Despite Earnings Hiccup, Buffalo Wild Wings' Bullish Growth Plan On Track

| About: Buffalo Wild (BWLD)

Buffalo Wild Wings (NASDAQ:BWLD) appeared to be gaining back some of their big losses from Wednesday's trading session Thursday after positive comments from CEO Sally Smith on Jim Cramer's Mad Money show Wednesday night. Investors are also likely buying in on the dip and taking advantage of this growing restaurant stock. In fact, shares closed up 5% on Thursday to close at $74.07, one day after testing the $70 line.

In the second quarter, Buffalo Wild Wings reported earnings per share of $0.62, versus analysts' estimates of $0.68. The earnings per share were higher than the $0.58 reported in last year's second fiscal quarter. Reported revenue of $238.7 million was a 3% increase from the prior year. Net sales increased 9.3% from the previous years. All Buffalo Wild Wings (Franchise and Company Owned) saw sales of $580 million in the second quarter. There were 53 additional company owned locations since last year's second quarter report.

One of the disappointing numbers was same store sales growth. In the quarter, same store sales grew 5.3% at company owned locations and 5.5% at franchise owned locations. Analysts were expecting to see double digit growth at locations open more than a year. It is also rare for the company to have its owned restaurants outpaced by franchise locations.

The biggest impact on earnings was cost of sales, most notably the cost of chicken wings. Wing costs have gone up and Buffalo Wild Wings also reported getting less yield off of each wing. Cost of sales at company owned locations hit 31.6% in the second quarter, vs. 27.2% in the previous year. Chicken wings cost $1.90 a pound during the quarter. This is a 86% increase from last year's second quarter. When accounting for the lower yield, wing prices are double what they were a year ago. To offset the costs of wings, Buffalo Wild Wings will raise prices again in the fall. It recently put forth a price range that contributed 1.8% in sales increases during the second quarter. A July and September menu increase are in the plans for the company.

Shares of Buffalo Wild Wings traded down 11% on Wednesday after a bad earnings report and lowered guidance. Despite the one day price trimming, shares are still up 20.7% in the calendar year. Shares have traded between $52.37 and $94.81 in the last fifty two weeks. With a share price around $70, shares trade close to the mid-point of that one year range.

The company's growth plans are:

· International expansion across the globe

· Increase average unit volumes

· Adapting current footprint for non-traditional locations

· Expansion with another concept - I wrote an additional article on this topic recently with several acquisition targets in mind. Buffalo Wild Wings could continue its growth by turning into a multi-brand company like Yum Brands (NYSE:YUM), Jack in the Box (NASDAQ:JACK), or Darden (NYSE:DRI) as examples.

Buffalo Wild Wings ultimate goal calls for 1500 restaurants in North America within 5-7 years. By the end of 2013, the company is expected to surpass the 1,000 unit milestone. The growth of stores continues to drive sales higher. Buffalo Wild Wings saw royalty and franchise fees up 12.1% in the second quarter ($18.2 million). An additional 13 franchise locations were opened during the second quarter. In the third quarter, Buffalo Wild Wings is expected to open 14 company owned locations, including the company's first in Alberta, Canada. In fiscal 2012, Buffalo Wild Wings will open 50-60 company owned locations, and an additional 45-50 franchised locations.

Along with its expansion into Canada, Buffalo Wild Wings is adding several franchising deals for new international markets. A previously announced deal sees the company opening 4 locations in Puerto Rico, with the first to be opened in 2013. The company recently signed a deal to license up to 22 locations in Saudi Arabia, the United Arab Emirates, and up to four additional Middle Eastern countries.

Four weeks into the third quarter, Buffalo Wild Wings has seen bigger same store sales numbers. Company owned locations are up 6.8%, while franchised locations once again outpace with 7.3% growth. Buffalo Wild Wings has laid out plans for new sponsorships and advertisements to attack the second half of the year. During the NFL season, Buffalo Wild Wings will air three new television spots and 4 radio spots. The advertisements will air during NFL and NCAA Football games. Buffalo Wild Wings also announced the sponsorship of a college football bowl game. The Buffalo Wild Wings Bowl will feature a team from the Big Ten Conference taking on a Big 12 Conference opponent. The game will take place in Tempe, Arizona on December 29th.

Along with higher food costs, the other big reason investors pushed down sales was weaker guidance. Buffalo Wild Wings has been known for their net sales growth number of 20%. The company has lived by this milestone number as a yearly goal. The company is now cutting and forecasting 15-20% net sales growth for the fiscal year.

Buffalo Wild Wings remains debt free and continues to generate significant revenue from company owned stores and royalty fees from franchised locations around the country. The restaurant company is expanding rapidly and has a lot of growth ahead of it. Wing prices are extremely high and could stay that way for the rest of the year. This could set up for another earnings miss later this year. However, if Buffalo Wild Wings can hit its new guidance numbers or even beat them in the face of higher wing prices, shares could jump back up to fifty two week high numbers. The time to pick up shares of Buffalo Wild Wings could be right now.

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