Buffalo Wild Wings Beats Consensus

| About: Buffalo Wild (BWLD)

Buffalo Wild Wings Inc.'s (NASDAQ:BWLD) first quarter 2011 earnings of 81 cents per share exceeded the Zacks Consensus Estimate of 73 cents and increased 39.7% from 58 cents in the prior-year quarter. The better-than-expected results were driven by higher same-store sales growth and lower wing costs.

Total revenue climbed 19.6% year over year to $182.2 million and outperformed the Zacks Consensus Estimate of $177.0 million. Sales at company-operated restaurants rose 20.0% to $165.5 million, fueled by 28 additional restaurants in operation at the end of the quarter compared with the prior-year quarter and a rise in same-store sales.

Franchise royalties and fees grew 16.2% year over year to $16.6 million, propelled by 58 additional restaurants in operation at the end of the quarter compared with the year-ago quarter and an improvement in comps. Same-store sales spiked 3.9% and 1.6% at company-operated restaurants and franchised restaurants, respectively.

Average weekly sales at company-operated restaurants and franchised restaurants increased 7.8% and 2.4% from the prior-year quarter to $48,845 and $52,774, respectively.

The Minneapolis, Minnesota-based company's restaurant operating margin perked up 360 basis points (bp) to 21.5%, aided by a 270-bp contraction in cost of sales to 27.9% of restaurant sales arising from a 36% fall in cost of traditional wings, 80-bp drop in operating costs to 14.8% and a 30-bp decrease in occupancy costs to 6.2%.

During the quarter, Buffalo Wild Wings opened 4 company-owned restaurants and 15 franchise restaurants.

Financial Position

Buffalo Wild Wings ended the quarter with cash and cash equivalents of $30.4 million and shareholders' equity of $273.8 million. As of March 27, 2011, operating cash flow was $39.8 million.


Buffalo Wild Wings plan to open 16 company-owned and 9 franchised restaurants in the second quarter and 100 new restaurants in the year in order to achieve its target of 13% unit growth for fiscal 2011.

Management expects comparable store sales in April to increase 5.3% and 1.6% at company-operated restaurants and franchised restaurants, respectively, indicating positive signals for second quarter 2011.

The company is undertaking various initiatives like menu innovations, remodeling of restaurants and marketing investment to attract customers for the upcoming football season including the NFL and college football program. The NFL season is currently facing some disruptions. Should it get cancelled, the company believes that it will be able to sustain its net earnings growth target of more than 18% for fiscal 2011.

Our Take

The bar-and-grill restaurant chain surpassed the Zacks Consensus Estimate for the first quarter of 2011 and expects the next quarter to be strong. Thus, estimates for the next quarter are likely to increase in the coming days.

We remain encouraged by the company's long and successful track record, a viable business strategy and a debt-free balance sheet. The company is also on track to achieve 13% unit and 18% net earnings growth in fiscal 2011. Moreover, the company provides ample growth opportunities given its targets to open 1,000 restaurants in the United States by 2013 and 50 in Canada by 2015.

However, we remain cautious on the stock as competition among casual dining restaurants remains fierce with respect to price, service, location and concept in order to drive traffic. Moreover, same-store sales are expected to be sluggish in the next quarter, as consumer spending remains low.

Hence, we have a Zacks #2 Rank, which implies a short-term Buy rating on the stock. We also reiterate our long-term Outperform recommendation.

One of Buffalo Wild Wings' primary competitors, BJ's Restaurants, Inc. (NASDAQ:BJRI) reported first quarter 2011 adjusted earnings of 25 cents per share, exceeding the Zacks Consensus Estimate of 19 cents driven by strong comparable restaurant sales growth.