Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K

Current Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):  October 25, 2017

BUFFALO WILD WINGS, INC.
(Exact name of registrant as specified in its charter)

Minnesota
000-24743
31-1455915
(State or other jurisdiction
of incorporation)
(Commission
File Number)
(IRS Employer
Identification No.)

5500 Wayzata Boulevard, Suite 1600
Minneapolis, Minnesota
 

55416
(Address of principal executive offices)
 
(Zip Code)

Registrant’s telephone number, including area code          952-593-9943

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o     Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o     Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o     Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o     Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter):
Emerging growth company o  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o  











Item 2.02.
Results of Operations and Financial Condition.

On October 25, 2017, Buffalo Wild Wings, Inc. issued a press release announcing its 2017 third quarter financial results. A copy of the press release is furnished as Exhibit 99.1 hereto.

Item 9.01.
Financial Statements and Exhibits.


(d)     Exhibits.
Exhibit
 
Description
99.1

 







SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
 
 
 
BUFFALO WILD WINGS, INC.
 
 
Date: October 25, 2017
/s/ Emily C. Decker
 
Emily C. Decker
 
Senior Vice President, General Counsel and Secretary




Exhibit

 
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=11852542&doc=3


Investor Relations Contact:
Heather Davis
952.540.2095
 

Buffalo Wild Wings, Inc. Announces
Third Quarter Earnings per Share of $1.17 and
Adjusted Earnings per Share of $1.36

Increasing 2017 Forecasted GAAP EPS to $4.30 to $4.60 and Adjusted EPS to $4.85 to $5.15
Minneapolis, Minnesota, October 25, 2017Buffalo Wild Wings, Inc. (NASDAQ: BWLD) announced today financial results for the third quarter ended September 24, 2017.

Key metrics for the third quarter, versus the same period a year ago, were:
Total revenue increased 0.5% to $496.7 million.
Company-owned restaurant sales increased 0.5% to $473.0 million.
Same-store sales decreased 2.3% at company-owned restaurants and 3.2% at franchise locations.
Net earnings decreased 19.7% to $18.2 million from $22.7 million, and earnings per diluted share decreased 5.4% to $1.17 from $1.23.
Adjusted net earnings decreased 10.7% to $21.2 million from $23.7 million, and adjusted earnings per diluted share increased 5.4% to $1.36 from $1.29.

Sally Smith, President and Chief Executive Officer, commented, "Our teams are executing on the cost initiatives of our fiscal fitness program and we exceeded our goal in the third quarter.  These savings helped deliver adjusted income from operations above our expectations. The recent Tuesday promotion shift from traditional to boneless wings at company-owned restaurants will continue to improve cost of sales while traditional wing prices remain elevated. Combined with our cost savings



initiatives and service excellence focus, we are optimistic these actions will deliver an improving bottom line."

Revenue

Total revenue increased $2.5 million to $496.7 million in the third quarter, compared to $494.2 million in the third quarter of 2016. Revenue includes the recognition of $2.9 million of deferred revenue, as the company established an initial breakage estimate for the Blazin' Rewards loyalty program.
Company-owned restaurant sales for the third quarter increased 0.5% over the same period in 2016 to $473.0 million, driven by 21 additional company-owned restaurants.
Franchise royalties and fees increased 1.0% to $23.7 million for the quarter, versus $23.5 million in the third quarter of 2016, driven by 31 additional franchised restaurants.
 
Expenses

Cost of sales for the third quarter was 30.8% of restaurant sales, compared to 28.9% in the quarter last year, driven by higher traditional chicken wing prices.
Traditional wings were $2.16 per pound in the third quarter, representing a $0.44 increase, or 25.6% above last year's third quarter average of $1.72. Traditional wings as a percent of cost of sales was 28.8% in the third quarter.
Cost of labor for the third quarter was 31.4% of restaurant sales, 70 basis points lower than third quarter last year, driven primarily by 40 basis points of favorable hourly labor, 50 basis points from an out-of-period benefits adjustment, partially offset by wage inflation.
Restaurant operating expenses as a percentage of restaurant sales were 15.2%, 40 basis points lower than third quarter of 2016, driven by favorable insurance and repair and maintenance expenses.
Occupancy costs were 6.0% as a percentage of restaurant sales, 20 basis points higher compared to the same quarter last year based on sales deleveraging.
Restaurant-level profit was $78.5 million, or 16.6%, of restaurant sales, compared to $82.8 million, or 17.6%, in the third quarter last year.
Depreciation and amortization expense for the third quarter was $37.8 million, decreasing 1.5% from the prior year.
General and administrative expenses were $31.1 million in the third quarter, decreasing 3.8% from the same period last year, due to decreased salaries and travel expenses.
Stock-based compensation was $2.4 million in the third quarter, compared to $0.3 million of expense in the prior year, which included a reversal of previously recognized expense.
Total savings achieved from the company's fiscal fitness program in the third quarter were $9.2 million and $15.3 million year-to-date in 2017.



Preopening expenses for the quarter totaled $0.9 million, versus $1.5 million in the third quarter last year, due to 4 openings this year versus 9 last year.
Loss on asset disposal for the third quarter totaled $4.1 million, compared to last year of $1.4 million. The 2017 expense includes impairment of two restaurants totaling $2.2 million and the write-off of prepaid software licenses of approximately $1 million.
Interest expense was $3.8 million in the third quarter, compared to $0.9 million in the prior year period.
The effective tax rate during the quarter was 27.3%, compared to 30.4% in the prior year, due to the benefit of employee tax credits.

Earnings

Income from operations was $28.4 million in the third quarter, or 5.7% of total revenue, compared to $32.8 million and 6.6% in the prior year. For the year to date period, income from operations was $71.6 million, or 4.7% of total revenue, compared to $114.9 million and 7.7% in the prior year.
Adjusted income from operations was $32.5 million in the third quarter, or 6.6% of total revenue, versus $34.4 million and 7.0% in the same quarter of 2016. For the year to date period, adjusted income from operations was $88.5 million, or 5.8% of total revenue, versus $119.6 million and 8.0% in 2016.
Net earnings decreased 19.7% to $18.2 million in the third quarter, versus $22.7 million in the third quarter of 2016. For the year to date period, net earnings decreased 38.7% to $48.5 million, versus $79.1 million in 2016.
Earnings per diluted share were $1.17, compared to third quarter 2016 earnings per diluted share of a $1.23. Earnings per diluted share decreased 29.7% to $2.98 for the year to date period, compared to $4.24 in the same period last year.
Adjusted earnings per diluted share were $1.36, compared to third quarter 2016 adjusted earnings per diluted share of $1.29. Adjusted earnings per diluted share for the year to date period decreased 21.5% to $3.47, compared to $4.42 in the same period last year.

Balance Sheet

Cash totaled $30.7 million at the end of the third quarter.
The revolving credit facility had an outstanding balance of $385 million as of the end of the quarter.

Cash Flow

Cash flow from operations was $43.2 million for the quarter, a 33.1% decrease over the third quarter last year. For the year-to-date period, cash flow from operations was $141.9 million, a 33.7% decrease over 2016.



Capital expenditures in the quarter were $25.0 million compared to $47.2 million in the prior year.
Free cash flow in the third quarter was $18.2 million, compared to $17.3 million in the prior year. Free cash flow in the year to date period was $82.4 million, compared to $96.1 million in the same period of the prior year.

2017 Outlook
 
The company expects approximately the following new unit development in 2017:
14 company-owned Buffalo Wild Wings restaurants in the United States, with 5 in the fourth quarter
15 franchised Buffalo Wild Wings locations in the United States, with 3 in the fourth quarter
20 franchised Buffalo Wild Wing locations internationally, with 10 in the fourth quarter
2 company-owned and 10 franchised R Taco restaurants

The company expects the following in 2017:
Same-store sales growth of approximately -1.5%
Traditional chicken wing inflation of 10% to 11%
Depreciation and amortization expense of $151 to $152 million
General and administrative expense of $133 to $135 million, including stock-based compensation of $8 to $9 million
Interest expense of approximately $14 million
Earnings per diluted share of $4.30 to $4.60
Adjusted earnings per diluted share of $4.85 to $5.15
Capital expenditures of approximately $80 million


Buffalo Wild Wings will be hosting a conference call today, October 25, 2017 at 4:00 p.m. Central Daylight Time to discuss these results. There will be a simultaneous webcast conducted at our investor website IR.BuffaloWildWings.com.

A replay of the call will be available until November 1, 2017. To access this replay, please dial 1-412-317-6671 password 8206882.


About the Company

Buffalo Wild Wings, Inc., founded in 1982 and headquartered in Minneapolis, is a growing owner, operator and franchisor of Buffalo Wild Wings® restaurants featuring a variety of boldly-flavored, made-to-order menu items including its namesake Buffalo, New York-style chicken wings. The Buffalo Wild Wings menu specializes in 21 mouth-watering signature sauces and seasonings with flavor sensations ranging from Sweet BBQ™ to Blazin’®. Guests enjoy a welcoming neighborhood atmosphere that includes an extensive multi-media system for watching their favorite sporting events. Buffalo Wild Wings is the recipient of hundreds of "Best Wings" and "Best Sports Bar" awards from



across the country. There are currently more than 1,240 Buffalo Wild Wings locations around the world. 

To stay up-to-date on all the latest events and offers for sports fans and wing lovers, like Buffalo Wild Wings on Facebook, follow @BWWings on Twitter and visit www.BuffaloWildWings.com.


Forward-looking Statements

Various remarks we make about future expectations, plans, and prospects for the company constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. These statements relate to our future financial and restaurant performance measures and growth goals, including but not limited to those relating to our fourth quarter trends, projected unit and net earnings growth rates, projected capital expenditures and expected adjustments to the same. All statements other than statements of historical fact are statements that could be deemed forward-looking statements and are based upon the current beliefs and expectations of our management. We have attempted to identify forward-looking statements by terminology, including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “goal,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” “scheduled,” or “will” or the negative of these terms or other comparable terminology. Actual results may vary materially from those contained in forward-looking statements based on a number of factors, including, but not limited to, our ability to achieve and manage our planned expansion, the ability of our franchisees to open and manage new restaurants, market acceptance in the new geographic regions we enter (particularly international locations), success of acquired restaurants, success of investments in new or emerging concepts, unforeseen obstacles in developing nontraditional sites or non-U.S. locations, our ability to obtain and maintain licenses and permits necessary to operate our existing and new restaurants, our franchisees’ adherence to our system standards, the cost of commodities such as traditional chicken wings, supply chain consistency, the success of our key initiatives and our advertising and marketing campaigns, our ability to control restaurant labor and other restaurant operating costs, the continued service of key management personnel, our ability to protect our name and logo and other proprietary information, economic conditions (including changes in consumer preferences or consumer discretionary spending), the impact of federal, state or local government regulations relating to our employees, the sale of food and alcoholic beverages, the effect of competition in the restaurant industry, and other factors disclosed from time to time in our filings with the U.S. Securities and Exchange Commission, including the factors described under “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 25, 2016, as updated in subsequent reports filed with the SEC. Investors should take such risks into account when making investment decisions. Shareholders and other readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We undertake no obligation to update any forward-looking statements.
# # #



BUFFALO WILD WINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollar and share amounts in thousands except per share data)
(unaudited)
 

 
Three months ended
 
Nine months ended
 
September 24,
2017
 
September 25,
2016
 
September 24,
2017
 
September 25,
2016
Revenue:
 
 
 
 
 
 
 
Restaurant sales
$
472,956

 
470,648

 
1,457,826

 
1,421,142

Franchise royalties and fees
23,744

 
23,519

 
73,617

 
71,460

Total revenue
496,700

 
494,167

 
1,531,443

 
1,492,602

Costs and expenses:
 
 
 
 
 
 
 
Restaurant operating costs:
 
 
 
 
 
 
 
Cost of sales
145,645

 
136,185

 
458,360

 
418,488

Labor
148,417

 
150,813

 
463,775

 
449,317

Operating
71,981

 
73,435

 
224,149

 
211,295

Occupancy
28,439

 
27,396

 
85,028

 
81,324

Depreciation and amortization
37,766

 
38,345

 
114,746

 
113,847

General and administrative
31,054

 
32,264

 
102,961

 
93,750

Preopening
856

 
1,490

 
2,360

 
5,191

Loss on asset disposals and impairment
4,118

 
1,393

 
8,474

 
4,489

Total costs and expenses
468,276

 
461,321

 
1,459,853

 
1,377,701

Income from operations
28,424

 
32,846

 
71,590

 
114,901

Interest expense
3,814

 
885

 
9,506

 
2,571

Other income
(203
)
 
(357
)
 
(4,983
)
 
(196
)
Earnings before income taxes
24,813

 
32,318

 
67,067

 
112,526

Income tax expense
6,775

 
9,814

 
18,993

 
33,799

Net earnings including noncontrolling interests
18,038

 
22,504

 
48,074

 
78,727

Net loss attributable to noncontrolling interests
(142
)
 
(147
)
 
(437
)
 
(399
)
Net earnings attributable to Buffalo Wild Wings
$
18,180

 
22,651

 
48,511

 
79,126

Earnings per common share – basic
$
1.17

 
1.24

 
2.99

 
4.25

Earnings per common share – diluted
$
1.17

 
1.23

 
2.98

 
4.24

Weighted average shares outstanding – basic
15,502

 
18,296

 
16,216

 
18,609

Weighted average shares outstanding – diluted
15,572

 
18,353

 
16,269

 
18,650








The following table expresses results of operations as a percentage of total revenue for the periods presented, except for restaurant operating costs which are expressed as a percentage of restaurant sales:



 
Three months ended
 
Nine months ended
 
September 24,
2017
 
September 25,
2016
 
September 24,
2017
 
September 25,
2016
Revenue:
 
 
 
 
 
 
 
Restaurant sales
95.2
 %
 
95.2
 %
 
95.2
 %
 
95.2
 %
Franchise royalties and fees
4.8

 
4.8

 
4.8

 
4.8

Total revenue
100.0

 
100.0

 
100.0

 
100.0

Costs and expenses:
 
 
 
 
 
 
 
Restaurant operating costs:
 
 
 
 
 
 
 
Cost of sales
30.8

 
28.9

 
31.4

 
29.4

Labor
31.4

 
32.0

 
31.8

 
31.6

Operating
15.2

 
15.6

 
15.4

 
14.9

Occupancy
6.0

 
5.8

 
5.8

 
5.7

Depreciation and amortization
7.6

 
7.8

 
7.5

 
7.6

General and administrative
6.3

 
6.5

 
6.7

 
6.3

Preopening
0.2

 
0.3

 
0.2

 
0.3

Loss on asset disposals and impairment
0.8

 
0.3

 
0.6

 
0.3

Total costs and expenses
94.3

 
93.4

 
95.3

 
92.3

Income from operations
5.7

 
6.6

 
4.7

 
7.7

Interest expense
0.8

 
0.2

 
0.6

 
0.2

Other income
0.0

 
(0.1
)
 
(0.3
)
 
0.0

Earnings before income taxes
5.0

 
6.5

 
4.4

 
7.5

Income tax expense
1.4

 
2.0

 
1.2

 
2.3

Net earnings including noncontrolling interests
3.6

 
4.6

 
3.1

 
5.3

Net loss attributable to noncontrolling interests
(0.0
)
 
(0.0
)
 
(0.0
)
 
(0.0
)
Net earnings attributable to Buffalo Wild Wings
3.7
 %
 
4.6
 %
 
3.2
 %
 
5.3
 %



BUFFALO WILD WINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
(unaudited)
 
September 24,
2017
 
December 25,
2016
Assets
 
 
 
Current assets:
 
 
 
Cash
$
30,685

 
49,266

Accounts receivable, net of allowance of $251
42,380

 
34,225

Inventory
14,688

 
16,532

Prepaid expenses
10,126

 
9,075

Refundable income taxes
2,109

 
1,018

Restricted assets
23,314

 
66,471

Total current assets
123,302

 
176,587

 
 
 
 
Property and equipment, net
541,706

 
592,806

Reacquired franchise rights, net
109,035

 
118,973

Other assets
39,215

 
41,625

Goodwill
117,228

 
117,228

Total assets
$
930,486

 
1,047,219

 
 
 
 
Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Deferred revenue
$
6,892

 
3,089

Accounts payable
40,857

 
45,797

Accrued compensation and benefits
33,982

 
47,304

Accrued expenses
31,043

 
32,347

Current portion of long-term debt and capital lease obligations
4,627

 
3,745

Current portion of deferred lease credits
4,736

 
873

System-wide payables
54,570

 
108,814

Total current liabilities
176,707

 
241,969

 
 
 
 
Long-term liabilities:
 
 
 
Other liabilities
16,828

 
16,109

Deferred income taxes
12,937

 
21,588

Long-term debt and capital lease obligations, net of current portion
420,376

 
205,312

Deferred lease credits, net of current portion
40,803

 
44,341

Total liabilities
667,651

 
529,319

 
 
 
 
Commitments and contingencies
 
 
 
Stockholders’ equity:
 
 
 
Undesignated stock, 1,000,000 shares authorized, none issued

 

Common stock, no par value. Authorized 44,000,000 shares; issued and outstanding 15,512,253 and 17,462,465 shares, respectively
142,657

 
147,234

Retained earnings
124,314

 
374,683

Accumulated other comprehensive loss
(3,560
)
 
(3,878
)
Total stockholders’ equity
263,411

 
518,039

Noncontrolling interests
(576
)
 
(139
)
Total equity
262,835

 
517,900

Total liabilities and equity
$
930,486

 
1,047,219




BUFFALO WILD WINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
(unaudited)
 
Nine months ended
 
September 24,
2017
 
September 25,
2016
Cash flows from operating activities:
 
 
 
Net earnings including noncontrolling interests
$
48,074

 
78,727

Adjustments to reconcile net earnings to net cash provided by operations:
 
 
 
Depreciation and amortization
114,746

 
113,847

Loss on asset disposals and impairment
8,474

 
4,489

Deferred lease credits
2,095

 
4,095

Deferred income taxes
(8,958
)
 
962

Stock-based compensation
6,465

 
2,453

Excess tax benefit from stock issuance

 
57

Change in fair value of contingent consideration
359

 
(1,591
)
Gain on sale of investment in affiliate
(5,692
)
 

Loss on investments in affiliate
1,488

 
1,904

Change in operating assets and liabilities, net of effect of acquisitions:
 
 
 
Accounts receivable
(11,042
)
 
(5,025
)
Inventory
1,872

 
1,954

Prepaid expenses
(1,496
)
 
(1,273
)
Other assets
(1,777
)
 
(4,450
)
Deferred revenue
3,803

 
477

Accounts payable
(3,030
)
 
6,465

Income taxes
(1,091
)
 
20,991

Accrued expenses
(12,365
)
 
(10,145
)
Net cash provided by operating activities
141,925

 
213,937

Cash flows from investing activities:
 
 
 
Acquisition of property and equipment
(59,552
)
 
(117,850
)
Acquisition of businesses

 
(3,862
)
Purchase of marketable securities

 
(488
)
Proceeds from marketable securities

 
1,205

Proceeds from sale of investment in affiliate
8,126

 

Net cash used in investing activities
(51,426
)
 
(120,995
)
Cash flows from financing activities:
 
 
 
Proceeds from revolving credit facility
370,000

 
464,521

Repayments of revolving credit facility
(155,000
)
 
(440,448
)
Borrowings from (payments to) restricted funds
(9,468
)
 
1,478

Repurchases of common stock
(312,249
)
 
(105,852
)
Other financing activities
(2,347
)
 
(1,557
)
Issuance of common stock
3,514

 
2,199

Excess tax benefit from stock issuance

 
(57
)
Tax payments for restricted stock units
(3,861
)
 
(9,317
)
Net cash used in financing activities
(109,411
)
 
(89,033
)
Effect of exchange rate changes on cash
331

 
(371
)
Net increase (decrease) in cash
(18,581
)
 
3,538

Cash at beginning of period
49,266

 
11,220

Cash at end of period
$
30,685

 
14,758




BUFFALO WILD WINGS, INC. AND SUBSIDIARIES
Supplemental Information
Restaurant Count
Company-owned Restaurants (includes Buffalo Wild Wings, R Taco, and Buffalo Wild Wings-owned PizzaRev locations):
 
Q1
Q2
Q3
Q4
2017
634
635
638
 
2016
603
609
617
631
2015
501
517
573
596
2014
443
449
463
491
2013
397
407
415
434

Franchised Restaurants (includes Buffalo Wild Wings and R Taco locations):
 
Q1
Q2
Q3
Q4
2017
616
624
633
 
2016
587
596
602
609
2015
593
593
569
579
2014
569
579
588
591
2013
514
525
534
559

Restaurant Count Rollforward:
 
Nine Months Ended
 
September 24, 2017
 
September 25, 2016
 
Corporate
 
Franchise
 
Total
 
Corporate
 
Franchise
 
Total
Buffalo Wild Wings
 
 
 
 
 
 
 
 
 
 
 
Beginning of period
621
 
602
 
1,223
 
590
 
573
 
1,163
Opened
9
 
22
 
31
 
19
 
25
 
44
Acquired
 
 
 
1
 
(1)
 
Closed/Relocated
(2)
 
(5)
 
(7)
 
(2)
 
(2)
 
(4)
End of period
628
 
619
 
1,247
 
608
 
595
 
1,203
R Taco
 
 
 
 
 
 
 
 
 
 
 
Beginning of period
8
 
7
 
15
 
4
 
6
 
10
Opened
2
 
7
 
9
 
3
 
1
 
4
Acquired
 
 
 
 
 
Closed/Relocated
 
 
 
 
 
End of period
10
 
14
 
24
 
7
 
7
 
14
PizzaRev
 
 
 
 
 
 
 
 
 
 
 
Beginning of period
2
 
n/a
 
2
 
2
 
n/a
 
2
Opened
 
n/a
 
 
 
n/a
 
Acquired
 
n/a
 
 
 
n/a
 
Closed/Relocated
(2)
 
n/a
 
(2)
 
 
n/a
 
End of period
 
n/a
 
 
2
 
n/a
 
2
Consolidated
 
 
 
 
 
 
 
 
 
 
 
End of the period
638
 
633
 
1,271
 
617
 
602
 
1,219





BUFFALO WILD WINGS, INC. AND SUBSIDIARIES
Supplemental Information

Same-Store Sales at Buffalo Wild Wings in United States and Canada
Company-owned Restaurants:
 
Q1
Q2
Q3
Q4
Year
2017
0.5%
(1.2%)
(2.3%)


2016
(1.7%)
(2.1%)
(1.8%)
(4.0%)
(2.4%)
2015
7.0%
4.2%
3.9%
1.9%
4.2%
2014
6.6%
7.7%
6.0%
5.9%
6.5%
2013
1.4%
3.8%
4.8%
5.2%
3.9%

Franchised Restaurants:
 
Q1
Q2
Q3
Q4
Year
2017
0.6%
(2.1%)
(3.2%)


2016
(2.4%)
(2.6%)
(1.6%)
(3.9%)
(2.7%)
2015
6.0%
2.5%
1.2%
0.1%
2.5%
2014
5.0%
6.5%
5.7%
5.1%
5.6%
2013
2.2%
4.1%
3.9%
3.1%
3.3%

Average Weekly Sales Volumes at Buffalo Wild Wings locations in United States and Canada
 
Company-owned Restaurants:
 
 
Q1
Q2
Q3
Q4
Year
2017
$
62,970
58,912
57,930
 
 
2016
 
62,829
59,894
59,690
59,120
60,366
2015
 
64,851
61,960
61,831
61,971
62,529
2014
 
60,966
59,403
59,643
62,119
60,470
2013
 
56,953
54,759
55,592
58,204
56,392

Franchised Restaurants:
 
 
Q1
Q2
Q3
Q4
Year
2017
$
65,713
61,217
59,964
 
 
2016
 
65,636
62,454
61,497
61,397
62,662
2015
 
67,075
63,904
62,819
64,032
64,474
2014
 
63,852
61,845
61,586
63,949
62,595
2013
 
60,050
58,186
58,926
61,167
59,594





Restaurant-Level Profit and Restaurant-Level Margin
Restaurant-level profit and restaurant-level margin are neither required by, nor presented in accordance with U.S. GAAP and are non-GAAP financial measures. Restaurant-level profit is defined restaurant sales less restaurant operating costs (cost of sales, labor, operating, and occupancy expense). Restaurant-level margin is defined as restaurant-level profit as a percentage of restaurant sales. Restaurant-level profit and restaurant-level margin have limitations as analytical tools, and should not be evaluated in isolation or as substitutes for analysis of results as reported under U.S. GAAP. Management believes the restaurant-level profit and restaurant-level margin are important tools for investors because they are widely-used metrics within the restaurant industry to evaluate restaurant-level productivity, efficiency and performance. Management uses restaurant-level profit and restaurant-level margin as key performance indicators to evaluate the profitability of company-owned restaurants.
A reconciliation of restaurant sales to restaurant-level margin is provided below:
 
 
 
 
 
 
 
 
 
Three months ended
 
Nine months ended
 
September 24, 2017
 
September 25, 2016
 
September 24, 2017
 
September 25, 2016
Restaurant sales
$
472,956

 
470,648

 
1,457,826

 
1,421,142

Restaurant operating costs
394,482

 
387,829

 
1,231,312

 
1,160,424

Restaurant-level profit
78,474

 
82,819

 
226,514

 
260,718

Restaurant-level margin
16.6
%
 
17.6
%
 
15.5
%
 
18.3
%
 

EBITDA

Earnings before interest, taxes, and depreciation and amortization (EBITDA) is not required by, nor presented in accordance with U.S. GAAP and is a non-GAAP financial measure. The Company defines EBITDA as net earnings including non-controlling interests plus interest expense, income tax expense, and depreciation and amortization. EBITDA has limitations as an analytical tool, and should not be evaluated in isolation or as a substitute for analysis of results as reported under U.S. GAAP. Management utilizes this metric as a basis for evaluating our ongoing operations, and believes investors' understanding of our performance is enhanced by including this non-GAAP financial measure as a reasonable basis for evaluating our ongoing results of operations, without the effects of interest, taxes, and depreciation and amortization.

A reconciliation of net earnings including noncontrolling interests to EBITDA is provided below:

 
 
 
 
 
 
 
 
 
Three months ended
 
Nine months ended
 
September 24, 2017
 
September 25, 2016
 
September 24, 2017
 
September 25, 2016
Net earnings including noncontrolling interests
$
18,038

 
22,504

 
48,074

 
78,727

Income tax expense
6,775

 
9,814

 
18,993

 
33,799

Interest expense
3,814

 
885

 
9,506

 
2,571

Depreciation and amortization
37,766

 
38,345

 
114,746

 
113,847

EBITDA
$
66,393

 
71,548

 
191,319

 
228,944










Adjusted Net Earnings and Adjusted Earnings per Diluted Share (Adjusted EPS)

Adjusted net earnings and adjusted earnings per diluted share are not required by, nor presented in accordance with U.S. GAAP and are non-GAAP financial measures. The Company defines adjusted earnings diluted per share as adjusted net earnings attributable to Buffalo Wild Wings divided by our weighted diluted average shares outstanding. Adjusted net earnings attributable to Buffalo Wild Wings is calculated as earnings before income taxes plus loss on asset disposals and impairment (excluding store closing reserve costs), proxy costs for contested election, advisory and consulting fees, restructuring costs, acquisition costs, and divestiture costs less gain on sale of investment in affiliate. This amount is then adjusted for an estimated income tax expense and net earnings (loss) attributable to noncontrolling interests. Adjusted net earnings and adjusted earnings per diluted share have limitations as analytical tools, and should not be evaluated in isolation or as a substitute for analysis of results as reported under U.S. GAAP. Management utilizes these metrics as a basis for evaluating our ongoing operations, and believes investors' understanding of our performance is enhanced by including these non-GAAP financial measures as a reasonable basis for evaluating our ongoing results of operations, without the effects of certain non-recurring or non-cash items. Excluding loss on asset disposals and impairment, all adjustments to earnings before income taxes are considered non-recurring.
 
 
 
 
 
 
 
 
 
Three months ended
 
Nine months ended
 
September 24, 2017
 
September 25, 2016
 
September 24, 2017
 
September 25, 2016
Earnings before income taxes (a)
$
24,813

 
32,318

 
67,067

 
112,526

Loss on asset disposals and impairment (b)
4,118

 
1,352

 
8,379

 
4,415

Proxy costs for contested election (c)

 
178

 
5,901

 
178

Advisory and consulting fees, and restructuring(d)

 

 
2,502

 

Gain on sale of investment in affiliate (e)

 

 
(5,692
)
 

Acquisition costs (f)

 

 

 
145

Divestiture costs (g)

 

 
80

 

Adjusted earnings before income taxes
28,931

 
33,848

 
78,237

 
117,264

Estimated income tax expense (h)
7,899

 
10,279

 
22,156

 
35,222

Adjusted earnings including noncontrolling interests
21,032

 
23,569

 
56,081

 
82,042

Net earnings (loss) attributable to noncontrolling interests (a)
(142
)
 
(147
)
 
(437
)
 
(399
)
Adjusted net earnings attributable to Buffalo Wild Wings
$
21,174

 
23,716

 
56,518

 
82,441

Weighted average shares outstanding – diluted (a)
15,572

 
18,353

 
16,269

 
18,650

Adjusted earnings per diluted share
$
1.36

 
1.29

 
3.47

 
4.42

(a) Equals the amounts shown on our consolidated statements of earnings.
(b) Consists of loss on asset disposals and impairments, excluding store closing reserve costs of $0 and $41, for the three-month periods ended September 24, 2017 and September 25, 2016, respectively. Consists of loss on asset disposals and impairments, excluding store closing reserve costs of $95 and $74, for the nine-month periods ended September 24, 2017 and September 25, 2016, respectively.
(c) Consists of costs related to the advisory fees and preparation of proxy materials in a contested election for the board of directors.
(d) Consists of costs related to consulting services pertaining to the identification of best practices and improving efficiencies, and organizational restructuring costs.
(e) Consists of the gain recorded from the sale of our investment in affiliate, Pie Squared Holdings.
(f) Consists of costs associated with an acquisition of a franchise-owned store.
(g) Consists of costs associated with the proposed divestiture of company-owned stores.
(h) Our effective tax rates for the three-month periods ended September 24, 2017 and September 25, 2016 were 27.3% and 30.4%, respectively. Our effective tax rates for the nine-month periods ended September 24, 2017 and September 25, 2016 were 28.3% and 30.0%, respectively. The calculated estimated income tax expense is based on these rates.



Adjusted Income from Operations

Adjusted income from operations is not required by, nor presented in accordance with U.S. GAAP and is a non-GAAP financial measure. The Company defines adjusted income from operations as income from operations plus loss on asset disposals and impairment (excluding store closing reserve costs), proxy costs for contested election, advisory and consulting fees, restructuring costs, acquisition costs, and divestiture costs. Adjusted income from operations has limitations as an analytical tool, and should not be evaluated in isolation or as a substitute for analysis of results as reported under U.S. GAAP. Management utilizes this metric for incentive compensation and as a basis evaluating our ongoing operations, and believes investors' understanding of our performance is enhanced by including this non-GAAP financial measure as a reasonable basis for evaluating our ongoing results of operations, without the effects of certain non-recurring or non-cash items. Excluding loss on asset disposals and impairment, all adjustments to income from operations are considered non-recurring.

 
 
 
 
 
 
 
 
 
Three months ended
 
Nine months ended
 
September 24, 2017
 
September 25, 2016
 
September 24, 2017
 
September 25, 2016
Income from operations (a)
$
28,424

 
32,846

 
71,590

 
114,901

Loss on asset disposals and impairment (b)
4,118

 
1,352

 
8,379

 
4,415

Proxy costs for contested election (c)

 
178

 
5,901

 
178

Advisory and consulting fees, and restructuring(d)

 

 
2,502

 

Acquisition costs (e)

 

 

 
145

Divestiture costs (f)

 

 
80

 

Adjusted income from operations
32,542

 
34,376

 
88,452

 
119,639

(a) Equals the amounts shown on our consolidated statements of earnings.
(b) Consists of loss on asset disposals and impairments, excluding store closing reserve costs of $0 and $41, for the three-month periods ended September 24, 2017 and September 25, 2016, respectively. Consists of loss on asset disposals and impairments, excluding store closing reserve costs of $95 and $74, for the nine-month periods ended September 24, 2017 and September 25, 2016, respectively.
(c) Consists of costs related to the advisory fees and preparation of proxy materials in a contested election for the board of directors.
(d) Consists of costs related to consulting services pertaining to the identification of best practices and improving efficiencies, and organizational restructuring costs.
(e) Consists of costs associated with an acquisition of a franchise-owned store.
(f) Consists of costs associated with the proposed divestiture of company-owned stores.

Free Cash Flow

Free cash flow is not required by, nor presented in accordance with U.S. GAAP and is a non-GAAP financial measure. The Company defines free cash flow as net cash provided operating activities minus acquisition of property and equipment. Free cash flow has limitations as an analytical tool, and should not be evaluated in isolation or as a substitute for analysis of results as reported under U.S. GAAP. Management utilizes this metric, and also believes investors' understanding of our performance is enhanced by including this non-GAAP financial measure, as a basis for evaluating our cash flow available after capital expenditures.

 
 
 
 
 
Nine months ended
 
September 24, 2017
 
September 25, 2016
Net cash provided by operating activities
$
141,925

 
213,937

Acquisition of property and equipment
(59,552
)
 
(117,850
)
Free cash flow
$
82,373

 
96,087






Adjusted Earnings per Diluted Share Forecast

Adjusted earnings per diluted share is not required by, nor presented in accordance with U.S. GAAP and is a non-GAAP financial measure. The Company defines adjusted earnings per diluted share as diluted earnings per share on a U.S. GAAP basis, plus diluted earnings per share impacts of loss on tangible and intangible asset disposals and impairment, costs related to the advisory fees and preparation of proxy materials in a contested election for the board of directors, and costs related to consulting services pertaining to the identification of best practices and improving efficiencies. Adjusted earnings per diluted share has limitations as an analytical tool, and should not be evaluated in isolation or as a substitute for analysis of results as reported under U.S. GAAP. Management utilizes this metric to forecast and evaluate our ongoing operations, and believes investors' understanding of our performance is enhanced by including this non-GAAP financial measure as a reasonable basis for forecasting and evaluating our ongoing results of operations, without the effects of certain non-recurring or non-cash items. Excluding loss on asset disposals and impairment, all adjustments to earnings before income taxes are considered non-recurring.

 
Twelve months ending December 31, 2017
 
Low Projection
 
High Projection
Earnings per diluted share forecast (a)
$
4.30

 
4.60

Loss on asset disposals and impairment (b)
0.43

 
0.43

Proxy costs for contested election(c)
0.26

 
0.26

Advisory and consulting fees, and restructuring costs (d)
0.11

 
0.11

Gain on sale of investment in affiliate (e)
(0.25
)
 
(0.25
)
Adjusted earnings per diluted share forecast (f)
$
4.85

 
5.15



(a) Equals the projected earnings per diluted share on a U.S. GAAP basis for fiscal year 2017.
(b) Consists of the projected earnings per diluted share impact of our loss on tangible and intangible asset disposals and impairment for fiscal year 2017.
(c) Consists of the projected earnings per diluted share impact of costs related to the advisory fees and preparation of proxy materials in a contested election for the board of directors.
(d) Consists of the projected earnings per diluted share impact of costs related to consulting services pertaining to the identification of best practices and improving efficiencies, and organizational restructuring costs for fiscal year 2017.
(e) Consists of the projected earnings per diluted share impact of the gain recorded from the sale of our investment in affiliate, Pie Squared Holdings.
(f) This estimate assumes diluted weighted average shares outstanding of 16,112 for fiscal year 2017.