Buffalo Wild Wings (BWLD) Loses its Heat Despite Record Fourth Quarter Earnings

Shares of Buffalo Wild Wings (BWLD: Charts, News) slid this week despite the company's record fourth quarter earnings. The Minneapolis, Minnesota-based company, best known for its wings and beer, posted earnings of 89 cents per share, or $16.7 million, a 22% increase from the prior year quarter.

Revenue rose 38% to $303.8 million. Its earnings missed the Thomson Reuters consensus 96 cents per share, but its revenue exceeded the forecast of $292.4 million. The company's annual revenue also exceeded $1 billion for the first time in its history. However, its rare bottom line miss was attributed to higher chicken wing costs - which alarmed investors. Daily Chart
During the fourth quarter, the cost of a pound of chicken wings increased to $2.07, up from $1.42 a year ago. The higher cost of individual wings was caused by producers breeding larger birds for more meat. Feltl & Co. analyst Mark Smith, who has given Buffalo Wild Wings stock a "sell" rating, stated, "It's just wing prices - they're killing them." However, Smith's pessimistic outlook is a dissenting voice, since most analysts rate Buffalo Wild Wings as a "buy" or "outperform." To offset these high chicken wing prices, Buffalo Wild Wings has raised prices by over 4%. So far, the company has been successful at passing on the costs to the customers, and has not seen a sales slowdown yet. That means that the company still has substantial pricing power now, but analysts are concerned that it is might not be able to raise prices much further without impacting sales. Buffalo Wild Wings has expanded aggressively, opening 62 new locations during the quarter. Same-store sales rose 5.8% at company owned stores and 7.6% at franchised ones. However, for the first six weeks of 2013, the company posted a same-store sales decline of 2.8% and 1.7% at company-owned restaurants and franchised locations, respectively. But 2012 included a 53rd fiscal week, which gave the company an extra week in fiscal 2013 - which included several college football bowls and the NFL Super Bowl. Adding this overlapping week into the first six weeks changes things substantially - causing company-owned and franchised stores to report respective same-store sales growth of 2.6% and 1.6%. Those conflicting figures have made its same-store sales hard to analyze for future growth. Over the past five years, Buffalo Wild Wings has increased its cash and equivalents by 106.7%, and it still has no long-term debt. Meanwhile, it has grown revenue 175.8% while diluted EPS has risen 152.2%. However, revenue growth recently overtook EPS growth, which signals some problems with operating margins. Operating margins have plunged 10.36% over the past twelve months. That's why rising chicken wing prices are scaring investors away. Buffalo Wild Wings investors need to watch chicken wing prices and operating margins very closely, since the restaurant's profit margin is already at a slim 5.67%. Any further price increases in 2013 could stop this growth story cold. Shares of Buffalo Wild Wings trade at 17.7 times forward earnings with a 5-year PEG ratio of 1.1, which makes it a fundamentally undervalued growth stock. The stock does not pay a dividend. Other News About BWLD Is Buffalo Wild Wings A Buy After The Earnings Miss? Is Buffalo Wild Wings a steal at current prices A Mixed Bag for Buffalo Wild Wings Analysts are divided over Buffalo Wild Wings' fourth quarter earnings. Other Stocks in the News McDonalds' Falls on Obama Call to Raise U.S. Minimum Wage McDonald's slides on prospects of a minimum wage hike. The Past, Present and Future of Las Vegas Sands How Las Vegas Sands conquered the casino industry. Copyright 2013 by InvestorGuide.com, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA InvestorGuide.com, Inc.) or its employees responsible.

Published on Feb 14, 2013
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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