Buffalo Wild Wings Offers a Fast-Rising, Fast-Casual Opportunity
In the highly competitive fast-casual restaurant industry, Buffalo Wild Wings (BWLD) has carved a special niche for itself, making a rock-solid moneymaking proposition out of three things: beer, sports and wings.
There are 1,190 Buffalo Wild Wings locations around the world, and sales have grown at a fast clip. Profitability, however, has been low, and same-store sales have dipped.
Is the stock a smart growth bet, or are there better opportunities?
The company's revitalized plan to be a go-to-lunch spot could accelerate earnings at a much faster rate, so fast-casual rivals such as ChipotleMexican Grill and Panera Bread should get ready for some high-flying competition.
Panera Bread is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. See how Cramer rates the stock here. Want to be alerted before Cramer buys or sells PNRA? Learn more now.
In the past decade, Buffalo Wild Wings has increased annual sales to $1.8 billion from $278 million, which represents about sixfold growth.
Rivals Domino's Pizza has barely been able to double annual revenue in the past 10 years, burger giant McDonald's was able to ramp up annual sales by just 18%, and Panera Bread has tripled sales.
However, a recent Harris poll on brand equity shows that Buffalo Wild Wings didn't make the cut, but IHOP, LongHorn Steakhouse and Outback Steakhouseshine bright in the casual-dining sector.
The company's brand equity will change if its latest gambit pays off, however. Buffalo Wild Wings is drawing a lot of attention for a new promotion that offers customers a free lunch if they don't get their food within 15 minutes of ordering from the Fast Break menu.
The deal, which runs through the end of the year, will test the firm's ability to increase speed during lunchtime.
Buffalo Wild Wings customers typically align their selection to a televised sporting event. If the chicken wings chain can streamline the operational kinks in delivering food in 15 minutes or less after doing a pilot in some outlets, this should result in higher customer traffic.
With embattled rival Chipotle Mexican Grill still recovering from its food safety troubles last year, Buffalo Wild Wings' strategy may be perfectly timed to richly reward investors.
The company is walking a tightrope between lower input costs and rising labor costs. Although it is no secret that industry-wide same-store sales at chain restaurants dipped in May, it is important for companies to create engagements or target specific customers.
Canaccord Genuity predicted a slow-moving environment in the restaurant industry for last month because of caution on the part of consumers and an uptick in gas prices.
But executives at Buffalo Wild Wings, who have spoken about increasing promotions around different times of the day because of price-sensitive consumers, were already preparing for these tough times.
Earnings at Buffalo Wild Wings are expected to grow an average of 22%-plus annually over the next five years, up from an annual average growth rate of 18.3% over the past five years.
With the stock down about 15% this year, Buffalo Wild Wings is a value play, but analysts project that the stock will reach $160 in a year, which would represent a gain of more than 12%.
The market has been unfair to the sports-themed wing restaurant chain. At a five-year expected price-earnings-growth ratio of 1.09, Buffalo Wild Wings offers solid value, when compared with rivals Chipotle Mexican Grill (8.83), McDonald's (2.08), Panera (2.07) and Yum! Brands (1.87).
So investors should go ahead and get their share of Buffalo Wild Wings.
---
"If big, triple-digit winners get your adrenaline pumping, then stop reading because this isn't for you. Only traders who calmly enjoy raking in an extra $67,548 with no surprises or hiccups will appreciate this strategy. In fact, for the past 1,586 days, I have been leisurely collecting giant payouts with this boring approach. I win eight of every 10 trades, guaranteed. Click here to learn more.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.