Buffalo Wild Wings: Finger Lickin' Good

On April 29, Buffalo Wild Wings (BWLD) reported its 1Q 2008 results.

1Q 2008 Highlights

• Revenue up 21.7% to $97.3 million from $79.9 million in 1Q 2007
• Company-owned restaurant sales up 22.3% to $86.9 million
• Franchise royalties and fees up 17.2% to $10.4 million from $8.8 million in 1Q 2007
• Cost of sales $87.76 million from $72.26 million in 1Q 2007
• Company-owned SSS up 4.1%; franchise-operated SSS up 2.1%
• Net income up 18% to $6.53 million ($0.36 per share) from $5.54 million ($0.31 per share) in 1Q 2007
• Excluding charges from restaurant relocations, EPS would have been $0.38
• Profit margin 6.7% from 6.9% in 1Q 2007
• Diluted share count 17,877,000
• Cash flow from operating activities $16.02 million from $11.3 million in 1Q 2007
• Cash flow from investing activities -$1.78 million from -$8.82 million in 1Q 2007
• Cash flow from financing activities -$610K from -$157K in 1Q 2007
• Cash and marketable securities $73.09 million
• No debt
• 4 new company-owned restaurants; 8 new franchise-operated restaurants
• Average weekly sales for company-owned restaurants $41,438
• Average weekly sales for franchise-operated restaurants $47,812
• Total of 165 company-owned restaurants and 340 franchise-operated restaurants

2Q 2008 Outlook

• 5 company-owned and 10 franchise-operated restaurant openings
• Preopening expenses of approximately $1.2 million

Buffalo Wild Wings met analyst EPS estimates of $0.36 and beat sales estimates averaging $96.5 million. What's encouraging is the fact that the company is certainly not in an ideal market, yet all areas of the business remain strong. Plus, when excluding restaurant relocation charges in this quarter, the EPS would have been $0.38 rather than $0.36. Meeting analysts in a business environment in itself is a good feat, so this shouldn't be forgotten.

There are several things that I see as especially important. First, the balance sheet actually got a bit stronger this quarter and continues to remain free of debt. This was greatly helped from a 42% boost in cash flow production. I believe management is working this cash in a very smart manner - being conservative but still able to get some restaurants opened each quarter. B-Dubs has a very smart and experienced management team, and judging from how they performed this quarter in a period that's been especially difficult for restaurants, I feel very confident that they'll work the company through this period with little damage.

The company is still growing at very respectable levels, cash production and management remain healthy, and margins are holding their ground. It looks like Mr. Market likes Buffalo Wild Wings again, as the stock has climbed more than 20% since this release to above $31.

The way I see it, we simply have a fine business here with a quality management team and excellent fundamentals. Unless something goes drastically wrong, I believe we have ourselves a winner over the long run. Of course, there will be volatile times and the remainder of this year will likely remain a difficult operating environment, but what counts is long-term stability and quality. This is exactly what management is focusing on and is why I remain a confident, excited shareholder of Buffalo Wild Wings.

For the 2Q 2008, analysts on average expect an EPS of $0.27 on sales of $94.49 million.

Disclosure: Author has a long position in BWLD

Comments

[moneyking]

Buffalo Wild Wings is growing like crazy. In the area I live in (West of Chicago, IL), 3 of them are going up right now within the local area I live in. I dont think they're going anywhere soon, and the places always have a decent flow of people visiting them.

[MurphMan]

You may want to check your source on the BWLD stock price chart. According to what I see on other sources ( Big Charts, etc. ), BWLD's 52 week high is 47.75, not the over $80 price shown on your chart.

[jwald]

Murph, BWLD did a 2 for 1 stock split on June 15, 2007. So, the chart is correct, but deceptive.

[MurphMan]

Hi User 190144!

I was aware of the stock split. When one shows a chart, all the data should be split-adjusted...so, IMHO, the chart is not "correct"...... is "apples and oranges".

[Daniel Jacome]

Lower chicken prices are probably getting baked into 09 forecasts.

It also seems like the valuation in BWLD wasn't as scary as that on Chipotle and you could be seeing some restaurant-biased analyst/PM teams rotating into BWLD and backing out of Chipotle, which is going for 40x 09 est and BWLD fetches < 22x. Their ROEs are similar and both companies eschew debt.

I'd play BWLD here until the valuation gets stretched.