Earnings estimates have been falling for Buffalo Wild Wings (BWLD - Analyst Report) after the company reported Q3 earnings and revenue that fell well short of expectations.
The decline in consensus estimates has been strong enough to send Buffalo Wild Wings to a Zacks Rank #5 (Strong Sell), placing it in the bottom 5% of all stocks that Zacks ranks based on earnings momentum.
Shares of Buffalo Wild Wings don't look cheap either with the stock trading at more than 25x forward earnings.
Buffalo Wild Wings has more than 1,140 restaurants around the world. It owns approximately half of these locations and franchises the other half. At its company-owned restaurants, approximately 21% of sales comes from boneless wings, 21% from traditional wings, and 20% from alcohol.
Third Quarter Results
Buffalo Wild Wings reported its third quarter results on October 28. Earnings per share fell 12% to $1.00, missing the Zacks Consensus Estimate of $1.28.
Revenue rose 22% to $455.5 million, but this also missed the consensus of $464 million. Same-store sales increased 3.9% at company-owned restaurants but just 1.2% at franchised locations. The company cited one less week of football and fewer pay-per-view events in the quarter as negatively impacting same-store sales by 80 basis points.
The company was also hurt by higher chicken costs. The average price per pound for chicken wings at its company-owned restaurants rose 19% to $1.79. Higher labor costs hurt profitability too.
Looking ahead, management stated that same-store sales at its company-owned restaurants increased by just 2.8% and only 0.8% at franchised locations for the first four weeks of the quarter. The company now expects single-digit earnings growth in 2015, down from previous guidance of 13%. Management still expects more than 20% earnings growth next year though.
Following its Q3 results and revised guidance, analysts unanimously revised their estimates significantly lower for both 2015 and 2016. This sent Buffalo Wild Wings to a Zacks Rank #5 (Strong Sell).
The 2015 Zacks Consensus Estimate is now $5.12, down from $5.58 before the report. The 2016 consensus is currently $6.40, down from $7.08 over the same period.
Despite a sharp decline in its stock price over the last two months, the valuation picture for Buffalo Wild Wings still does not look particularly attractive. Shares trade at more than 25x 12-month forward earnings, and there is no indication that those forward earnings estimates won't stop declining. And its enterprise value to EBIT ratio of 23 is well above the industry median of 17.
Buffalo Wild Wings still has plenty of long-term earnings growth potential, but it looks like a lot of this is already priced in by the market.
The Bottom Line
With falling earnings estimates and premium valuation, investors should consider avoiding Buffalo Wild Wings for now.
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