Photo: Buffalo Wild Wings
Despite ever-increasing wages and stubbornly high wing prices, shares of Buffalo Wild Wings (BWLD +0.00%) touched a new all-time high last week following the popular restaurant chain's solid quarterly results.
To be sure, though Buffalo Wild Wings' fourth quarter earnings of $1.07 per share technically fell short of expectations, its revenue of $408.9 million was in line with analysts' consensus. What's more, the beer, wings, and sports specialist achieved impressive same-store sales growth of 5.9% and 5.6% at company-owned and franchised locations, respectively, and reiterated encouraging guidance for 2015 earnings to grow 18%.
During the subsequent conference call, Buffalo Wild Wings management also offered several useful nuggets of wisdom to help investors understand where the company is headed from here. Read on for five of the most important points from that discussion:
2015 is off to a great start
For the first 5 weeks of the first quarter, Buffalo Wild Wings same-store sales are trending at 11.9% at company-owned restaurants, and 11.1% at our franchised locations as compared to same-store sales trends for the first 5 weeks in the first quarter last year of 4.8% at company-owned restaurants and 2.1% at franchised locations. -- Buffalo Wild Wings CFO Mary Twinem
First, crucial to Buffalo Wild Wings' upbeat guidance is the fact it's starting 2015 on a high note. For that, investors can thank a combination of menu price increases and adjustments taken in the past 12 months, continued menu innovation such as the B-Dubs Sauce Lab (which keeps diners on their toes and coming back for more), as well as the company's focus on improving the dining experience through Guest Experience Captains and new technology initiatives.
Tablet ordering is more than just convenient
We're still early in the test with the tablets. Obviously, I think tablets do provide you with an opportunity to drive incremental sales through suggestive selling. They can also be a source of revenue through premium gaming that we'll be charging for. And they do, I think, tablets combined with the ability to order and pay ultimately provide you with some opportunity toward some labor efficiencies. -- COO James Schmidt
Since announcing its new tabletop tablets last March, Buffalo Wild Wings has already installed the entertaining devices at over 70% of its restaurants. And in addition to the usual slate of games and trivia, Buffalo Wild Wings has set a goal of fully implementing tablet menu ordering at company-owned restaurants in 2015. If Schmidt's comments above are any indication, the tablets could not only enable incremental sales and premium gaming revenue -- however slight the latter might be -- but also they could help streamline restaurant efficiency and help offset rising labor costs.
Operating costs should moderate in 2015
We do believe that wing prices will go down from here and that our cost of sales range will return into that 29% to 30% range. From a labor standpoint, we also will improve as we go through the year. We think there are efficiencies that we can gain and we would look for, on an annual basis, leveraging overall. -- Mary Twinem
Of course, lower wing prices would obviously prove a windfall for Buffalo Wild Wings, but opportunities to curb labor costs are far from sure. Those obviously include any efficiencies found through tablet ordering, but Buffalo Wild Wings will need to work hard on the labor front considering CEO Sally Smith later reminded investors there are "some significant wage increases that are happening in the first half of the year." Nonetheless, investors would be wise to watch closely to see how both cost of goods sold and cost of labor each fare in the coming quarters.
Buffalo Wild Wings is working to make wing prices more predictable
In an effort to decrease the range of volatility in our cost of sales from traditional chicken wings, we have entered into modified pricing agreements for about two-thirds of our traditional chicken wing supply. These agreements will be in place by April and effectively narrow the range of cost per pound that we will pay when traditional wings are at historically high and low market prices. -- Mary Twinem
After watching wing prices skyrocket to the tune of 30% sequentially from July into early Q4, it's hard to blame Buffalo Wild Wings for pursuing modified pricing agreements to reduce the potential pricing volatility for its best-known menu item. That said, this also means if wing prices happen to plunge sharply downward, Buffalo Wild Wings won't be able to enjoy the full benefit that those low prices would otherwise offer its bottom line. All things considered, however, investors can at least rest easy knowing B-Dubs is striving to make its business more predictable over the long run -- something that's sure to please both shareholders and the market.
A capital returns program isn't off the table
We do believe we're going to generate sufficient cash to fund all of our growth plans in the U.S. and Canada, international, and emerging brands as they exist today. We have used cash in the past to fund acquisition of franchised locations. We think there are going to be additional opportunities in 2015 as well. And if we have excess cash and we don't need it for our growth strategies, we will consider returning capital to the shareholders in some way that we think most maximizes value. -- Mary Twinem
Finally, it might seem surprising that a capital returns program -- most likely in the form of dividends or share repurchases -- would be worth considering this early in Buffalo Wild Wings' growth story. The chain ended 2014 with just over 1,070 total restaurants in the U.S., Canada, and Mexico, which is far short of its stated goals of operating 1,700 locations in North America alone, and at least 3,000 restaurants worldwide. As I pointed out last quarter, any cash not used to invest in new restaurant concepts or to build new Buffalo Wild Wings locations is directed instead toward acquiring franchised locations to bring them back into the more profitable company-owned fold.
But as Twinem notes above, Buffalo Wild Wings has no interest in amassing unneeded cash when it could otherwise use those funds to reward shareholders as they patiently wait for its long-term plans to bear fruit. As a longtime shareholder myself, it's great to know Buffalo Wild Wings has our best interests in mind.
