Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What's happening: Shares of Buffalo Wild Wings (BWLD) were down 14.2% as of 11:30 a.m. Wednesday after the restaurant chain reported weaker-than-expected first-quarter results.
Quarterly revenue rose 19.8% year over year to $440.6 million, helped by a combination of 53 new company-owned restaurants, 18 additional franchised locations, and same-store sales growth of 7% and 6% at company and franchised locations, respectively. That translated to 2.6% growth in net income to $29.1 million, or $1.52 per diluted share.
Analysts, on average, were expecting earnings of $1.63 per share on sales of $451.9 million.
Why it's happening: Even so, Buffalo Wild Wings CEO Sally Smith insisted the company is "pleased" with the results, stating, "Sales were exceptionally strong during the college football bowl games as well as the NFL Playoffs."
But Smith also elaborated that earnings were held back by expected increases in both cost of sales and labor. To be sure, Buffalo Wild Wings had previously warned of increasing labor costs due to rising minimum wages in several states, as well as the recently completed rollout of higher-paid "Guest Experience Captains" at all company-owned locations. In addition, the price per pound for traditional chicken wings rose 41% over the year-ago period, though Smith noted that was compared to the "prior year's unusually low price."
As I pointed out in my full earnings take last evening, however, remember Buffalo Wild Wings told investors last quarter it entered into modified pricing agreements for about two-thirds of its traditional wing supply, which should narrow the price range it pays when wings are at historically high and low prices. Those agreements were set to go into effect this month.
Sure enough, Buffalo Wild Wings CFO Mary Twinem stated in last night's conference call that it is their "belief that wing prices are going to moderate as we go through the year, [and] it is a year where the third and fourth quarters are really where our net income growth is accomplished." Combined with its current strength in same-store sales, which have increased 4.2% and 1.8% at company-owned and franchised locations, respectively, in the second quarter so far, Buffalo Wild Wings continues to expect net earnings growth of 18% for the full year 2015.
All things considered, it seems analysts were the ones who missed the mark. So contrary to what Buffalo Wild Wings' plunge seems to indicate, this business appears to be as strong as ever.
