Buffalo Wild Wings Owns The Next 'Chipotle'

| About: Buffalo Wild (BWLD)


Buffalo Wild Wings owns a little-known concept called PizzaRev that will do to pizza what Chipotle has done to burritos.

The beer, wings and sports concept continues to execute well, and its outlook is even better.

We continue to think Buffalo Wild Wings as a premier restaurant idea.

Buffalo Wild Wings (NASDAQ:BWLD) has been one of the best-performing restaurants during the past few years. We credit the restaurant's strong multi-year run to a solid concept, continued strong same-store sales expansion, and excellent cost containment (via serving size innovation).

The restaurant's second-quarter results were solid. Total revenue increased 20% during the quarter, while same-store sales increased 7.7% at company-owned restaurants and 6.5% at franchised restaurants. Net earnings increased nearly 44% to $23.7 million from $16.5 million, and earnings per diluted share increased at a similar pace to $1.25. The company benefited from lower costs, thanks in part to a decrease in the price per pound for traditional chicken wings. From the same period in 2013, the company had 41 additional company-owned stores and 54 additional franchised restaurants.

Commentary from CEO Sally Smith was very positive, and we think it's worth reproducing below to get a flavor for how upbeat management is on future same-store sales growth and the pace of future earnings expansion:

"Our same-store sales for the first four weeks of the third quarter were 8.2% at company-owned restaurants and 7.4% at franchised locations. Company-owned same-store sales include a benefit of 330 basis points from the World Cup. Looking ahead, we are preparing for our favorite time of the year, football season. Buffalo Wild Wings is the best place to host your fantasy football draft party and to watch all the games with friends. We believe that draft parties kick off a great football season at Buffalo Wild Wings..."

"... We're very pleased with our sales momentum in the first seven months of 2014. We are investing for long-term growth and delivering impressive net earnings growth to Buffalo Wild Wings shareholders. Based on our year-to-date performance, our current same-store sales trends and anticipated food costs and labor expense, we believe net earnings growth will exceed 25% for 2014, and could reach 30%."

The core Buffalo Wild Wings concept is performing well, and the outlook is even better. In some cases, the firm is executing better than Chipotle (NYSE:CMG), and in light of Panera's (NASDAQ:PNRA) relatively flat same-store sales performance during its second quarter, Buffalo Wild Wings has become a fundamental stand-out in the restaurant arena. Furthermore, we think its PizzaRev concept is a hidden gem in its portfolio, and something the Street is not giving the company full credit for. PizzaRev, in our view, will do to pizza what Chipotle has done to Mexican, and Buffalo Wild Wings' management is sufficiently talented to deliver on such ambitions. In May, the first PizzaRev opened outside of the California market:

"…guests will "craft their own" 11" artisanal-quality pizzas loaded with 30+ fresh, premium ingredients of their choosing, and served piping hot from a custom-built, 9,600 pound, open-flame, stone-bed oven in less than three minutes."

Wrapping Things Up

Some investors may be taking some profits off the table in light of the recent strong equity price performance. However, we didn't see anything fundamental in Buffalo Wild Wings' second-quarter report to be concerned about, nor did we see anything that would warrant a large, sustained sell-off in shares. We continue to think Buffalo Wild Wings is a premier restaurant idea - not only with respect to core concept growth, but also with its new PizzaRev. The firm remains one of our best ideas.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: BWLD is included in the Best Ideas portfolio.