How This "Small Cap to Rule Them All" Keeps Winning

It's been just slightly more than a year since I introduced my list of 10 small-cap companies to rule them all. Buffalo Wild Wings (Nasdaq: BWLD  ) , a quickly growing casual-dining restaurant chain, was my second selection in the series, and today I thought it would be worthwhile to see how it's performed since then and what you can expect from the company going forward.

Company Buffalo Wild Wings
Performance Since Pick 68%
Price/Book 5.09
Forward P/E 22.5

Source: Yahoo! Finance; data as of close 03/23/2012.

Where it has been
I know it's brutally cliched and I'm probably going to get grief for saying it, but this chicken is kickin'!

Buffalo Wild Wings is one of the few casual-dining restaurants that have completely debunked the idea that rising input prices are going to cripple margins. If the company's fourth-quarter and year-end results proved anything, it's that faster casual-dining restaurants are quickly eroding the market share of more traditional eateries Applebee's and IHOP, which are both owned by DineEquity (NYSE: DIN  ) . In fact, analysts are projecting that DineEquity's sales will dip by double-digits this year and in 2013.

As for Buffalo Wild Wings, it was basking in 8.9% same-store sales growth at company-owned restaurants and 5.9% at franchised restaurants during the fourth quarter. Sales rose 34.5%, with company-owned restaurants driving the bulk of the gains since 60 new stores were opened during the fourth quarter as opposed to the year-ago period.

One of my favorite selling points on Buffalo Wild Wings is its fast-growing cash flow and its remarkably strong balance sheet -- 2011's results didn't disappoint here, either. Considering that the company opened 60 new stores over the past year and still has $60.5 million in cash without any debt is a testament to the prudence of fiscal management and to just how fast the chain is growing in popularity. Check out the recent same-store sales growth history of the company to see what I mean:

Source: Buffalo Wild Wings press release, SSS = same-store sales.I chose company-owned locations as opposed to franchised ones, because company-owned restaurants are responsible for 92% of all sales and are thus a more accurate representation of the company's health. Buffalo Wild Wings' 8.9% same-store sales growth clocks in as its best year-over-year growth in more than half a decade.

Source: Buffalo Wild Wings press release, SSS = same-store sales.

I chose company-owned locations as opposed to franchised ones, because company-owned restaurants are responsible for 92% of all sales and are thus a more accurate representation of the company's health. Buffalo Wild Wings' 8.9% same-store sales growth clocks in as its best year-over-year growth in more than half a decade.

Where it's going
Can Buffalo Wild Wings duplicate last year's 68% gain moving forward? While that may be difficult to duplicate over the next 12 months, the long-term outlook for the company looks fantastic.

Buffalo Wild Wings CEO Sally Smith noted in the company's fourth-quarter press release, "Same-store sales through the first six weeks of 2012 have increased 12.9% at company-owned and 10.8% at franchised restaurants." That's right, folks, 12.9%!

Smith went on to say that the company will be rolling out online ordering sometime this year, as well as more aggressive marketing spots that will include television and radio ads. She thinks the company has the potential to be a 1,500-location restaurant chain in the future (it had 817 locations through Q4) and is forecasting a 20% rise in net earnings for 2012 despite rising input costs.

What about Buffalo Wild Wings' competition, you might be wondering? Most aren't doing nearly as well. Ruby Tuesday (NYSE: RT  ) reported a 4.2% decrease in same-store sales in its most recent quarter, but in all fairness, it was up against some very tough comparisons last year. Darden Restaurants (NYSE: DRI  ) did report strong same-store sales growth, led by Red Lobster and LongHorn Steakhouse, but its Olive Garden division, which is responsible for 44% of all revenue, grew same-store sales by just 2% in the United States. Olive Garden's erratic performance of late has completely turned me off from Darden as an investment.

Foolish roundup
Based on Smith's comments, it appears that Buffalo Wild Wings is on pace to open north of 85 stores in 2012, and its first-quarter results could highlight a double-digit same-store sales increase. I stick by my original thesis that this company is a solid long-term play that has dividend potential written all over it.

What's your take on Buffalo Wild Wings: Is this still a tasty morsel, or would buying here lead to indigestion? Tell me and your fellow Fools about it in the comments section below.

If you like companies with a competitive advantage, you might love our analysts' Top Stock Pick for 2012. Check it out for free for a limited time only.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He has yet to eat at a Buffalo Wild Wings but plans to change that this year. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool owns shares of Buffalo Wild Wings and Darden Restaurants. Motley Fool newsletter services have recommended buying shares of, and writing covered calls on, Buffalo Wild Wings. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that's filled to the brim with transparency.


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