Buffalo Wild Wings Inc. (BWLD), best known for its chicken wings and sports bar, sustained its growth momentum in the third-quarter 2009 despite economic turmoil and lower consumer discretionary spending. The company reaffirmed its growth target of 15% in units, 25% in revenue, and 20% to 25% in net earnings for fiscal year 2009, showing its resilience in a turbulent environment. Management expects net earnings to be at the high end of its forecast.

The company’s net profit surged 50.4% year-over-year to $6.9 million. As a result, EPS jumped 52% to 38 cents, in line with the Zacks Consensus Estimate. The double-digit rise in the top-line, menu price increases, new restaurant openings and operational efficiency drove earnings.

Total revenue climbed 25.1% to $132.7 million. Sales at company-operated restaurant jumped 26% to $120.3 million, driven by comparable-store sales increase of 0.8% and 33 additional restaurants in operation at the end of the quarter compared to the prior-year quarter. Franchise royalties and fees rose 17.7% to $12.5 million driven by 1.9% increase in comparable-store sales, and 52 additional restaurants in operation at the end of the quarter compared to year-ago quarter.

The growth in comps sustained in the first four weeks of the fourth-quarter 2009 Incorporatedreasing about 6% at company-operated restaurants and nearly 4% at franchised restaurants.

Restaurant operating cash flow margin increased by 40 basis points to 17% driven by menu price increase, 50 basis points decline in labor costs to 30.2% (as a percentage of company-operated restaurant sales), 30 basis points fall in operating costs to 16.1%, offset by 30 basis points rise in occupancy costs to 6.9%. Cost of sales remained flat at 29.8%.

During the quarter, Buffalo Wild Wings opened five company-owned and 17 franchise restaurants, and expects to open 12 company-owned and 17 franchise restaurants in the fourth-quarter 2009. For fiscal year 2010, management expects to achieve 13% to 15% unit growth with a net earnings growth of 20%.

Buffalo Wild Wings’ targets opening 1,000 units in the United States in the long run. With 633 restaurants, we think the concept has a lot of room to grow before covering the market. Televised sporting events and beer attract customers in most major markets, so we do not anticipate unique regional tastes to dampen sales as the company expands into new markets.

In the casual dining space, Buffalo Wild Wings competes with Cosi Inc. (COSI), Red Robin Gourmet Burgers Inc. (RRGB), Famous Dave’s of America Inc. (DAVE) and BJ’s Restaurants Inc. (BJRI).

Zacks Investment Research
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