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4 Things to Watch When Buffalo Wild Wings Reports Earnings

By Steve Symington - Apr 23, 2016 at 11:00AM

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From franchise acquisitions to labor costs and guidance, here's what investors need to know ahead of B-Dubs' quarterly report.

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Buffalo Wild Wings (BWLD) is set to release first-quarter 2016 results on April 26, after the market closes. With shares down nearly 10% in 2016 as of this writing, on the heels of last quarter's disappointing same-store-sales growth, investors are hungry for good news to propel the wings, beer, and sports-centric restaurant chain higher.

But what, exactly, should we be expecting when Buffalo Wild Wings' report crosses the wires? Here are four things I'm watching closely.

The headline numbers
First, note that Buffalo Wild Wings hasn't provided specific financial guidance for the current quarter. And though it did reveal same-store sales results through the first four weeks of Q1 (up 0.3% at company-owned locations, and down 1.5% at franchises), that information came with the caveat that management no longer views four-week trend reporting as an accurate predictor for quarter as a whole. 

That said -- and keeping in mind we don't lend much credence to Wall Street's quarterly demands -- the near-term direction of Buffalo Wild Wings stock may depend on how closely it mirrors analysts' consensus estimates, which currently predict revenue of $531.3 million and earnings of $1.78 per share.

The cost of doing business
Relatedly -- and crucial to Buffalo Wild Wings' ability to drive bottom-line growth -- are its efforts to manage costs and expenses, notably including cost of labor as a percentage of overall sales (30.9% last quarter), and cost of sales (29.5% last quarter).

Regarding the former, Buffalo Wild Wings management has stated that increases in average pay rates and benefits should be entirely offset by menu price increases and labor efficiencies. And within the latter, Buffalo Wild Wings management last quarter voiced its belief that 2016 "will be a year of deflationary food cost" -- that is, excluding the cost of traditional wings, which is expected to be roughly flat over 2015.

More specifically, recall that around this time last year shares of Buffalo Wild Wings plunged as the price per pound of traditional wings soared an incredible 41%. To curb these potentially wide swings and narrow the range it pays when wings are at historically high and low prices, Buffalo Wild Wings entered into modified pricing agreements for roughly two-thirds of its traditional wing supply last April. As such, Buffalo Wild Wings was set to renew these pricing agreements for another year at the beginning of this month. So expect clarity from management during this quarter's call regarding the extent to which the renewal may have tempered cost of sales as a percent of revenue.

The fruits of franchise acquisitions ...
Next, Buffalo Wild Wings was active in opportunistic franchise acquisitions last year, most notably including a massive $160 million purchase of 41 locations across Texas, New Mexico, and Hawaii. And despite continued franchise openings across the country, this large purchase meant there were 11 fewer franchised units in operation at the end of Q4 compared with the same year-ago period. In turn, franchise royalties and fees declined 2.9% year over year last quarter, to $23.8 million. Buffalo Wild Wings also had to incur significant expenses, in terms of both time and one-time costs, to transition these franchises into the company-owned restaurant fold, including more than 10,000 hours of training and more than 300 field team members to assist in transition of ownership.

The good news? Buffalo Wild Wings last quarter reiterated its stance that these franchise acquisitions should contribute to revenue growth and be accretive to earnings this year. Listen closely, then, for updates indicating that these freshly minted company restaurants are performing as expected at this stage in their transition.

Guidance
Finally, listen for any updates to Buffalo Wild Wings' full-year guidance, which most recently called for net earnings per diluted share in the range of $5.95 to $6.20, or growth of 20% to 25% over fiscal 2015. For perspective, that assumes same-store sales growth in the single-digit percentage range, driven by "modestly positive traffic" and menu price increases of roughly 2.4%. 

Of course, whether Buffalo Wild Wings narrowly misses or significantly exceeds this guidance remains to be seen. And its longer-term direction -- which includes nearly tripling its restaurant base to 3,000 units worldwide -- should be arguably more important for shareholders. But in the meantime, next week's report should serve as a useful preview as Buffalo Wild Wings progresses toward achieving that goal.

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