Can Buffalo Wild Wings Fly?

Sports bar/restaurant chain Buffalo Wild Wings (BWLD) posted an excellent third quarter Tuesday evening, prompting a five point rise in its stock in extended hours trading. Sales jumped 32 percent to $68.3 million, ahead of estimates of $64.9 million, as company-owned same-store sales soared an astounding 11.8 percent. Earnings hit $0.40 per share, nearly 30% above estimates of $0.31 for the period.

The company's conference call was very bullish, as management laid out growth plans for the next three years. BWLD expects annual unit growth of 15 percent, sales growth of at least 20 percent, and earnings growth of at least 25 percent.

Also worth mentioning was the lack of fourth quarter guidance. The company announced that it has decided to abandon giving quarterly financial projections, due mostly to the fact that they have been quite unsuccessful at the task in the past, and with fewer than nine million shares outstanding, a miss or beat of a mere penny per share equates to only a $44,000 difference.

The bears on the stock (and there are plenty of them, as seen by the 18% short interest in the name) will point to the lack of guidance for the fourth quarter as evidence that management expects poor results relative to the market's expectations. However, such a conclusion isn't very likely. Management mentioned on the conference call that Q4 same-store sales are already tracking up 11 percent year-over-year, well above even the most bullish estimates on the Street. Even if fourth quarter results get no bump up from current analyst projections of $0.46 per share, the company will report $1.54 in EPS for 2006. A twenty-five percent jump in 2007 puts EPS for next year at $1.93 per share.

As I have written before, I don't care much at all for quarterly sales and earnings guidance. In the case of BWLD, the company has a growth plan in place that will take form over the next three to five years and beyond. Whether they open a new store in Q3 or Q4 should be irrelevant for long term investors. Investors in the stock, myself and my clients included, will be served quite well if the company hits its growth targets, regardless of how volatile the quarterly fluctuations in financial results turn out to be.

Full Disclosure: I own shares of Buffalo Wild Wings personally, as do my clients.

BWLD 1-yr chart:

Comments

[borisb:]

good story but 65% bounce off august lows for a 20%- 25% grower leaves
little margin of safty in valuation . also football season doesnt last forever.
good earnings report should be taken with grain of salt rather then
sky rocketing exuberance. competition is everywhere.

2006 Oct 29 02:35 PM

[Chad Brand:]

The valuation isn't "cheap" but rarely would be for a company growing earnings 25% annually. I think a 30 P/E is very reasonable, which nets a price objective of ~ $60 sometime in 2007.

The fact that football season doesn't last forever is a non-issue. Earnings projections already factor in the seasonality of a sports bar business.

As for competition, the restaurant concept is always a crowded field, but BWLD is catching on nationwide, and there is little reason to believe that their target demographic (young men) won't continue to embrace it.

2006 Oct 30 01:05 AM

[Hayweed:]

Chad,

How about a new update on BWLD now that it exploded to the upside. I am Short as of now on the recent downgrade.

2007 Jun 22 10:01 AM