Buffalo Wild Wings' 4Q Results Beat

Buffalo Wild Wings Inc.’s (BWLD - Analyst Report) the owner, operator, and franchiser of restaurants reported solid fourth quarter 2011 results and reaffirmed its outlook, leading to share upside of nearly 2% in the regular session, but surging 15% in after-hours trading.

The restaurant operator reported fourth quarter earnings of 73 cents per share, surpassing the Zacks Consensus Estimate of 67 cents per share and also jumping 32.7% from the year-ago quarter earnings of 55 cents per share. The better-than-expected results were driven chiefly by strong top-line growth and unit growth.

Total revenue soared 34.5% year over year to $220.5 million and outperformed the Zacks Consensus Estimate of $210.0 million. Sales at the company-operated restaurants rose 36.4% to $202.9 million, fueled by 60 new restaurants going into operation at the end of the quarter compared with the prior-year quarter and higher same-store sales.

In full year 2011, the company reported earnings of $50.4 million, or $2.73 per share, versus $38.4 million, or $2.10 per share, in the prior year. Total revenue grew 28% to $784.5 million.

Quarter Performance

Franchise royalties and fees grew 15.3% year over year to $17.5 million, propelled by 25 additional restaurants in operation at the end of the quarter compared with the year-ago quarter and an improvement in comps. Same-store sales spiked 8.9% and 5.9% at the company-operated restaurants and franchised restaurants, respectively.

Average weekly sales at the company-operated restaurants and franchised restaurants increased 14.0% and 7.1%, respectively, from the prior-year quarter to $51,983 and $53,385.

The Minneapolis, Minnesota-based company’s restaurant operating margin expanded 10 basis points (bp) 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%.

Store Update

During the quarter, Buffalo Wild Wings opened 18 new company-owned restaurants in North America and purchased 15 franchised locations. The company also closed 2 company-owned locations. Buffalo Wild Wings currently operates 319 company-owned restaurants and 498 franchised restaurants.

In the first quarter of 2012, the company plans to open around 10 company-owned restaurants in North America, which includes one location in Toronto. The franchisees are also expected to open another 10 restaurants during the quarter.

Financial Position

Buffalo Wild Wings ended 2011 with cash and cash equivalents of $20.5 million and shareholders’ equity of $318.0 million. 

Outlook

Management witnessed comparable sales growth of 12.9% and 10.8% at the company-operated restaurants and franchised restaurants, respectively, for the first six-week period of the first quarter of 2012, indicating positive signals for the upcoming quarter. The company is also undertaking various initiatives like menu innovations, remodeling of restaurants, marketing investment and media spending to attract customers. Additionally to drive traffic, the company will also begin online ordering facility.

Moreover, management continues to remain optimistic for 2012 based on unit and sales growth and a benefit of an extra week of operation. The company reaffirmed its unit growth target of 12% and net earnings growth of 20% for 2012.

Our Take

We remain encouraged by the company’s long and successful track record, viable business strategy and debt-free balance sheet. The company is also on track to achieve 12% unit and 20% net earnings growth for fiscal 2012. 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.

However, we remain cautious on the stock based on soaring wing  prices, lower consumer spending and intense competition among casual dining restaurants with respect to price, service, location and concept in order to drive traffic.

Hence, the company holds a Zacks #3 Rank, which implies a short-term Hold rating on the stock. We also reiterate our long-term Neutral recommendation.

One of Buffalo Wild Wings’ primary competitors, BJ’s Restaurants, Inc. (BJRI - Analyst Report) is slated to release its fourth quarter results on February 8, 2012.  It’s other peer company Chipotle Mexican Grill Inc. (CMG - Analyst Report) reported fourth-quarter 2011 earnings of $1.81 per share, missing the Zacks Consensus Estimate by 2 cents but improving from the year-earlier earnings of $1.47.

Read the full analyst report on CMG

Read the full analyst report on BWLD

Read the full analyst report on BJRI