After beating the Zacks Consensus Estimate over the past few quarters, Buffalo Wild Wings Inc.’s (BWLD) fourth quarter 2014 earnings missed the consensus mark. However, revenues continued to beat estimates.
Despite the earnings miss, the share price of this leading sports bar restaurant gained 5.6% in aftermarket trading. Comps in the first five weeks of the first quarter were far better than the comparable period last year. This possibly boosted investor confidence.
Adjusted earnings of $1.07 per share in the fourth quarter missed the Zacks Consensus Estimate of $1.09 by 1.8 and fell 2.7% year over year. The downside reflects higher food and labor costs.
Buffalo Wild Wings is a leader in the sports bar segment. Total revenue increased approximately 20% year over year to $408.9 million and beat the Zacks Consensus Estimate of $405.0 million by approximately 1%. The upside in revenues reflects decent comps and unit expansion.
Behind the Headline Numbers
Buffalo Wild Wings keeps its guests engaged during major sporting events like the NFL playoffs, college football bowl games, and college basketball through promotional activities. During the quarter, restaurant sales amounted to $384.4 million, up 20% year over year, driven by unit expansion and comps growth. Buffalo Wild Wings registered company-owned comps growth of 5.9% marginally lower than the prior quarter comps growth of 6% and better than the year-ago comps growth of 5.2%.
Franchise royalties and fees increased 13% year over year to $24.5 million, thanks to unit expansion and comps growth. Comps growth at franchise locations was 5.1%, lower than the prior quarter comps growth of 5.7%. However, it was far better the year-ago comps growth of 3.1%.
Buffalo Wild Wings' cost of sales, as a percentage of revenues, increased 80 basis points (bps) to 30.6%, due to a 16% year-over-year increase in chicken wing costs. The company’s cost of labor, as a percentage of revenues, increased 110 bps to 31.1% due to expansion in states with higher wage rates and from staffing of all company-owned restaurants with Guest Experience Captains.
General and administrative (G&A) expenses increased 20% year over year and were also higher than the company’s expectations due to higher bonus accruals, IT projects and expenses related to the acquisition of franchised locations.
Year to Date Comps Update
For the first five weeks of 2015, comps at company-owned restaurants and franchised locations increased 11.9% and 11.1%, respectively. This compared favorably with comps growth of 4.8% at company-owned restaurants and 2.1% at franchised locations in the year-ago period. The upside reflects improved guest traffic due to college bowl games, including the Buffalo Wild Wings Citrus Bowl and the national championship game.
Full Year Results
Earnings in 2014 were $4.95, up 30.6% year over year. It beat the Zacks Consensus Estimate of $4.98 by 0.6% and also exceeded the company’s expectation of earnings growth of 28% year over year. Revenues came in at $1.52 billion, up approximately 20% year over year and marginally beat the consensus mark.
Costs Guidance for First Quarter 2015
Owing to the recruitment of Guest Experience Captains at all company-owned restaurants, higher hourly wage rates and expected labor inefficiencies at newly acquired and opened restaurants, the company expects labor costs to be up 50 bps year over year in the first quarter of the year 2015. Excluding stock-based compensation, G&A expenses are expected in the range of $28 million to $29 million in the first quarter.
Guidance for 2015 Maintained
Given the pace of unit expansion, sales initiatives and operational efforts, the company expects earnings to increase 18% year over year in 2015. The Zacks Consensus Estimate currently reflects year-over-year growth of approximately 19.6%.
The company presently has a Zacks Rank #2 (Buy).
Other Stocks to Consider
Investors interested in the restaurant industry can also consider Ignite Restaurant Group, Inc. (IRG), Kona Grill Inc. (KONA) and Bloomin' Brands, Inc. (BLMN). While Ignite Restaurant Group and Kona Grill sport a Zacks Rank #1 (Strong Buy), Bloomin' Brands carries a Zacks Rank #2 (Buy).
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