Consumer confidence improved yet again in August. The index rose to 81.5, while economists were expecting it to be 79, according to Bloomberg. This shows that consumers are gradually becoming willing to spend more, and this is a positive development for the restaurant industry in the U.S.
The restaurant industry accounts for approximately 4% of U.S. gross domestic product. In 2013, the industry is expected to be worth $660.5 billion, generating about $1.8 billion in sales per day.
Competing for a share in this market is Buffalo Wild Wings (NASDAQ: BWLD ) , which recently declared impressive second-quarter results and looks set to grow going forward.
A good performance
In the previous quarter, consolidated revenue jumped 27.8% year-over-year to hit a figure of $305 million, beating the consensus estimate of $304 million. Growth in comparable-store sales and unit expansion were the primary drivers behind revenue growth. It opened 10 company-owned restaurants and 11 franchised restaurants in the quarter as it continues to expand its wings (get it?).
On the earnings side as well, Buffalo Wild Wings managed to beat the consensus estimate of $0.79 per share. It reported earnings per share of $0.88, which was 41.9% higher than the year-ago quarter.
Buffalo Wild Wings is willing to invest in company-owned stores for growth, like it did in the previous quarter.While this requires more capital, it also gives the company more control over customer experiences and a better shot at building its brand.
But the franchise model shouldn't be ignored. Royalties and fee revenue from franchisees jumped 7.9% year-over-year to $19.6 million in the last quarter. This was driven by 20 new restaurants and a 4.1% increase in franchise same-store sales.
In July, Buffalo Wild Wings started to serve wings based on portions rather than numbers in order to reduce the risk associated with inconsistent wing yields. This is a move that's going to help in closely matching sales with costs and should lead to stronger bottom line performance going forward.
The company has two of its strongest quarters coming up. It expects that comps will get a boost from the NFL and NCAA football seasons. This will help the company increase its brand visibility and attract customers through digital and social media platforms.
It has plans to keep growing and expanding to new locations. As of July 30, there were approximately 930 Buffalo Wild Wings Grill & Bar restaurants in the United States and Canada. Last year, the company expanded its operations in Mexico and the Middle East and added Philippines to the list last month.
Buffalo Wild Wings believes that the Philippines isamong the fastest-growing economic regions in Asia, and with a population of 100 million, the company might find some good growth opportunities there.
Dunkin' Brands (NASDAQ: DNKN ) saw an increase of 5.9% in revenue year-over-year because of higher sales of ice cream products and higher royalty income. However, it missed consensus estimates.
But Dunkin' has been looking to expand its business, so a minor hiccup in the form of a top-line miss shouldn't be a big deal. The company is looking at 330-360 new restaurants across the U.S. in 2013. It currently has 10,600 Dunkin' Donuts restaurants and around 7,000 Baskin-Robbins restaurants worldwide. Looking ahead, Dunkin' plans to have around 15,000 stores in the U.S. alone in the next 20 years, doubling its presence in the country.
Another peer, Burger King Worldwide (NYSE: BKW ) , has been seeing tough times. In its latest second-quarter results, total revenue fell by a whopping 48.5% year-over-year to land at $278.3 million. This drop was a result of negative currency translations, an adverse impact of refranchising, and lower comparable sales.
During the reported quarter, Burger King refranchised 305 units. It plans to finish its refranchising initiative in 2013. In addition, it has plans to reimage at least 40% of its U.S. and Canadian restaurants by 2015.
So far, the 600-odd reimaged restaurants completed in 2012 have delivered an average sales boost of 10% to 15%, thus providing an attractive return to franchisees. Second-quarter results showed sequential improvement across most regions and parameters, and this is a positive sign going forward.
With a mix of franchisees and company-owned stores, Buffalo Wild Wings seems to be in a good position to grow its business. It is expanding internationally in high-growth regions, and investors should continue to hold this stock in their portfolios.