Buffalo Wild Wings Inc. (BWLD) posted mixed fourth quarter results. Adjusted earnings of $1.10 per share for the fourth quarter beat the Zacks Consensus Estimate of $1.06 by 3.8% and grew 23.6% year over year. A year-over-year increase in top line and lower cost of sales backed the earnings upside.
Total revenue increased 12.4% year over year to $341.5 million driven by comps and new unit openings. However, the top line missed the Zacks Consensus Estimate of $345.0 million by 1.0%.
Behind the Headline Numbers
During the fourth quarter, sales at company-owned restaurants were $319.8 million, up 13.1% year over year, driven by company-owned unit expansion and comps growth.
Buffalo Wild Wings, which is popular among sports fans for its dine-and-watch games facility, registered company-owned comps growth of 5.2%, lower than 5.8% in the year-ago quarter but better than 4.8% in the previous quarter. Comps growth was driven by menu price increases. Opening of 14 Stadia restaurants also contributed to comps.
Franchise royalties and fees increased 2.7% year over year to $21.7 million, led by 49 new restaurants at quarter-end and 3.1% rise in franchise same-store sales.
Buffalo Wild Wings’ cost of sales, as a percentage of revenues, declined 220 basis points (bps) to 29.8% in the fourth quarter, benefiting from lower wing costs. The restaurateur’s initiative to serve wings by portion also helped lower cost of sales ratio.
The price of chicken wings started to ease from the beginning of the second quarter. Traditional wing prices were $1.64 per pound in the fourth quarter, down 21.0% year over year.
Excluding stock-based compensation, general and administrative (G&A) expenses were flat year over year at $22.4 million. However, it was above management’s expectation due to higher trainings costs.
Buffalo Wild Wings’ operating margin expanded 100 bps to 8.7%, driven by top-line growth and cost control initiatives.
Full Year 2013 Highlights
Adjusted earnings per share in full year 2013 were up 23.9% year over year to $3.79 per share, beating the Zacks Consensus Estimate of $3.76 by 0.8%. The year-over-year increase was above management’s expectation of a 20.0% increase. Revenues were $1.27 billion, up 21.7% year over year. However, it missed the Zacks Consensus Estimate by a marginal 0.31%.
Outlook
The company continues to expect net earnings growth of 20% in 2014 driven by comps momentum and continued operational efficiency.
For the first five weeks of first quarter 2014, comps growth was 4.8% better than a decline of 0.2% in the year-ago period. Comps growth was 2.1% at franchised locations in the first five weeks of 2014 compared with growth of 1.0% in the same period last year.
Excluding stock-based compensation, the company expects to incur G&A expenses in the range of $23.0 million to $24.0 million in the first quarter of 2014.
Our Take
As in the third quarter, Buffalo Wild Wings’ earnings in the fourth quarter succeeded in beating the Zacks Consensus Estimate and were up year over year. Though the top line marginally missed our expectation, it increased year over year. We are encouraged by the company’s strong market standing, new menu launches, unit expansion and increased media exposure. Moreover, Buffalo Wild Wings’ association with NCAA will increase its visibility as a brand and attract customers through digital and social media platforms.
In first quarter 2014, management indicated that all major sporting events are scheduled the same way as in the year-ago period with the addition of Winter Olympics. This would likely keep the guests engaged at the outlets, thereby improving guest traffic.
The company presently has a Zacks Rank #2 (Buy). Some other stocks worth considering in the restaurant industry include Fiesta Restaurant Group, Inc. (FRGI), Jack in the Box Inc. (JACK), Brinker International, Inc. (EAT). While Fiesta Restaurant sports a Zacks Rank #1 (Strong Buy), Jack in the Box and Brinker International carry a Zacks Rank #2.
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