Time to loosen your belts, Buffalo Wild Wings (NASDAQ:BWLD) investors, because your favorite beer, wings, and sports-centric restaurant chain reports third-quarter results this Wednesday after the market close. Considering we're well into B-Dubs' self-proclaimed "favorite time of the year" -- that is, American football season -- you can bet the market will be listening closely to what it has to say.
For perspective, consensus estimates predict that Buffalo Wild Wings' revenue will climb 24.6% year over year to $465.2 million, and translate to a 14% increase in earnings per share to $1.30. But remember, these numbers aren't always what they're cracked up to be; Buffalo Wild Wings stock popped last quarter after not only falling short of analysts' revenue and earnings expectations, but also reducing its full-year 2015 earnings growth guidance to 13% (down from 18% previously).
So what else should investors be watching?
On same-store sales
First, keep an eye on Buffalo Wild Wings' same-store sales, which the company has worked hard to boost through a combination of technology initiatives, day-part enhancements, menu innovation, and last year's rollout of "Guest Experience Captains" at all company-owned locations. Same-store sales last quarter rose 4.2% year over year at company-owned restaurants, and 2.5% at franchised restaurants.
Buffalo Wild Wings should also offer color on a number of those technology initiatives. In the second half of 2015, for example, B-Dubs TV was expected to be added to 300 company-owned restaurants, while tablet- and smartphone-based ordering and payment are being tested at various locations across the country. If both prove successful over the long run, Buffalo Wild Wings' same-store sales should reap the benefit.
On franchise/concept acquisitions
Next, remember that Buffalo Wild Wings was expected to close on its previously announced $160 million acquisition of 41 franchised units in August, increasing the size of its company-owned restaurant base by nearly 8%. Keep an eye out, then, for not only whether this acquisition was completed without a hitch, but also its subsequent effects on Buffalo Wild Wings' business performance. Last quarter, management warned investors that this purchase was a primary contributor to decreased earnings guidance because of its timing, increased depreciation and amortization of reacquired franchise rights, and roughly $5 million in transition costs.
At the same time, the acquisition should be accretive to net earnings and cash flow in 2016, which helps explain why investors were willing to look past that downward revision.
Relatedly, I'll be listening for hints of Buffalo Wild Wings' plans to invest in new restaurant concepts. It already owns stakes in two young concepts, including fast-casual pizza specialist PizzaRev, and the street taco maker formerly known as Rusty Taco (rebranded as "R Taco" last month). But shortly after announcing its investment in R Taco last year, Smith also confirmed that the company plans to invest in as many as seven more concepts in the next five years. While Buffalo Wild Wings' next lucky target remains to be seen, it seems safe to say -- like Rusty Taco and PizzaRev -- that it will be a small chain with the potential for nationwide expansion.
On (fighting) rising costs
Next, watch for updates on rising food and labor costs. Last quarter, for example, labor as a percentage of sales rose 90 basis points year over year to 32.2%, because of both minimum-wage increases in multiple states, and the aforementioned addition of the higher-paid Guest Experience Captains.
Meanwhile, traditional wing prices rose 26% year over year to $1.79 per pound. But this actually represented an encouraging deceleration from the even more shocking 41% year-over-year increase in Q1 of this year -- an improvement for which investors can partly thank Buffalo Wild Wings' new modified pricing agreements for roughly two-thirds of its wing supply. These agreements were implemented in April and designed to narrow the price B-Dubs pays when traditional wings are at historically high and low prices.
But that's not the only way Buffalo Wild Wings is combating higher costs. Shortly after last quarter's report, Buffalo Wild Wings kicked off a three-step menu price increase that began with upward adjustments to alcohol prices in August, continued with increasing Wing Tuesday and Boneless Thursday pricing at some company-owned restaurants in September, and will culminate in a broader 2.1% price increase in Buffalo Wild Wings' new menu on Nov. 2. Buffalo Wild Wings implemented a similar price increase around this time last year without invoking the ire of diners, so ideally we'll see the same response this time as well.
Finally, listen for details on Buffalo Wild Wings' outlook. I've already mentioned its guidance for 2015 earnings growth of 13%, and Wall Street's models reflect as much. But as Buffalo Wild Wings nears the end of 2015 and its performance becomes more clear, I also can't help wondering if it reduced that guidance last quarter out of prudence, with the intention of overdelivering if all goes well.