Buffalo Wild Wings 2006 Annual Report Download - page 19

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 2007 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® Grill & Bar concept and the overall
health of the concept. Franchise information also provides an understanding of our revenues because 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
e comparable to financial information as defined or used by other companies. b
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As of December 31, 2006, we owned and operated 139 and franchised an additional 290 Buffalo Wild Wings Grill &
Bar restaurants in 37 states. Of the 429 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 over 1,000 locations, with 15% annual unit growth over the next three 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 changes in our
cost of goods sold. The costs of goods sold is difficult to predict, as it ranged from 30.3% to 33.8% of restaurant sales per
quarter in 2006 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, focused efforts on
food costs and waste, and menu price increases. We will continue to monitor the cost of fresh chicken wings, 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.
Average Quarterly Wing Prices
2002-2006
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
$1.40
$1.60
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2002 2003 2004 2005 2006
($/lbs)
Price by Qtr
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