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Introduction

In this article I'll look back on Buffalo Wild Wings' (NASDAQ:BWLD) second quarter financial results. I'll compare the H1 results with the same period last year to have a look at the evolution of the company. In my investment thesis I'll offer a potential option trade on Buffalo Wild Wings.

The Q2 2013 results

The company has reported an increased total revenue of $305M in Q2 of this year, up 27.8% from last year's $238.7M.

As Buffalo Wild Wings opened 23% more restaurants since Q2 last year, the revenues seem to increase faster than the amount of new restaurants. The net profit increased from $11.6M last year to $16.5M this year, which equates into an EPS of $0.88.

Looking at the H1 numbers, the company's revenues increased from $489.5M to $609.4M, which is an increase of 24.5%. As the number of restaurants increased, the costs obviously also increased and the additional $120M in revenue resulted in a net profit increase of just $3M.

The Balance Sheet

Looking at the balance sheet, the company has a negative working capital of -$700,000, which isn't something I like to see on a balance sheet, but this is an improvement over the negative working capital of -$15M at the end of December last year, so the company is heading in the right direction.

The book value increased to $22.4/share from $20.62 at the end of last year.

Outlook

Buffalo Wild Wings is aiming for a 17% increase in net earnings compared to 2012, which would result in a profit of $3.58 per share. Analysts expect the profits to increase further over the next few years, as you can see in the next table.

Year

EPS

2012

3.06

2013

3.58

2014

4.41

2015

4.95

Investment Thesis

Buffalo Wild Wings seems to be on the right way as the company is increasing its revenue and profit and substantially reduced its working capital deficit. Trading at 4X book value, BWLD is a bit expensive for me, but I think writing put options might be an option here.

I'm particularly looking at the P75 JAN 2014, which yields an option premium of $1.55. If the share price closes below $75 at expiration you will be assigned stock at a net cost of $73.45 per share. If the share price closes higher than $75, you can keep the option premium. Using no margin, this option premium results in an annual return of 4.1% (before transaction costs) if you don't get assigned stock at expiration.

Buffalo Wild Wings is a growth story, which traditionally gets valued at double-digit Price Earnings ratios, but I'd feel more comfortable getting in at a lower price by writing put options.

Source: How Tasty Was Buffalo Wild Wings' Q2?