BWLD Buffalo Wild Wings, Inc. (delisted)

Buffalo Wild Wings Inc (BWLD), a casual dining restaurant and sports bar franchise in the United States renowned for its Buffalo wings, exited fiscal 2011 on a positive note on the back of strong top-line growth and unit growth. The Minneapolis, Minnesota-based company’s fourth quarter earnings of 73 cents per share, surpassed the Zacks Consensus Estimate of 67 cents per share and also jumped 32.7% from the year-ago quarter earnings of 55 cents per share.

Buffalo Wild Wings also affirmed its fiscal 2012 outlook of unit growth target of 12% and net earnings growth of 20% for 2012. The market reaction was mostly positive as judged from the response of analysts covering Buffalo Wild Wings.

Highlights from the quarter

During the fourth quarter, the restaurant operator reported total revenue of $220.5 million, which increased 34.5% year over year and also outperformed the Zacks Consensus Estimate of $210.0 million.

Sales at the company-operated restaurants rose 36.4% to $202.9 million and franchise royalties and fees grew 15.3% year over year to $17.5 million. Same-store sales spiked 8.9% and 5.9% at the company-operated restaurants and franchised restaurants, respectively.

Restaurant operating margin expanded 10 basis points (bps) to 19.3%, aided by a 10-bp drop in operating costs to 15.5% (as a percentage of restaurant sales), a 60-bp fall in operating costs to 5.9% and flat labor cost to 29.9, partially offset by a 60-bp hike in cost of sales to 29.4%.

(Read our full coverage on this earnings report: BUFFALO WILD WINGS’ 4Q RESULTS BEAT)

Agreement of Estimate Revisions

Revision trends in the last 7 days were skewed toward the positive side. Out of the 16 analysts covering the stock in the last 7 days, 12 analysts raised the estimate for the first quarter of 2012, while one revised the estimates downward for the same period. Likewise, for fiscal 2012, all the 12 analysts covering the stock raised their estimates and none reduced the same. For fiscal 2013, 5 out of the 15 analysts increased their estimates but none moved in the opposite direction.

Positive revisions are primarily based on the solid fourth quarter results, continuous expansion and upside in comparable restaurant sales. Comparable sales grew 12.9% and 10.8% at the company-operated restaurants and franchised restaurants, respectively, during the first six-week period of the first quarter of 2012.

However, for the second quarter of 2012, estimates manifest a mixed view with 7 (out 16 analysts) downward movements and 6 positive revisions over the last 7 days. The bearish sentiment appears to indicate the tough wing cost comparison for 2012.

Magnitude of Estimate Revisions

The magnitude of estimate revisions for Buffalo Wild Wings has been quite significant over the last 7 days. Following the release of fourth quarter results, estimates for first quarter 2012, fiscal 2012 and fiscal 2013 have enhanced 5 cents, 9 cents and 13 cents to 92 cents, $3.28 and $3.90, respectively. However, given the mixed revision trend, estimate for the second quarter has remained unchanged at 63 cents over the last 7 days.

Our Recommendation

We remain encouraged by the company’s long and successful track record, viable business strategy and debt-free balance sheet. Moreover, the company provides ample growth opportunities given its plan of opening 1,000 restaurants in the United States by 2013 and 50 in Canada by 2015. Additionally, the company is also on the look out for expansion opportunities in other international markets like United Kingdom and Middle East.

Same-store sales also remain impressive driven by menu price increases, solid national media, strong football season, marketing spending and operating enhancements. Furthermore, the company is able to attract customer through radio, digital and social media. To increase customer visitation, Buffalo Wild Wings continues to focus on Happy Hour and draft beer sales, gift card sales, remodeling of restaurant, shutting down of underperforming restaurants and new menu offerings. The company is also set to roll-out new online ordering system to boost customer visitation.

However, we remain cautious on the stock as wing costs could emerge as a major headwind for 2012, hampering the profitability of the company. Furthermore, an uncertain economic environment and fierce competition from other casual dining operators like Red Robin Gourmet Burgers Inc (RRGB) wooing budget-constrained customers, might weigh on the company’s results.

Accordingly, the company holds a Zacks #3 Rank, which translates into a short-term Hold rating. Our long-term recommendation for the stock remains Neutral.

About Earnings Estimate Scorecard

Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/

 
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