The restaurant sector is always a hot favorite among people as there are many varieties of restaurants that cater to the demographics of people in the U.S. One player in this industry with a casual dining facility is Buffalo Wild Wings Inc. (NASDAQ:BWLD).
Founded in 1982, this Minneapolis, Minn.-based company owns, operates and franchises its restaurants. It is usually set in a suburban or rural environment. With a market cap of $2.68 billion, this restaurateur has 1,018 restaurants in the U.S., Canada and Mexico (574 franchised and 444 company-owned). Wings, beer and sports are the three main components of this company as the people of America like them most. Further, it provides customers with Beefy Burgers, Sharables, Thin Crust Flatbreads, Wraps, Buffalitos, Sandwiches and Salads with 21 mouth-watering signature flavors. Buffalo Wild Wings sells on average 21 million traditional and boneless wings each week, and offers a full bar and up to 40 television sets per outlet and is famous for its bar concept and "dine and watch game" facility.
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- BWLD 15-Year Financial Data
- The intrinsic value of BWLD
- Peter Lynch Chart of BWLD
Tracking the Performance
On April 28, Buffalo Wild Wings reported fiscal first-quarter results ended March 30, 2014. Adjusted earnings of $1.49 per share for the first quarter increased 71.3% to $1.49 from $0.87. Net earnings leaped 72.9% to $28.3 million from $16.4 million. Total revenue increased 20.9% year over year to $367.9 million, compared to $304.4 million in the first quarter of 2013. Company-owned restaurant sales for the quarter increased 21.3% over the same period in 2013, to $344.9 million, driven by a company-owned same-store sales increase of 6.6% and 46 additional company-owned restaurants at the end of first quarter 2014 relative to the end of the same period in 2013. Franchise royalties and fees increased 14.9% to $22.9 million for the quarter versus $19.9 million in the first quarter of 2013. This increase is attributed to a franchise same-store sales increase of 5.0% and 55 additional franchised restaurants at the end of the period versus a year ago. A chart has been provided below to show the company’s financial summary.
Average weekly sales for company-owned restaurants were $60,966 for the first quarter of 2014 compared to $56,953 for the same quarter last year, a 7.0% increase. Franchised restaurants averaged $63,852 for the period versus $60,050 in the first quarter a year ago, a 6.3% increase. Franchise royalties and fees increased 14.9% year over year to $22.9 million, led by 55 new restaurant openings at quarter-end. The year-over-year increase in franchise royalties and fees also reflects a 5.0% rise in franchise same-store sales, better than a 2.2% rise in the year-ago quarter and a 3.1% rise last quarter. A chart has been provided below to show the company’s balance sheet.
President and Chief Executive Officer Sally Smith said that earnings will increase 25.0% year over year, higher than prior expectation of 20.0%. She also added that the company’s second quarter has started with a great momentum. Same-store sales rose 5.7% at company-owned locations and 4.4% at franchised locations. Excluding the slowing effects of the timing of the Easter holiday, same-store sales rose 6.6% and 5.3% of the company-owned and franchised locations, respectively.
Head to Head
Buffalo Wild Wings faces stiff competition from McDonald's Corp (NYSE:MCD), Darden Restaurants Inc. (NYSE:DRI) and Chipotle Mexican Grill Inc. (NYSE:CMG). Last year, McDonald’s faced chicken wing problem and was left with 10 million pounds of unsold chicken wings. This made Buffalo Wild Wings to secure its position. Further, it was selling wings by the portion instead of by the number. Darden Restaurants is not performing well, and its fiscal second-quarter earnings missed consensus by a large margin. Its key brand Olive Garden also underperformed for the majority of fiscal 2013. Further, the company is planning to spin off its Red Lobster brand. This paved the way for Buffalo Wild Wings to dominate the market.
Chipotle Mexican Grill and Buffalo Wild Wings both have experienced high growth in the past year and they are investing in craft pizza companies. Chipotle invested in the idea of a small Denver fast casual pizzeria, Pizzeria Locale, that can serve a fresh piping hot pizza in less than two minutes. On the other hand, Buffalo Wild Wings invested in a small but growing Southern California pizza chain, PizzaRev. PizzaRev affords customers the ability to build their own custom pizzas from a variety of sauces, cheeses, and toppings displayed in front of them, all for under $10. On May 14, 2014, Buffalo Wild Wings opened its first PizzaRev franchise in Hopkins, Minn., in suburban Minneapolis. Pizza is one of the most popular meals in the U.S. and most of the restaurateurs are making pizza fast and individually tailored to cater to consumers with specific preferences, and therefore both companies are looking for the next brand to propel further growth. Unlike Chipotle, Buffalo Wild Wings relies heavily on franchises for international growth, and this allows for rapid expansion in a capital-efficient way.
Buffalo Wild Wings’ growth strategy includes continuing development to 1,700 locations in the U.S. and Canada, international growth through franchising, expansion through emerging brands, driving sales through innovation and branding, and sustaining net earnings growth by strong restaurant performance and infrastructure leveraging. The company is currently focusing on international expansions and five franchisees have agreements for 45 restaurants in Mexico, United Arab Emirates, Saudi Arabia and the Philippines. It is also planning to expand its wings in the lands of India, South Korea and Vietnam.
On March 6, 2014, Buffalo Wild Wings announced its partnership with NTN Buzztime Inc. (NTN) to bring the company's BEOND tablet-based entertainment platform to all of their North America restaurant locations by the end of 2015. Buzztime's BEOND tablet lets Buffalo Wild Wings Guests order food, request songs and television programming, play games (both multi-player and arcade-style), and pay the bill.
To Put the Pieces Together
Over the past three years, Buffalo Wild Wings has been a strong growth story. Between 2011 and 2013, the company saw its revenue increase 61% from $784.5 million to $1.3 billion.
Charts from company website
This leading restaurant chain has created a niche in the hearts of the people as it is a fan-favorite restaurant. As a leader in the sports bar and wings segment, Buffalo Wild Wings has strong long term growth plans. The company has shown great performance in the earlier years, and is well positioned to do so in the future. Further, the company’s investment strategy, service strategy, technology platform and emerging brands have made its position well ahead than its peers. Therefore, I believe that this company has a great investment opportunity in the long run.