It takes a lot to recommend buying a stock that was up over 100% in 2013. Even more has to go into recommending buying a stock that is trading at 30 times current-year earnings, and is in the small growing restaurant sector. However, a recent investor presentation by Buffalo Wild Wings (NASDAQ:BWLD) and its plans for growth have me circling this name that was once the center of my portfolio.
Buffalo Wild Wings offered value and growth ideas to investors during a February presentation. The company used these three ideals as its centerpiece:
- Proven concept with exceptional guest experience
- Stable leadership driving strong operational and financing results
- Disciplined growth driving shareholder value
Buffalo Wild Wings has a history of setting goals and hitting them. The company's normal goals center around unit growth, revenue growth, and net earnings growth. Over the past five years, these items have increased with a compound annual growth rate of 12%, 25%, and 24% respectively.
The company's new growth strategies are:
- Continuing development to 1700 locations in the United States and Canada
- International growth through franchising
- Expansion through emerging brands
- Driving sales through innovation and branding
- Sustaining net earnings growth by strong restaurant performance and infrastructure leveraging
International franchising is already being powered by existing in-place deals. Five franchisees have agreements for 45 restaurants in Mexico, United Arab Emirates, Saudi Arabia, and the Philippines. These countries are the current focus for the company's international expansion. Buffalo Wild Wings told investors it is also scouting locations in India, South Korea, and Vietnam. Further down the road, Buffalo Wild Wings plans on having locations in Brazil and China. In the end, Buffalo Wild Wings believes it can have 400 international locations.
Perhaps the biggest key for Buffalo Wild Wings' growth that investors could be missing is the emerging brands segment. Buffalo Wild Wings wants to grow out the PizzaRev brand. I highlighted this company that Buffalo Wild Wings put a minority investment in as a huge growth potential for the company. Since that article, shares are up 71%. At that time, there were three locations of PizzaRev in California, where customers ordered customized pizzas to be placed in a 900-degree oven. According to NRN.com, Buffalo Wild Wings plans on hitting a 900-unit goal between PizzaRev and other new concepts. The first PizzaRev under Buffalo Wild Wings' partial ownership will be opening in Minneapolis in May.
PizzaRev appears to be only the beginning, and the first of several small investments by Buffalo Wild Wings. "We'll evaluate additional concepts, with the goal of investing in three to five, with the goal of growing at least one of them to be the next Buffalo Wild Wings." The company's $2.5 billion market capitalization doesn't seem so silly all of a sudden if it can launch another huge brand. However, launching a successful restaurant brand takes time. There is no guarantee Buffalo Wild Wings will ever end up as more than the one brand, but I believe the focus on growing outside the initial concept is a great step for growth.
The expansion of tableside tablets continues to be an ongoing theme for Buffalo Wild Wings. I believe this expansion will help get guests to come back and keep them in the restaurants longer. I highlighted the company behind this rollout, NTN Buzztime (NYSEMKT:NTN), in a recent bullish article. This under-$1 stock will help take the current tablet rollout from 190 locations to all company-owned locations by the end of 2014, and all franchised locations by the end of 2015. In the second quarter of this year, Buffalo Wild Wings will test tableside payment and ordering from the tablets, which should help both Buffalo Wild Wings and NTN Buzztime.
Another thing to keep an eye on is the B-Dubs television channel. This proprietary brand will initially be used for local sports highlights and possible fantasy sports telecasts. However, with strong partnerships with the NCAA and its championship games, and the company's sponsorship of the Buffalo Wild Wings Bowl game, there could be more to this. In a battle for sports content on television, Buffalo Wild Wings could end up a huge competitor with a new reason to get customers in the doors.
In 2013, Buffalo Wild Wings had $2.8 billion in system-wide sales. The company's owned locations and royalty income from franchised locations equaled $1.2 billion in annual revenue and $71.5 million in net income. At the time of the February presentation, Buffalo Wild Wings had 1003 locations found in the United States, Canada, and Mexico. The base was made up of 565 franchised locations and 438 company-owned locations.
With the expansion of Buffalo Wild Wings and investments in the restaurant, a company to watch is Diversified Restaurant Holdings (BAGR). The company is a large franchisee of Buffalo Wild Wings, and also has its own Bagger Dave's burger concept. The company could be an acquisition target for Buffalo Wild Wings if it sees and realizes the potential national expansion of Bagger Dave's. If not, Diversified will prosper as it expands from its 36 Buffalo Wild Wings locations at the end of 2013 to a planned 48 by 2017. The company has Buffalo Wild Wings locations in the states of Michigan, Florida, Illinois, and Indiana. Diversified is home to the largest Buffalo Wild Wings in downtown Detroit, which could get a lift from tableside tablets, online ordering, and new marketing efforts.
When looking to the long term, Buffalo Wild Wings can continue to grow through acquisitions and new dining concepts. Further down the road, the company could sell off its company-owned locations and generate a steady stream of annual royalty payments. Buffalo Wild Wings could also initiate share buybacks and pay out a dividend years down the road, once it has reached its new 3000-unit portfolio goal.
I wish I had considered all of the long-term potential of Buffalo Wild Wings several years ago. The company, which was at one point my largest holding, had gained over 150%, and I sold my entire stake without even thinking of holding onto a portion of shares. One of my first articles on Seeking Alpha was even dedicated to buying more shares after an earnings miss sent shares down to $24. Shares are up 416% since that article, and I am now forced to consider paying the high price to buy back into this great company.
The company's 2014 goal includes increasing net earnings by 20%. Analysts on Yahoo Finance see earnings growing 27%, to $4.83 per share. In 2015, earnings per share are expected to hit $5.68. Analysts see revenue growing 16.7% in fiscal 2014, and 13.9% in fiscal 2015.
Despite its large 2013 increase and current triple-digit price, Buffalo Wild Wings shares look good for the long term. The company has a strong growth plan that, if followed, will reward long-term shareholders. Don't be a fool like I was years ago. Buy shares of Buffalo Wild Wings, and continue to hold.
Disclosure: I am long NTN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Long NTN. May buy initiate a long position in BWLD or BAGR in the next 72 hours.