Buffalo Wild Wings, Inc.

2011 2014: Financial Analysis 1

Buffalo Wild Wings, Inc. 2011 2014: A Financial Analysis

Lillian Baer, Dominique Cappello
Seton Hill University
SBU 204 01: Finance
Buffalo Wild Wings, Inc. 2011 2014: Financial Analysis 2

Company History Buffalo Wild Wings

After a severe case of food homesickness for their native home of New York,
BWW founders Jim Disbrow and Scott Lowry took matters into their own hands and
crafted a homemade wing sauce. Their sauce quickly gained acclaim and soon great
demand assembled for the pairs New York style wings. In 1982, Jim Disbrow and Scott
Lowry officially opened up their first restaurant, formerly named, Buffalo Wild Wings
and Weck. Due to the high volume of customers, cleverly based outside of the Ohio
State University campus, this franchise has since then developed a dedicated following
throughout the country (Buffalo Wild Wings, n.d.).
With such a massive client base, BWW began to expand. Due to such high
success next to a midwest university, Disbrow and Lowry made arrangements with
several other midwest campuses. This allowed BWW to grow at an increasingly rapid
pace. Additionally, the central theme of the restaurants, various beers and sports related
media, resounded deeply with college students. Year after year, students kept returning to
BWW while simultaneously adding to the customer base by bringing their friends and
families.
While BWW gained massive acclaim and high success, they lacked the necessary
infrastructure, such as marketing and HR departments, to maintain a lasting company. In
1994, Sally Smith employed the necessary departments to ultimately establish BWW as
an official and professional company. Since then, BWW has made even more strides to
expand and evolve. With a healthy and stabilized financial status, the company decided to
launch its first national advertising campaign, knowing the benefits of the advertisement
were worth the costs. This advertisement clearly proved to be successful due to its
naming of Forbes magazines 200 Best Small Companies. With a clear vision,
expansion and growth has not been difficult for BWW. They have now globalized their
company with the establishment of franchises in the Middle East, Canada, and Puerto
Rico since 2011 (Buffalo Wild Wings, n.d.).
BWW is a team-oriented restaurant, stressing an encouraging and positive work
environment. This optimistic treatment of staff has allowed them to gain a loyal work
force. They actively make a commitment to their employees that they will maintain fair
treatment of all workers.
Buffalo Wild Wings, Inc. 2011 2014: Financial Analysis 3

Ultimately, Buffalo Wild Wings has proven itself as much more than a grill and
bar. It has become a mecca for sports moguls and the occasional foodie enthusiast who
enjoys a variety of foods. Furthermore, it has provided the community with not only a
welcoming gathering place, but also a warm and buzzing environment for friends and
family alike to have a great time and eat wonderful and inexpensive food (Buffalo Wild
Wings, n.d.).

Financial Analysis
Financial ratios measure many aspects of a business and are a central part of the
financial analysis for any business. They are ultimately indicators of a businesss overall
performance. Financial ratios are classified according to the financial aspect of the
business in which the ratio measures. There are four categories of financial ratios:
profitability ratios, asset utilization ratios, liquidity ratios, and debt utilization ratios. The
ratios are imperative to both the company and those who might want financial
information such as bankers and investors (Financial Ratios, n.d.). The financial ratios
below represent years 2011-2014.

Profitability
Out of the four categories of the financial statement, profitability comes first. The
individual ratios represent Buffalo Wild Wings ability to make a profit based off of other
expenses already acquired.
Figure 1: Profitability Ratios for BWW (2011-2012)

Profitability Ratios 2011 2012 2013 2014

Gross Margin (%) 27.01 24.23 23.68 24.38

Return on Assets (%) 11.52 10.54 11.04 12.07

Return on Equity (%) 17.55 16.33 16.85 18.10

Profit Margin
Buffalo Wild Wings, Inc. 2011 2014: Financial Analysis 4

Altogether, the profit margin decreased from 2011 to 2014, starting with 27.01
and falling to 24.38. However, the net income drastically increased from 2011 to 2014,
starting only at 50%, jumping to 72% in 2013 and ending with a whopping net income of
94% in 2014. Analyzing the data, it is clear to see BWW slowly climbed in net income
through 2011 to 2012, but took major leaps once they hit 2013. Their profit margin,
however, struggled to achieve the success they had in 2011, only reaching 24.38 (Buffalo
Wild Wings, 2015). This might have been caused by an increase in expenses. Overall
profit margin is affected if expenses increase and revenues remain the same. The profit
margin decreases, as seen in 2013.
Return on Assets
Return on assets decreased in 2012, but regained an increase in 2013. As
previously stated in profit margin, their net income increased tremendously. Overall,
return on assets remained constant with the exception of a decrease in 2012. Starting in
2011, current assets were on a decline of 28.11% until 2014 when they spiked to 30.4%,
which was leading them in the direction of regaining their highest total assets, 46.50%.
Their short-term investments hit an all time low in 2012 of 5.23% versus the all time
high, 40.07%. They slowly regained leverage bumping up to 13.23% in 2014, but
nowhere close to where they use to be (Buffalo Wild Wings, 2015).
Return on Equity
Return on Equity stayed pretty consistent for the most part with some decreases in
2012 and 2013, but regained an overall increase in 2014. The total shareholders equity
stayed relatively consistent starting with a slight decrease, but then regained a gradual
increase. An important point to consider is throughout the years the return on equity hit
its highest peak in 2014 (Buffalo Wild Wings, 2015).

Asset Utilization
Asset utilization is the next type of financial ratios. These ratios display how
companies are able to produce revenue off of a specific asset. It also aids in highlighting
how efficient the company is with making revenue off of their assets (Asset Turnover,
2003).
Figure 2: Asset Utilization Ratios for Buffalo Wild Wings (2011-2014)
Buffalo Wild Wings, Inc. 2011 2014: Financial Analysis 5

Financial Ratios 2011 2012 2013 2014

Receivables Turnover (times) 50.24 64.26 47.71 58.97

Average Collection Period (days) 75.2 73.6 71.5 68.3

Inventory Turnover (times) 113.67 123.27 124.88 121.33

Fixed Asset Turnover (times) 2.93 2.99 3.06 3.24

Total Asset Turnover (times) 1.7 1.78 1.63 1.5

Receivables Turnover
Receivables turnover had a drastic drop from 2011 to 2012, but then grew and remained
consistent throughout 2014. This can be credited to an increase in sales as well as an
increase in accounts receivables.
Average Collection Period
The average collection period steadily declined throughout all four years. This suggests a
faster pace in the collection of accounts receivable. This can once again be credited to an
increase in sales.
Inventory Turnover
Inventory turnover steadily grew between 2011 and 2013, but decreased in 2014.
The gradual increase for the first three years was caused by a rapid increase in sales as
well as a sluggish increase in inventory. However, in 2014, that was not the case. Slow
increase in sales and fast increase in inventory caused this sharp decline.
Fixed Asset Turnover
Fixed asset turnover maintained steady growth from 2011 to 2014. This increase
was caused by slow growth of property all four years.
Total Asset Turnover
Total asset turnover steadily grew from 2011 to 2013, but slightly decreased in
2014. The initial growth was caused by stability in the level of assets. However, the slight
decrease in 2014 was caused by massive property investment.
Liquidity
Liquidity ratios measure a companys ability to pay off short-term debt
obligations. The higher the ratios value, the larger safety margin in which a company
Buffalo Wild Wings, Inc. 2011 2014: Financial Analysis 6

retains in order to cover short-term debts. This ability is an important factor in which
creditors must consider because they are seeking payment. Liquidity ratios can also be
used as an indication on whether or not a company will be able to continue functioning
(Liquidity Ratios Definition, 2006).

Figure 3: Liquidity Ratios for Buffalo Wild Wings (2011-2014)

Financial 2011 2012 2013 2014
Ratios
Current Ratio 1.22 1.10 1.10 1.35
Quick Ratio .7 .39 .55 .77

Current Ratio
The current ratio declined in 2012 and remained consistent to 2013. It then grew
to 1.35 in 2014. Due to a substantially low amount of debt, the current ratio remained
relatively low throughout all four years.
Quick Ratio
The quick ratio had a stark drop from 2011 to 2012, but then steadily grew in
2013 and 2014. Ultimately, both liquidity ratios display use of shareholder funding to
satisfy liabilities. However, both ratios could be drastically improved.

Debt Utilization
The final financial ratio is debt utilization. This ratio measures the companies
ability to use debt to leverage its investments. It is ultimately defined as the ratio of total
debt to total assets. It can be interpreted as the proportion of a companys assets that are
supported by debt (Debt Ratio Definition, 2003).
Figure 4: Debt Utilization Ratios for Buffalo Wild Wings (2011-2014)
Financial 2011 2012 2013 2014
Ratios
Debt to total .33 .34 .35 .36
assets
Buffalo Wild Wings, Inc. 2011 2014: Financial Analysis 7

Times interest 2.61 3.17 3.09 4.33

earned

Debt to Total Assets

Because Buffalo Wild Wings did not have any debt, we had to calculate the debt
to total assets by dividing total liabilities by total assets. The debt to total assets was very
low throughout the four-year period. This suggests they possess good assets and do not
have any current debt.
Times Interest Earned
Times interest earned mostly increased throughout the four years except for a
slight drop in 2013. This might be because of an increase in earnings before interest and
an increase in interest expense.

Summary of Financial Ratios

Overall the company seems to be healthy and growing. Throughout all four years
the debt to total assets remained consistent and the times interest earned increased
steadily. Buffalo Wild Wings had one a relatively good job on keeping debt at a
minimum if not having any at all. They also have assets that earn them money. This
suggests they have made smart investments. However, they do need to watch the ever
increase interest expense.
Leverage Analysis
Companies rely on several financial measurements that look at operating expenses
and proper financing to surge production. Degree of operating leverage allows one to
assess the effect of operating leverage on a companys earnings before interest and taxes
Operating leverage also involves determining the level at which a company can maximize
earnings before interest and taxes (Degree of Operating Leverage Definition, 2006).
Degree of Financial Leverage includes a measurement of fluctuations in earnings per
share in operating income due to capital structure changes (Degree of Financial Leverage
Definition, 2006). Degree of combined leverage involves the effect both operating
leverage and financial leverage have on earnings per share.
Figure 5: Degree of Leverage Calculations for Buffalo Wild Wings (2011-2014)
Buffalo Wild Wings, Inc. 2011 2014: Financial Analysis 8

Leverage 2011 2012 2013 2014

Degree of
Operating 3.07 3.56 4.01 4.03
Leverage
Degree of
Financial 1.54 1.55 1.7 1.67
Leverage
Degree of
Combined 5.6 8.78 8.80 9.05
Leverage
Degree of Operating Leverage

The degree of operating leverage steadily increased from 2011 to 2014. This
might be because of a consistent production style that is clearly working. Additionally,
their operating expenses declined throughout these four years as well. This added to an
increase in the degree of operating leverage.

Degree of Financial Leverage

The degree of financial leverage is relatively consistent across the four years.
Despite a slight increase in 2013, the degree of financial leverage has displayed
substantially constant numbers. This might be because of low debt and an increase in
earnings per share.

Degree of Combined Leverage

While the degree of operating leverage might have steadily grown over the years,
the degree of combined leverage took a dramatic leap from 2011 at 5.6 to 2012 at 8.78.
This was caused by a gradual increase in earnings per share. The degree of combined
leverage continued to grow from 2012 to 2014 slowing down on their increase, but
growing nevertheless.

Investments
Investments are essentially another source of maintain a steady flow of income. It
is the accumulation of value on physical units such as land, inventories, or buildings.

Figure 6: Allocation of BWWs Investments (2011-2014)

Buffalo Wild Wings, Inc. 2011 2014: Financial Analysis 9

2011 2012 2013 2014

Commercial $57,502 $72,548
Paper, CDs, & 40,563 47,098
Restricted
Cash
Marketable $7,584 $7,674
Equitable
Securities
Foreign
Currency - - - -
Contracts
Equity
Forward
Arrangements
Forward
Starting
Swaps
Interest Rate
Swaps

Buffalo Wild Wings investments include PizzaRev and Rusty Taco stand. While
both displayed Buffalo Wild Wings attempt to widen and diversify their food products,
they mostly invested in Rusty Taco. Rusty Taco operates from Dallas, Texas, which
features a fresh and fun lively atmosphere as well as good food. They currently have
seven franchised restaurants in three markets. It is a fast-casual restaurant that specializes
in street-style tacos made from scratch. This is quite a leap for Buffalo Wild Wings in
terms of investments. Due to a very narrow selection of food choices at BWWs, they
decided to invest in the Mexican food niche seeing that on of BWWs top competitors is
Chipotle. This partnership will have an immediate impact on growth for both restaurants.
Both PizzaRev and Rusty Taco is a part of BWWs long-term growth strategy. They
continuously look for additional concepts to invest in to build a portfolio of emerging
brands just as Yum! Brands have done. Ultimately, BWWs wants to build a very diverse
and dynamic restaurant company. The commercial paper and marketable equitable
securities represent BWWs investment in both PizzaRev and Rusty Taco. Both numbers
continue to increase every year due to BWWs vision for expanding their brand as well as
their available food products. Additionally, without virtually no debt and a constant
Buffalo Wild Wings, Inc. 2011 2014: Financial Analysis 10

increase in revenue, they certainly can afford to increase investments every year (Buffalo
Wild Wings Announces Majority Investment in Rusty Taco, 2014 August).

Retirement
Being a familial company that values its employees, Buffalo Wild Wings
constructed a retirement plan with benefits. In order to properly take care of their retiring
employees Buffalo Wild Wings included several perks in their retirement package. This
retirement package includes: 401K pla, Healthcare options, life insurance, and an
employee stock purchase plan. While Buffalo Wild Wings still remains a relatively young
business, they do not have much to offer their employees, however, according to
Brightscope.com, their retirement package has an above average rating. The 401k plan is
a defined contribution plan with a profit-sharing component and 401k feature. This 401k
plan currently has over 10,600 active participants and over $28.2M in plan assets. Buffalo
Wild Wings largest fund in the retirement package is the 401k plan (Buffalo Wild Wings,
Inc n.d.). The employee stock purchase plan allows employees to buy Buffalo Wild
Wings stock at a discounted price. This is a smart investment due to Buffalo Wild Wings
increase in earnings per share and their status as a rapidly growing business. Their life
insurance provider is the Principal Financial Group and their Insurance Broker is Lurie
Besikof Lapidus and Company LLP (Buffalo Wild Wings, Inc. n.d.). The average account
balance for the life insurance in approximately $26,000 (Buffalo Wild Wings, Inc. n.d.).

Figure 7: Summary of Benefit Payments and Investment Values, in Millions (2011-

2014)

In dollars 2011 2012 2013 2014

Fair Market
Value of Total 9,739 5,903 6,190 7,456
Retirement
Assets
Annual 2,290 2,567 3,076 3,697
Benefit
Payments
Net Change
from Previous 76 98 189 215
Year
Percent
Buffalo Wild Wings, Inc. 2011 2014: Financial Analysis 11

Change From 1.28 3.56 4.78 2.35

Previous Year

In 2011, Buffalo Wild Wings experienced a severe decrease in the fair market
value of total retirement assets. This might have been caused by the change in their
retirement package. Originally, Buffalo Wild Wings did not have an employee stock
purchase plan as well as healthcare options. Despite a severe decrease in 2011, the fair
market value gradually grew over the next three years. Due to an accumulation of money
in retirement assets, the annual benefit payments have steadily increased over the past
four years. Because Buffalo Wild Wings is still a relatively young and growing company,
they do not yet have much to offer its employees. However, they made huge advance in
adding healthcare options and the employee stock purchase plan as previously mentioned.
BWW does not offer self-insured insurance so they themselves cannot monitor employee
plan holding eligibility. This may be a risk due to unknown liability costs.

Earnings Per Share (Diluted)

Earnings per share is the portion of a companys profit reserved to each

outstanding share. It is ultimately an indication of a companys profitability. Typically, it
is considered the single most important variable in determining a common shares price
(Earnings per Share Definition, 2003). Additionally, earnings per share is a good estimate
of whether or not a company is successful in terms of real values. As for dividends,
earnings per share serves as a scale for future investors to apprehend company
performance. It can also be used a means of maintaining records of past tendencies as
well as future values (Earnings per Share Definition, 2003).

Figure 8: BWWs Earnings Per Share, Diluted (2011-2014)

2011 2012 2013 2014
Earnings Per $2.73 $3.06 $3.79 $4.95
Share
Difference from
Previous Year 33% increase 73% increase 11.6% increase
Buffalo Wild Wings, Inc. 2011 2014: Financial Analysis 12

Throughout all four years, earnings per share increased. This indicates a
continually growing and thriving company. As seen in 2011, the earnings per share value
was 2.73. For the following year, it was 3.06 with a 33% increase. However, the largest
increase occurred between years 2012 and 2013. This increase was maintained due to
recurring expenses and major asset investments.

Improvements and Recommendations

Buffalo Wild Wings demonstrates impressive stability and gradually increasing
calculations, however, there is always room for improvement. A great highlight of
Buffalo Wild Wings is the ever-increasing earnings per share, however, it is important
that BWW continue this trend. From 2011 to 2014, earnings per share has noticeably
increased from $2.73 to $4.95. Earnings per share is ultimately an indicator of the success
of the company, the higher the earnings per share the more successful a company is.
Additionally, throughout their asset utilization ratios, BWW had consistent growth
throughout all ratios. This is also important to maintain because it signifies a companys
ability to receive revenue through their assets. Additionally, BWW needs to improve their
quick and current ratios. While they are fine now, once they continue to grow they may
accumulate debt. This will add to a decline in the strength of their current and quick ratio.
As long as they maintain healthy investments in assets and accumulate little debt they
will continue to prosper.
Overall, there are not too many recommendations to be had. Buffalo Wild Wings
is a consistently growing company with positive financial ratios. However, if BWW
could increase their rate of expansion throughout the U.S. and even their global presence,
they might find their revenue will increase.

References

Buffalo Wild Wings (n.d.). Retrieved April 14, 2015, from

http://www.buffalowildwings.com/Global/Company History 8 29 12 Final.pdf
Buffalo Wild Wings, Inc. 2011 2014: Financial Analysis 13

Financial Ratios. (n.d.). Retrieved April 14, 2015, from

http://www.netmba.com/finance/financial/ratios/

Buffalo Wild Wings Inc. (n.d.). Retrieved April 14, 2015, from
http://financials.morningstar.com/ratios/r.html?t=BWLD

Asset Turnover Definition | Investopedia. (2003, November 19). Retrieved April 15,
2015, from http://www.investopedia.com/terms

Securities and Exchange Commission (n.d.). Retrieved April 21, 2015, from
http://files.shareholder.com/downloads/BWLD/42432457x0x817353/B5884551-D285-
425F-8A0A-E504F82666EC/BWLD_10-K_2014.pdf

Earnings Per Share (EPS) Definition | Investopedia. (2003, November 18). Retrieved
April 21, 2015, from http://www.investopedia.com/terms/e/eps.asp

Degree Of Operating Leverage (DOL) Definition | Investopedia. (2006, June 19).

Retrieved April 21, 2015, from
http://www.investopedia.com/terms/d/degreeofoperatingleverage.asp

Degree Of Financial Leverage (DFL) Definition | Investopedia. (2006, June 19).

Retrieved April 21, 2015, from http://www.investopedia.com/terms/d/dfl.asp

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from http://www.investopedia.com/terms/d/debtratio.asp

Liquidity Ratios Definition | Investopedia. (2006, November 8). Retrieved April 23,
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Buffalo Wild Wings, Inc. 2011 2014: Financial Analysis 14

Buffalo Wild Wings, Inc. (n.d.) Retrieved May 10, 2015 from
http://www.brightscope.com/401k-rating

Buffalo Wild Wings Announces Majority Investment in Rusty Taco. (2014, August 25).
Retrieved May 14, 2015, from http://ir.buffalowildwings.com/releasedetail.cfm