Can Buffalo Wild Wings Get Back on Track?

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Image source: Buffalo Wild Wings.

Buffalo Wild Wings (NASDAQ:BWLD) is set to serve second-quarter 2016 results next Tuesday, July 26, after the market close. With shares trading down around 15% year to date -- and the bitter taste of last quarter"s same-store sales disappointment still lingering -- you can bet the casual restaurant chain would love to wash down the market"s pessimism with a decidedly more refreshing report.

But what, exactly, should investors be watching when B-Dubs" Q2 results hit the wires?

First, note Buffalo Wild Wings doesn"t typically provide specific financial guidance on a quarterly basis. But it does tend to adjust its full-year outlook based on each subsequent quarter"s performance. And that outlook currently calls for 2016 earnings per diluted share in the range of $5.65 to $5.85, representing growth of 13.7% to 17.7% over earnings in 2015. During last quarter"s conference call, COO James Schmidt said this guidance assumes "improving sales trends throughout 2016, with a return to positive same-store sales by the fourth quarter, if not sooner."

But Buffalo Wild Wings has also suffered disappointment on the same-store sales front for each of its past two quarters. Most recently in April, same-store sales declined 1.7% at company-owned restaurants and fell 2.4% at franchised locations. We should also keep in mind the former included 54 previously franchised restaurants reacquired by Buffalo Wild Wingsover the previous year. By bringing them under the company-owned umbrella, it should be able to more quickly roll out sales-driving initiatives while at the same timeensuring a consistent dining experience across its company-owned restaurant portfolio.

Relatedly, we should listen for updates on the progress of four such sales-driving initiatives outlined by management last quarter: gaining market share in and executing a strong takeout program, enhancing the FastBreak lunch menu with a speed-of-service guarantee, improving and promoting B-Dubs" value proposition, and winning the market for year-round soccer viewership.

We"ve already seen some evidence of Buffalo Wild Wings" efforts to this end. In May, for example, the company introduced a limited-time offer "UFC takeout pack" containingfive dozenwings available during the weekends of UFC 198, 199, and 200, as well as corresponding marketing efforts promoting the deal. And early last month, B-Dubs formally implemented an enticing15-minute lunch guarantee(or it"s free!) across almost 900 U.S. locations, seemingly indicating last quarter"s early-stage tests of the enhancement were effective in drawing more time-sensitive diners for the underserved lunch daypart.

Finally, Buffalo Wild Wings singled out a partnership with Heineken last quarter to promote its restaurants as the place to be during this summer"s Copa America and EURO Cup tournaments, which together capped a total of 80 games between late June and early this month. If Buffalo Wild Wings was able to capitalize on these events -- and keeping in mind soccer is a year-round sport -- shifting diners" perception of Buffalo Wild Wings as an ideal place to watch (non-American) football could serve to smooth out some of the lumps it endures promoting other more seasonal sports.

Next, listen for updates on Buffalo Wild Wings" efforts to efficiently manage costs. Though sales fell short last quarter, it did an admirable job of managing expenses; cost of labor declined 60 basis points year over year, to 30.8% of restaurant sales, thanks to a combination of effective labor management and lower bonus payouts given its same-store sales declines. Cost of sales also dropped 60 basis points, to 29.7%. That bucked a 3% rise in the cost-per-pound of traditional chicken wings, to $1.97, which would have been more severe had Buffalo Wild Wings not renewed its modified pricing contracts this past April to narrow the potential price range it pays for around two-thirds of its traditional wing supply.

In the end, however, you can bet the market will be dedicating most of its scrutiny toward determining whether Buffalo Wild Wings" sales-driving efforts are having any real effect on its expected return to sustained, profitable growth. Depending on the outcome either way, it seems safe to bet we"ll be on the edge of our seats when Buffalo Wild Wings reports next week.

Source: http://www.fool.com/investing/2016/07/22/can-buffalo-wild-wings-get-back-on-track.aspx