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Buffalo Wild Wings on NFL lockout, wing costs, new menu

A Heard on the Call report following first-quarter earnings

Buffalo Wild Wings officials said the casual-dining chain would open up the playbook to minimize the traffic damage done by a prolonged National Football League lockout if the work stoppage drags on into the fall.

“We are planning contingencies if the season is reduced or cancelled,” chief executive Sally Smith told securities analysts during the chain’s first-quarter earnings call on Tuesday. “Like the economy in recent years, the disruption to the regular NFL season has the potential to present a temporary challenge to our business and many others. Assuming continued strong same-store sales and low wing costs, we believe we can achieve our annual net earnings goal of more than 18 percent even if there’s an abbreviated NFL season.”

Minneapolis-based Buffalo Wild Wings’ first-quarter earnings of $14.9 million, or 81 cents per share, represented a 40-percent increase from $10.6 million, or 58 cents per share, in the same quarter a year earlier. For the March 27-ended quarter, revenue increased 19.6 percent to $182.2 million.

Same-store sales rose 3.9 percent at corporate restaurants and 1.6 percent at franchised locations.

Wing prices stay favorable

Smith and chief financial officer Mary Twinem said the March Madness college basketball tournament drove people to Buffalo Wild Wings restaurants during the first quarter. However, securities analysts were repeatedly asked what the chain would do to sustain sales and earnings if the other big traffic driver, professional football, had a shortened season.

“We’ve done the same things many of the financial analysts have done,” Twinem said, “and we’ve looked at different sales levels and wing price levels, and I think we can get a fair amount of different combinations that make us able to cover for one [lost regular-season] week or two or three weeks.

“We’re focused on making that happen,” she said. “The more months we have of high sales and low wing prices, the more months we can cover on a shortened NFL season.”

Wing prices fell to an average of $1.22 per pound in the first quarter, 69 cents lower than $1.91 a year earlier. Traditional wings accounted for 20 percent of sales in the quarter, while boneless wings were 19 percent of sales, the company reported.

“The traditional-wing market continues to be favorable, and the price of chicken wings for the first two months of the second quarter is averaging about $1.02 per pound, which is lower than any quarterly price since 2003,” Twinem said.

Last year’s second-quarter price averaged $1.51, she said. Twinem added that the brand’s boneless-wing contract is extended through 2012 and that the remainder of Buffalo Wild Wings’ basket of goods is contracted throughout the year at a 3-percent increase from a year earlier.

Sustaining strong comps

The other half of the chain’s equation for mitigating the possible NFL lockout depends on sustaining the same-store sales increases of the first quarter, Smith said. Through the first four weeks of April, same-store sales increased 5.3 percent at corporate units and 1.6 percent at franchised stores, she added.

Buffalo Wild Wings will look to maintain that momentum through training investments, about $17 million in capital expenditures this year for remodeling and information technology upgrades, and promoting a menu extension that includes 12 new items.

The new menu puts a bigger emphasis on sharable items.

“We’ve had other menus with significant changes,” Smith said, “but we wanted to broaden and deepen our sauce lineup. … Our guest research found that when our guests come in they like to order a whole variety of things, and that focus on sharables was important to them.”

The chain intends for the new sharable items to produce incremental sales rather than alter the menu mix from core Buffalo wings.

“We’ve seen pretty consistent levels of traditional and bone in wings as a percentage of sales for quite some time,” Smith said, “so as new restaurants have opened I think new guests are trying those additional items. But that’s the goal with any menu is to continue to expand your offerings and attract new guests.”

The company also is working with its franchise consultants and current franchisees to deliver best practices from the corporate restaurants to the franchised units, when needed, Smith said.

“Our franchisees have some opportunities: They’re typically more bottom-line-focused than sales-focused,” Smith said. “They have not been as aggressive as we have on remodels and some of the audio-visual upgrades or relocating. We highlighted some of our sales building initiatives we’ve undertaken in the first and second quarters, and our franchisees are standing with us.”

Buffalo Wild Wings is planning 13 remodels in the second quarter, accounting for most of the 22 planned unit upgrades this year. The cost to refurbish a store varies from $300,000 to $450,000, Twinem said, adding that remodels carried out in 2010 produced a same-store sales lift that averaged between 3 percent and 4 percent.

Buffalo Wild Wings operates or franchises 753 locations in 45 states.

Contact Mark Brandau at [email protected].

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