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The wing-centric restaurant chain outperformed its peers, but still fell short of expectations.
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Buffalo Wild Wings (BWLD +0.00%) released first-quarter 2017 results on Wednesday after the market closed, including a return to same-store sales growth despite continuing headwinds for the casual dining industry. Even so, Buffalo Wild Wings followed by reducing its full-year guidance.
So let's get comfortable and take a closer look at the progress B-Dubs made to start the year, as well as what investors can expect going forward.
Image source: Buffalo Wild Wings.
| Metric |
Q1 2017 |
Q1 2016 |
Year-Over-Year Growth |
|---|---|---|---|
|
Revenue |
$534.8 million |
$508.3 million |
5.2% |
|
Net income |
$21.5 million |
$32.8 million |
(34.2%) |
|
Earnings per share |
$1.25 |
$1.73 |
(27.5%) |
Data source: Buffalo Wild Wings.
According to Buffalo Wild Wings CEO Sally Smith:
In the first quarter, we are pleased same-store sales turned positive for both company-owned and franchised locations, outperforming both the negative restaurant industry and a negative casual dining segment. This is due to the continued momentum of our strategic initiatives launched in 2016. The popularity of Half-Price Wing Tuesdays combined with higher wing prices increased our cost of sales. Labor and operating expenses were also higher compared to the prior year, resulting in lower restaurant-level and operating margins and negatively impacting EPS for the quarter.
As a result of these profit headwinds, Smith elaborated that Buffalo Wild Wings retained The Cypress Group to undergo a "thorough review" of its business that "identified areas to streamline work and improve efficiencies." Buffalo Wild Wings anticipates realizing $40 to $50 million in cost savings related to those areas over the next two years.
But Buffalo Wild Wings now expects 2017 same-store sales growth of 1% (the low end of previous guidance for 1% to 2% growth), and adjusted earnings per diluted share of $5.45 to $5.90 (down from $5.60 to $6.00 per share previously). Based on generally accepted accounting principles (GAAP), which most notably includes roughly $6 million to $8 million in recent activist advisory and proxy solicitation fees, Buffalo Wild Wings' per-share earnings should be in the range of $5.20 to $5.50.
Buffalo Wild Wings also reiterated its plans for new unit development this year, including the opening of 15 new company-owned restaurants and 15 new franchised locations in the U.S., 20 franchised Buffalo Wild Wings locations internationally, and two company-owned and 12 to 15 franchised R Taco restaurants.
In the end, it's disappointing to see Buffalo Wild Wings' freshly reduced guidance, so I won't be surprised if the market bids down Buffalo Wild Wings stock in the near-term as a result. But I'm also happy to see the company's sales-driving initiatives proving effective in helping it return to same-store sales growth just as management indicated last quarter -- even if Half-Priced Wing Tuesdays is negatively affecting margins given high costs for B-Dubs' flagship menu item. Taken together with the fact its location expansion initiatives remain intact, and that its efforts to focus on cost efficiencies should leave the company better positioned when restaurant industry headwinds begin to abate, I think long-term investors should be content with where Buffalo Wild Wings stands today.