NEW YORK (TheStreet) -- Hefty sales gains in January and excitement about what Buffalo Wild Wings (BWLD) has in store for the rest of 2015 caused investors to overlook a rare earnings miss from the company on Thursday.
The wing restaurant reported fourth-quarter earnings of $1.07 a share, missing analyst estimates of $1.11 a share. Same-restaurant sales at company-owned and franchised restaurants rose 5.9% and 5.1%, respectively in the quarter, both representing slowdowns in growth from earlier in the year.
But in the first five weeks of the year, strong interest in the Super Bowl and college bowl championships have spurred a rise in sales growth. Same-restaurant sales have increased by a stellar 11.9% and 11.1% at company-owned and franchised restaurants, respectively. Investors sent the shares higher by 7% in trading on Thursday.
As for the surprising earnings shortfall during the holiday season, that could be primarily traced to higher labor and food costs that were not offset by a 3% menu price increase in November.
Costs to purchase non-frozen chicken wings surged 16% in the quarter to $1.90 per pound. Labor costs as a percentage of sales rose to 29.2% from 28.1% a year earlier as the company opened up a host of its new sports bars in states with higher minimum wages, and continued to add a position called a "guest experience captain."
The responsibilities of the higher-paying position, according to a job listing on Snagajob.com, range from community outreach to managing the restaurant's abundant amount of television and audio equipment. Buffalo Wild Wings believes the position is contributing to same-store sales growth that remains juicier than most industry peers.
The company also has several promising initiatives for this year.
The first centers on injecting some local flavor onto its menu. Buffalo Wild Wings will soon launch sandwiches and alcoholic drinks inspired from the four regions that make up the NCAA "March Madness" college basketball turnaround.
On the menu: a sandwich called the New Yorker that features pastrami on a pretzel roll and paired with a Sam Adams Boston Lager that is a nod to those in the North. Another is the southern-themed Bayou Po' boy that takes shrimp and Buffalo Wild Wings' sauces and serves it with a hurricane, a sweet alcoholic drink made with rum and fruit juice and native to New Orleans.
"It's partly how we test new menu options," said Buffalo Wild Wings CEO Sally Smith, adding that each pairing could become permanent choices on the menu this year.
New sandwiches and alcoholic drink concoctions will find their way onto a menu that is going to get a touch pricier as Buffalo Wild Wings tries to protect its profits from food and labor inflation.
Buffalo Wild Wings has said it will increase prices by 4.3% in the first quarter, 3.6% in the second quarter, 3.4% in the third quarter and 1.8% to cap the year. "We will definitely look at pricing in the fourth quarter, not before," said Smith as the company's overall commodity price inflation is seen as being "pretty flat" for the year.
Buffalo Wild Wings philosophy is to raise prices in small increments rather than by a large number in one specific quarter, Smith noted. The approach is a different tactic than that found at
Chipotle Mexican Grill
in the middle of 2014 to counteract inflation in avocados, beef and poultry.
"There has been no pushback by consumers to the price increase," said Buffalo Wild Wings COO James Schmidt on an earnings call Thursday evening.
Buffalo Wild Wilds Wings is looking to continue its sales success with its remodeled restaurants, and is forging ahead in opening emerging brands like the fast casual pizza concept PizzaRev that it has a minority stake in, and the Mexican cuisine inspired Rusty Taco, which is majority owned by the chicken wing king.
Early indications are that the company is headed down the right path this year on these fronts.
Buffalo Wild Wings will remodel close to 90 restaurants this year in a new design layout that has the bar positioned in the center, instead of along the wall, and a sleeker overall feel. On the earnings call, execs said remodeled restaurants do experience a nice sales lift once construction is completed, and then go on to outperform non-spruced-up spots.
In total, about 41% of company-owned Buffalo Wild Wings locations are expected to be in the new format by the end of this year, up from 19% in 2014. And at franchisee-operated restaurants, 30% of the locations will be in the new design from 20% a year earlier.
Meanwhile, at PizzaRev its two founders, with close input from the Buffalo Wild Wings team, will open 25-30 new locations this year, bringing the chain's size to 50 nationwide. Rusty Taco now numbers nine locations but is poised for quicker growth in 2015 following extensive work on picking new sites and operational planning by Buffalo Wild Wings. "We are really excited about the opportunities for Rusty Taco, and are looking to accelerate some growth there," said Smith.
"I think fast casual is here to stay, it's not a fad. It has been around for a while now -- for different occasions you are going to have people that want a fast casual experience, particularly for lunch and young people for dinner during the week," she said. "But I'm not sure you serve traditional casual dining food in a fast casual atmosphere. You have to have some innovation with your food."
Food for thought for the Chipotle team -- it often boasts it has mostly had the same menu for the past 20 years.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.