Buffalo Wild Wings Inc. (NASDAQ:BWLD) owns, operates and franchises a chain of more than 900 casual dining restaurants across the United States and Canada. Buffalo Wild Wings has a strong brand prospect and is considered one of the most popular casual dining restaurant chains – with a dine and watch concept and 40 television sets per outlet. The company offers its chicken wings, hamburgers, sandwiches, salads and beers until 2am. Not only sports fan love Buffalo but also families which enjoy taking their children to restaurants where their children can watch TV and play videogames.
Its franchising system allows the company to safeward earnings. With more than 50% of its business franchised, the company reduces capital requirements and facilitates EPS growth and ROE expansion. Moreover, it also allows increasing free cash flow, which permits Buffalo to reinvest in brand recognition, and shareholder return.
Despite the unstable economic scenario, the company has managed to keep posting positive results, being well position within the market as to sustain its same-stores sales growth. Fourth quarter 2013 earnings of $1.10 were above estimations, increasing 23.6% versus 2012, driven by an increase in the top line and lower costs of sales. The new menu launches and marketing strategies are likely to continue boosting the company’s sales, and the recent association with NCAA will further increases visibility.
- Warning! GuruFocus has detected 3 Warning Signs with BWLD. Click here to check it out.
- BWLD 15-Year Financial Data
- The intrinsic value of BWLD
- Peter Lynch Chart of BWLD
Buffalo Wild Wings has been investing in new product development. New menu items such as rib slammers, flat breads and Sam Adams Rebel IPA, the company’s new beer, Buffalo, has been able to enhance its menu and attract more customers. It has also successfully changed its traditional way of menu serving chicken wings, with new weight based portions. These efforts have resulted on improved margins and more stable earnings.
Another initiative introduced in the guest experience business model is the installment of tablets in all of its restaurants to provide exclusive social gaming opportunities. Teaming up with NTN Buzztime Inc. (NTN) Buffalo uses Beond tablets to allow guests order food and drinks, play games, and pay their bill. Also, the three-year collaboration with National Collegiate Athletic Association (NCAA) has enabled the company to be an authorized hangout for the NCAA March Madness sports series, increasing visibility as a brand and attracting more customers to their outlets. These efforts, along with more intense advertising initiatives, new point-of-sales programs, improved supply chain and remodeling of its restaurants are expected to boost sales, and strengthen the business in the long run. Buffalo Wild Wings has selected the NCR Corp. (NYSE:NCR) Aloha Online Ordering solution for its locations to help drive its takeout ordering business. The NCR technology will enable Buffalo to handle both on and off-premise transactions within one system.
The company has also been focusing on store opening. Despite the macroeconomic uncertainty, Buffalo has kept with this initiative, and has witnessed unit growth of nearly 11.6% in 2011, 9.1% in 2012 and 10.9% in 2013. Moreover, associations are on track, and the company has acquired a minority stake in PizzaRev, launching in 2012 PizzaRev fast-casual pizza restaurant, with a Craft Your Own initiative. The company plans to open two more PizzaRev units in Minneapolis in 2014 and a few more outlets by the end of 2014. Another partnership on track is with Pepsico Inc. (NYSE:PEP) and Dr. Pepper Snapple Group, Inc. (NYSE:DPS) to serve drinks across all its locations. Through these partnerships, Buffalo Wild Wings is developing new sauces and salad dressings for the restaurant chain, like the Mountain Dew-flavored salad dressing and Doritos-flavored wing sauce. These partnerships are expected to increase visibility and improve guest traffic as well.
Macroeconomic uncertainties are always threatening restaurant industry companies, as the budget cuts, the high tax rates and tightened credit availability hurt consumer discretionary spending. In addition, the strong competition amid this industry intensifies margin pressures. Still, Buffalo Wild Wings margins are improving given their new initiatives. But the increased expenses and investments to fuel long-term growth might hurt profits in the near term.
The company's revenue missed analysts' estimates last quarter, but its traffic remained very strong. Top line increased year over year, and total revenue increased 12.4%, despite missing estimations of $345.0. Still, the growth of Buffalo Wild Wings has been outstanding: from 553 locations to more than 1,000 restaurants today, for a 12% compounded annual growth rate in locations.
The company has recently been developing numerous initiatives to attract more customers and enhance its brand furthermore. Improving its facilities, introducing technology and with different marketing campaigns, Buffalo is likely to keep in a highly competitive position and boost its sales. Buffalo Wild Wings' comparable-store sales increased 5% and its profit grew an astonishing 25%.
Disclosure: Damian Illia holds no position in any of the stocks mentioned