Buffalo Wild Wings Shows Signs of Improvement

Image source: Buffalo Wild Wings.

Buffalo Wild Wings(NASDAQ: BWLD)released third-quarter 2016 results Wednesday after the market close. And though the wings, beer, and sports-centric restaurant chain served up yet another plate of same-store sales declines, the market was happy enough with signs of improvement to drive shares up 6% when all was said and done Thursday.

Let's dig in to see what has investors' mouths watering right now.

Buffalo Wild Wings' headline numbers

Quarterly revenue increased 8.5% year over year, to $494.2 million, driven primarily by new restaurant openings over the past year. Same-store sales declined 1.8% at company-owned restaurants, and fell 1.6% at franchised locations.

On the bottom line, that resulted in 17.8% growth in net income, to $22.7 million, and 23% growth in earnings per diluted share, to $1.23.Note that Buffalo Wild Wings also repurchased 36,600 shares during the quarter for $5.9 million, and increased its credit facility to $500 million earlier this month to allow it to execute against itspreviously expanded$150 million share repurchase authorization.

This marks Buffalo Wild Wings' third straight quarter of decreasing comps. But at the same time, the metric also appears to be improving; shares plunged in Aprilafter B-Dubs told investors first-quarter same-store sales dropped 1.7% and 2.4% at company-owned and franchised locations, respectively. And three months ago, the chain lamented even more severesecond-quarter same-store sales declines of 2.1% at company restaurants and 2.6% at franchised locations.

Buffalo Wild Wings CEO Sally Smith elaborated:

On sales-driving initiatives

Smith also expressed excitement for the potential of Buffalo Wild Wings' new menu, which launches next week, as well as an impending new burger launch. Meanwhile, Buffalo Wild Wings' Blazin' Rewards loyalty program is now in approximately 25% of all U.S. locations, and full implementation is expected to be complete by the middle of next year -- and that's a great thing considering those locations that already have Blazin' Rewards have seen a same-store sales lift of up to 2% following the initial rollout.

Next, takeout sales comprised around 16% of company-owned restaurant revenue during the quarter, up from 15.7% last quarter. Buffalo Wild Wings is also launching new versions of its mobile app and online ordering platform in the fourth quarter to make the experience more seamless.

In another initiative to drive incremental sales, Buffalo Wild Wings is testing third-party delivery providers for 90 company-owned locations and, according to Smith during the subsequent conference call, has seen "great top-line momentum in delivery." As of last quarter's report, Buffalo Wild Wings had only just begun testing delivery service for two locations, a move it made after consumers ranked it fourth in an analyst survey exploring the top companies from which consumers want food delivered.

On costs, looking forward

Buffalo Wild Wings continues to admirably manage costs as well. Cost of labor declined 10 basis points year over year, to 32% of total revenue. And cost of sales fell 50 basis points, to 29.4% of revenue, thanks in part to a 4% decline in the per-pound cost of traditional wings, to $1.72.

Buffalo Wild Wings also offered fresh color on its guidance and longer-term goals. Buffalo Wild Wings is setting a goal, for example, to achieve 20% restaurant level margin (up from 17.6% this quarter, and 18.2% through the first nine months of the year) by the end of 2018, and has identified several ways it can achieve that goal.

First, the company has already negotiated reduced pricing on its boneless wings and other chicken that will singlehandedly improve cost of sales by 20 basis points as a percent of restaurant sales next year. Another 20 basis points can be found by focusing on waste reduction at the restaurant level. By optimizing hours for higher-paid guest experience captains based on restaurant sales levels, B-Dubs aims to shave off 30 additional basis points from cost of sales in Q4, and another 20 basis points over the course of next year. And over the near term, Buffalo Wild Wings is working on quantifying the potential positive impact of other scheduling improvements, as well as reducing programming fees and uniform costs.

Of course, one might hope any given restaurant chain would want to streamline these efficiencies in both good times and bad. But either way, Buffalo Wild Wings should look forward to emerging a stronger, leaner company for its efforts.

In the meantime, Buffalo Wild Wings now expects full-year earnings per diluted share to be "slightly below the low end" of its previous guidance range for EPS of $5.65 to $5.85. During the call, management explained that traditional wing prices are significantly higher than anticipated so far in the fourth quarter.

Buffalo Wild Wings also offered an early look at its new unit development plans for 2017, calling for 30 to 35 new company-owned Buffalo Wild Wings restaurants, 15 franchised locations in the U.S., 20 to 25 franchised locations internationally, as well as five new company-owned and 10 franchised R Taco restaurants.

In the end, Buffalo Wild Wings is still losing ground on the same-store sales front. But given its improving trends, positive momentum from sales-driving initiatives, and cost-savings goals going forward, it's no surprise to see investors bidding up shares of the beaten down restaurant chain now.

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Steve Symington owns shares of Buffalo Wild Wings. The Motley Fool owns shares of and recommends Buffalo Wild Wings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.