We are upgrading our rating on Buffalo Wild Wings Inc. (BWLD) to Outperform.
The rating upgrade is based on second quarter 2010 earnings, which were well ahead of the Zacks Consensus Estimate, primarily driven by double-digit growth in the top line and lower chicken wing prices. The company is also on track to achieve 13% unit and 20% net earnings growth in fiscal 2010, based upon the improvement in comparable-store sales growth and favorable wing costs.
Additionally, boasting a long track record of success, a viable strategy and a debt-free balance sheet, Buffalo Wild Wings offers investors one of the strongest growth profiles in the industry. Moreover, it provides ample growth opportunities, as it plans to open 1,000 units in the United States by 2013.
Second Quarter Results Ahead of Estimates
Buffalo Wild Wings’ second quarter earnings of 50 cents per share surpassed the Zacks Consensus Estimate of 42 cents and soared 28% from 39 cents posted in the prior-year quarter.
Total revenue climbed 12.4% year over year to $145.7 million and also outperformed the Zacks Consensus Estimate of $142.0 million. Sales at company-operated restaurants rose 11.7% to $131.5 million, fueled by 19 additional restaurants in operation at the end of the quarter compared with the prior-year quarter.
Franchise royalties and fees grew 19.5% to $14.2 million, propelled by 64 additional restaurants in operation at the end of the quarter compared with the year-ago quarter.
Restaurant operating margin perked up 120 basis points (bps) to 18.1%, aided by a 190-bps contraction in cost of sales, 10-bps decrease in labor costs and flat year-over-year occupancy costs, partially offset by an 80-bps expansion in operating costs.
Earnings Estimate Revisions: Overview
Following the second quarter earnings release, the Zacks Consensus Estimate for the company has increased; with analysts remaining bullish on the stock. The earnings estimate details are discussed below.
Agreement of Estimate Revisions
From the table below, an optimistic inclination can be witnessed among the analysts. Revision trends in the last 30 days have drifted toward the positive side. For fiscal 2010, fifteen out of 17 analysts covering the stock raised their estimates, and it’s the same story for fiscal 2011. No analysts reduced their estimates. Analysts have increased their estimates based on strong second quarter results. Meanwhile, same store sales are expected to improve and moderation in chicken wing cost will drive restaurant margins further.
Magnitude of Estimate Revisions
The table below indicates that earnings estimates have climbed by 12 cents to $2.07 for fiscal year 2010 and by 9 cents to $2.44 for fiscal 2011 over the last 30 days. The third quarter Zacks Consensus Estimate is now expected to be 43 cents, compared with 40 cents just 30 days ago.
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