Buffalo Wild Wings, Inc. (BWLD), best known for its chicken wings and sports bar, recently posted better-than-expected first-quarter 2010 results, but the soft April comparable-store sales have raised concerns about the company achieving its earnings growth target, which have sent the stock down by $10.01 or 19.6% to $41.00 in after-market trading on Tuesday.
Minneapolis, Minnesota, based company, Buffalo Wild Wings, reaffirmed its growth target of 20% in net earnings for fiscal 2010 depending upon the improvement in comparable-store sales and favorable wing costs.
Management hinted that comparable-store sales in April dropped 3.7% at company-operated restaurants and 2.4% at franchised locations sending alarm signals. The cost of traditional wings rose 17.2% to $1.91 per pound for the quarter. However, management was quick to indicate that the cost of wings would moderate in the first two months of second-quarter 2010 and would average $1.58 versus $1.69 last year.
Buffalo Wild Wings’ quarterly earnings of 58 cents a share topped the Zacks Consensus Estimate of 56 cents, and rose 23.4% from 47 cents delivered in the prior-year quarter helped by double-digit growth in the top-line but offset by a 16.4% increase in restaurant operating costs.
The quarterly earnings outperform the Zacks Consensus Estimate by 3.6%. Buffalo Wild Wings’ earnings surprise history compared to the Zacks Consensus Estimate for the preceding four quarters (including the reported quarter), varies between negative 9.8% and positive 14.7% with four quarters average being positive 2.4%.
Buffalo Wild Wings, which competes with Red Robin Gourmet Burgers Inc. (RRGB) and BJ’s Restaurants Inc. (BJRI) in the casual dining segment said that total revenue climbed 15.7% year-over-year to $152.3 million.
Sales at company-operated restaurants rose 15.5% to $138 million fueled by 29 additional restaurants in operation at the end of the quarter compared to the prior-year quarter and marginal comparable-store sales increase of 0.1%. Franchise royalties and fees grew 18% to $14.3 million propelled by 57 additional restaurants in operation at the end of the quarter compared to the year-ago quarter and an insignificant increase of 0.7% in comps.
Average weekly sales for company-operated restaurants fell 0.6% to $45,327, and for franchised restaurants it climbed 1.6% to $51,532.
Restaurant operating cash flow margin shrunk 60 basis points (bps) to 17.9% hurt by a 30-bps rise in cost of sales to 30.6% due to a sharp rise in cost of traditional wings, a 50-bps expansion in operating costs to 15.6%, and a 10-bps rise in occupancy costs to 6.5% partially offset by a 30-bps contraction in labor costs to 29.5%.
During the quarter, Buffalo Wild Wings opened 3 company-owned and 10 franchise restaurants, and expects to open 4 company-owned and 11 franchise restaurants in second-quarter 2010. The company currently operates 669 restaurants in 42 states.
Buffalo Wild Wings ended first-quarter 2010 with cash and cash equivalents of $14.9 million and shareholders’ equity of $220.6 million. The company generated an operating cash flow of $24.7 million during the quarter. Capital expenditures for the quarter were $9.9 million.
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