Buffalo Wild Wings (BWLD) Tops Q2 Earnings, Lags Sales

Buffalo Wild Wings Inc.’s (NASDAQ:BWLD) second-quarter 2016 earnings beat the Zacks Consensus Estimate, while sales missed the same due to weak comps.

Highlights

Adjusted earnings of $1.27 per share grew 13.1% year over year due to better food/labor cost leverage and lower share count due to higher buybacks. Earnings also inched past the Zacks Consensus Estimate of $1.26 by 0.79%.

Total revenue increased approximately 15% from the year-ago quarter to $490.2 million driven by a year-over-year improvement in unit development and franchise acquisitions. However, revenues missed the consensus mark of $502 million by approximately 2.35%.

Performance in Details

During the quarter, company-owned restaurant sales jumped 16.1% year over year to $466.6 million. The upside was driven by the opening of 89 additional Buffalo Wild Wings outlets.

Company-owned comps dipped 2.1% and compared unfavorably to comps decline of 1.7% in the previous quarter. Last year, company-owned comps grew 4.2%. Fewer playoff games between Chicago Blackhawks and the Chicago Bulls teams – most of whom are Buffalo Wild customers – resulted in lower comps during the period.

Franchise royalties and fees decreased 3.8% year over year to $23.6 million due to a reduction in franchised units by seven in the quarter. Comps declined 2.6% as against a comps decrease of 2.4% in the previous quarter. The company had registered a comps growth of 6% in the year-ago quarter.

Buffalo Wild Wings' cost of sales, as a percentage of revenues, expanded 40 basis points (bps) to 29.7% due to a 3% year-over-year increase in chicken wing costs. The company’s cost of labor, as a percentage of revenues, decreased 20 bps to 32%.

Restaurant operating expenses, as a percentage of restaurant sales, were 14.6%. This reflects a 50 bps increase from the prior-year quarter due to higher repair and maintenance costs.

During the quarter, the company opened five new company-owned restaurants and one R Taco outlet.

2016 View Maintained

The company reiterated its 2016 earnings outlook and expects earnings per share in the range of $5.65 to $5.85. The company expects higher deflationary food cost and modest traffic in the upcoming quarters. The estimated earnings range is lower than earnings of $6.10 per share reported a year ago. The earnings guidance, however, is in line with the Zacks Consensus Estimate of $5.73 per share as well as general market expectations.

During 2016, the company expects to open approximately 40 company-owned Buffalo Wild Wings restaurants, about 30–35 franchised Buffalo Wild Wings locations in the U.S., nearly 12–15 franchised Buffalo Wild Wing locations internationally, six company-owned and four franchised R Taco restaurants. The company expects to incur capital expenditure of approximately $170 million during the year.

Buffalo Wild Wings also expects comps to rise in 2016, while traffic is likely to be modestly positive. The company anticipates deflationary food cost in 2016, excluding traditional chicken wings.

A Peek into the Third Quarter

Menu price increases and adjustments made in the last 12 months are expected to be 3.6% in the third quarter. In the quarter, the company expects to open eight company-owned Buffalo Wild Wings restaurants and one company-owned R Taco compared with 17 new company-owned Buffalo Wild Wings locations opened a year ago. Buffalo Wild Wings franchisees in the United States are expected to open nine restaurants during the third quarter. International B-Dubs franchisees are expected to open three restaurants in the quarter.

Cost for traditional chicken wings for the first two months of third quarter is expected to average $1.69 per pound. The average cost in third-quarter 2015 was $1.79 per pound. Labor, as a percentage of restaurant sales in the third quarter, is expected to be approximately 32%. General and Administrative expenses are expected to be approximately $32.5 million.

The company presently has a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks in the same industry include Chuy’s Holdings, Inc. (NASDAQ:CHUY) , Del Taco Restaurants Inc. (NASDAQ:TACO) and Dominno’s Pizza Inc. (NYSE:DPZ) . All these stocks hold a Zacks Rank #2 (Buy).