For Buffalo Wild Wings (NASDAQ:BWLD), there's been more than one meaning lately to the phrase, "Those wings are hot!"
As fellow Fool Rich Smith pointed out, analysts were expecting revenue for its most recent quarter of $62.7 million and received $64.3 million, instead. They were also expecting earnings per share to come in at $0.38 and instead were treated to $0.40.
Drivers for the better-than-expected growth included a good football postseason, fair weather, March Madness, and the shift of Easter out of the first quarter. That last one at first puzzled me, but I quickly realized that Easter isn't exactly something you'd associate with wings. The company attributed its biggest success, though, to advertising, especially national spots on ESPN. Don't expect to see the ads again, though, until football season rolls around in the late summer and fall. (For some reason, I just can't pair wings with baseball. Oscar Meyer has that sport wrapped up.)
And let's not forget that the company also got some help from lower chicken-wing prices, which went from an average of $1.45 per pound last year to $1.24 this past quarter. While avian flu worries might be affecting chicken producers such as Tyson (NYSE:TSN) and Pilgrims Pride (NYSE:PPC), chicken users are getting good prices. The company expects the price to drop even further for the second quarter, based on what it has contracted to date.
What I didn't expect to hear is that sales of wings as a percentage of revenue is going down. It's happening because boneless wings, actually made from breast meat, are proving popular and becoming a larger percentage of sales. The company was happy to point out that boneless wings cost less, too. If this trend continues, then it could help improve margins, or at least hold them steady, in the future.
The operating margin improved by half a percentage point over last year. Continual improvement, if it can be achieved, will help drive earnings growth at a faster rate than sales growth. One way to improve operating margin is to open more locations, because corporate expenses, for instance, are relatively fixed regardless of the number of locations. As the company continues to open franchises -- the target is 200 in 10 years -- and assuming other costs don't spiral up, more earnings will drop to the bottom line.
Now that members of management have set the bar higher, will they be able to produce going forward? The second quarter is typically slower, but they still hope to see a healthy same-store sales increase of 4% to 6%. However, higher fuel costs will begin to have an impact. For instance, suppliers such as Sysco (NYSE:SYY) will begin to pass higher costs along.
Buffalo Wild Wings has had a very good start to its year. Now it just has to keep flapping in the right direction.
For more on Buffalo Wild Wings, see "Hot Wings From Buffalo: Fool by Numbers."
Buffalo Wild Wings is a Motley Fool Hidden Gems pick, and Sysco is a Motley Fool Income Investor recommendation. Take your favorite Foolish investing service for a free, 30-day spin.
Fool contributor Jim Mueller owns shares of Sysco but not of any other company mentioned. The Fool is investors writing for investors.
