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Buffalo Wild Wings (BWLD) Q3 Earnings Top, Stock Up on View

Shares of Buffalo Wild Wings, Inc. BWLD have rallied more than 20% in after-hours trading on Oct 25 following the third-quarter 2017 earnings release.

The rally in the share price was mainly led by higher-than-expected earnings and a raised guidance for 2017.

Notably, increased costs of traditional chicken wings dented profits in the previous quarter in response to which Buffalo Wild Wings announced a change in its most popular “half-price wings on Tuesdays” promotion in July. The company changed its half-price traditional wings to boneless BOGOs. The switch caused an overall decline in sales but made them much more profitable.

Quarter Highlights

Adjusted earnings of $1.36 per share grew 5.4% year over year and surpassed the Zacks Consensus Estimate of 78 cents by 74.4%. The year-over-year increase was primarily supported by operating improvement and cost savings.

Buffalo Wild Wings, Inc. Price, Consensus and EPS Surprise

Buffalo Wild Wings, Inc. Price, Consensus and EPS Surprise | Buffalo Wild Wings, Inc. Quote

Total revenues increased 0.5% to $496.7 million but missed the consensus mark of $500.2 million by 0.7%. A portion of total revenues (amounting to $2.9 million) was deferred due to the company’s initial breakage estimate for the Blazin' Rewards loyalty program.

Performance in Detail

During the quarter, company-owned restaurant sales increased 0.5% year over year to $473 million on the opening of 21 additional company-owned outlets.

Company-owned comps decreased 2.3%, comparing unfavorably with the comps decline of 1.2% last quarter. Notably, company-owned comps had declined 1.8% in the year-ago quarter.

Franchise royalties and fees increased 1% year over year to $23.7 million owing to 31 additional franchised restaurant openings. Comps declined 3.2% compared to the previous quarter’s decline of 2.1%. In the year-ago quarter, Buffalo Wild Wings had seen a comps decline of 1.6%.

Buffalo Wild Wings' cost of sales, as a percentage of restaurant sales, increased 190 basis points (bps) to 30.8%. This rise in cost was a result of a 25.6% year-over-year increase in traditional wing pricing. Nevertheless, the recentpromotion shift is expected to continue improving its cost of sales while traditional wing prices remain elevated.

However, its cost of labor, as a percentage of restaurant sales, declined 70 bps to 31.4% on the back of favorable hourly labor, an out-of-period benefits adjustment, somewhat offset by wage inflation.

Additionally, restaurant operating expenses, as a percentage of restaurant sales, were 15.2%. This reflects a 40-bps decrease from the prior-year quarter owing to favorable insurance repair and maintenance expenses.

Fourth-Quarter 2017 Outlook

Buffalo Wild Wings expects cost of sales to be approximately 30.5% of total revenue in third-quarter 2017, reflecting a year-over-year decline of 60 bps. The company also anticipates cost savings to the tune of $8 million in the quarter as a result of reduced labor expenses.

Meanwhile, cost of traditional chicken wings in the first two months of the fourth quarter is $2.18, up 2 cents sequentially. The price is also 9.5% higher than the year-ago level of $1.99.

Moreover, Buffalo Wild Wings plans to open five company-owned restaurants in the quarter along with three more franchised locations. Internationally, 10 franchised Buffalo Wild Wing locations are expected to be launched.

2017 View

For 2017, the company anticipates adjusted earnings per share in the range of $4.85 to $5.15 (higher than the previous expectation of $4.50 to $5.00). The Zacks Consensus Estimate for the year’s earnings is currently pegged at $4.40.

Meanwhile, comps are projected to decline around 1.5% (in line with the previous expectation of a decline in the band of 1% to 2%).

For the remaining of 2017, Buffalo Wild Wings expects to open 14 (earlier 15) company-owned restaurants and 15 franchised locations in the United States. Internationally, the company plans to open 20 franchised locations. It also intends to launch two company-owned as well as 10 (earlier 10-13) franchised R Taco restaurants.

In the meantime, the company expects traditional chicken wing inflation in the range of 10% to 11% (higher than the previous band of 8% to 10%). It also expects to incur capital expenditure of approximately $80 million in the year, lower than the previously guided $100 million.

Zacks Rank & Peer Releases

Buffalo Wild Wings carries a Zacks Rank #3 (Hold). You can see  the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Among other firms in the restaurant space, The Cheesecake Factory Inc. CAKE and The Habit Restaurants, Inc. HABT are scheduled to release their third-quarter numbers on Nov 1. The Zacks Consensus Estimate for the quarter’s earnings is pegged at 60 cents for Cheesecake Factory and 3 cents for Habit Restaurants.

El Pollo Loco Holdings, Inc. LOCO is scheduled to report third-quarter numbers on Nov 2. The Zacks Consensus Estimate for the quarter’s bottom line is pegged at 18 cents.

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