Buffalo Wild Wings' Profit Drops 38 Percent in Q4
Net earnings dropped by 38.2 percent in the fourth quarter of 2016 for Buffalo Wild Wings as the brand looks to boost sales in 2017 through various sales initiatives.
Same-store sales decreased 4 percent at company-owned restaurants and 3.9 percent at franchised restaurants during Q4, and the brand’s revenue increased 0.8 percent to $494.2 million.
“We're all aware of the challenging restaurant environment, variety seeking consumers, a proliferation of restaurant choices and competition from delivery,” CEO and president Sally Smith said in an earnings call on Tuesday. “We know performance needs to improve in 2017.”
During 2016, Buffalo Wild Wings added several new programs to extend dayparts and drive traffic, including Fast Break Lunch, Half-Price Wing Tuesdays and the Blazin’ Rewards loyalty program, and Smith says the company is pleased with the sales momentum of these initiatives going into 2017.
Buffalo Wild Wings reported that its same-store sales for weekday lunch were positive in the fourth quarter, and that it will make the Fast Break Lunch an evergreen program to continue its focus on improving the weekday lunch daypart.
Under the program, guests who don’t receive their lunch in 15 minutes or less get it for free. The company says 99.2 percent of the lunch orders were delivered on time.
Buffalo Wild Wings will also continue to invest in and expand third-party delivery, which brings in a 30 percent higher check than the average takeout order for the brand.
Chief Operating Officer James Schmidt says there continues to be ample room to grow the Buffalo Wild Wings footprint in 2017, particularly to smaller format stores as construction costs rise and real estate competition increases.
“We're pushing quickly to pilot several smaller format Buffalo Wild Wings with both company and franchised locations. There will be different variations of what this footprint will look like, along with possible changes to the menu,” Schmidt says. “As urban populations are increasing, we are exploring how a location in a downtown area would best function. Another iteration of the small format could be a unit dedicated solely to take out and delivery, or possibly just delivery. These options improve our reach and market share potential, as our research tells us that the number one barrier is a location nearby.”
For the full fiscal 2016 year, net earnings decreased 0.3 percent to $94.7 million, and same-store sales decreased 2.4 percent at company-owned restaurants and 2.7 percent at franchised restaurants. Total revenue increased 9.6 percent to $2 billion.
In 2017, Buffalo Wild Wings plans to open 15 company owned U.S. locations and 15 franchised U.S. locations, along with 20 franchised locations internationally. The company expects same-store sales growth of 1 to 2 percent.
“We look forward to building shareholder value in 2017 through improving sales, aligning costs, new restaurant builds, optimization of our restaurant portfolio and balancing our debt and equity to lower our cost of capital,” Smith says.
The brand is also exploring the sale of around 10 percent of its 631 company-owned restaurants to franchisees to optimize its store portfolio.
Executive vice president and CFO Alexander Ware says Buffalo Wild Wings performed an analysis and identified target geographies where the brand will continue to build, own, and operate units, and in some cases, sell to franchisees.
“We've also identified geographies where we may not have sufficient scale and as a result would view these areas as better suited to be run by our franchisees or others with greater local scale and resources," he says. "These are markets that we will evaluate selling as part of our first optimization effort.”
Ware says Buffalo Wild Wings also identified a second set of restaurants where the focus is to quickly improve unit performance.
“Our performance plans for these restaurants and regions include restaurant specific game plans designed to revive sales and improve margins,” he says. “This portfolio optimization will be an ongoing process.”