Secure your bibs, Buffalo Wild Wings (BWLD) investors, because your favorite wings, beer, and sports-centric restaurant chain is all set to announce second-quarter results this coming Tuesday.
Analysts expect Buffalo Wild Wings' revenue to increase 17.5% year over year to $429.9 million, and earnings per share to rise a more modest 1.6% over the same period to $1.27. But B-Dubs' business is about more than just revenue and earnings, so investors would be wise to dig deeper to understand exactly what's driving those results.
Here are four things I'll be watching when its report hits the wires.
1. On cost of sales and labor
First, when Buffalo Wild Wings fell short of earnings expectations last quarter, the company primarily blamed a combination of increases in both cost of labor and cost of sales.
To be fair, Buffalo Wild Wings expected to take hits on labor from minimum wage increases in several states, as well as from its investments to place higher-paid "Guest Experience Captains" at every company-owned location. But CFO Mary Twinem elaborated during the subsequent conference call that Buffalo Wild Wings underestimated its bonus and related payroll tax expenses during the quarter, leaving cost of labor as a percent of restaurant sales at a higher-than-expected 31.4%, up around 90 basis points from the same year-ago period.
Meanwhile, cost of sales last quarter rose 200 basis points to 30.3%, or above the company's stated target in the range of 29% to 30%. To blame here was a whopping 41% increase in the price for traditional wings at $1.92 per pound.
To B-Dubs' credit, however, that was up from uncharacteristically low wing prices in the prior year. And as of April, the company finally instituted modified pricing agreements for around two-thirds of its wing supply aimed at narrowing the price range Buffalo Wild Wings pays. Expect to hear detailed updates from Buffalo Wild Wings, then, on whether these costs are staying in check.
2. Plans for continued franchise acquisitions
Next, Buffalo Wild Wings announced in June it had exercised its right of first refusal to acquire 41 franchised restaurants for $160 million. Buffalo Wild Wings also told investors to expect the move to result in roughly $5 million in one-time expenses during the second quarter. But at the same time, the move will increase its company-owned store base by nearly 10%, and should go a long way toward Buffalo Wild Wings' efforts to achieve sustained, profitable growth for shareholders.
That said, the size of the transaction notwithstanding, this announcement shouldn't have come as a surprise: Last quarter, Twinem also told investors that Buffalo Wild Wings was picking up the pace with regard to franchise acquisitions. Expect to hear updates both on its past large purchases and hints of similar impending franchise acquisitions in this quarter's call.
3. New technology initiatives
Specifically on technology, it was mildly disappointing last quarter when Buffalo Wild Wings informed investors it would be tackling a two-market test for tablet menu ordering in the third quarter, leaving it behind its original schedule due to "additional development needs."
Considering tablet ordering could be a major driver of operating efficiencies among servers, while at the same time enhancing and streamlining the dining experience, I would love to hear updates on how the tablet ordering process is progressing.
4. Progress in the lunch daypart
Finally, just before its first-quarter report in April, Buffalo Wild Wings revealed its new "B-Dubs Fast Break" lunch menu to target lunch diners with limited time. The move was an obvious shot at fast-casual competitors like Chipotle and Panera Bread, where investors are flocking to find higher-quality food prepared in a reasonable amount of time at an affordable price -- all of which the B-Dubs Fast Break menu attempts to address.
The end goal here, of course, is to lessen Buffalo Wild Wings' dependence as a casual dining chain on the dinner, late night, and happy hour dayparts, which collectively comprised more than 80% of the past year's sales. In the end, if Buffalo Wild Wings can grab some of this low-hanging lunch fruit with the systemwide launch of B-Dubs Fast Break, the resulting incremental sales could be impressive.
