Buffalo Wild Wings 2005 Annual Report Download - page 32

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our consolidated
financial statements and related notes. This discussion and analysis contains
certain statements that are not historical facts, including, among others, those
relating to our anticipated financial performance for fiscal 2006 and our
expected store openings. Such statements are forward−looking and involve risks
and uncertainties including but not limited to those discussed in Item 1 of this
10−K under "Risk Factors/Forward−Looking Statements." Information included in
this discussion and analysis includes commentary on company−owned and franchised
restaurant units, restaurant sales, same−store sales, and average weekly sales
volumes. Management believes such sales information is an important measure of
our performance, and is useful in assessing consumer acceptance of the Buffalo
Wild Wings(R) Grill & Bar concept and the overall health of the concept.
Franchise information also provides an understanding of the our revenues as
franchise royalties and fees are based on the opening of franchised units and
their sales. However, franchise sales and same−store sales information does not
represent sales in accordance with U. S. Generally Accepted Accounting
Principles (GAAP), should not be considered in isolation or as a substitute for
other measures of performance prepared in accordance with GAAP and may not be
comparable to financial information as defined or used by other companies.
OVERVIEW
As of December 25, 2005, we owned and operated 122 and franchised an
additional 248 Buffalo Wild Wings Grill & Bar restaurants in 35 states. Of the
370 system−wide restaurants, 81 of those restaurants are located in Ohio. The
restaurants have elements of both the quick casual and casual dining styles,
both of which are part of a growing industry. Our long−term focus is to grow to
a national chain of 1,000 locations, with 20% annual unit growth in the next
several years, continuing the strategy of developing both company−owned and
franchised restaurants.
Our growth and success depend on several factors and trends. First, we
continue to monitor and react to our cost of goods sold. The costs of goods sold
is difficult to predict, as it ranged 30.7% to 35.0% quarter to quarter in 2004
and 2005, mostly due to the price fluctuation in chicken wings. We are working
to counteract the volatility of chicken wing prices with the introduction of
popular new menu items, effective marketing promotions and menu price increases.
We will continue to monitor the cost of fresh chicken wing prices, as it can
significantly change our cost of sales and cash flow from company−owned
restaurants. We also are exploring purchasing strategies to lessen the severity
of cost increases and fluctuations, and are reviewing menu additions and other
strategies that may decrease the percentage that fresh chicken wings represent
in terms of total restaurant sales. The chart below illustrates the fluctuation
in fresh chicken wing prices from quarter to quarter in the last five years.
[DATA REPRESENTING CHART]
[GRAPHIC OMITTED]
Average Quarterly Wing Prices
2001−2005
Q1 Q2 Q3 Q4
2005 1.45 1.14 1.08 1.17
2004 1.49 1.46 1.35 1.30
2003 1.01 1.02 1.00 1.21
2002 1.11 0.87 0.84 0.78
2001 1.14 1.22 1.22 1.16
2000 0.87 0.79 0.86 1.00
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