Buffalo Wild Wings Posts a Sizzling Third Quarter

B-Dubs just fried analysts' earnings expectations and initiated 2015 guidance. Here's everything Foolish investors need to know.

Steve Symington
Steve Symington
Oct 28, 2014 at 10:31AM
Consumer Goods

You can exhale now, Buffalo Wild Wings (NASDAQ:BWLD) investors. Your favorite beer, wings, and sports connoisseur just served up a heaping plate of outperformance.

Shares of Buffalo Wild Wings rose more than 7% during Monday's after-hours trading after the company said revenue increased 18.3% to $373.5 million, which translated to 20% growth in earnings per diluted share to $1.14. Analysts, on average, were looking for roughly the same revenue to result in earnings of $1.07 per share.

Solid comparable-store sales
B-Dubs' top line was bolstered by a combination of 91 new locations opened over the past year (44 company-owned and 47 franchised) and same-store sales increases of 6% and 5.7% at company-owned and franchised locations, respectively. For that, management says investors can thank fantasy football parties for helping maintain the sales momentum that began last quarter during the 2014 FIFA World Cup.

During the subsequent conference call, management also said that new tabletop tablets will be installed at roughly 75% of Buffalo Wild Wings' 1,040-store base by the end of 2014, including nearly all company-owned locations. They also confirmed their test for tablet-based ordering is currently under way -- though it's still early, so they couldn't offer details on whether tablet-based ordering has had a measurable impact on comps. That said, they did outline plans to fully implement tablet ordering and begin the rollout of server handhelds in 2015. In theory, both should increase customer satisfaction and operational efficiency. 

Lower operating costs
Perhaps more importantly, Buffalo Wild Wings CEO Sally Smith noted that the company's cost of sales percentage fell year-over-year to 29.1%. For that, the company can thank both a year-over-year decrease in the price per pound of traditional chicken wings, and -- just as I suspected -- leverage from menu price increases taken over the last 12 months.

Combined with strong sales growth and a lower effective tax rate, this more than offset increased labor costs stemming from the continued rollout of higher-paid Guest Experience Captains at company-owned locations. That rollout should be complete sometime in the fourth quarter.

On guidance, emerging concepts
Three months ago, Buffalo Wild Wings shareholders got burned after the company's full-year earnings guidance -- calling for growth to exceed 25%, and possibly reach 30% -- fell far short of analysts' expectations of around 34%.

But this time's a little different.

Specifically, Buffalo Wild Wings said that, because of impending minimum wage increases and a more than 30% sequential jump in traditional wing prices to $1.98 per pound, the company will implement a 3% menu price increase at the end of November. As a result, the company expects full-year 2014 net earnings growth to "exceed 28%". 

Meanwhile, analysts had tempered their expectations going into the report, modeling earnings growth of 31.7%. That still means Buffalo Wild Wings technically fell short here, but investors are undoubtedly happy about the smaller discrepancy and the fact that Buffalo Wild Wings is open to using additional small menu price increases to offset higher costs -- though they're reluctant to do so if it means sacrificing customer satisfaction in the process, and rightly so.

Think (even) longer-term
Buffalo Wild Wings also offered some early thoughts on 2015, saying they plan to open 50 company-owned locations, 40 domestic franchised restaurants, and eight to 10 international franchised locations. In addition, Buffalo Wild Wings plans to open a total of five company-owned Rusty Taco and PizzaRev locations, and said both brands will continue to expand through franchising. That may not seem like much, but it's a solid start considering Rusty Taco and PizzaRev collectively operate only 28 restaurants as of this writing. Buffalo Wild Wings also only recently opened its equity stakes in both emerging fast-casual chains.

And besides, that near-term growth pales in comparison to Buffalo Wild Wings' vision of becoming a 3,000-restaurant company of diversified brands. In the end, this was certainly a solid quarter, but Buffalo Wild Wings is still just warming up.