington - Keybanc Capital Markets

All right, well, thank you very much.

Operator

Your next question comes from the line of Dan Lewis with Royal Bank of Canada.

Dan Lewis - RBC Capital Markets

Thanks. I just wanted to clarify for modeling in the back half of the year on the interest income line, we should be using the same kind of run-rate as the second quarter.

Sally J. Smith

As it relates to the interest income piece of it, you probably could use that; as it relates to the investment income piece for comp, it doesn’t matter too much because it’s offset by the [inaudible] the G&A line.

Dan Lewis - RBC Capital Markets

Okay, thanks.

Operator

Your next question comes from the line of Greg McKinley with Dougherty & Company.

Greg McKinley - Dougherty & Company

Thank you. Could you give us -- I know it’s always sort of a comment that we can’t really track where these wing prices will be going in the future but we know Pilgrim’s Pride and Tyson, what they’ve done I guess on the supply side of wings. Typically I think this time of year we would have seen some seasonal deflation of that commodity. Any other color you might have in terms of what’s supporting wings at these current prices and any sort of unusual contributors to that?

Sally J. Smith

We don’t. All we can say is that prices have not moved since April, which is unusual but it’s the world we are living in. And typically you would have seen prices go up as you went into fall, and since we haven’t seen the typical decrease in the summertime, it’s hard to know what it will do in the fall.

Greg McKinley - Dougherty & Company

Yeah, okay. I know you previously did address this a little bit but the absence of an NFL game week and a week of college football in Q3, did you indicate you really felt that that was going to have sort of a de minimis impact on the Q3 comp or were you talking about that being made up and having a minimal impact for the full fiscal year?

Sally J. Smith

For the full year, this year we think -- or for the third quarter, because of the week of NFL being shifted into next year, somewhere between 0 and 30 to 40 basis points to our sales in the third quarter. As it relates to the college piece, we will have one less week but they are -- but those games will be made up between September and December, so that for the year the number of games being played is nearly identical. And I don’t know -- we don’t know that that will haven an effect for us.

Greg McKinley - Dougherty & Company

Okay, so a 30 to 40 basis point headwind is your best guess for Q3 on the NFL?

Sally J. Smith

It would be our worst.

Greg McKinley - Dougherty & Company

Worst case.

Sally J. Smith

Yes.

Greg McKinley - Dougherty & Company

Okay, and then finally, it sounds like you are still pretty confident about the franchise pipeline. Anything anecdotally about quality franchisees having any challenge obtaining financing to get the stores to open when they want to get them open?

Sally J. Smith

No, I don’t. We are continuing to see higher and higher quality franchisees. I think that certainly the growth of the brand and the success of the brand attracts very well-qualified franchisees. And again, about half of the growth is coming from internal and half from external -- actually, it’s probably a little more from internal. Many of them have longstanding relationships with people providing financing. They generate cash flow on their own and any delay we believe we’ve already built into our rollout schedule.

Greg McKinley - Dougherty & Company

Yeah. Okay, thank you.

Operator

Your next question comes from the line of Steve Anderson with MKM Partners.

Stephen Anderson - MKM Partners

Yes, good afternoon. Just a quick question -- I wanted to see your -- if you had any comments on the lunch initiative that you had in the prior quarter. And I want to check also the progress of the inflation of the [play port] units. Thanks.

Sally J. Smith

Of the [play port] units? Okay, well, I believe all of the company stores, we’ve rolled them out almost entirely at the company stores. Those stores have four per unit now. We’re going to have a system-wide training program on how to engage the guest in using [play port]. So again, really in the second quarter, it has been just really primarily a rollout of getting those units into the stores. So I think we’ll have more to report in the third quarter.

And the first part of your question had to do with the lunch lineup, or the lunch, our focus on lunch?

Stephen Anderson - MKM Partners

Yes.

Sally J. Smith

And again, I think we talked a little bit earlier about day parts -- haven’t seen anything unusual. All segments, I believe, were up. Lunch still remains an opportunity but -- and it is still something that we are focused on. We do have a new lunch madness menu available and we are seeing activity there.

Stephen Anderson - MKM Partners

Thank you.

Operator

Thank you. At this time, there are no additional questions. I would like to turn the conference back over to management for any closing remarks.

Sally J. Smith

All right, well, thank you. I want to thank everyone for joining us on the second quarter earnings call. We look forward to sharing our results with you in late October for the third quarter. Thanks again for listening.

Operator

Thank you, Madam. Ladies and gentlemen, this concludes the Buffalo Wild Wings second quarter 2009 conference call. This conference will be available for replay today through Monday, August 3rd at midnight. You may access the replay system at any time by dialing 303-590-3030 and entering the access code of 4116719 followed by the pound key.

Thank you for your participation. You may now disconnect.

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