What's Next for Buffalo Wild Wings?

After a strong quarter, these 3 key principles may help Buffalo Wild Wings continue.

Feb 8, 2014 at 7:00AM

After reporting solid fourth-quarter results, and once again bucking the trend of so many casual dining restaurants, Buffalo Wild Wings (NASDAQ:BWLD) stock still sold-off on Wednesday. 

While the results were no doubt solid, Wall Street expected more and Goldman Sachs lowered its price target on shares, which sent the stock down over 9%. Still, now is probably not a good time to sell your shares.

This is a rare restaurant, along with fellow heavy-weights Chipotle (NYSE:CMG) and Starbucks (NASDAQ:SBUX), that should be depended on to innovate. Three key principles that these restaurants share in common, give me confidence. 

Examining the quarter
While many headlines said that the results were "mixed," they were only mixed because analysts expected slightly more revenue. One piece of Foolish advice I'd recommend is to ignore analysts expectations, which are wrong nearly half the time; rather, you should focus on the organic growth of the business in question.

Buffalo Wild Wings bucked the "bad weather" trend that has hammered most retail, and even restaurant establishments, by posting strong comps. The only two names that did as well this quarter are Chipotle, which posted a staggering 9.3% comparable sales figure, and Starbucks posted comparable sales of 6% on a 4% increase in store traffic.

Buffalo Wild Wings same-store sales growth was at 5.2%. While total revenue's came in at 12%, the same-store (or comparable) increase means more. Restaurants are relatively simple businesses to analyze; comparable store sales, new store openings, and overhead costs, will tell you about 90% of the story.

With nice comparable sales and a plan to open 13 franchise restaurants this quarter, Buffalo Wild Wings is doing well. Can it last?

Buffalo Wild Wings: a Rule Breaker?
Most people wouldn't think of Buffalo Wild Wings as a stock that could be in The Motley Fool's Rule Breaker's Newsletter, but perhaps they should. In their book Million Dollar Portfolio Motley Fool Co-Founders, David and Tom Gardner, explained that "rule breaking stocks" disrupt competitors or create  markets that didn't exist.

There are a select few restaurants that disrupt industries. Starbucks created an American market for a premium coffee brand, with scale, that simply didn't exist. Chipotle, through its food with integrity campaign, is disrupting the food industry by shedding light on GMO's.
As wild (pun intended) as this may sound, Buffalo Wild Wings disrupted Hooter's and the prototypical sports bars. They did this by creating an environment the entire family could enjoy. By providing a clean and family friendly environment they fully capitalized on the beautiful union of wings and sports, and doubled their customer "net" (women and children actually are customers).
Why does all of this old news matter? Well, Buffalo Wild Wings is currently in growth mode and plans to open 700 additional North American stores, but at some point the market will reach saturation. At that point, international growth and Buffalo Wild Wings pizza concept will need to take-off, and the innovation of this management team will matter. 
Lack of true competitors
There are few real competitors for Buffalo Wild Wings. The one's that attempt to compete are the following:
1. Sports bars and Hooter's.
These competitors remind me of Taco Bell's "competition" with Chipotle, meaning, most true Buffalo Wild Wings fans can't get the experience they're seeking from them. Until the average Dad feels comfortable taking his Daughters soccer team to Hooter's (as so many do at BWLD), they're not real competition. Again, it's like trying to get fresh Mexican food at Taco Bell.
 2. Local concepts.
Some of my friends who are "coffee snobs" love to tell me that Starbucks coffee is nowhere near as good as some hole in the wall place, that's 40 miles away, that they seek out on Sundays. They may be true, but local and independent providers of quality food and drink are not really a threat to Starbucks, nor are similar wing concepts to Buffalo Wild Wings.
Besides not being able to readily find these local spots, there's the habituation that a large-scale brand creates. In most people's mind, when they're in the mood for a family friendly wing and sports joint, Buffalo Wild Wings is what they think of first. 
Buffalo Wild Wings, like Starbucks, has a tremendous advantage because you think of them first, when it comes to what they do best. Consistency is a huge key to restaurant success, consumers want a consistent experience, you can't guarantee that by trying out places you're un-familiar with. Unless quality suffers, BDubs' has too far of a lead on smaller competitors. 
What's next for Buffalo Wild Wings
I am not telling you to go out and buy a bunch of shares in Buffalo Wild Wings today, even though a forward P/E of 22 is hardly pricey.  

What I think we all need to figure out is how long this business can continue to crush competitors. Here are the questions we need to ask when valuing B-Dubs:
1. Is the "rule breaking" brand concept still "sticking"
2. Is their still a lack of true competitors (of scale)
3. Are comparable sales growing, and is there room to grow (open new shops) in the U.S. and overseas going forward
Do your own homework, but if you think the answers to these questions are "yes," you may (still) have a winner on your hands.
I'm watching this one closely, but I think anyone would have to bet on this company over 90% of restaurants operating today. If the shares continue to pull-back, I may consider adding a small "one-third" position in Buffalo Wild Wings. 

True rule breaking companies aren't easy to find, but they're out there
Opportunities to get wealthy from a single investment don't come around often, but they do exist, and our chief technology officer believes he's found one. In this free report, Jeremy Phillips shares the single company that he believes could transform not only your portfolio, but your entire life. To learn the identity of this stock for free and see why Jeremy is putting more than $100,000 of his own money into it, all you have to do is click here now.

Adem Tahiri has no position in any stocks mentioned. The Motley Fool recommends Buffalo Wild Wings, Chipotle Mexican Grill, and Starbucks. The Motley Fool owns shares of Buffalo Wild Wings, Chipotle Mexican Grill, and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information