After Buffalo Wild Wings (BWLD) released solid second-quarter results a few weeks ago, many investors were surprised when the stock plunged 13% in a single day. To be sure, revenue and net earnings both easily outpaced analysts' expectations, climbing 20% and 43% year over year, respectively. But the market remained unimpressed with management's guidance for net earnings to grow at most 30% for 2014, compared to expectations for at least 34%.
But there's much more to Buffalo Wild Wings' business than just revenue and earnings. Let's take a look, then, at the recent conference call for five things Buffalo Wild Wings' management wants you to know:
It's all about the "experience"
First, remember that Buffalo Wild Wings is trouncing the broader restaurant industry, sales for which the National Restaurant Association expects to grow just 3.6% this year. For that, investors can largely thank B-Dubs' focus on providing a superior guest experience for each unique sporting event. That includes everything from its innovative Stadia seating design -- which mimics the energy and social interaction of an actual stadium -- to its new tablets, interactive games, and the impending addition to each restaurant of a "Guest Experience Captain," who, according to the company's career page, "gauges guests' interests, plans fundraisers and local activities, and introduces B-Dubs specials and new foods and beverages."
Buffalo Wild Wings gave investors a taste of what this experience can do with this year's FIFA World Cup, which contributed 100 basis points to comparable-restaurant sales growth at company-owned locations last quarter. Said CEO Sally Smith during the conference call:
With the 2014 World Cup we had an opportunity to showcase the brand and capture sales from the growing U.S. soccer audience -- we marketed Buffalo Wild Wings at radio, and so digital media had someplace to catch the action, we created soccer team games and the free kick challenge was played over 320,000 times. Our restaurant teams deliver the ultimate soccer experience together during the World Cup.
Costs are about to increase
But B-Dubs' dining experience comes with a cost. According to Buffalo Wild Wings CFO Mary Twinem during the conference call:
We are adding Guest Experience Captains at nearly 80 additional company-owned restaurants in the third quarter, in California and Minnesota as minimum wage increases go into effect this quarter. With these increases in hourly labor, we estimate that labor could increase 50 basis points sequentially over last quarter. With our growth, we're also making additional investments that will enable us to remain a high growth company in the future. These investments have primarily been in IT infrastructure and training and development programs.
What's more, B-Dubs COO James Schmidt added, "[W]hen you look at wing prices, we do see them moving up in the third quarter. Not sure how high they'll go in the fourth quarter."
On that note, Buffalo Wild Wings is rolling out a new menu in September, which includes 0.6% of incremental pricing at company-owned restaurants and should help it partially offset increased costs. In any case, this goes a long way toward explaining B-Dubs' guidance shortfall.
Coming up: New ways to order, pay
But those investments should also pay dividends down the road. Schmidt elaborated on Buffalo Wild Wings' technology efforts:
We're testing guest ordering through our tablets. We're going to start to test mobile paying through people's own devices. We're going to start testing server hand-helds. ... Do I think there is the opportunity as you implement this guest technology to find labor savings? Absolutely.
Down the road, these tech-centric innovations could be a win-win in that they not only save Buffalo Wild Wings in labor, but also add convenience for diners looking to order another round or pay their bill in an otherwise busy restaurant.
PizzaRev is just getting started
It's also easy to forget Buffalo Wild Wings isn't just about beer, wings, and sports. In fact, Twinem said, last quarter Buffalo Wild Wings even "made an additional $3 million equity investment in PizzaRev, increasing our minority interest."
Buffalo Wild Wings initially announced its minority interest in the fast-casual pizza chain last year. Then it opened the doors to its first company-owned PizzaRev location in Minnesota this May, and plans to open another there in August.
As it stands, a quick glance at PizzaRev's website shows it only has 13 locations open, with plans for 13 more "coming soon." Considering there were more than 1,000 Buffalo Wild Wings locations at the end of last quarter, it seems evident PizzaRev has a long runway for growth.
Buffalo Wild Wings wants to acquire other new brands, too
Finally, don't for a second think that Buffalo Wild Wings is content to rest on its laurels with just two brands. As CEO Sally Smith stated, "[W]e continue to explore other investment candidates to build a portfolio of diversified brands for long-term sustained growth."
In fact, Buffalo Wild Wings even has a $100 million unsecured line of credit available, which Twinem said is explicitly "for future acquisitions and investments." Unfortunately, we can't know exactly which brands they're considering just yet. But in April, Smith did tell Bloomberg, "We have one in particular that we're looking at."
And that's on top of the fact that Buffalo Wild Wings already thinks it can nearly triple the number of B-Dubs locations to 3,000 going forward. If one thing seems sure, it's that investors can safely look forward to Buffalo Wild Wings adding new names to its repertoire to bolster its growth prospects over the long term.