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Will High Costs Hurt Buffalo Wild Wings (BWLD) Q3 Earnings?

Buffalo Wild Wings Inc.’s BWLD third-quarter results, scheduled for Oct 25, are expected to reflect a decline in profitability, given the high costs faced by the company.

For the quarter, the company expects cost of sales to be roughly 31.5% of total revenue. It is to be noted that Buffalo Wild Wings’ promotion of Half-Price Wing Tuesdays has been pressuring its cost of sales as the high priced wings items are offered at lower prices.

Meanwhile, management stated that cost for traditional chicken wings for the first two months of third quarter remained elevated and was at an average of $2.13 per pound, reflecting an increase of 24% over the prior-year quarter. Costs related to company’s other sales boosting initiatives like unit expansion and higher labor costs due to the competitive labor market are further likely to continue to hurt profits.

Resultantly, management expects third-quarter EPS to be below $1. In fact, the Zacks Consensus Estimate for earnings is pegged at 79 cents, reflecting a decline of 35.4% year over year.

Also, our quantitative model predicts that Buffalo Wild Wings does not have the right combination of two main ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

Zacks ESP: Buffalo Wild Wings has an Earnings ESP of -2.89%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Buffalo Wild Wings has a Zacks Rank #4 (Sell).

As it is we caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Other Factors Likely to Influence Q3 Results

It is to be noted that Buffalo Wild Wings has been persistently missing the Zacks Consensus Estimate for earnings and revenues, over the past few quarters. In fact, comps have been much under pressure so far in 2017, further adding to the woes.

Buffalo Wild Wings, Inc. Price and EPS Surprise

 

Buffalo Wild Wings, Inc. Price and EPS Surprise | Buffalo Wild Wings, Inc. Quote

Buffalo Wild Wings’ efforts to revive comps growth via menu innovation, promotional offerings, augmented focus on take-out and delivery services, investing in Guest Experience, better food presentation and operational efficiency bodes well. Still, the menu price increases made by the company and a choppy sales environment in the U.S. restaurant space are likely to affect traffic trends in the third quarter as well, thereby weighing on comps.

In fact, per the Zacks Consensus Estimate, company-owned comps are expected to decline 2.2% compared with the 1.2% dip witnessed in the last quarter. Meanwhile, the same for franchised comps is pegged at a negative 2.3%. Notably, comps had declined 2.1% in the previous quarter.

Nevertheless, the company’s aggressive unit expansion strategy is expected to add to its top-line. Increased investments in technology-driven initiatives including the revamp of its mobile app are likely to further boost sales. Markedly, the Zacks Consensus Estimate for third-quarter revenues is pegged at nearly $501 million, reflecting an increase of 1.4% year over year.

Stocks to Consider

Here are a couple of stocks, which, as per our model, have the right combination of elements to post an earnings beat this quarter.

Noodles & Company NDLS has an Earnings ESP of +66.67% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

El Pollo Loco Holdings, Inc. LOCO has an Earnings ESP of +6.74% and a Zacks Rank #3.

DineEquity, Inc. DIN has an Earnings ESP of +5.14% and a Zacks Rank #3.

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Buffalo Wild Wings, Inc. (BWLD) : Free Stock Analysis Report
 
DineEquity, Inc (DIN) : Free Stock Analysis Report
 
El Pollo Loco Holdings, Inc. (LOCO) : Free Stock Analysis Report
 
Noodles & Company (NDLS) : Free Stock Analysis Report
 
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