Stellar Earnings Send Buffalo Wild Wings Flying

Yesterday, Buffalo Wild Wings reported its 2Q 2008 results.

• Sales up 28.8% to $97.87 million from $76 million in 2Q 2007
• Company-owned restaurants sales up 29.5% to $87.5 million
• Franchise royalties and fees up 22.9% to $10.41 million from $8.46 million in 2Q 2007
• Company-owned SSS up 8.3%, franchise-operated SSS up 4.5%
• Cost of sales $89.73 million from $70.97 million in 2Q 2007
• Net income up 46% to $5.6 million ($0.31 per share) from $3.8 million ($0.22 per share) in 2Q 2007
• Profit margin 5.74% from 5.02% in 2Q 2007
• Diluted share count 17,906,000
•  $73.97 million in cash
• No debt
• Cash flow from operating activities $14.63 million from $6.34 million in 2Q 2007
• Cash flow from investing activities -$21.62 million from -$14.38 million in 2Q 2007
• Cash flow from financing activities $0.48 million from $0.55 million in 2Q 2007
•  Average company-owned restaurant weekly sales up 10.7% to $40,572 from $36,655 in 2Q 2007; average franchise-operated restaurant weekly sales up 5.4% to $46,390 from $43,998 in 2Q 2007
• 10 new restaurants in quarter (4 company-owned, 6 franchise-operated)
• 515 restaurants in operation (169 company-owned, 346 franchise-operated)

Analysts were on average expecting an EPS of $0.27 on sales of $94.62 million. Buffalo Wild Wings managed to beat even the highest analyst estimates ($0.30 EPS, $95.67 million in sales). I must admit that this is the last thing I expected from the company this quarter. The doom and gloom surrounding restaurants added in with the shaky economic environment will do its part to weigh down on an investor's confidence in a business. But B-Dubs managed to whip up a fantastic quarter. And I mean fantastic. In terms of same-store sales, this was the company's strongest 2Q since 2004. Let me again say that given the environment today this is all the more impressive.

There's nothing I love to see more than improving margins and strong cash flow production. Management has done a very good job controlling costs and improving efficiency, which should make the summer season very enjoyable financially for the company. The company's cash flow production more than doubled in the quarter and the balance sheet remains strong with $74 million in cash and no debt. This stellar cash situation allows management to take advantage of opportunities and work through tough times, and it makes me very optimistic to see cash flow production and the cash position remain in such great shape. Judging from what we've seen so far through the first half of this year, B-Dubs is on track to have a whopper of a year as far as cash flow production goes.

I see quite a few similarities in the situations of Buffalo Wild Wings and Chipotle Mexican Grill (CMG). Both companies have experienced and dedicated management teams, both are cash producing machines, both have steady margins, and both have a good deal of opportunity over the long run with their unique concepts. I'm very impressed with both companies and look forward to how they progress over the short and long term.

For the 3Q 2008 analysts are expecting an EPS of $0.31 on sales of $103 million. Given how well the company did this quarter, seeing these estimates rise over the next couple months would not be surprising.

First written for StockHigh.net.

Disclosure: Author holds a long position in BWLD

Comments

[Riverboat:]

How can Buffalo be doing so good when their product just isn't that good. Wingers, in Utah, for example is miles better in menu, service and customer satisfaction. But wingers doesn't have a bar.

So, is Buffalos' growth at the Bar ? and not in the restaurant end ? Anyone have a breakdown on Revenue by category ?

2008 Jul 31 09:14 AM