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Takeaway: We expect $BWLD to trade well below $70 over the immediate-term TRADE.

Buffalo Wild Wings printed a highly disappointing 3Q12.  This has been a difficult stock to call this year – the market’s reaction to earnings prints have been testament to that.  As things stand post 3Q earnings, we are back where we started: $3.05 in FY12 EPS. 

Below is a slide from our January 19th 2012 conference call outlining our bearish view of BWLD for the year.  We stuck our neck out and made a contrarian call of $3.05 in earnings for 2012.  Needless to say, that was an ill-timed call, but the two pillars of our bear case – input costs and the cost of growth – have been proven out.  We expect earnings revisions from the Street, which remains at $3.21 for FY12.  We remain negative on Buffalo Wild Wings and would expect the stock to break $70.

BWLD’S LONG AND WINDING ROAD TO $3.05 - bwld slide jan call

Recap

Management highlighted “high cost of sales and incremental preopening expenses” as moderating factors in earnings per share of $0.57 versus $0.61 in 3Q11 and $0.61 consensus. 

Comparable restaurant sales, for company stores, grew 6.2% year-over-year, which was in line with consensus.  The revenue miss was driven in part by new unit volumes declining year-over-year.  This was especially disappointing for the bulls, given that this has been described – and valued – as a growth concept for restaurant investors.  Operating income declined 8% versus last year.  Consensus was expecting 5.2% operating income growth. 

From here, it seems that margin pressure will continue with decelerating same-restaurant sales.  Weather could be a potential headwind for the stock as we head into the winter months.  Independent of weather, traffic trends remain a concern going forward as the company is – incredibly – taking 6% price in the fourth quarter.  That level of pricing could have unintended consequences for the brand. 

BWLD’S LONG AND WINDING ROAD TO $3.05 - BWLD earnings recap

Howard Penney

Managing Director

Rory Green

Analyst