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Buffalo Wild Wings (BWLD) reported first quarter earnings that were down from last year. However, several important takeaways from the company's earnings call provide details of future growth.

Expanding Outside Wings

Over the past several earnings calls, Buffalo Wild Wings has discussed entering other restaurant models and is looking for strategic opportunities. In an April 2012 article, I discussed several acquisition or merger candidates. While I have not been right on any of these, I did nail two potential ideas from that list. I suggested a merger with Papa John's (PZZA), as the partnership between pizza chain and wings restaurant would greatly help to diversify, and offset commodity costs associated with wings. I also suggested a merger with BJ's Restaurants (BJRI) to create beer concepts and bring BJ's brewed beers to all the Buffalo Wild Wings locations.

Game Changer Beer Brand

Buffalo Wild Wings announced a partnership with Redhook, owned by Craft Brew Alliance (BREW), which will in fact bring an all new beer concept to all restaurant locations. The new beer, which will be called Game Changer, could in fact be just as its name says a game changer for this restaurant company.

"Draft beer is another cornerstone of our brand. We continue to create new opportunities to enhance the draft beer experience for our guests, increase our beer sales and improve our draft beer margins," said Sally Smith, CEO of Buffalo Wild Wings.

The new beer will be priced between domestic and imported draft beer, giving Buffalo Wild Wings great margins on a popular sales category. In the first quarter of fiscal 2013, alcohol and beer sales made up 22% of all revenue.

For Redhook, this is a tremendous opportunity. Buffalo Wild Wings is the number one draft account for over 50 different beer brands with 900 locations around the country. With this partnership, Redhook gains access to all 900 locations and should gain a more in depth partnership with Buffalo Wild Wings. The small craft beer company has been using partnerships to fuel growth. Earlier this year, Redhook launched Audible Ale, inspired by the Dan Patrick Show on ESPN. The company also has the official beer of the Seattle Sounders soccer team's fan club.

Buffalo Wild Wings continues to devote more attention to its alcohol sales. The majority of the restaurants have expanded the number of tap handles from 24 to 30. This allows each restaurant to have nationally known beers, regional favorites, and gives managers a say in local beers at individual restaurants as well. A new drink menu will roll out in July and will be centered by this new beer offering from Buffalo Wild Wings and Redhook.

Pizza Rev

I highlighted in a March article, Buffalo Wild Wings had taken a minority ownership stake in Pizza Rev. The small California based pizza chain is getting Chipotle comparisons due to its fresh ingredients and healthier menu options. At the time of the article, there were three restaurants in California. The company's website currently lists two more as "Coming Soon".

Buffalo Wild Wings discussed this ownership stake during the call. "We believe the Pizza Rev brand has high-growth potential across the country," Smith said. While the amount of Buffalo Wild Wings investment is unclear, we now have a better idea. The company spent a total of $10 million to acquire three existing Buffalo Wild Wings franchises, along with the ownership stake in Pizza Rev.

Chicken Prices

An encouraging trend for Buffalo Wild Wings is the lowering price of chicken wings. In the first quarter wings cost the company $2.10 a pound. In the second quarter that will decrease to $1.75. If prices continue this trend, wings could be as low as $1.50 per pound in June and July. This would have a huge impact on earnings, as the company is up against numbers from last year that were above $2 per pound.

Another promising shift in the company's commodity costs is a change in the current menu. The company said that "the current model of selling wings in fixed quantities does not align with purchasing". Essentially, Buffalo Wild Wings buys wings by the pound, but sells them by the individual wing, leaving the size of wings up in the air and causing food cost nightmares.

Beginning in June, stores will roll out a new menu that has the sizes of snack, small, medium, and large. At test stores, Buffalo Wild Wings saw a cost savings of 40-50 basis points from the new chicken wing sizes.

Making the change to wings is a risk for the company and may upset some customers. However, with the cost savings benefit, the company will have a better control on food costs and margins. In the first quarter, traditional wings made up 20% of revenue, while boneless wings made up 20% of revenue as well. The two types of wings together made up 40% of overall sales. Food and nonalcoholic sales represented 78% of revenue in the first quarter, making wings over half of all food sales.

Unit Growth

Previously, I encouraged investors to buy shares of Buffalo Wild Wings in an appropriately titles article "Betting big on growth with Buffalo Wild Wings". One of the themes of that article was the company's North American unit goal of 1500. The company is now using a goal of 1700 units across North America, thanks to recent expansion in Canada and Mexico.

In the first quarter, Buffalo Wild Wings added 20 restaurants. One of these new stores put the company at the 900 mark. Buffalo Wild Wings signed three additional franchise agreements in Mexico and hopes to have 3-5 open in the country during the fiscal year.

Conclusion

Despite being up against huge same store sales increases in fiscal 2012 and one less week of NFL games in the first quarter of 2013, the company's results were encouraging. In the first quarter, revenue increased 21%. The company also posted same store sales increases of 1.4% at company owned and 2.2% at franchised locations. These impressive positive same store sales increases came against 9.2% from company owned and 7.3% from franchised locations in quarter one of 2012.

All of these recent news items coming from Buffalo Wild Wings make the stock worth buying, or at least putting on your watchlist. This is a solid company that continues to aggressively post double digit earnings per share increases, double digit increases in revenue, and huge expansion numbers. With new restaurant concepts and creations like beer hitting the balance sheet, shares will continue towards $100.

Source: Buffalo Wild Wings Not Chicken When It Comes To Betting On Beer