Buffalo Wild Wings, Inc. Announces Second Quarter 2010 Results

2010-07-28

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Buffalo Wild Wings Same-store sales decreased 0.1% at company-owned and 0.7% at franchised restaurants

Buffalo Wild Wings, Inc. (NASDAQ: BWLD), announced financial results for the second quarter ended June 27, 2010. Highlights for the second quarter versus the same period a year ago were:

“Company-owned locations are posting positive same-store sales of 2.2% in July. Franchised locations are also positive with same-store sales increases of 0.2%. Our restaurant Teams are well-prepared and excited as we head into the football season, and our marketing and media plans are stronger than ever.”

Total revenue increased 12.4% to $145.7 million
Company-owned restaurant sales grew 11.7% to $131.5 million
Same-store sales decreased 0.1% at company-owned restaurants and 0.7% at franchised restaurants
Net earnings increased 31.4% to $9.2 million from $7.0 million, and earnings per diluted share increased 28.2% to $0.50 from $0.39

Sally Smith, President and Chief Executive Officer, commented, “The recent strengthening of our sales is encouraging, and our focused efforts brought company-owned and franchised restaurants to nearly flat same-store sales in the second quarter. We continue our steady expansion, opening sixteen additional restaurants during the quarter, and revenue grew by 12%. Coupled with increased restaurant-level cash flow, we provided our shareholders with a substantial increase in net earnings of 31%, achieving earnings per share of $.50.”

Total revenue increased 12.4% to $145.7 million in the second quarter compared to $129.6 million in the second quarter of 2009. Company-owned restaurant sales for the quarter increased 11.7% over the same period in 2009, to $131.5 million, mainly the result of operating 19 additional company-owned restaurants at the end of second quarter 2010 relative to the same period in 2009. Same-store sales at company-owned locations for the second quarter decreased 0.1%. Franchise royalties and fees increased 19.5% to $14.2 million versus $11.9 million in the second quarter of 2009. This increase is attributed to 64 additional franchised restaurants at the end of the period versus a year ago, partially offset by a franchised same-store sales decrease of 0.7%.

Average weekly sales for company-owned restaurants were $43,021 for the second quarter of 2010 compared to $42,938 for the same quarter last year, a 0.2% increase. Franchised restaurants averaged $49,051 for the period versus $48,619 in the second quarter a year ago, a 0.9% increase.

For the second quarter, net earnings increased 31.4% to $9.2 million versus $7.0 million in the second quarter of 2009. Earnings per diluted share were $0.50, as compared to second quarter 2009 earnings per diluted share of $0.39.

2010 Outlook

Ms. Smith remarked, “Company-owned locations are posting positive same-store sales of 2.2% in July. Franchised locations are also positive with same-store sales increases of 0.2%. Our restaurant Teams are well-prepared and excited as we head into the football season, and our marketing and media plans are stronger than ever.”

Ms. Smith concluded, “We have previously stated that our 2010 growth goals are 13 to 15% unit growth and 20% net earnings growth. We are exceeding both of these annual targets for the first half of the year. Based on the anticipated new restaurants opening in the third and fourth quarters, we are on track for 13% unit growth for 2010. We have growing confidence that our 20% annual net earnings growth goal is achievable given the recent improvement in same-store sales and the moderation of wing costs.”


BUFFALO WILD WINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollar and share amounts in thousands except per share data)
(unaudited)

	Three months ended				Six months ended
	June 27,			June 28,	June 27,	June 28,
	2010			2009	2010	2009
Revenue:
Restaurant sales	$	131,531		117,763	269,493	237,187
Franchise royalties and fees		14,170		11,859	28,479	23,990
Total revenue		145,701		129,622	297,972	261,177
Costs and expenses:
Restaurant operating costs:
Cost of sales		37,601		35,922	79,825	72,130
Labor		40,089		36,056	80,774	71,605
Operating		21,173		17,966	42,628	35,953
Occupancy		8,807		7,924	17,717	15,518
Depreciation and amortization		9,456		7,888	19,006	15,383
General and administrative ⁽¹⁾		12,929		11,773	24,955	23,193
Preopening		1,197		1,673	2,312	4,082
Loss on asset disposals and store closures		526		272	937	447
Total costs and expenses		131,778		119,474	268,154	238,311
Income from operations		13,923		10,148	29,818	22,866
Investment income (loss)		(156	)	413	29	489
Earnings before income taxes		13,767		10,561	29,847	23,355
Income tax expense		4,601		3,586	10,120	7,894
Net earnings	$	9,166		6,975	19,727	15,461
Earnings per common share – basic	$	0.50		0.39	1.09	0.86
Earnings per common share – diluted		0.50		0.39	1.08	0.86
Weighted average shares outstanding – basic		18,167		17,999	18,157	17,990
Weighted average shares outstanding – diluted		18,234		18,070	18,230	18,052

(1) Includes stock-based compensation of $1,313, $1,689, $2,538, and $2,490, respectively

The following table expresses results of operations as a percentage of total revenue for the periods presented, except for restaurant operating costs which are expressed as a percentage of restaurant sales:


	Three months ended				Six months ended
	June 27,		June 28,		June 27,		June 28,
	2010		2009		2010		2009
Revenue:
Restaurant sales	90.3	%	90.9	%	90.4	%	90.8	%
Franchising royalties and fees	9.7		9.1		9.6		9.2
Total revenue	100.0		100.0		100.0		100.0
Costs and expenses:
Restaurant operating costs:
Cost of sales	28.6		30.5		29.6		30.4
Labor	30.5		30.6		30.0		30.2
Operating	16.1		15.3		15.8		15.2
Occupancy	6.7		6.7		6.6		6.5
Depreciation and amortization	6.5		6.1		6.4		5.9
General and administrative	8.9		9.1		8.4		8.9
Preopening	0.8		1.3		0.8		1.6
Loss on asset disposals and store closures	0.4		0.2		0.3		0.2
Total costs and expenses	90.4		92.2		90.0		91.2
Income from operations	9.6		7.8		10.0		8.8
Investment income (loss)	(0.1	)	0.3		0.0		0.2
Earnings before income taxes	9.4		8.1		10.0		8.9
Income tax expense	3.2		2.8		3.4		3.0
Net earnings	6.3		5.4		6.6		5.9


BUFFALO WILD WINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
(unaudited)

	June 27,		December 27,
	2010		2009
Assets
Current assets:
Cash and cash equivalents	$	9,711	9,580
Marketable securities		59,489	43,632
Accounts receivable – franchisees, net of allowance of $25		1,150	2,118
Accounts receivable – other		7,946	7,383
Inventory		3,400	3,644
Prepaid expenses		2,005	2,972
Refundable income taxes		974	1,872
Deferred income taxes		2,555	2,938
Restricted assets		24,505	24,384
Total current assets		111,735	98,523

Property and equipment, net		194,607	189,639
Other assets		9,670	9,665
Goodwill		11,246	11,246
Total assets	$	327,258	309,073
Liabilities and Stockholders’ Equity
Current liabilities:
Unearned franchise fees	$	2,359	2,706
Accounts payable		14,720	13,436
Accrued compensation and benefits		16,790	19,554
Accrued expenses		5,191	6,540
Current portion of deferred lease credits		76	84
System-wide payables		24,505	24,384
Total current liabilities		63,641	66,704

Long-term liabilities:
Other liabilities		1,582	1,422
Deferred income taxes		12,434	14,940
Deferred lease credits, net of current portion		16,830	16,174
Total liabilities		94,487	99,240

Commitments and contingencies
Stockholders’ equity:
Undesignated stock, 1,000,000 shares authorized; none issued		—	—
Common stock, no par value. Authorized 44,000,000 shares; issued and outstanding 18,181,009 and 18,054,375 respectively		97,098	93,887
Retained earnings		135,673	115,946
Total stockholders’ equity		232,771	209,833
Total liabilities and stockholders’ equity	$	327,258	309,073


BUFFALO WILD WINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
(unaudited)

	Six months ended
	June 27,			June 28,
	2010			2009
Cash flows from operating activities:
Net earnings	$	19,727		15,461
Adjustments to reconcile net earnings to cash provided by operations:
Depreciation		18,699		15,077
Amortization		307		306
Loss on asset disposals and store closures		847		447
Deferred lease credits		929		840
Deferred income taxes		(2,123	)	1,639
Stock-based compensation		2,538		2,490
Excess tax benefit from the exercise of stock options		(116	)	(31	)
Change in operating assets and liabilities:
Trading securities		(748	)	(1,204	)
Accounts receivable		124		(734	)
Inventory		244		(255	)
Prepaid expenses		967		1,389
Other assets		(312	)	(105	)
Unearned franchise fees		(347	)	166
Accounts payable		2,472		(61	)
Income taxes		1,014		1,895
Accrued expenses		(2,749	)	20
Net cash provided by operating activities		41,473		37,340
Cash flows from investing activities:
Acquisition of property and equipment		(25,506	)	(33,115	)
Purchase of marketable securities		(61,114	)	(25,284	)
Proceeds of marketable securities		46,005		24,778
Net cash used in investing activities		(40,615	)	(33,621	)
Cash flows from financing activities:
Issuance of common stock		782		555
Tax payments for restricted stock units		(1,625	)	(1,513	)
Excess tax benefit from the exercise of stock options		116		31
Net cash used in financing activities		(727	)	(927	)
Net increase in cash and cash equivalents		131		2,792
Cash and cash equivalents at beginning of period		9,580		8,347
Cash and cash equivalents at end of period	$	9,711		11,139


BUFFALO WILD WINGS, INC. AND SUBSIDIARIES
Supplemental Information

Restaurant Count

Company-owned Restaurants:

		Q1	Q2	Q3	Q4
	2010	235	234
	2009	206	215	220	232
	2008	165	169	187	197
	2007	140	145	148	161
	2006	124	129	134	139


Franchised Restaurants:

		Q1	Q2	Q3	Q4
	2010	430	447
	2009	373	383	400	420
	2008	340	346	348	363
	2007	299	301	313	332
	2006	260	270	278	290


Same-Store Sales

Company-owned Restaurants:

		Q1		Q2		Q3		Q4		Year
	2010	0.1	%	(0.1	%)
	2009	6.4	%	2.8	%	0.8	%	2.6	%	3.1	%
	2008	4.1	%	8.3	%	6.8	%	4.5	%	5.9	%
	2007	8.7	%	8.1	%	8.3	%	3.4	%	6.9	%
	2006	7.7	%	8.2	%	11.8	%	13.2	%	10.4	%


Franchised Restaurants:

		Q1		Q2		Q3		Q4		Year
	2010	0.7	%	(0.7	%)
	2009	6.0	%	3.7	%	1.9	%	2.0	%	3.4	%
	2008	2.1	%	4.5	%	2.1	%	2.5	%	2.8	%
	2007	3.3	%	4.0	%	5.9	%	2.3	%	3.9	%
	2006	6.7	%	4.7	%	6.4	%	6.5	%	6.1	%


BUFFALO WILD WINGS, INC. AND SUBSIDIARIES
Supplemental Information

	Average Weekly Sales Volumes

Company-owned Restaurants:

		Q1		Q2	Q3	Q4	Year
	2010	$	45,327	43,021
	2009		45,593	42,938	42,602	44,583	43,912
	2008		41,438	40,572	42,400	43,864	42,141
	2007		39,254	36,655	38,498	40,485	38,757
	2006		35,857	33,660	35,380	38,800	36,033


Franchised Restaurants:

		Q1		Q2	Q3	Q4	Year
	2010	$	51,532	49,051
	2009		50,729	48,619	48,458	50,115	49,479
	2008		47,812	46,390	46,889	48,424	47,382
	2007		46,439	43,998	45,879	47,293	45,901
	2006		44,342	42,338	42,963	46,008	43,975