Buffalo Wild Wings Misses Estimate

Buffalo Wild Wings, Inc. (BWLD: 42.94 -5.46 -11.28%), best known for its chicken wings and sports bar, sustained its growth momentum in the fourth-quarter of 2009. Despite economic conditions and lower consumer discretionary spending, the company reaffirmed its growth target of 13% to 15% in units and 20% in net earnings for fiscal year 2010.
 
However, the Minneapolis-based company missed the Zacks Consensus Estimate of 51 cents a share, hurt by higher expenses, sending shares down 13% in pre-market trading.
 
The quarterly earnings of 46 cents a share have underperformed the Zacks Consensus Estimate by 9.8%. In the preceding three quarters in fiscal year 2009, earnings had outperformed the Zacks Consensus Estimate in the first and second quarters by 2.2% and 14.7%, respectively, and had remained in line with the Zacks Consensus Estimate in the third-quarter of 2009.
 
Buffalo Wild Wings, which competes with Red Robin Gourmet Burgers Inc. (RRGB: 19.93 +0.47 +2.42%) and BJ’s Restaurants Inc. (BJRI: 20.76 -0.40 -1.89%) in the casual dining segment, said that earnings for the quarter under review climbed 7% from 43 cents delivered in the prior-year quarter, helped by a double-digit rise in the top-line. Total revenue climbed 19.6% to $145 million.
 
Sales at company-operated restaurants rose 19.5% to $131.2 million, fueled by a comparable-store sales increase of 2.6% and 35 additional restaurants in operation at the end of the quarter, compared to the prior-year quarter. Franchise royalties and fees grew 21.1% to $13.8 million propelled by a 2% increase in comps, and 57 additional restaurants in operation at the end of the quarter compared to the year-ago quarter.

The growth in comps sustained in the first six weeks of first-quarter 2010 increased by about 0.5% at company-operated restaurants and nearly 1% at franchised restaurants.

Restaurant operating cash flow margin shrank 90 basis points (bps) to 17.8% hurt by a 100-bp rise in cost of sales to 30.3% due to an increase in cost of traditional wings, and a 20-bp expansion in operating costs to 16%, partially offset by a 10-bp fall in labor costs to 29.4%, and another 10-bp contraction in occupancy costs to 6.5%.
 
During the quarter, Buffalo Wild Wings opened 12 company-owned and 20 franchise restaurants, and expects to open 5 company-owned and 11 franchise restaurants in first-quarter 2010. The company plans to open 100 restaurants in fiscal year 2010, in line with its unit growth target of 13% to 15%.
 
During fiscal year 2009, the company was able to achieve its growth target of 15% in units, 25% in revenue, and 20% to 25% in net earnings. During the year, Buffalo Wild Wings opened 92 restaurants (35 company-owned and 57 franchised), reflecting a growth of 16.4%, which helped grow total revenue by 27.6% to $538.9 million, and in turn increased net earnings by 25.5% to $30.7 million.
 
The current Zacks Consensus Estimate for fiscal year 2010 is $2.13 per share, which reflects an increase of 26% from fiscal year 2009 earnings of $1.69. In the last 30 days, the Zacks Consensus Estimate has shown a marginal improvement of 0.9% with 3 out of 20 analysts covering the stock having raised their estimates, and one analyst having lowered his expectation.
 
Buffalo Wild Wings’ targets opening 1,000 units in the United States in the long run. With 658 restaurants currently, we think the concept has a lot of room to grow before covering the market. Televised sporting events and beer attract customers in most major markets, so we do not anticipate unique regional tastes to dampen sales as the company expands into new markets.
 
Buffalo Wild Wings ended fiscal year 2009, with cash and cash equivalents of $9.6 million and shareholders’ equity of $209.8 million. The company generated operating cash flow of $79.3 million during the year.