Betting Big On Growth With Buffalo Wild Wings

| About: Buffalo Wild (BWLD)

A recent trip to a local Buffalo Wild Wings (NASDAQ:BWLD) on the night of the NFL Draft made it clear that the restaurant wanted to keep me there for hours, consuming more beer and food. The restaurant does a good job by offering promotions like the one where we selected the correct order of draft picks to win gift certificates for the restaurant. This may be one of the reasons why Buffalo Wild Wings has been so successful at driving same store sales growth every year. The National Football League would have likely had a large impact on the share price of Buffalo Wild Wings and the company should be grateful that there was a full season of games for fans to enjoy at its restaurants.

Same store sales at company-owned locations open more than a year increased 9.2% for the quarter. Same store sales continue to be the measurement to see how successful restaurants are year after year. Franchised Buffalo Wild Wings locations saw same store sales growth of 7.3%.

Wing prices have risen 57% year over year in the first quarter. That rise will be passed on to consumers beginning in the second quarter. Tests have shown that consumers have not fought back at these price increases. One notable increase will be raising wing prices on Tuesday nights to fifty cents for traditional wings. Despite higher food costs, Buffalo Wild Wings has tightened its cost controls to maximize profits.

Earnings for the first quarter were up 21% compared to last year. The $0.98 earnings per share reported beat analysts' targeted $0.95. Revenue of $251.1 million came in just shy of the $251.2 million analysts had hoped for. First quarter net income was $18.2 million for Buffalo Wild Wings.

The first quarter reported ended March 25th. The second quarter will include the Final Four and National Championship Games in college basketball. During the first quarter conference call, second quarter to date same store sales were announced. With four weeks under their belt, Buffalo Wild Wings' management announced current same store sales as +6.7% at company-owned locations, and +6.6% at franchised locations.

As of March 25th, there are 835 Buffalo Wild Wings locations in the United States and Canada (5). The locations are predominantly franchised locations. Buffalo Wild Wings is present in 48 states in the United States. The company is likely to hit 900 locations by the end of 2012. The long-term goal of 1500 locations in the United States and Canada seems realistic considering several states have less than five locations currently.

The company has a goal of 20% profit growth for 2012. Increased locations and an extra week in the fiscal year are likely to add to the company hitting these targets. Analysts are predicting earnings per share of $3.29 in 2012 and $3.91 in 2013.

Two important growth initiatives were touched upon during the conference call:

  • International Growth

Buffalo Wild Wings expanded to Canada recently and appears to have its sights set on growing overseas as well. The company is actively pursuing international franchising agreements in numerous countries. This shouldn't come as a huge surprise to anyone who follows the restaurant industry. The company has listed 1500 as its North American goal for the number of restaurants in five to seven years.

  • Acquisitions or New Branding

The company has started openly saying it is searching for "small restaurant chains" that it could acquire to diversify its business. Another option would be to start its own alternate brand that could be held under the Buffalo Wild Wings ownership. The company has $60 million in cash and $0 in debt when looking at acquisitions. We'll take a look at potential acquisition targets in a future article.

Shares have shot up since earnings were released and now trade at $85.19. This puts share slightly below the $90 all time high level they saw a month ago in March. Shares split two for one back in 2007 when they were trading at the above $80 range. Shareholders could be seeing a share split announcement soon.

The good news is recent analyst upgrades have shown that many analysts believe shares still have room to run. A Stephens upgrade in March came with a new $110 price target. In February, two analysts upgraded shares to $90, while one backed a $100 price target. I owned shares of Buffalo Wild Wings years ago and regret selling them at the level I did. I would love to buy back in below $80 but I don't know if that will be possible. Look for $100 by the end of 2012. Also taking a look at Diversified Restaurant Holdings (DFRH.OB), a publicly-traded franchisor of Buffalo Wild Wings could be worth a look.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in BWLD over the next 72 hours.