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Buffalo Wild Wings (BWLD) Stock Up on Robust Q3 Earnings

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Buffalo Wild Wings Inc. reported third-quarter 2016 earnings per share (EPS) of $1.23, in line with the Zacks Consensus Estimate. The figure increased 23% from the prior-year quarter earnings of $1.00 on higher revenues and a lower share count.
 

Notably, the company’s shares rallied nearly 5% in afterhours trading on Oct 26, in response to the solid bottom-line performance.

Total revenue increased 8.5% from the year-ago quarter to $494.2 million driven by new restaurant openings and franchise acquisitions. However, revenues missed the consensus mark of $506 million by 2.3%.

Performance in Detail

During the quarter, company-owned restaurant sales jumped 9% year over year to $470.6 million. The upside was driven by the opening of 40 additional Buffalo Wild Wings outlets, partially offset by lower comps growth.

Company-owned comps dipped 1.8% against a comps decline of 2.1% in the previous quarter. Last year, company-owned comps grew 3.9%.

Franchise royalties and fees decreased 1% year over year to $23.5 million due to lower comps growth. Comps declined 1.6% but compared favorably with comps decline of 2.6% last quarter. The company had registered comps growth of 1.2% in the year-ago quarter.

Buffalo Wild Wings' cost of sales, as a percentage of restaurant sales, decreased 50 basis points (bps) to 28.9% due to a 4% year-over-year decrease in traditional chicken wing costs. The company’s cost of labor, as a percentage of restaurant sales, decreased 10 bps to 32%.

Restaurant operating expenses, as a percentage of restaurant sales, were 15.6%. This reflects a 90 bps increase from the prior-year quarter due to rise in general liability insurance, fees for an additional pay-per-view event and higher repairs and maintenance costs.

BUFFALO WLD WNG Price, Consensus and EPS Surprise

 

BUFFALO WLD WNG Price, Consensus and EPS Surprise | BUFFALO WLD WNG Quote

A Peek into the Fourth Quarter

Menu price increases and adjustments made in the last 12 months are expected to be 1.3% in the fourth quarter. The company expects to open 16 company-owned Buffalo Wild Wings restaurants compared with 22 new company-owned Buffalo Wild Wings locations opened in fourth-quarter 2015. Buffalo Wild Wings franchisees in the United States are expected to open nine restaurants in the ongoing quarter. International B-Dubs franchisees are expected to open one restaurant.

The company expects comps to be slightly negative in the fourth quarter. Meanwhile, cost for traditional chicken wings for the first two months of fourth quarter is expected to average $1.96 per pound. The average cost in fourth-quarter 2015 was $1.81 per pound. Labor, as a percentage of restaurant sales in the fourth quarter, is expected to be approximately 32%.

2016 View

For 2016, the company expects earnings per share to be slightly below the low end of the prior guided range of $5.65 to $5.85. The Zacks Consensus Estimate for 2016 earnings is currently pegged at $5.70 per share.

The company also cut down on its new unit-development. In 2016, the company now expects to open approximately 35 (earlier 40) company-owned Buffalo Wild Wings restaurants in the U.S., about 30 (earlier 30–35) franchised Buffalo Wild Wings locations in the U.S., 10 (earlier 12–15) franchised Buffalo Wild Wing locations internationally along with five company-owned (earlier six) and two (earlier four) franchised R Taco restaurants. The company expects to incur capital expenditure of approximately $158 million during the year, down from $170 million anticipated earlier.

The company expects deflationary food costs, excluding traditional chicken wings. Notably, traditional chicken wings prices are likely to be significantly higher than estimated due to high demand and supply disruption.

2017 View

During 2017, the company anticipates to open approximately 30–35 company-owned Buffalo Wild Wings restaurants in the U.S., 15 franchised Buffalo Wild Wings locations in the U.S., nearly 20–25 franchised Buffalo Wild Wing locations internationally along with five company-owned and 10 franchised R Taco restaurants.

Zacks Rank & Stocks to Consider

Buffalo Wild Wings has a Zacks Rank #3 (Hold). Better-ranked stocks in this sector include Domino's Pizza, Inc. (DPZ - Free Report) , Wingstop Inc. (WING - Free Report) and Potbelly Corporation (PBPB - Free Report) . All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Domino’s 2016 earnings moved up 2.4% over the last 60 days. Meanwhile, for full-year 2016, EPS is expected to improve 22.8%.

Wingstop posted positive earnings surprises in all of the last four quarters, with an average beat of 15.46%. Further, for 2016, EPS is expected to grow 18.1%.

Potbelly’s trailing four-quarter average earnings surprise is a positive 11.81%. For 2016, the company’s EPS is expected to increase 26.7%.

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