Buffalo Wild Wings' Food Cost Tailwind Has Been Removed; Wedbush Downgrades

Buffalo Wild Wings BWLD may report disappointing Q4 same-store sales growth, and the company’s deteriorating fundamentals are “difficult to ignore,” Wedbush’s Nick Setyan said in a report. He downgraded the rating on the company from Outperform to Neutral, while reducing the price target from $180 to $155.

Checks indicate Buffalo Wild Wings’ SSS growth is trending below the consensus expectations of a 0.6 percent decline, Setyan mentioned. He reduced the Q4 SSS growth estimate from -0.7 percent to -1.5 percent.

No Food Cost Tailwind

Buffalo Wild Wings’ has been witnessing “stubbornly high” wing costs. The high cost of wings, coupled with a reduction in pricing to boost sales, would exert pressure on the company’s margins in 2017. Even with the limited pricing, meaningful transaction growth is unlikely.

Setyan lowered the transaction growth estimate for 2017 from 1.2 percent to 0.8 percent, while reducing the SSS growth estimate for the year from 2.2 percent to 1.8 percent.

Taking into account the “stubbornly high” wing costs, the unit level margin estimate has been lowered by 30 basis points to 17.1 percent, “undermining management’s 2018 UL margin target of 20 percent without a meaningful decline in wing cost,” the analyst wrote.

The non-COGS expense leverage “may not materialize,” Setyan commented, adding, “We continue to view potential capital structure catalysts as a near- and medium-term valuation floor.”