Hedge fund Marcato Capital delivers a bruising assessment of Buffalo Wild Wings (BWLD -0.7%) in a presentation aimed at shareholders.
On technology: "We believe it is important that management be held accountable for failing repeatedly to achieve their own stated objectives across a number of seemingly highpriority initiatives, including the development and roll-out of tablet ordering & payment, server handhelds, and the Blazin’ Rewards loyalty program."
On the international business: "Despite advertising their efforts as “active” for 5+ years, Buffalo Wild Wings’ non-U.S. presence remains woefully small in relation to the executive team’s stated expectations."
On the company's strategic direction: "Buffalo Wild Wings has an unfortunate history of misrepresenting that they are on the verge of rolling out new initiatives that will improve performance and shareholder value."
Restaurants stocks are moving higher after earnings reports from Dunkin' Brands (DNKN +5.3%) and Yum Brands (YUM +1.9%) set a positive tone.
46 out of the 50 publicly-traded restaurant names with a market cap of over $50M are in positive territory for the day.
Leading gainers include Bloomin' Brands (BLMN +4.6%), Zoe's Kitchen (ZOES +5%), Dave & Buster's Entertainment (PLAY +3.8%), J. Alexander's Holdings (JAX +3.7%), Kona Grill (KONA +2.2%), Sonic (SONC +3.2%), Brinker International (EAT +2.8%), Buffalo Wild Wings (BWLD +2.4%), Cheesecake Factory (CAKE +2.7%) and Red Robin Gourmet Burgers (RRGB +2.8%).
Investors are giving Buffalo Wild Wings (BWLD +2.2%) a second look after the company's earnings call (transcript) took away some of the sting from a painful earnings report and below-consensus guidance.
Execs said traffic "rebounded" in the first week of Q1 and pointed to progress on a new "alternative" format for Buffalo Wild Wings.
Wells Fargo isn't convinced, noting despite some positive steps from management guidance for 2017 and 2018 EPS was lowered.
Buffalo Wild Wings (NASDAQ:BWLD) slumps in AH trading after company-owned same-store sales fell 4.0 vs. -1.7% expected in Q4.
Average weekly sales at company-owned stores fell 4.6% Y/Y to $59,120.
Labor costs rose 90 bps to 31.8%.
Restaurant operating costs +30 bps to 15.7%.
2017 guidance: Same-store sales growth of 1% to 2%, restaurant-level margin +10 to 30 bps, chicken wing inflation +3.5% to +4.5% , operating income growth of 9% to 13%, share repurchases of $450M-$500M, EPS of $5.60-$6.00, capital expenditures of approximately $100M, free cash flow of $160M-$170M.
Marcato Capital Management announces that it has nominated four candidates for the board at Buffalo Wild Wings (BWLD +1.4%).
The firm says Buffalo Wild Wings has failed to reach its full potential and must address issues such as declining guest traffic, eroding restaurant-level profit margins and unchecked cost inflation for new units and remodels.
The four nominees are three restaurant industry execs and Marcato founder Mick McGuire.
Buffalo Wild Wings (NASDAQ:BWLD) announces that it authorized a $400M increase in its share repurchase program, bringing the cumulative buyback allowances to $900M.
The company also announced that it has advanced its intended timing to achieve a leverage ratio target of 1.5 times debt to EBITDA to the end of fiscal 2017. Previously, the company had targeted achieving this leverage ratio target by the end of fiscal 2018.
Goldman Sachs rerates some restaurant stocks as part of its deep dive into the sector issued today.
Panera Bread (PNRA +0.3%) is upgraded to Buy on increased confidence over the delivery platform. GS lines up a 12-month price target of $227.
Bloomin' Brands (BLMN -1.1%) is lowered to Neutral from Buy on concerns over margin pressure and higher interest rates from its $1.2B in floating-rate debt.
Texas Roadhouse (TXRH -1.4%) is still rated at Neutral, although 2016-2017 EPS estimates are lowered by about 3%.
Buffalo Wild Wings (BWLD -1.6%) sees a 1% downward revision to Goldman's 2017 revenue forecast. The 12-month PT goes to $161 from $170.
Darden Restaurants (DRI -0.4%) catches a slight price target increase ($74 from $70), with top-line estimates expected to match higher wage costs.
Brinker International (EAT -1.4%) looks like a Neutral to GS. 2016-2018 estimates are lowered by 4% to 8%.
Cheesecake Factory (CAKE -1%) is assigned a Sell rating due in part to higher dairy and other commodity costs.
Estimates are lowered on Jack in the Box (JACK -0.8%), Wingstop (WING -0.3%), Yum Brands (YUM -0.4%) and Restaurant Brands International (QSR -1.3%) due chiefly to a reassessment of the forward interest rate curve and F/X considerations .
Goldman Sachs issues its 2017 outlook on the restaurant sector. Some key trends that GS thinks need to be watched are posted below.
Consumer spending: Health care and energy costs are creating headwinds to spending. The GS discretionary cash flow model shows a drop to a 3.9% pace from 4.4%.
Wages: "Higher minimum wages as a result of legislation continues to remain a headwind for the industry, with an additional 18 states implementing minimum wage increases that took effect 12/31/16 of 1/1/17. We estimate this will add an additional 70bps of YoY pressure to the average national minimum wage."
Wallet market share: Some benefits for the sector are seen from wallet share gains, although the at-home spending category needs to be watched closely.
Segment shifts: We expect full service chains to continue lagging the industry by 4-5% (consistent with the past three years). We view fast food more favorably, with convenience/value mitigating secular headwinds (only a 2%-3% headwind vs industry), and we also prefer companies with exogenous sales drivers like to-go or delivery.
Unit growth/inflation: Inflation is expected to increase the cost of adding units and act as an ongoing headwind to returns on maintenance capex/remodel spending.
ICR announces the top restaurant stock picks ahead of its retail conference that launches today.
Guggenheim - Buffalo Wild Wings(NASDAQ:BWLD): “2017 is setting up to be a year of greater growth with a return to positive SSS and margin leverage cultivated from efficient labor usage. In our opinion, the easiest SSS compares in the brand's history and operational momentum will be supported by a favorable football schedule: 5 additional 1Q17 bowl games, non-election year TV ratings and a 53rd operating week during 4Q17."
Jefferies - Dave & Buster’s Entertainment (NASDAQ:PLAY): “Our favorite new unit growth story with an underappreciated, differentiated brand and business model with no real direct competitors. We expect this to work to PLAY’s advantage as we move later in the cycle, which along with continued focus on new, proprietary games/amusements backed by marketing, should drive growth and broad-based brand awareness to support incremental SSS and margin leverage on 50%-60% flow-through.”
Stifel Nicolaus - Habit Restaurants (NASDAQ:HABT): “We are impressed by HABT’s segment-leading unit-growth potential and encouraged by likely above-peer comps going into 2017."
Barclays - Panera Bread (NASDAQ:PNRA): "We believe Panera is poised to deliver outsized comp (and EPS) growth in 2017 relative to the broader industry, led by the execution of its fundamental turnaround strategy. Panera 2.0 is a complete overhaul of the consumer-facing model through digital and operational enhancements."
Wedbush is slicing up the restaurant sector today.
The firm lowers its rating on BJ's Restaurants (NASDAQ:BJRI) to Underperform from Neutral due to concerns on sales growth trends and margin benefits. A price target of $34 is slapped on the restaurant stock. BJRI is now left with only one Buy rating on the books from a Wall Street firm.
Buffalo Wild Wings (NASDAQ:BWLD) is dropped to Neutral from Outperform as it sees the food cost tailwind diminishing. The PT is chopped to $155 from $180.
Restaurant stocks trade weak on some anxiety that preannouncement surprises may pop out in front of the ICR Exchange Conference next week.
SunTrust Robinson analyst Jake Bartlett reminds that last year Chipotle (CMG -0.5%), Popeyes Louisiana Kitchen (PLKI -0.7%) and Wingstop (WING -0.5%) all preannounced right in front of ICR.
Leading decliners on the day include Jack in the Box (JACK -3.5%), Red Robin Gourmet Burgers (RRGB -3.3%), Carrols Restaurant Group (TAST -2.6%), Buffalo Wild Wings (BWLD -2.6%) and BJ's Restaurants (BJRI -2.8%).
More than 25 restaurant companies are due to present at ICR on January 10-11.