The casual dining restaurant chain, Buffalo Wild Wings Inc.’s (BWLD - Analyst Report) first-quarter 2013 earnings of 87 cents per share missed the Zacks Consensus Estimate of 99 cents per share by 12.1% and the comparable year-ago quarter’s earnings by 11.2%.
Earnings in the quarter were under pressure due to growing wing prices, inconsistent wing yields and higher cost incurred due to the launch of new Guest Experience model.
Total revenue climbed 21.2% year over year to $304.4 million, slightly below the Zacks Consensus Estimate of $305 million. Quarterly revenues were driven by higher guest count and unit expansion.
Behind the Headline Number
During the first quarter, sales at the company-operated restaurants surged 22.4% to $284.4 million, fueled by new unit openings as well as higher comps. Amid sluggish industry sales, Buffalo Wild Wings has succeeded to register positive same-store sales of 1.4% at its company-owned restaurants. However, it was far below the year-ago quarter’s same-store sales growth of 9.2%.
The restaurant chain is popular among sports fans for its dine-and-watch-games facility. The time shift of the National Football League has, therefore, adversely impacted the company’s same-store sales during the quarter.
Franchise royalties and fees jumped 6.0% year over year to $19.9 million, thanks to nine additional restaurants in operation by the end of the quarter and a 2.2% improvement in same-store sales.
Buffalo Wild Wings’ operating margin contracted 350 basis points (bps) to 7.2% as its cost of sales, labor costs and operating expenses went up 160 bps, 80 bps and 40 bps to 32.7%, 30.2% and 14.5%, respectively. The introduction of new sales-driven Guest Experience model has also pulled down the margin during the quarter through raising costs.
During the quarter, Buffalo Wild Wings opened 16 new company-owned restaurants and four franchised restaurants. The company currently operates 397 company-owned restaurants and 514 franchised restaurants.
In the second quarter of 2013, Buffalo Wild Wings plans to introduce nine new company-owned restaurants in North America. The company also expects to launch 12 franchised units in the quarter.
Management expects comparable sales (comps) growth of 5.2% and 5.8% at the company-operated restaurants and franchised restaurants, respectively, for the first four-week period of the second quarter of 2013.
Buffalo Wild Wings is undertaking various initiatives like menu as well as technological innovations, restaurant upgradation and boosting advertising spending. With its multi-year agreement with National Collegiate Athletic Association (NCAA), the company will focus more on its marketing and promotion to attract customers.
In order to augment its profit, Buffalo Wild Wings is also trying to diligently reduce its labor cost. Moreover, moderated wings cost is expected to be beneficial for Buffalo Wild Wings’ margin. Taking these into account, the company now expects net earnings growth of 25% in 2013, higher than the prior-year growth of 17%.
Minneapolis, MN-based Buffalo Wild Wings continues to struggle in terms of profit due to higher wings costs. In addition to this, the restaurant chain is witnessing declining comps due to weak industry sales. Stiff competition and a tepid macroeconomic outlook, which might affect footfall at the restaurants, are expected to remain headwinds in the coming quarters.
However, the company’s top-line growth and unit expansion is quite impressive. Moreover, Buffalo Wild Wings’ expectation of a 25% net earnings growth in 2013 even after a soft first-quarter brings a ray of hope for this Zacks Rank #2 (Buy) stock.
Some other restaurateurs like McDonald’s Corp. (MCD - Analyst Report) missed our estimates on both lines this season while Yum! Brands Inc. (YUM - Analyst Report) beat earnings but missed out on revenues. Another company, The Cheesecake Factory Inc. (CAKE - Analyst Report) was ahead of the estimates on both counts.