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Analysts positive about Buffalo Wild Wings after strong 4Q

Editor's Note: Analyze This is a quarterly look at a publicly traded restaurant company that has sparked discussion -- for better or worse -- among the securities analyst community. The analyst comments do not necessarily reflect the views of Nation's Restaurant News nor should any statement be construed as a recommendation to buy or sell any security.

Buffalo Wild Wings Inc. is flying high despite the many headwinds hurting restaurant operations throughout the industry.

The company, which is operator or franchisor of 567 casual-dining restaurants, last week reported an earnings increase of 29 percent, a revenue increase of 33 percent and a corporate same-store sales jump of 4.5 percent for the fourth quarter. The numbers contrast sharply with competitors in the casual-dining sector, which has been hit hard by reduced guest traffic as consumers cut spending and forgo eating out.

Buffalo Wild Wings also said 2009 already has gotten off to a good start, with same-store sales at corporate restaurants up 8 percent so far this first quarter. The company reiterated its annual goals of 15-percent unit growth, 25-percent revenue growth and between 20-percent and 25-percent earnings growth.

For the quarter ended Dec. 28, Buffalo Wild Wings earned $7.7 million, or 43 cents per share, compared with $6.0 million, or 34 cents per share, in the same quarter a year earlier. Revenues in the latest quarter totaled $121.2 million.

For the full year, the company earned $24.4 million, or $1.36 per share, versus $19.6 million, or $1.10 per share. Fiscal 2008 revenues rose 28 percent to $422.4 million.

Securities analysts who cover Buffalo Wild Wings were nearly unanimous in their support for the company's stock, as they found little to caution against, except for the increase in chicken wing prices, which could hurt the company as it continues to buy on the spot market rather than contracting a rate. Analysts said the chain's sales surge has been helped by additional advertising, new menu items and the brand's lower price points.

Jeff Farmer, Jefferies & Co.

Evoking basketball all-star Kevin Garnett in his note to clients, Farmer said "anything is possible," as Buffalo Wild Wings surges while others restaurant concepts have struggled. Referring to the chain's latest first-quarter same-store sales, he said the "numbers are easily the best in casual-dining [with] brand momentum, improved operations [and] better site selection all contributing."

"From a purely objective standpoint, Buffalo Wild Wings has delivered and will likely continue to deliver the best same-store sales, traffic and new-unit productivity in the casual-dining sector," Farmer said. He raised the company's full-year earnings target.

Lynne Collier, KeyBanc Capital Markets

"We believe that Buffalo Wild Wings is outperforming given increased advertising, menu innovation and possibly a trade-down effect given [its] compelling price-value as compared to its higher-priced peers," Collier said.

Collier added that increases to chicken wing prices -- which she pegged at 4 percent for the current first quarter -- could be offset by the chain's newest menu additions, like flatbreads and burgers, which have worked to reduce its reliance on wings, as well as decreased costs for cheese, oil and sauces.

Larry Miller, RBC Capital Markets

Miller increased his full-year earnings estimate by 22 percent because of the company's outstanding quarter, he said. He did include some cautionary notes, however, calling attention to concerns about "the potential for sales to slow against difficult comparisons and given that all of our consumer surveys hit new lows in February, which points to a continued pull-back in spending over the near term."

Still, with March Madness -- the NCAA college basketball tournament Ð around the corner, Buffalo Wild Wings should see improved results, he said. New menu offerings include twisted chicken for dipping and barbeque nachos. Chain officials also said the new alcohol-free lemonade has been a big hit, Miller noted.

Contact Sarah E. Lockyer at [email protected].

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