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Executives

Mary Twinem - Executive Vice President and Chief Financial Officer

Sally Smith - President and Chief Executive Officer

Analysts

Brian J. Bittner - Oppenheimer & Company

David E. Tarantino - Robert W. Baird

Jeff Farmer - Wells Fargo Securities

Keith Siegner - UBS

Jason West - Deutsche Bank

Will Slabaugh - Stephens Inc.

Alexander Slagle - Jefferies LLC

Alvin Concepcion - Citigroup Inc.

Christopher O'Cull - KeyBanc Capital Markets Inc.

Greg McKinley - Dougherty & Company LLC

Peter Saleh - Telsey Advisory Group

Nick Setyan - Wedbush Securities

Mark Smith - Feltl and Company

Michael Kelter - Goldman Sachs

Diane Geissler - CLSA

Buffalo Wild Wings, Inc. (BWLD) Q4 2013 Earnings Conference Call February 4, 2014 5:00 PM ET

Operator

Good afternoon, ladies and gentlemen. Welcome to the Buffalo Wings Fourth Quarter 2013 Conference Call. At this time, all participants are in a listen-only mode. Following the prepared remarks, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. I would like to remind everyone that this conference call is being recorded.

And I will now turn the call over to Mary Twinem, Chief Financial Officer and Executive Vice President of Buffalo Wild Wings. Please go ahead.

Mary Twinem

Good afternoon and thank you for joining us as we review our fourth quarter and fiscal year 2013 results. I'm Mary Twinem, I am the 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 fourth quarter earnings release.

Before we get started, I remind you that during the course of today's call, various remarks we make about future expectations, plans and prospects for the company constitute forward-looking statements. Actual results may vary materially from those contained in forward-looking statements based on a number of factors, including but not limited to, our ability to achieve and manage our planned expansion; the sales and other growth factors at are company-owned and franchised locations; our ability to successfully operate in new markets, including non-U.S. markets; unforeseen obstacles in developing sites, including non-traditional and non-U.S. locations; success of acquired restaurants and investments in new or emerging concept; the cost of commodities; the success of our key initiatives and our advertising and marketing campaigns; 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 our performance for the fourth quarter and fiscal year. After that, I will provide further detail on the period and comment on trends to date in 2014. Finally, Sally will share some additional thoughts about the first quarter and the year ahead. We will then answer questions.

So with that, I'll turn things over to Sally.

Sally Smith

Good afternoon, everyone. The fourth quarter completed a great year for Buffalo Wild Wings. Our early focus on football season started in the third quarter by holding fantasy football draft parties in our restaurants. Our change we're committed to providing guests a great game day experience in the fourth quarter and they did.

The last week of the fourth quarter saw weekly sales records for many of our restaurants with guests coming in to watch football or the UFC fight. Through the Big Kick Challenge, we send six lucky winners and their guests to the Buffalo Wild Wings Bowl in Tempe, Arizona.

Gift card sales during the holiday season were also a focus for us. Guests who purchased a $25 gift card received a blazing bonus card, which gave them a surprise value of $5 to $100. We are pleased with the year-over-year performance of holiday gift card sales and believe this will continue to drive restaurant traffic in the first quarter.

Our topline grew 12.4% in the fourth quarter and we delivered net earnings growth of 24.9% producing earnings per diluted share of $1.10. To build our future success, we worked on many initiatives in 2013, among the highlights are after many months of testing we transitioned our menu to serving wings by the portion, which give guests a more consistent amount of chicken in their orders.

We launched Stadia, our restaurant design. 14 Stadia restaurants opened in 2013 and guests feedback has been tremendous. We continue to roll out the guest experience business model to our restaurants, which we believe enhances guest engagement and differentiates our restaurants further.

We focused on a great beer strategy and launched Game Changer beer brewed by Redhook and its sales surpassed our expectation. We continued our international expansion, building our brand presence globally. In 2013, the first Buffalo Wild Wings in Mexico opened and we signed a franchise agreement for the Philippines. And finally we started building a portfolio of diversified restaurant brands with our initial investment in PizzaRev to support our long term sustained growth plan.

In summary, we are proud of our performance in 2013. For the year, total revenue grew 21.7% and net earnings grew 24.9%, resulting in earnings per diluted share of $3.79. Mary will now provide additional details on the fourth quarter as well as the first quarter to date. Then I'll return to talk about the first quarter and 2014.

Mary Twinem

Thank you, Sally. As a reminder, Buffalo Wild Wings utilizes a 52-weeks or 53-weeks fiscal year. The 2013 fiscal year was a 52-week year with the fourth quarter of 2013 having 13 weeks. The 2012 fiscal year was a 53-week year with the fourth quarter of 2012 including 14 weeks.

System-wide sales at our company owned and franchise restaurants was $748.6 million for the quarter, 7.4% higher than the prior year's fourth quarter. For the year system-wide sales passed $2.8 billion, a 13.3% increase over 2012. Our revenue in the fourth quarter of 2013 was $341.5 million increasing 12.4%. Excluding the $23.9 million, the 14th week contributed in 2012, total revenue increased 22%. Company-owned restaurant sales for the fourth quarter increased to $319.8 million a 13.1% increase over the fourth quarter last year. Excluding the $22.3 million, the 14th week contributed in 2012 company-owned restaurant sales increased 22.8%.

Before we discuss same-store sales I will remind you of our same-store sales calculation. We calculated fourth quarter same-store sales using the 13 week for the fourth quarter in 2013 in comparison to the first 13 weeks of the fourth quarter in 2012. The 14th week of 2012 is excluded in that use in the calculation.

Same-store sales were 5.2% for the quarter ended December 29, 2013, compared to 5.8% for the 13 weeks ended December 23, 2012. Menu price increases and adjustments taken during the past 12 months at company-owned restaurants were about 1.3%. The last week of the quarter benefitted from the calendar shift of the college ball games and UFC fight, but was negatively impacted by the Christmas holiday. These events occurred in the 14th week of 2012. We estimate these calendar shifts benefitted our fourth quarter same store sales with a net increase of 20 basis points.

We had 53 additional company-owned restaurants in operation at the end of this quarter versus fourth quarter last year, a 14% unit increase. Average weekly sales increased 4.7% in the fourth quarter of 2013, 50 basis points lower than our same store sales percentage. The average weekly sales calculation benefitted 30 basis points from the closing of older lower volume locations during the last 12 months and the acquisition of franchise locations contributed 10 basis points.

These increases were offset by a 40 basis point decrease due to the positive contribution that the 14th week had on 2012 calculation. Finally there was 50 basis point decrease which resulted from the lower relative impact that the class of 2013, which does have average weekly sales volumes of 10% above the overall average had on the fourth quarter average compared to the impact that the class of 2012 had in the prior year.

Our royalty and franchise fee revenue for the fourth quarter grew to $21.7 million, a 2.7% increase versus $21.1 million last year, with 49 additional franchised units in operation at the end of the fourth quarter versus a year ago. Excluding the $1.5 million the 14th week contributed in the fourth quarter of 2012, royalty and franchise fee revenue increased 10.7%.

Same-store sales at franchised locations increased 3.1% in the quarter, compared to a 7.4% increase in fourth quarter last year. Average weekly sales volumes for the quarter increased 4.6%, a 150 basis point increase over same-store sales. The opening of new franchise unit contributed 170 basis points of the increase with a 20 basis point decrease attributed to the closure of franchise locations in our acquisition of franchise unit.

The following comments will focus on the performance of our company-owned restaurants. Cost of sales for the fourth quarter was 29.8% of restaurant sales, compared to 32% in fourth quarter last year, a 220 basis point decrease. The improvement comes primarily from lower wing cost, our launch in wings by the portion and the move to a new distributor.

Traditional wings were $1.64 per pound this quarter, $0.43 or 21% lower than last year's average of $2.07. Traditional wings accounted for 20% of our restaurant sales this quarter, flat compared to last year; and boneless wings were 20% of sales, up from 19% last year. Food and nonalcoholic beverage sales were 77% of restaurant sales compared to the 76% last year.

Cost of labor for the fourth quarter was 30% of restaurant sales, 20 basis points lower than fourth quarter last year. As of yearend, Guest Experience Captains were at a 175 of our company-owned restaurant. The incremental cost for Captains was offset by the continued transition through our Guest Experience business model management structure.

In the fourth quarter, restaurant operating expenses as a percentage of restaurant sales were 14.8%, an increase of 10 basis points from the prior year. Occupancy costs were 5.7% as a percentage of restaurant sales, compared to 5.2% last year. Adjusting for the 50 basis points of leverage from the 14th week in 2012, occupancy costs were flat year-over-year.

In summary, restaurant level cash flow, which was calculated before depreciation and preopening expenses, was $63.2 million or 19.8% of restaurant sales nearing our goal of 20%. This compares to $50.3 million or 17.8% in the fourth quarter last year.

Depreciation and amortization for the fourth quarter was 6.5% of total revenue, 20 basis points higher than the prior year. General and administrative expenses were $26.6 million in the fourth quarter or 7.8% of total revenue, compared to $21.9 million or 7.2% in the prior year. Excluding stock-based compensation of $4.2 million in the fourth quarter and $1.9 million in the prior year, G&A expenses for the fourth quarter totaled $22.4 million or 6.6% of total revenue, flat compared to last year. G&A expenses exceeded the high end of our estimate as we incurred training cost for newly hired managers and expenses for a location we are no longer pursuing.

We opened 20 company-owned restaurants in North America during the fourth quarter including one relocation, compared to 22 new locations in the fourth quarter of 2012. Preopening expenses for the quarter totaled $5 million versus $6 million last year. The $5 million includes $855,000 of preopening expenses for future openings that are under construction. And in the fourth quarter last year, we incurred $851,000 related to future openings.

Preopening costs averaged $290,000 per new restaurant during 2013, compared to $281,000 in 2012. The loss on asset disposals and impairment for the fourth quarter totaled $1.6 million compared to $1.2 million last year. We incurred a non-cash charge of $1.2 million for the impairment of two company-owned locations in the fourth quarter this year.

We reported investment income of $30,000 for the quarter, compared to $41,000 in 2012. This income is primarily from funds set aside for future payout under our deferred capitalization plan. Our effective tax rate during the fourth quarter was 29.8%, compared to the 28.9% in the prior year. For the full year of 2013 our effective tax rate was 29.5% which includes a favorable impact of the American tax payers' release tax assets 2012. We estimate our effective tax in 2014 will be about 33% based on current tax law and would decrease to 31.5% if congress renews the employment credit.

In summary, our net earnings in the fourth quarter of 2013 were $20.8 million, a 24.9% increase over the prior year producing earnings per diluted share of $1.10. For the full year of 2013 net earnings were $71.6 million, also a 24.9% increase. Earnings per diluted share was $3.79 for the year, a $0.73 or 23.9% increase over 2012 earnings per share of $3.06.

A year ago we estimated that the 14th week in the fourth quarter of 2012 contributed $3.6 million of net earnings and $0.19 of earnings per diluted share to the quarter. Excluding the 14th week contribution in 2012, our 2013 fourth quarter net earnings grew 59.6% and earnings per diluted shares increased 57.1%. On a comparable 52-week year, 2013 net earnings increased 33.4% and earnings per diluted share grew 32.1%.

On our balance sheet on December 29, 2013, our cash and cash equivalents totaled $57.5 million compared to $21.3 million at the end of 2012. We ended the quarter with $706 million in total assets and $466 million in stockholders' equity. Cash flow from operations was $179 million for the year and we spent a $139 million for capital expenditures and $10.3 million to acquire franchised restaurants and our equity investment in PizzaRev. For 2014, we estimate that our capital spending will be a $146 million, which does not include funds that may be used for franchised acquisitions or new concept investments.

Now, I will highlight trends and provide some comments on the first quarter of 2014. For the first five weeks of the first quarter, our same-store sales are about 4.8% at company-owned restaurants and 2.1% at our franchised locations as compared to same-store sales trends for the first five weeks in the first quarter of 2013 of negative 0.2% at company-owned restaurants and a positive 1% at franchised locations.

For the full first quarter of 2013, our same-store sales were 1.4% at company-owned and 2.2% at franchised locations. Nation's sporting events have a similar schedule in the first quarter of 2014 as they did in the prior year with the addition this year of the Winter Olympics. Please note that the Easter holiday falls in the second quarter of 2014. In last year it was in the first quarter during the Sweet 16 round of the NCAA Men's Basketball Tournament, which should provide a benefit to same-store sales in the first quarter of 2014.

In the first quarter we expect to open nine new company-owned restaurants in the United States. Four of these units have already opened. As a reference point, in the first quarter of 2013, we opened 14 new company-owned locations. We also expect that our franchisees will open 13 restaurants during the first quarter compared to nine units in the first quarter of 2013.

For cost of sales the traditional wing market rose in January from December's lows, resulting in the cost of chicken wings for the first two months of the first quarter to average about $1.34 per pound. The average cost in the first quarter of 2013 was $2.10 per pound.

The potential menu price benefit for increases and adjustments taken in the prior 12 months is about 2.1% for company-owned restaurants in the first quarter, which includes a 0.5% alcohol increase taken in January and a 1.1% menu increase with our planned February 24th menu rollout.

We anticipate higher labor costs as a percentage of restaurant sales in the first quarter compared to prior year as we add Guest Experience Captains in nearly 50 additional company-owned restaurants, as well as at all new company-owned restaurant openings in 2014.

Also, there are more than 10 states with known minimum wage increases that increase our cost of labor in 2014. There are other states considering the minimum wage increases as well as discussions at the federal level. We are reviewing our options such as menu price increases, use of technology and staffing model changes to minimize the impact of these additional labor costs for the year.

We anticipate that our G&A expenses in the first quarter, exclusive of stock-based compensation expense, will be in the range of $23 million to $24 million. First quarter stock-based compensation expense is estimated to be approximately $2.5 million, compared to $870,000 in first quarter last year. Stock-based compensation expense for the year is estimated to be $13 million to $14 million and will vary depending on the level of net earnings achieved for 2014, as well as for estimates of net earnings in future years.

We are reaffirming our 2014 goal for net earnings growth of 20%. Looking at 2014 by quarter we expect our first and second quarters to deliver strong net earnings growth as we will be laughing over the record high wing prices that we experienced in the first half of 2013. We would expect the remaining quarters to have net earnings growth at a rate under our anticipated annual rates.

Please review the risk sections outlined in our SEC filings, including our 10-K for 2013, which will be filed in the next few weeks, as well as our Safe Harbor statement for factors affecting our forward-looking statements.

Now, Sally will share some additional thoughts about the first quarter and the year ahead.

Sally Smith

Thank you, Mary. We're looking forward to 2014. We are transitioning from the excitement of football season, basketball and Buffalo Wild Wings' the official hangout from March Madness. Guests will have the opportunity to fix their brackets online through the Blazin' Bracket Challenge for a chance to win prices. Our restaurants are also the perfect place for guests to come in and cheer for their favorite athletes as they compete in the Winter Olympics which starts this week.

During the first quarter, we have two menu panel inserts. The current limited time offerings include [flamers] and two new flatbreads. Sam Adams' Rebel IPA is our current beer feature and we are excited that Buffalo Wild Wings was selected as the first national chain to serve this refreshing IPA.

In 2014 the BW sauce lab will want seven limited time sauces to pair our wings and other menu items. Our first sauce, Sriracha Sizzle, is slightly sweet and very spicy. And coming in February is the big easy Honey Mustard. We're also excited to bring back a fan favorite, the beer of the month, which features a domestic beer and a craft beer.

Buffalo Wild Wings is a growth company and we plan to continue that tradition in 2014 through several initiatives including unit growth, international expansion, same-store sales momentum and potential investments in additional concepts that will help fuel long-term growth.

New units remain a growth driver as we build a brand of 1,700 Buffalo Wild Wings in the United States and Canada. We expect to open about 45 company-owned locations and that our franchises in the U.S. will open 40 restaurants in 2014. On January 27, three restaurants opened achieving the significant milestone of 1,000 Buffalo Wild Wings. We've set the goal to become a brand of a 1,000 restaurants when we did our initial public offering 10 years ago. I'm thrilled we achieved this milestone and we could not have done it without the hard work of our franchise partners and team members.

Our first location in Mexico opened in December. Sales are robust which gives us confidence that the brand travels well. On the other side of the globe, we look forward to bringing the social sport viewing experience to the City of Dubai this year. The performance of our existing restaurants is just as important as new unit growth. We look forward to growing same-store sales through more engagement with our guests and increased traffic.

We believe two key components of our Guest Experience business model will help drive guest engagement, loyalty and ultimately sales. The first is our Guest Experience Captain role. This position is responsible for creating a fun exciting environment in restaurant and helps leverage our second initiative new technology.

Over the last year we tested tabletop tablets in our restaurants, and by the end of 2014 it will be in all company-owned locations with the goal of creating a unique dining experience for our guests. This platform combines a differentiated and interactive experience offering buzztime trivia, poker, arcade cell games and more. We're testing guest ordering and payment capabilities and we expect roll out of this functionality in the back half of the year.

We announced a new beverage partnership with Pepsi and we will be adding Dr. Pepper in our restaurants as well. With these partnerships we have exciting and new marketing opportunities including a Buffalo Wild Wings inspired Ruffles potato chip providing brand exposure in grocery stores this month.

In addition, we'll plan marketing activities in 2014 utilizing NFL pass-through rights and music entertainment properties of these beverage partners. Look for these fun and engaging marketing moments throughout 2014 along with our marketing plan that begins with new commercials from March Madness.

Looking beyond the growth of the Buffalo Wild Wings chain we continue to explore investing in new emerging restaurant brands. PizzaRev is our first investment. In 2014 we're excited to be part of PizzaRev's growth, and we expect to open at least two PizzaRevs here in the Minneapolis market. Our emerging brand's chain continues to look at additional concepts, and I'm hopeful that we will be investing in an additional one or two this year.

In 2013 we accomplished a lot and we have more on our agenda in 2014. We've an outstanding team with a strong record of achievements. We thank our team members, our franchises and our vendor partners for their passion and their continued dedication to the success of our brand.

Now, let's move to the question-and-answer session. In order to get in as many people as possible, we ask that participants limit themselves to one question. We will end the call promptly at the top of the hour. So operator, we will now open the call to questions.

Question-and-Answer Session

Operator

Thank you, ma'am. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from the line of Brian Bittner with Oppenheimer & Company. Please go ahead.

Brian J. Bittner - Oppenheimer & Company

Thank you. Hi guys, how are you doing? Question just on the labor, you guys actually leveraged that line item this quarter not much, but still you leveraged it and you said it's probably going to deleverage doing forward and I understand you're putting some more Guest Experience Captains in the -- just 60 stores. Why under you know may be a 4%, 5% comp. What's stopping you from maybe getting a little bit more leverage out of that line item over the rest of the year?

Mary Twinem

What we think initially in the first part of the year that we will have year-over-year increases in our labor. Adding Guest Experience Captains at 50 of our locations we think will be an impact in the first quarter as well as continuing to roll it out to all our new restaurant openings this year. In addition of those 11 states that have minimum wage increases, some of those do take effect in January. And so, we think that combination of those two factors offset slightly by the management structure will still have us up year-over-year in the first part.

Brian J. Bittner - Oppenheimer & Company

Okay. Warren Buffett is offering a $1 billion for perfect March Madness. Do you guys think about doing something like that?

Mary Twinem

We want to steal that offer.

Brian J. Bittner - Oppenheimer & Company

Hiding your risk profile I guess a little bit too much.

Sally Smith

Yeah, it probably would. We have to place legs in Bracket challenge.

Brian J. Bittner - Oppenheimer & Company

Appreciate it.

Mary Twinem

Thanks Brian.

Operator

And our next question comes from the line of David Tarantino with Robert W. Baird. Please go ahead.

David E. Tarantino - Robert W. Baird

Hi. Good afternoon and congratulations on a great 2013.

Sally Smith

Thanks David.

David E. Tarantino - Robert W. Baird

I was wondering I guess in a big picture way about how you're thinking about managing the business now that you're seeing pretty extreme deflation on the chicken wing cost. And just curious you know, kind of are you thinking that you might use some of that benefit and opportunistically invest in some of the initiatives you talked about, and there'd be some offsets or I'm just trying to put it all in context of your 20% earnings growth goal and your confidence in being able to get there.

Mary Twinem

Yes, I think we are planning on investing some of that. When we look at where wing prices are in January and February and hopefully some weakness that will continue through the year, we are investing that in the labor line or some of it with the guest experience captain and guest experience business model rollout that we talked about. And then also investing some of it in minimum wage increases across the country, which we will work to look at what we can do to minimize the impact that, that has as we go through the year.

David E. Tarantino - Robert W. Baird

Great. That’s helpful. And then maybe a follow up to that Mary. You mentioned that you’re expecting a price increase -- a couple of price increases here, one on alcohol and one on the menu and I’m just kind of wondering why you feel any to take a price increase at all given the favorability you’re seeing in the wing cost and then I have a separate follow-up? Thanks.

Mary Twinem

We are rolling out a new menu on February 24th. We did pick a slight increase in alcohol pricing in January. We did have some increases in cost in the fourth quarter related to some of the craft and domestic beer. So we were accounting to that. And then we have felt that in the past that it's better to take smaller increases than it is to wait and then have to take larger increases that might be harder for the guests to handle. I will just roll through then where our menu pricing for 2014 would be on a quarterly basis assuming we don’t do anything further than the February 24th menu.

First quarter will be 2.1%. Second quarter would be 2.6%. Third quarter, 1.7% and fourth quarter, 1.6% and then as we look at minimum wage and other thing factors as we go through the year, we’ll make a decision on whether we take any additional menu price later.

David E. Tarantino - Robert W. Baird

Great. That’s helpful. And then lastly Mary, I think you mentioned in your remarks that your goal for a restaurant level cash flow is to get to kind of 20% type number. Can you maybe talk about the puts and takes and your ability to get to that kind of number this year or is that more of a longer term goal?

Mary Twinem

Well, we were pretty close to it in the fourth quarter having cost of sales less than 30%. That certainly gets us close to that. As we look at the first quarter where wing prices are right now, we do believe that would be under 30% on our cost of sales. Again, we will invest some of that into our labor line. But our higher volume quarters and quarters will induce that cost of sales in the labor to be at 30% or less or quarters where we have the potential to reach the 20% mark.

David E. Tarantino - Robert W. Baird

Okay. Thank you very much.

Operator

And our next question comes from the line of Jeff Farmer with Wells Fargo. Please go ahead.

Jeff Farmer - Wells Fargo Securities

Great. Thanks. Just following up on that question, I think I just heard you say, that you saw the Q1 COGS would be under 30%. So just I guess thinking on even a quarter further considering all the moving pieces between pricing where wing prices potentially go or menu pricing, you’re still going to be benefiting from that transition of selling wings by volume. I think you still have Tier 1 from the new distribution system, so a lot of things moving there. So, again, I heard you say sub 30% Q1, but could it be materially below that and how should we be thinking about Q2 would be willing to about that?

Mary Twinem

Well, we are not big fans of making long-term prediction on wing prices. So we’ll avoid that question. But when you look at the fourth quarter, we were at 29.8% on our cost of sales and that was at a $1.64 per pound. So, with the $1.34 being the average for January and February, and hopefully not a lot of pressure on wings as we go into March Madness, we will be underneath that 30% mark, but how far below will be a wait and see.

Jeff Farmer - Wells Fargo Securities

Okay. And then just a quick follow-up. It looks like you touched on some of this. Your cash balance at the end of the fourth quarter was I believe a record for your north of $50 even with the CapEx number that you provided for '14. My guess and might so I've just wildly miss-modeled this thing is that, you could probably double your cash balance a $100 million, I recognize that you guys are looking at some smaller concepts that are much lower cost, but what is the plan here with all this cash moving forward?

Mary Twinem

To continue investing in the business. So, we estimate that we’ll spend about $146 million next year on our existing business and then, we are open for franchise acquisition as well as additional investments in small concepts and so, we’d hopefully like to put some of that cash in 2014 for those two efforts.

Jeff Farmer - Wells Fargo Securities

All right. Thank you.

Operator

And our next question comes from the line of Keith Siegner with UBS. Please go ahead.

Keith Siegner - UBS

Thank you. Just a quick question on the potential for any further partnerships going forward, even if it's necessarily this year, if the brand continues to grow and expand nationally and system sales get bigger, is the potential for further sports partnerships something bigger? And if not, one thing we’ve talked about in the past ways you could contest especially through digital platforms, how might that either help replace or viewed, let’s say a different option for leveraging relationships for the sports league etcetera?

Mary Twinem

Okay. You kind of went in and out a little bit on your question, so I’ll try to answer what I think I heard. You talked a little about are there other opportunities for partnerships. And as you know, we have a partnership with the NCAA as well as our partnership with Pepsi, which allows us to take advantage of some of things that the NFL offers.

I think that we always are looking selectively both on a local and regional basis. We have advertising co-ops that will partner with various teams in a variety of sports, so that’s always an opportunity. I think just to continue to grow that partnership with the NCAA is important to us, as well as this will really be the first year that we had an ability to partner with the NFL through Pepsi.

We’re always open to looking at things whether it would be some sort of online sports platform and these partnerships as you mentioned help us -- will help us provide some of that proprietary content within our restaurants on -- with our technology in our TV, I think giving guests just another reason to come into Buffalo Wild Wings, especially and maybe low sporting times during lower sporting season.

Keith Siegner – UBS

Thank you.

Operator

And our next question comes from the line of Jason West with Deutsche Bank. Please go ahead.

Jason West - Deutsche Bank

Yes. Thanks. Mary, just I want to clarify, did you say that the earnings growth rate in the back half of the year would likely be below the guidance for the full year and if that’s true then can you explain kind of what the moving parts are there, just things are bit conservative?

Mary Twinem

Yeah, our expectation is that wing prices won't stay low forever and that we’ll see them begin to move up sometime later in the year. We’ll obviously update that on our April and July call based on what the market is doing.

Sally Smith

I’d also add that some of the minimum wage increases are schedule to take place until the second half of the year. We’ll have some strategies as we look at minimum wage, but some of that again, California for example doesn’t happen until the last half.

Jason West - Deutsche Bank

Okay. Got it. But it contemplates things like that not some investments, incremental labor investment or in technology that will cost something in the P&L I’m assuming those aren’t investments that will hit the P&L in the back half?

Sally Smith

No. no.

Jason West - Deutsche Bank

Okay. And then Mary, you talked a little bit about the average weekly sales trend relative to the comps. And you made some comments the class of 2013 stores was less incremental in 2012. Can you just talk a bit about what those numbers were and your thoughts on the 2013 store performance versus expectations?

Mary Twinem

Yeah. The average weekly volume piece as most people look at that number compared to same-store sales and try to get a feel for whether or not our new restaurant openings are opening strong or not. And that there are some points in time this quarter as well as back in 2010 for people that remember that, you can't really look at that simply math and always get a good picture at what new restaurants are performing at.

So we did share some comments in this script. I what people see the reconciliation. The same-store sales are 5.2%. We had upside of 30 basis points for closing all the restaurants and 10 basis points for acquiring franchisees, pretty simple to understand. The two pieces that were negative factors, there was a 40 basis point factor related to the 2012 calculation and that's based on last year's fourth quarter calculation including 14 weeks of operations and the 13th and 14th weeks of last year are very strong weeks. So, this year with only one of those strong weeks in the calculation, have that not been in last year, there would have been a 40 basis point difference.

The other factor was a 50 basis point factor and that’s related to the class of 2013. It is a strong class that has averages that are 10% above what our company average is for stores, but it isn’t as high above that average. The class of 2012 was better than that. And when you look at our comp store base increasing, just the large numbers starts to kick in and so the effect that your non-comp in stores have is lessened year-over-year as well as the stores being 10% above those with higher. So early in 2014 when you look at going into the first and second quarter, our new restaurant openings are behind last year. We have nine openings in the first quarter versus 14 next year.

So what I would caution is that the simple math of looking at average weekly volumes of same-store sales might not give you a clear picture on what our new restaurants are performing at and we will give you highlight as we go through the first quarter and maybe the second quarter to make sure that you have a feel for what our new restaurants are doing. They are doing well and we have great expectation for our class of 2014 stores as well.

Jason West - Deutsche Bank

Okay. Thanks for the color.

Operator

And our next question comes from the line of Will Slabaugh with Stephens Inc. Please go ahead.

Will Slabaugh - Stephens Inc.

Thank you. Congrats on the quarter. I know this may be difficult to estimate but given your core Midwest geography had some pretty difficult weather to deal with in the quarter and I am assuming a number of closures, I don’t know if you could attempt to estimate the total weather impact on the quarter or either that or the quarter to date period?

Sally Smith

There's always weather, and it's the one thing that of course we can't control. It's very difficult to isolate the effect of weather last year. There was Hurricane Sandy. This year there were store closures whether it was frozen pipes or just snow, and that combined with, changes in the sports calendar, who was playing who all really contributes to our sales and our same store sales so, no, we did not try to quantify it.

Will Slabaugh - Stephens Inc.

Got you. And just a quick follow-up on what occurred on the Guest Experience Captains comments from earlier, can you give us an update on how you think that position is working and whether you think that we are at point now where their boosting the average ticket enough to outweigh the additional waiver or your comments earlier simply about the structural changes of waiver that you’re putting in place as that Captains comes on Board?

Sally Smith

Sure. Right now we have guest experience manger teams. So there is a couple of components to guest experience business model. One is the manager team and that is just slightly less than 200 teams have that new manger and that’s typically a four mangers per store. We think that provides some labor savings as we roll out and add Guest Experience Captains and there is almost an equal number of restaurants with Guest Experience Captains and well we continue to open new restaurants with it as well as we’ll convert 50 existing restaurants.

We really believe that this model has the ability to drive sales, to drive same-store sales whether it’s through increase shift in purchases coming back for another time and/or just helping introduce the guest the technology and it is our goal certainly that sales do for the most part cover any incremental labor. That’s not always the case in the first couple of months that it's rolled out, but we are seeing -- we are very pleased with the results and that’s why we are going to continue rolling it out.

Will Slabaugh - Stephens Inc.

Thank you.

Operator

And our next question comes from the line of Alex Slagle with Jefferies. Please go ahead.

Alexander Slagle - Jefferies LLC

Thanks. Actually just wanted to follow-up little bit on that question and just the success that you saw managing the labor line in the fourth quarter and maybe what surprised you about your execution of labor in the fourth quarter?

Sally Smith

Well, we have continued to revise our scheduling templates to get, you know, what we think is a more optimal amount of captain hours as well as reviewing how we staff the restaurants overall, so I think as we go through 2014, we'll continue to tweak that and make sure that we have enough presence of captains within our restaurants that we do neutralize it as much as possible on the labor line.

Alexander Slagle - Jefferies LLC

Okay. Thanks.

Operator

And our next question comes from the line of Alvin Concepcion. Please go ahead.

Alvin Concepcion - Citigroup Inc.

Great. Thanks and congrats on a great 2013 as well. Yes, I just -- sorry if I missed this but I am wondering if you quantified the cost savings from the portion size menu this quarter I think it was 40 basis last quarter I am just wondering if that continues?

Sally Smith

We didn’t quantify it. It was when we looked at our cost of sales lines, wings was the year-over-year difference for that. Maybe to help you modeling I will share what wings were as a percent of our cost to sales dollars and that was 23.4% in the fourth quarter and using that as well as our average price per pound that maybe helpful in trying to backend some calculation.

Alvin Concepcion - Citigroup Inc

Okay. Great. And you know, you mentioned you'd invest in one or two more concepts this year. I was wondering if you had any more color on, that sort of what criteria are you looking for.

Sally Smith

Our criteria for that small emerging brand really hasn't changed. We would like it to be in the fast casual, perhaps casual dining sector, the ability to have locations across the country as franchisable easy -- or simple operation and anywhere from a couple units to, you know, maybe a dozen or more. There's a lot of interesting things out there and we are actively looking and talking with different founders and talking about what their goals are. I can’t talk about any names right now, but I do believe that we should be able to add one or two small concepts before the end of the year.

Alvin Concepcion - Citigroup Inc.

Okay. Thank you very much.

Operator

And our next question comes from the line of Chris O'Cull with KeyBanc. Please go ahead.

Christopher O'Cull - KeyBanc Capital Markets Inc.

Thanks. Good afternoon. My question is regarding the tablet, Sally we’ll guest have full menu ordering capabilities on the tablet later this year?

Sally Smith

That’s our goal, yes that they’ll be able to order everything from the tablet and reorder as well as having ability to pay at the table.

Christopher O'Cull - KeyBanc Capital Markets Inc.

Are you testing new service models in the stores or you maybe testing this full ordering capability with the tablet?

Sally Smith

When you mean a new service model are you thinking about additional table for server, I don’t know they were testing a new service model so much?

Christopher O'Cull - KeyBanc Capital Markets Inc.

No, I think that’s right more table stations per server.

Sally Smith

I think that’s what this allows. I think that combined with the Guest Experience Captains allows for that and as we look at minimum wage increases and perhaps an increase in the tip wage. I think that’s something we definitely need to be focused on and looking at.

Christopher O'Cull - KeyBanc Capital Markets Inc.

When was the company store start to see the new tablet with this capability?

Sally Smith

We should have new tablets at I believe all of the restaurants by the end of the year. We have tablets in about a 145 locations right now, only a couple of those have ordering capability. We are testing that before we turn on that functionality into rest of those and then -- and we’ve got a combination of both company and franchise restaurants that have that and we plan to have as I said all locations all company locations on tablet by the end of the year.

Christopher O'Cull - KeyBanc Capital Markets Inc

Okay, great. And one last question Mary, has gift card redemptions been a strong so far in the first quarter this year as they were last year, or has weather caused less redemption activity so far?

Mary Twinem

I don’t have the specific numbers on that. We were pleased with what our holiday gift card sales fit in the fourth quarter, I think it is a component of strong same-store sales that we have so far this year from a number of units that had gift cards. At a retail level it was pretty similar year-over-year that we did have some additional placements within our locations. So we've been really pleased with how gift card have rolled out at the retail level.

Christopher O'Cull - KeyBanc Capital Markets Inc.

Great. Thanks, guys.

Operator

And our next question comes from the line of Greg McKinley with Dougherty. Please go ahead.

Greg McKinley - Dougherty & Company LLC

Thank you. Just few numbers question. Mary, you made some comments around tax rates for '14, can you remind me what those comments were and then what is your earnings outlook based on?

Mary Twinem

We have -- our estimate for our tax rate in 2014 is 33%. If the Congress is not renewing the employment credit and if they do renew it, we expect that it would be about 31.5%. I don’t know that we have a specific rate in our guidance for the year. We run our model in various methods with different sales levels and different wing price levels as well as different income tax levels.

Greg McKinley - Dougherty & Company LLC

Okay. And then just regarding sporting events you talked about the Winter Olympics, you talked about the Easter shift, in aggregate would you view those as significant likely contributors to traffic during the quarter when you measure the quarter as a whole, or they tend to be fairly small?

Mary Twinem

The Olympics should be incrementally better. In some markets it's a bigger deal than another market. So we want some exciting mascots just like in any kind of contest. So -- I mean and there weren't any Olympics last year, so there should be some incremental benefit from that. Getting Easter out of the tournament is always beneficial for us. More people can get away and come in and watch the games versus last year when it was in the Sweet 16 rounds and not everybody can get away from family, so.

Greg McKinley - Dougherty & Company LLC

Okay. Thank you. And then just a last one. When you mentioned your first, I think, five or six weeks of this quarter versus the year ago period, the comps that you compared it against was may be different than what I had in my notes down 0.2%? So what is -- I guess are you comparing? Does that include like week 14 of fiscal '12 against week one of this year, or is there a calendar shift that you sifted the weeks you're comparing against?

Mary Twinem

Well, there maybe two things. So the first thing was last year we would have had our earnings release with the comps that had six weeks versus five. So we did update our comparison to a five-week comp to a five-week comp. So that would be what you see in the press release.

Greg McKinley - Dougherty & Company LLC

Okay

Mary Twinem

…for the numbers. And we did make comments last year because the first five weeks of 2013 have a mismatch in them as it relates to how the calendar sporting events happen. So the negative 0.2% that we have in the press release, if you were to realign that with light weeks you would have a positive 3.3%. And so that -- if you're looking at like a two-year comp, you should really be looking at a 3.3% increase for the first five weeks of last year as compared to the 4.8% that we have for this year. So cumulative that's in that 8% range.

Greg McKinley - Dougherty & Company LLC

Okay. Very good. Thank you.

Operator

And our next question comes from the line of Peter Saleh at Telsey Advisory Group. Please go ahead.

Peter Saleh - Telsey Advisory Group

Great. Thanks. I just wanted to ask about the new Stadia design. Is that going to be the new design for all the company build going forward in 2014? And what are you seeing in terms of returns on the new design? Are you seeing a sales lift or anything you can quantify on the new design would be helpful?

Sally Smith

It is our intention, where possible to open with the new Stadia design. We might have a couple of -- a couple units that open in the first quarter that we're already -- that we are in permit or approval process prior to Stadia. I don't know if that would be more than a couple though and then, same could hold true for franchise locations.

In terms of a sales lift because these have never been locations before part there's not really a lift, but we would look at those as achieving greater averaging volumes and then as well as potential sales mix, so that because of the design we think that the bar has a great quality to it and hope to see some additional beer sales, alcohol sales at Stadia location.

Peter Saleh - Telsey Advisory Group

And then just want to circle back on the tablets. In location where you're trusting the ability to I guess pay and to order from the menu on the tablets, what are you seeing? Are you seeing an increase in the average take, or you're seeing an increase in traffic, or any sort of data on the tablets in terms of what gives you confidence to roll out in terms of the ability to order and see some sort of return on that?

Sally Smith

I think that's something that we're testing. That ability to order and pay is only in a couple of restaurants right now. Well, we make sure that the technology works in all of that. The tablets do more than -- are more than just menus for us.

They've the -- they've the ability to -- you play buzz time trivia, there's some arcade games and some let's say, we're rolling out the ability to select music from the tablet, getting your news, a number of things. So the tablets while the ordering and payment is great and something where I think we need to be is also about how that -- how it can be, how our guest can be interactive at the same time as being at Buffalo Wild Wings.

Peter Saleh - Telsey Advisory Group

All right. Thank you very much.

Operator

And our next question comes from the line of Nick Setyan with Wedbush Securities. Please go ahead.

Nick Setyan - Wedbush Securities

Thank you. So is it fair to assume that the cadence of the rollout around the tablets is more second half weighted given they are still in test?

Sally Smith

Well, we have tablets right now in what about 185 locations right now, and maybe a little bit…

Mary Twinem

145

Sally Smith

145. We'll add 50 in the first quarter plus new store openings that gets us to about half way on the company side. And my guess is it's probably going to be pretty even throughout the rest of the year adding maybe 75 a quarter after that.

Nick Setyan - Wedbush Securities

Perfect. Has the World Cup in the past, does that had a positive comp impact or has it not been very meaningful?

Sally Smith

Well, let's see. World Cup is coming up this summer which we're excited about. I think that the important -- the watchability of soccer and soccer fans continues to grow in the United States. Certainly, it's going to be a factor in our international locations. And again, it's a great timing that comes at a time when there's not a lot of major sporting events going on in the U.S. So we can't help but think it will be incremental as to how incremental we do have -- I guess we have to go back and look at 2010.

Nick Setyan - Wedbush Securities

Okay. And just last one question on PizzaRev. I think last time when you spoke about it was two to six, this year I think this time you modified that to at least two. Is your updated top customer around that the six is probably too aggressive? Is that how we should think about it? Can you may be get some -- probably get some timing around those two?

Sally Smith

Yeah. We'll have at least two. Our goal is to have more than that. We want to make sure that they are the right sized and we're focused again on Minneapolis. We think Minneapolis has a great ability for us to test and how well it travels outside of California, which we have a lot of confidence in. And so, just making sure that we have the right side, I think is probably more important than the number that we opened. But I still say it's somewhere in the two to six range.

Nick Setyan - Wedbush Securities

Perfect. Thank you.

Operator

And our next question comes from the line of Mark Smith with Feltl and Company. Please go ahead.

Mark Smith - Feltl and Company

Hi guys. Just can you talk a little bit about the competitive front? I know this last year we're all looking at McDonalds and what was happening there. Can you talk about what's going on in other casual diners and anything that keeps you up at night?

Sally Smith

I don't know that in terms of what we're seeing from other casual diners and maybe some of their initiatives, I think that the same things that keeps them up at night probably keep me up at night. How will a minimum wage impact the business? So that ability to find and retain great people. It goes without saying any kind of food borrowing, making sure you've got say food handling and you've done all the training, but in terms of what's there we're seeing on I really don’t have any -- too many comments on it. It certainly -- it's interesting, and sometime we may say, oh Gee! How would that apply to Buffalo Wild Wings, but there's no real focus there on what other casual diners are doing.

Mark Smith - Feltl and Company

Okay. And then on the sports calendar, we'll talked about Olympics, World Cup and other stuff that's coming up. In the first five weeks did we have anything that was different this year and so far in Q1 compared to last year?

Sally Smith

No. It mixed up really well, the way the NFL schedule bodes as well as the UFC fight schedule is similar and that probably has formed the full first quarter.

Mark Smith - Feltl and Company

Perfect. Thank you.

Operator

We do have two more questions. Would you like to take them or go to closing remarks?

Mary Twinem

Yeah. We'll take them.

Operator

Okay. Our next question comes from the line of Michael Kelter with Goldman Sachs. Please go ahead.

Michael Kelter - Goldman Sachs

Thanks. Do you say that 2013 class was 10% below the 2012 class and even if it's above the system average, should we get used to that dynamic? There'll be a trend from here as you grow further and further and towards maturity that each year maybe in the next class it'll be a little bit less corrective in the last, or is there anything specific about the 2013 class that you thing there might be a rebound in that metric in '14 or '15?

Mary Twinem

Hi. I apologies if you misunderstood. So the comment regarding the 10% was not that the class of 2013 was 10% less than the class of 2012. It was that the class of 2013 was 10% higher than the average of all stores in the company store average. So the class of '12 I believe was somewhere close to the 13% to 15% higher than the average. The classes of 2013 was 10% higher. So it's the relative nature of that difference as well as just the law of large numbers kick in and that non-comp grew more new has -- new store openings being fairly flat year-over-year. It doesn’t have the same impact on the average weekly volume calculation.

Michael Kelter - Goldman Sachs

I guess then the question would still kind of hold, if it was 13% to 15% above and now this year it's more like 10% above, should we kind of expect 2014 to be single digit above and continuing on down that trend or kind of come back or is there something about '13 that just wasn’t as robust as '12?

Mary Twinem

Yes, well the overall average continues to go up. So that's part of it as well as when you look the group of stores that we had in 2013, we did have about seven that were Canadian openings. They had good openings, but they don't have as great of openings that we have on both the Western and East coast.

Michael Kelter - Goldman Sachs

And then kind of on a similar path here, if you are -- given you are out of 1,000 plus units and aiming for 1700, it will be about 70%, 80% done in three to five years, so pretty clear visibility towards approaching maturity. Are the investments you are making in the small concept, checking concepts and the international expansion, can they ramp fast enough to make up for the evolving dynamic.

Sally Smith

No. No. That's certainly why we started investing now and didn’t wait three to five years from now. We do think that, that international and emerging brands do have that capability. We are trying to model things out as well are there other avenues continuing and continuing to drive same stores sales as well as franchise acquisition.

Michael Kelter - Goldman Sachs

All right. Thank you very much.

Operator

And our last question comes from the line of Diane Geissler with CLSA. Please go ahead.

Diane Geissler - CLSA

Thanks for taking my question.

Sally Smith

You're welcome.

Diane Geissler - CLSA

Did you give an estimate for your inflation expectations on the cost basket or cost to sales in '14 versus '13?

Sally Smith

We did not. I mean we talked about how Wings are starting out the year significantly below where they were in the prior year. So from an overall basket standpoint that has a fairly big impact for us. As it relates to the bonus Wing part, that's on a contract that has no year-over-year increase. We talked just briefly about alcohol pricing in the fourth quarter where we saw some increases from beer, but not as much as we had initially anticipated.

So overall ex-Wings our commodity is pretty flat year-over-year and then when you add the impact of Wings being down significantly year-over-year, we do have a basket.

Diane Geissler - CLSA

Okay. Thank you. And then I wanted to ask on the store openings, the estimate you gave in terms of expected on both the company owned and franchise basis, it seems to be a slowing, obviously your cash position is not a factor. I do know you want to make investments in smaller brands, but I guess I have a question about is it slowing because it's more difficult to find sites? Is it slowing because you want to extend that 700 units incremental build over a longer time period, while you try to build the smaller brands? I guess I am just trying to understand your philosophy behind slowing the store growth.

Sally Smith

Sure. Will be very similar to the number of openings we had for 2013. So within probably half a dozen to a dozen. It obviously as you have a 1,000 locations across the country, the number of markets that are available becomes tighter and tighter and again I would rather open the right size than any size just to reach a number and so availability one of real estate and of markets that without significant cannibalization just becomes fewer and fewer and that's part of the reason.

Diane Geissler - CLSA

Okay. And then just finally on the technology that you are building within the store base itself and the ability to sort of take that out of sort of sporting occasions, I think one other thing that we looked at pretty closely is sort of peak versus non-peak days and sort of what kind of traffic you are able to drive on a peak sporting day and I guess I am just curious about what other types of partnerships you could form outside of the sporting venue to drive traffic of days when there isn’t a sporting event happening?

Sally Smith

Well, we think the technology has a lot of extensions that will make it attractive both on game as well as on non-game days. The trivia, the poker, there is a new stand piece being rolled out as well as music content will be on there and then we would really want to have that tablet be the go-to-place for sporting information. So whether it's a fantasy gaming platform or it's where you go to check your bracket that we want our tablet to really be kind of the go-to-place that people would go to for information.

Diane Geissler - CLSA

Okay. I may have missed this, but when do you think you'll be fully rolled on the tablet?

Sally Smith

We're going to have it in our company stores by the end of 2013. Our franchises are rolling it in as well by the end of 2014. Our franchises are rolling it in as well on that shares, they will get in, in all of their locations by the end of 2014 and then as we go through the year, additional functionality will be tested and rolled as well.

So initially there is just -- the order is not all the items for ordering and paying at the table that's being tested, but we will go to full menu by the end of the year and then music is currently in test that will roll out later this year as well.

Diane Geissler - CLSA

Okay. Great. Thank you.

Operator

There are no more questions. Would you like to go ahead with any closing remarks?

Sally Smith

Okay. Well I would like to thank everyone for dialing in and listening to our fourth quarter and full year 2013 earnings call. We look forward to sharing our results of the first quarter with you in April. Thanks so much.

Operator

Thank you. Ladies and gentlemen, this does conclude today's conference. You may now disconnect.

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