On May 23, 2014, we issued an updated research report on Buffalo Wild Wings Inc. (BWLD).
On Apr 28, this restaurant chain posted solid first quarter 2014 results with earnings and revenue beating the Zacks Consensus Estimate. Driven by the better-than-expected results, the company increased its financial outlook for 2014. The company forecasts earnings to increase 25.0% year over year, higher than the prior expectation of 20.0%.
Adjusted earnings of $1.49 were up year over year driven by solid top-line growth and lower cost of sales. Moreover, total revenue increased 20.9% year over year, thanks to strong comps and new unit openings. Buffalo Wild Wings registered company-owned comps growth of 6.6% owing to the shift of Easter to the second quarter of 2014 and the National Collegiate Athletic Association (NCAA) tournament that drove traffic to the restaurants. The company has been consistently posting positive comps for the past two years.
Buffalo Wild Wings’ cost of sales ratio improved in the first quarter, benefiting from lower wing costs. The restaurateur’s initiative to serve wings by portion helped lower the cost of sales ratio. In 2013, Buffalo Wild Wings successfully changed its traditional way of menu serving. The company now serves its boneless wings based on weight, rather than by the number of wings.
Owing to the continuous shift in sales mix to boneless wings, the company’s operating margin is improving. The company expects to benefit from this strategy in the second quarter of the year also.
Buffalo Wild Wings started the ‘guest experience business model’ in Jul 2013 to increase traffic. Under the model, the company is installing tablets in all of its restaurants to provide exclusive social gaming opportunities to each customer.
Apart from this, the company also stresses on advertising initiatives, installing new point-of-sales programs, improving supply chain management, remodeling initiatives and its loyalty program to augment sales. Further, we are encouraged by the company’s strong market standing, new menu launches and increased media exposure.
Also, its association with the NCAA increases its visibility as a brand. The company’s three-year collaboration with NCAA has allowed it to be an authorized hangout for the NCAA March Madness sport series. The company plans to spend on promotions and encourage sports enthusiasts to watch the 2014 FIFA World Cup tournament at its restaurants. We believe these initiatives will contribute robustly to Buffalo Wild Wings’ business in the near future.
Over the last 30 days, estimates for 2014 and 2015 of this Zacks Rank #1 (Strong Buy) company largely moved up, driven by strong results and an improved outlook for the year.
Other players in the restaurant industry, which look attractive at current levels, include Burger King Worldwide, Inc. (BKW), Carrols Restaurant Group, Inc. (TAST) and Denny's Corp. (DENN). All these stocks carry a Zacks Rank #2 (Buy).
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