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Minneapolis, Minnesota-based Buffalo Wild Wings Inc.(BWLD - Analyst Report) recently reported second quarter 2012 earnings of 62 cents per share, well below the Zacks Consensus Estimate of 68 cents per share but above the year-ago quarter earnings of 58 cents per share. The lower-than-expected result was attributed to a spike in wing costs.
Total revenue climbed 29.7% year over year to $238.7 million, but missed the Zacks Consensus Estimate of $240.0 million. Sales at company-operated restaurants spiked 31.4% to $220.6 million, fueled by the opening of 53 new restaurants during the quarter compared with the prior-year quarter and higher same-store sales.
Franchise royalties and fees jumped 12.1% year over year to $18.2 million, thanks to 13 additional restaurants in operation at the end of the quarter compared with the year-ago quarter and an improvement in comps. Same-store sales escalated 5.3% and 5.5% at company-operated restaurants and franchised restaurants, respectively.
Average weekly sales at both company-operated restaurants and franchised restaurants increased 7.4% year over year, to $51,524 and $54,766, respectively.
Restaurant operating margin contracted 340 basis points (bps) to 17.5%, aided by a 440-bp hike in cost of sales to 31.6%, arising from an 86% surge in traditional wings, partially offset by a 20-bp drop in operating costs to 14.7% (as a percentage of restaurant sales) and 40-bp fall in both occupancy costs and labor cost to 5.9% to 30.2%, respectively.
During the quarter, Buffalo Wild Wings opened 3 new company-owned restaurants but no franchised restaurants were opened. Buffalo Wild Wings currently operates 330 company-owned restaurants and 505 franchised restaurants.
In the third quarter of 2012, the company plans to purchase 9 franchised locations and open more than 70 new company-owned and franchised locations before the end of 2012. The casual dining chain also remains focused on developing its international base. Apart from venturing in Canada, the company has also inked two deals of Middle East and Puerto Rico to further expand its footprints.
Buffalo Wild Wings ended the quarter with cash and cash equivalents of $23.2 million and shareholders’ equity of $350.4 million.
Management witnessed comparable sales growth of 6.8% and 7.3% at company-operated restaurants and franchised restaurants, respectively, for the first four-week period of the third quarter of 2012, which is encouraging for the upcoming quarter. The company is also undertaking various initiatives like menu innovations, remodeling of restaurants, marketing investment and media spending to attract customers. However, higher chicken wing prices will continue to be a headwind in the upcoming quarter, partially offset by menu price increases and minimization of expenses at restaurants. Thus, margins will continue to struggle in the second half of 2012. Hence, for 2012, the company trimmed its net earnings growth projection to 15%-20% from 20%.
The company’s second quarter 2012 results were below expectation and it also reduced its earnings growth outlook for 2012. This was quite discouraging and therefore, we expect the estimates to go down in the coming days. The Zacks Consensus Estimates for 2012 and 2013 are pegged at $3.27 and $3.28.
Buffalo Wild Wings currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock. As a point of reference, one of Buffalo Wild Wings’ primary competitors Chipotle Mexican Grill Inc. (CMG - Analyst Report) recently reported second-quarter 2012 earnings of $2.56 per share, comfortably ahead of the Zacks Consensus Estimate of $2.30 as well as the year-earlier earnings of $1.59 per share.