B-Dubs Q4 Even Worse Than Expected; Risks Exist To 2017 Guidance

Wedbush maintained its Neutral rating on Buffalo Wild Wings (NASDAQ: BWLD) after the company’s disappointing fourth quarter results and said risks exist to the restaurant operator’s 2017 outlook.

• EPS of $0.87 was well below $1.27 consensus.
• -4.0 percent same-store sales growth lower than -1.7 percent consensus.
• Unit-level margins at 15.6 percent missed consensus’ 17.5 percent estimate despite in-line wing costs.
• Sees 2017 EPS of $5.60-6.00 vs. $6.47 consensus.
• Expects 2017 same-store sales growth of +1-2 percent (1.5 percent consensus).
• Projects 2017 unit-level margins of 17.8-18 percent (18.3 percent consensus).

“Initial 2017 EPS guidance well below expectations, with margin targets a tough hurdle, in our opinion,” analyst Nick Setyan wrote in a note.

Setyan says 2017 unit-level margin leverage will need to be driven by occupancy given wage and wing inflation. The analyst also believes management’s 2018 unit-level margin target of 20 percent is at risk.

Irrespective of sales driving initiatives in 2017 such as half price wing Tuesdays and online ordering/takeout, the analyst remains cautious around the sustainability of traffic gains given the positive calendar benefit in January.

In this backdrop, Setyan believes refranchising as a realistic alternative to value creation, while providing a near-term valuation floor. Buffalo Wild Wings announced that 10 percent of co-owned units could be refranchised towards the end of 2017 and into 2018.

Setyan also cut his 2017 EPS estimate to $5.74 from $6.05 and trimmed price target by $5 to $150.

n the pre-market hours Wednesday, the stock is down 3.87 percent to $144.