The headline news out of Buffalo Wild Wings' (NASDAQ: BWLD) fourth-quarter earnings report was that growth slowed to a crawl. Sales at existing locations rose by 1.9%, which marked B-Dubs' lowest comps since the first quarter of 2013. Net income ticked higher by just 1% for the full year, compared to an average profit gain of 20% over the prior four years.
However, there are a lot aspects of the restaurant chain's business that aren't captured in those top and bottom-line numbers. With that in mind, let's take a closer look at a few under-reported highlights from B-Dubs' latest results.
Buying out franchisees
Buffalo Wild Wings has become an active buyer of its own restaurants. In fact, the chain spent $204 million purchasing 54 locations from franchisees last year (one deal alone cost $160 million). That buyout pace was dramatically higher than the previous year when B-Dubs acquired just 13 restaurants from its partners.
The spending also tipped the company's store base into majority corporate-owned. As of the end of Q4, B-Dubs operated 596 locations, or 51% of its store footprint. By comparison, McDonald's owns less than 20% of its locations while Chipotle Mexican Grill operates 100% of its stores.
Buffalo Wild Wings CEO Sally Smith and her executive team believe the huge cash layout will be a good investment as these corporate-owned locations can grow faster and kick in more profit to the bottom line every year. The company also has greater control over the pace of store remodels with the locations it controls. "We are excited to operate these restaurants as company-owned locations and believe they will be accretive to earnings per share in 2016," Smith told investors in February.
Improving the experience
More than most restaurants, B-Dubs' appeal centers around maintaining a great experience for its customers. Yes, the food is important, but the company also needs to keep guests engaged while they're chomping down on those wings.
Last year's key initiative here was adding the new position of "guest experience captain" that's charged with promoting engaging tools like trivia and sports games. Despite the extra drag on labor costs, B-Dubs has found these positions useful enough to roll them out nationally.
This year the company aims to improve the guest experience through four main initiatives: games, beer, lunch, and takeout. On beer, it just launched a new drink menu that highlights the local brews available in each location.
For games, the company is expanding its tablet entertainment options to include arcade games, all playable for free at tables. Lunch represents a huge opportunity for growth, and B-Dubs will be supporting that service with increased advertising in 2016. Finally, take-out has the potential to significantly boost comps, which is why the chain is already testing mobile ordering and payment functionality.
Strong profit outlook
With help from those initiatives, B-Dubs expects to bounce right back to its impressive profit growth pace after last year's meager uptick. Earnings should improve to between $5.95 per share and $6.20 per share, according to management. Underlying that forecast is the expectation for modestly higher comps that are driven by a mix of traffic growth and a major contribution from 2.4% higher menu prices.
Chicken wing prices are tracking close to last year's average, which should help keep costs down as B-Dubs' other food expenses drop slightly. Combine those favorable cost trends with the company's plans to add as many as 85 new locations, mostly corporate owned, and it's clear that chain can boost profits by 25% in 2016.
As a result, shares are valued roughly 25 times expected profit this year, for a solid discount over the 30 multiple (or higher) that investors were offered for this successful restaurant chain through most of the last three years.