Buffalo Wild Wings (BWLD) announced third-quarter 2017 results on Wednesday after the market closed, reporting slightly weaker-than-expected sales but showing enormous progress in stemming its recent bottom-line declines.
The wings, beer, and sports-centric restaurant chain crushed Wall Street's earnings expectations, and shares are up more than 20% in Thursday's trading as of this writing. Let's dig in for a better taste of how B-Dubs kicked off the second half of the year, as well as what investors should anticipate in the months ahead.
Image source: Buffalo Wild Wings.
Buffalo Wild Wings results: The raw numbers
| Metric |
Q3 2017 |
Q3 2016 |
Year-Over-Year Growth |
|---|---|---|---|
|
Revenue |
$496.7 million |
$494.2 million |
0.5% |
|
Net income |
$18.2 million |
$22.7 million |
(19.7%) |
|
Earnings per share (diluted) |
$1.17 |
$1.23 |
(4.9%) |
Data source: Buffalo Wild Wings.
What happened this quarter?
- On an adjusted (non-GAAP) basis, net earnings fell 10.7% to $21.2 million, and -- thanks to share repurchases over the past year -- earnings per diluted share increased 5.4% to $1.36. By comparison, investors were expecting adjusted earnings of only $0.79 per share on higher revenue of $502 million.
- Company-owned restaurant sales climbed 0.5% year over year to $473 million, driven entirely by 21 new company-owned locations.
- Franchise royalties and fees climbed 1% year over year to $23.7 million, thanks to 31 additional franchised restaurants.
- Same-store sales declined 2.3% and 3.2% at company-owned and franchised locations, respectively.
- Completed the Tuesday promotional transition from half price traditional wings to a boneless buy-one-get-one (BOGO) promotion, driving a 40-basis-point improvement to cost of sales.
- Ended the quarter with 1,271 total restaurants, including 628 company-owned Buffalo Wild Wings locations, 619 franchised locations, and 10 and 14 company-owned and franchised R Taco locations, respectively.
- Due to hurricane activity, 71 restaurants were closed for 200 operating days during the quarter, reducing revenue by $2.7 million and earnings by roughly $0.08 per share.
- The Blazin' Rewards loyalty program has grown to 3.5 million members, 50% higher than management's initial expectation.
- Takeout and delivery represented 19.2% of total sales, up from 16.8% in last year's third quarter. And online orders represented 24% of that total, up from 18% in the same year-ago period.
- B-Dubs generated cash flow from operations of $141.9 million, and free cash flow of $82.4 million.
What management had to say
Buffalo Wild Wings CEO Sally Smith stated:
Our teams are executing on the cost initiatives of our fiscal fitness program and we exceeded our goal in the third quarter. These savings helped deliver adjusted income from operations above our expectations. The recent Tuesday promotion shift from traditional to boneless wings at company-owned restaurants will continue to improve cost of sales while traditional wing prices remain elevated. Combined with our cost savings initiatives and service excellence focus, we are optimistic these actions will deliver an improving bottom line.
Looking forward
Buffalo Wild Wings boosted its earnings guidance for the year, calling for 2017 adjusted earnings in the range of $4.85 to $5.15 (up from $4.50 to $5.00 previously). The company also narrowed its expectation for 2017 same-store sales to decline roughly 1.5%, compared to an anticipated decline in the range of 2% to 1% previously.
All things considered, investors are rightly pleased that Buffalo Wild Wings managed to absolutely demolish consensus estimates on the bottom line and raise guidance to boot. And though Buffalo Wild Wings still has work to do in propping up its lagging same-store sales, it's encouraging to see its progress driving incremental revenue through the Blazin' Rewards program and takeout orders. With shares trading near 52-week lows heading into this report, it's no surprise to see the stock rebounding in a big way today.
