News

Will BWW's financial miss lead to leadership change?

April 27, 2017

Although Buffalo Wild Wings reported Thursday that Q1 revenue increased 15.4 percent to $508.3 million and company-owned restaurant sales increased 16.6 percent to $483.9 million, it missed the mark when it came to earnings per share.

Thomson Reuters expected the chain to report earnings of $1.68 per share on $535 million in revenue, but those came in only at $1.44. CEO Sally Smith also said that same-store sales decreased 1.7 percent at company-owned restaurants and 2.4 percent at franchised restaurants, however.

"Our total revenue in the first quarter increased 15.4 prcent when compared to the prior year, resulting from continued unit development and franchise acquisitions over the last 12 months," Smith said in a company press release. "We are dissatisfied to report a same-store sales decline and we're undertaking several sales-driving initiatives to regain momentum. We were able to manage costs and improve our restaurant-level margin, and earnings per diluted share increased 13.5 percent year-over-year to $1.73."

The results could be a problem for Smith, who has taken quite a bit of heat from one of Buffalo Wild Wings' shareholders, Marcato Investments. The firm, which owns 6.1 percent of the chain, publicly claimed that BWW chain gave inaccurate information in its definitive proxy materials filed on April 21. Marcato is specifically questioning the chain's claim (found in the Total Return Comparison Graph) that it has outperformed the S&P 600 Restaurant Index over the past five years. Marcato last week sent a letter to all shareholders calling for Smith's resignation.

Buffalo Wild Wings, however, denied the accusation this week in its own statement saying that a third party — Research Data Group —  calculated the TRCG using the same methodology it has used since it began working with the chain in 2006.

"Buffalo Wild Wings believes the TRCG accurately represents the blended, market-capitalization weighted returns generated by companies that were constituents of the S&P 600 Restaurant Index as of the end of its last fiscal year," according to the statement from Buffalo Wild Wings. "Buffalo Wild Wings' total return outperformed this index over the last five years."

In the statement from Marcato, Managing Partner Mick McGuire called the analysis "sloppy and self-serving."

"This is an astronomical error and the fact that we need to point it out should make all shareholders question many arguments management has put forth," he said.

McGuire is calling on shareholders to elect Marcato's nominees to the Board of Directors during their next meeting on June 2

Outlook for rest of the year

Smith said the chain is focused on sales-driving initiatives to regain momentum in 2016. To strengthen its FastBreak lunch program, it is piloting a speed-of-service guarantee, for example.

"We're promoting Wing Tuesdays while evaluating different pricing and bundling options for this value day. Soccer is a growing sport in the United States and we'll be the place to watch all the action on the pitch for the major tournaments this summer," she said.

Ms. Smith concluded, "The Buffalo Wild Wings brand remains strong and poised to deliver long-term earnings growth. In 2016, we're continuing our development of new company-owned and franchised Buffalo Wild Wings restaurants in the United States and we are aggressively remodeling locations. Given our recent sales trends and an increasing outlook for the cost of traditional chicken wings, we believe earnings per diluted share in 2016 should be $5.65 to $5.85."

For 2016, the company expects the following new unit development:

• About 40 company-owned Buffalo Wild Wings restaurants.
• 30 to 35 franchised Buffalo Wild Wings locations in the United States.
• 12 to 15 franchised Buffalo Wild Wing locations internationally.
• Six company-owned and four franchised R Taco restaurants.
• Continued unit expansion by PizzaRev

For 2016, the company expects the following:

• Improving same-store sales.
• Deflationary food costs, excluding traditional chicken wings
• Depreciation and amortization expense of $150 to $155 million.
• Share repurchase activity of approximately $100 million.
• Earnings per diluted share of $5.65 to $5.85
• Capital expenditures of approximately $190 million, excluding additional franchise acquisitions or emerging brand investments