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Understanding Buffalo Wild Wings’ Expenses: More than Just Chicken

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May. 10 2016, Updated 5:04 p.m. ET

Buffalo Wild Wings’ major cost drivers

The costs of sales, labor, operating expenses, and occupancy comprise the four main cost drivers of Buffalo Wild Wings (BWLD), which makes up 0.01% of the holdings of the iShares Dow Jones US ETF (IYY).

Over last five years, BWLD’s costs and expenses were in the range of 90.5%–92.5% of total sales. The high prices of corn and chicken feed in 2012 led to the reduction of chicken produced by 1%, which led to a rise in chicken prices and, thus, an increase in BWLD’s cost of sales in 2012.

Understanding Buffalo Wild Wings' Expenses: More than Just Chicken

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In 2014, however, the price of corn dropped to a record low. This led to an increase in chicken production. In 2012, BWLD paid an average price of $2 per pound of chicken wings, as compared to $1.80 in 2013, and $1.60 in 2014. However, in 2015, the prices of chicken wings rose again to $1.80, again increasing BWLD’s cost of sales.

Operating expenses and occupancy expenses as a percentage of total sales have reduced over the years due to improved same-store sales. But labor costs as a percentage of total sales have increased over the years due to increases in minimum wages in some states. Increases in bonuses have also increased BWLD’s labor expenses.

Peer comparisons

These increases in chicken prices and labor wages increased BWLD’s cost of sales in 2015 to 92.4%, up from 91% in 2014. In 2015, Brinker International’s (EAT), Bloomin’ Brands (BLMN), and Texas Roadhouse (TXRH) incurred total costs and expenses as a percentage of total sales of 89.7%, 94.7%, and 92%, respectively.

From 2011 to 2015, the total costs and expenses as a percentage of total sales of EAT oscillated between 89.7% and 93%, while BLMN oscillated between 94.5% and 95.7%. TXRH oscillated between 91.4% and 92%.

Continue to the next part for a look a BWLD’s valuation multiple.

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