Shares of Buffalo Wild Wings Inc. (BWLD - Free Report) declined nearly 5% in after-hours trading on Feb 7 after the company reported lower-than-expected fourth-quarter 2016 results. The dismal performance was due to the prevailing challenges in the restaurant space.
Adjusted earnings of 87 cents per share plunged 34.1% year over year and came below the Zacks Consensus Estimate of $1.23 by 29.3%.
Total revenue increased a mere 0.8% to $494.2 million on the back of higher restaurant sales, partially offset by lower franchise royalties and fees. However, revenues missed the consensus mark of $515 million by over 4%.
Performance in Detail
During the quarter, company-owned restaurant sales inched up 0.9% year over year to $470.5 million. The upside was driven by the opening of 31 additional Buffalo Wild Wings outlets, partially offset by lower comps growth.
Company-owned comps dipped 4% against a comps decline of 1.8% in the previous quarter. In the year-ago quarter, company-owned comps grew 1.9%.
Franchise royalties and fees decreased 0.4% year over year to $23.7 million owing to lower comps growth. Comps declined 3.9% and compared unfavorably with a comps decline of 1.6% in the last quarter. Conversely, the company had registered comps growth of 0.1% in the year-ago quarter.
Buffalo Wild Wings' cost of sales, as a percentage of restaurant sales, increased 160 basis points (bps) to 31.1% due to a 9.9% year-over-year increase in traditional wing pricing. The company’s cost of labor, as a percentage of restaurant sales, also increased 90 bps to 31.8%.
Restaurant operating expenses, as a percentage of restaurant sales, were 15.7%. This reflects a 30 bps increase from the prior-year quarter due to a rise in insurance, repairs and maintenance costs.
Buffalo Wild Wings’ full-year adjusted earnings of $5.12 per share missed the Zacks Consensus Estimate of $5.47 by 6.4%. Nonetheless, it increased 3% from the year-ago quarter figure of $4.97 on the back of share repurchase activity.
Full-year revenues of nearly $2 billion slightly missed the Zacks Consensus Estimate of $2.01 billion, but increased 9.6% year over year.
A Peek into the First Quarter of 2017
Menu price increases and adjustments made in the last 12 months are expected to add 0.8% to the pricing in the first quarter. The company expects to open three company-owned Buffalo Wild Wings restaurants in the quarter, with two of them already opened. Notably, the company had in comparison opened seven new company-owned Buffalo Wild Wings locations in first-quarter 2016.
Meanwhile, cost for traditional chicken wings for the first two months of first quarter remains elevated and is averaging $2.02 per pound. The average cost in first-quarter 2016 was $1.97 per pound.
For 2017, the company expects earnings per share to be in the range of $5.60 to $6.00. The Zacks Consensus Estimate for 2017 earnings is currently pegged at $6.44. Meanwhile, comps are anticipated to grow in the range of 1–2%.
During 2017, the company also anticipates opening approximately 15 company-owned and Buffalo Wild Wings restaurants in the U.S. along with 15 franchised Buffalo Wild Wings locations in the U.S., 20 franchised Buffalo Wild Wing locations internationally as well as two company-owned and 12 to 15 franchised R Taco restaurants.
Further, Buffalo Wild Wings expects restaurant-level margin improvement of 10–30 bps. However, traditional chicken wing prices are expected to rise in the range of 3.5% to 4.5%. In the meantime, it expects to incur capital expenditure of approximately $100 million during the year.
Zacks Rank & Stocks to Consider
Buffalo Wild Wings has a Zacks Rank #3 (Hold). Better-ranked stocks in this sector include Dave & Buster's Entertainment, Inc. (PLAY - Free Report) , Wingstop Inc. (WING - Free Report) and Papa John's International Inc. (PZZA - Free Report) . While Dave & Buster's sports a Zacks Rank #1 (Strong Buy), Wingstop and Papa John's carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Dave & Buster's fiscal 2017 earnings climbed nearly 1% over the past 60 days. The company’s earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, with an average beat of 37.81%.
Wingstop’s posted positive earnings surprise in each of the last four quarters, with an average beat of 11.99%. Meanwhile, for 2016, EPS is expected to improve 21.3%.
Papa John’s earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, with an average beat of 11.31%. Further, for 2016, EPS is expected to grow 20.9%.
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