BJRI BJs Restaurants Inc

Buffalo Wild Wings Inc.’s (BWLD) second quarter 2011 earnings of 58 cents per share missed the Zacks Consensus Estimate of 60 cents per share, but increased 16.0% from 50 cents per share reported in the prior-year quarter. The lower-than-expected results were due to an increase in general and administrative expenses resulting from higher store openings in new markets. However, year-over- year results were driven by higher same-store sales growth and lower wing costs.

Total revenue climbed 26.4% year over year to $184.1 million and outperformed the Zacks Consensus Estimate of $177.0 million. Sales at company-operated restaurants rose 27.6% to $167.9 million, fueled by 43 new restaurants going into operation at the end of the quarter compared with the prior-year quarter and higher same-store sales.

Franchise royalties and fees grew 14.4% year over year to $16.2 million, propelled by 45 additional restaurants in operation at the end of the quarter compared with the year-ago quarter and an improvement in comps. Same-store sales spiked 5.9% and 2.7% at company-operated restaurants and franchised restaurants, respectively.

Average weekly sales at company-operated restaurants and franchised restaurants jumped 11.5% and 4.0%, respectively, from the prior-year quarter to $47,970 and $50,995.

The Minneapolis, Minnesota-based company’s restaurant operating margin expanded 280 basis points (bp) to 20.9%, aided by a 140-bp contraction in cost of sales to 27.2% (as a percentage of restaurant sales) arising from a 32% fall in cost of traditional wings, 120-bp drop in operating costs to 14.9% and a 40-bp dip in occupancy costs to 6.3%.

During the quarter, Buffalo Wild Wings opened 14 new company-owned restaurants and 4 franchise restaurants, including the opening of its first restaurant in Toronto.

Financial Position

Buffalo Wild Wings ended the quarter with cash and cash equivalents of $37.8 million and shareholders’ equity of $288.7 million.

Outlook

Buffalo Wild Wings plan to open 29 company-owned restaurants in the domestic market and 3 in Canada as well as 37 franchised restaurants in the second half of 2011 in order to achieve its unit growth target of 13% for fiscal 2011.

Management anticipates comparable sales growth of 4.9% and 3.0% at company-operated restaurants and franchised restaurants, respectively, for the first four- week period of the third quarter of 2011, indicating positive signals for the coming quarter.

The company is undertaking various initiatives like menu innovations, remodeling of restaurants, marketing investment and media spending to attract customers for the upcoming football season and Tablegating. In the first half of 2011, Buffalo Wild Wings achieved net earnings growth of over 29% and expects to attain more than 20% in 2011 with NFL season intact and continous momentum in same-store sales growth along with margin expansion.

Our Take

We remain encouraged by the company’s long and successful track record, a viable business strategy and a debt-free balance sheet. The company is also on track to achieve 13% unit and 20% net earnings growth in fiscal 2011. Moreover, the company provides ample growth opportunities given its intention of opening 1,000 restaurants in the United States by 2013 and 50 in Canada by 2015.

However, we remain cautious on the stock as consumer spending remains low and competition among casual dining restaurants remains fierce with respect to price, service, location and concept in order to drive traffic.

Hence, the company holds a Zacks #3 Rank, which implies a short-term Hold rating on the stock. We also reiterate our long-term Neutral recommendation.

One of Buffalo Wild Wings’ primary competitors, BJ’s Restaurants, Inc. (BJRI) reported second quarter 2011 adjusted earnings of 29 cents per share, surpassing the Zacks Consensus Estimate of 27 cents due to double-digit growth in the top line and strong comparable restaurant sales growth.

 
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