Buffalo Wild Wings Posts Solid 3Q

Oct.26.11 | About: Buffalo Wild (BWLD)

Buffalo Wild Wings Inc.’s (NASDAQ:BWLD) third quarter 2011 earnings of 61 cents per share surpassed the Zacks Consensus Estimate of 58 cents per share, and also increased 29.8% from 47 cents per share reported in the prior-year quarter. The better-than-expected results were driven by higher same-store sales growth and unit growth.

Total revenue climbed 30.7% year over year to $197.8 million and outperformed the Zacks Consensus Estimate of $191.0 million. Sales at company-operated restaurants rose 32.2% to $181.0 million, fueled by 44 new restaurant openings at the end of the quarter compared with the prior-year quarter and higher same-store sales.

Franchise royalties and fees grew 16.2% year over year to $16.7 million, on the back of 41 additional restaurants in operation at the end of the quarter compared with the year-ago quarter and higher comps growth. Same-store sales spiked 5.7% and 4.2% at company-operated restaurants and franchised restaurants, respectively.

Average weekly sales at company-operated restaurants and franchised restaurants jumped 11.4% and 4.8%, respectively, from the prior-year quarter to $49,461 and $51,350.

The Minneapolis, Minnesota-based company’s restaurant operating margin expanded 120 basis points (bps) to 19.3%, aided by a 40-bp drop in labor cost, 90-bp fall in operating costs and 50-bp dip in occupancy cost, partially offset by 60-bp hike in cost of sales.

Store Update

During the quarter, Buffalo Wild Wings opened 11 new company-owned restaurants and 6 franchise restaurants. The company currently operates 288 company-owned restaurants and 498 franchised restaurants.

Financial Position

Buffalo Wild Wings ended the quarter with cash and cash equivalents of $50.2 million and shareholders’ equity of $302.7 million.

Outlook

Buffalo Wild Wings remains on track to achieve its unit growth target of 13% and expects to attain net earnings growth of at least 23% for fiscal 2011. The company is undertaking various initiatives like menu innovations, remodeling of restaurants, marketing investment and media spending to attract customers.

Management witnessed comparable sales growth of 8.3% and 6.7% at company-operated restaurants and franchised restaurants, respectively, for the first three-week period of the fourth quarter of 2011, indicating positive signals for the upcoming quarter.

Moreover, management remains optimistic for 2012 and expects to achieve unit growth of 12% and net earnings growth of 20%.

Our Take

We remain encouraged by the company’s long and successful track record, viable business strategy and debt-free balance sheet. The company is also on track to achieve 13% unit and 20% net earnings growth in fiscal 2011. Moreover, the company provides ample growth opportunities given its plan of opening 1,000 restaurants in the United States by 2013 and 50 in Canada by 2015.

However, we remain cautious on the stock based on lower consumer spending and intense competition among casual dining restaurants with respect to price, service, location and concept in order to drive traffic.

Hence, the company holds a Zacks #3 Rank, which implies a short-term Hold rating on the stock. We also reiterate our long-term Neutral recommendation.

One of Buffalo Wild Wings’ primary competitors, Domino's Pizza Inc. (DPZ) reported third quarter 2011 adjusted earnings of 35 cents per share, which outpaced the Zacks Consensus Estimate by 2 cents and the year-ago quarter adjusted earnings by 8 cents.