2 Reasons to Worry about Buffalo Wild Wings

Buffalo Wild Wings (NASDAQ: BWLD  ) just reported earnings for the fourth quarter, updating investors on its business performance. And the headline numbers offered some good news for shareholders.

Namely, the sports-themed restaurant was able to boost revenue by 38%, as same-store sales rose 5.8%. That comparable-sales rise puts B-Dubs at the top of an elite list, besting Chipotle's 3.8%, Yum! Brands' 5%, and even Panera's 5.1% growth in the quarter.

But the results weren't all great. B-Dubs' earnings also highlighted two issues that I think investors should keep an eye on.

Margins: It's all about the chicken
First, wing prices took flight again in the quarter. Chicken wings cost the company $2.07 per pound, a full 70% higher than last year. That pushed its cost of sales to 32%, or 2.6 percentage points higher than the year-ago quarter. Sure, that's not as bad as Chipotle's 33.5% cost outlay, but the spike confirms just how vulnerable Wild Wings is to huge swings in the price of just one input. The company purchases wings at market prices, and so wing costs always threaten to pinch margins in any given year.

Revenue: It's all about game day
Second, a quirk in this year's sports schedule has put a crimp on expected first-quarter sales. CEO Sally Smith explained how the different timing of this season's college and NFL football games makes the company's same-store sales "challenging to interpret." Sales so far in the quarter are tracking down, by 2.8% at company-owned restaurants and by 1.7% at franchised locations. But, Smith said, "If we calculate our same-store sales to align the timing of the college and NFL football seasons for both years, we estimate our same-store sales would be [up] 2.6% at our company-owned restaurants and 1.6% at franchised locations."

It makes some sense to look at an apples-to-apples comparison like that. And one-time events that shift revenue into different quarters are no big deal. But that level of sensitivity to sporting events is risky. Most restaurants have to deal with weather and seasonality as tricky variables that can make for unpredictable results. But B-Dubs also has the formidable sports calendar to contend with.

Bottom line
Buffalo Wild Wings is one of the fastest-growing restaurants in the sector. And the company aims to keep that momentum going by opening 14 new locations this quarter, as compared to the 10 it opened in the first quarter of last year. Still, investors should keep an eye on the special risks that come with operating in a wings-based, sports-centered business.

Is Chipotle a better alternative?
Chipotle's stock has been on an absolute tear since the company went public in 2006. Unfortunately, 2012 hasn't been kind to Chipotle's stock, as investors question whether its growth has come to an end. Fool analyst Jason Moser's new premium research report analyzes the burrito maker's situation and answers the question investors are asking: Can Chipotle still grow? If you own or are considering owning shares in Chipotle, you'll want to click here now and get started! 


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