Don’t Be Discouraged by Buffalo Wild Wings’ Weak Quarter

Buffalo Wild Wings’ quarterly report wasn’t great, but it doesn’t mean that the stock is a bad investment.

Mar 1, 2014 at 3:00PM

Minneapolis-based restaurant chain Buffalo Wild Wings (NASDAQ:BWLD) recently released not-so-impressive fourth-quarter results. The stock has performed impressively over the last year, gaining more than 80%. However, Buffalo has lagged so far in 2014, as the Street didn't receive the company's results positively.

Also, with competition rising from the likes of DineEquity (NYSE:DIN) and McDonald's (NYSE:MCD), analysts ideally expected Buffalo to post decent financial results, which it didn't.

Beyond the short-term pain
In the recently reported quarter, Buffalo's revenue increased 12.4% year over year, as sales at company-owned restaurants grew by 13.1% . Buffalo's net earnings increased an impressive 24.9%. However, the results were below expectations. But analysts, such as Jefferies' Alexander Slagle, believe that Buffalo might have low-balled its forecast and could have outperformed its own expectations on the back of strong same-store sales, low wing costs, and better cost management.

The reason behind the success of Buffalo Wild Wings has been its ambiance, popular chicken wings, and signature sauces and seasonings. In addition, the football experience that Buffalo offers along with a mouth-watering menu and beer have led to strong sales so far. Also, the strategy of offering gift cards during the holiday season proved fruitful for Buffalo, and it expects this move to bring in more customers in the first quarter of 2014.

Furthermore, Buffalo Wild Wings is looking to take its football experience to the next level. It has launched new, stadia-designed restaurants to enhance the overall guest experience, which is believed to bring in more customers.

Good moves
Buffalo looks to make itself the official hangout place to enjoy the basketball and football experience. Hence, it is now allowing customers to book their brackets in advance, online, so that they can have a good dining experience, cheering their favorite athletes in the Winter Olympics.

Furthermore, in 2014, the company is bringing its seven signature sauces as add-ons to the chicken wings. Also, Buffalo is bringing its fan-favorite beer, which includes a domestic and a craft beer. The company is also looking to equip its restaurants with tablets so that customers can have the full menu on the table at the touch of a screen, from which they can order and pay on the table itself, thereby eliminating the need of an attendant. 

This is a good move by Buffalo, as peer DineEquity had also installed tablets at its Applebee's locations. According to USA Today, DineEquity plans to equip all of its stores with tablets by year-end. These tablets should help DineEquity reduce the cost of labor at its stores and also help speed up the service, because of which it should be able to serve more customers. The results of this move were evident when it was reported that the 50 Applebee's restaurants where tablets were tested saw higher appetizer and dessert sales.  

Expansion and marketing
Buffalo's expansion strategy in 2014 involves opening 45 company-owned and 40 franchised restaurants. After the remarkable performance of its stores in Mexico last year, the company is aiming to increase to 1,000 restaurants. Furthermore, Buffalo is planning to expand abroad in Saudi Arabia and Dubai in addition to new stores in Mexico. 

Buffalo also has aggressive marketing strategies, under which it has announced the addition of two well-known soft-drinks brands -- PepsiCo and Dr Pepper Snapple -- as partners. In addition, Buffalo is planning to use the National Football League as a marketing tool by using NFL pass-through rights and music-entertainment properties of its beverage partners.

These moves should help Buffalo combat newcomers into the chicken-wings segment. For example, McDonald's was looking to grab a piece of this market and had started promoting its Mighty Wings aggressively. However, the fact remains that McDonald's couldn't make much out of this venture, as the prices of its Mighty Wings were at par with Buffalo, apart from being too spicy. McDonald's failed because it didn't price its product right, but Buffalo needs to keep an eye on other players looking to capture the chicken-wings market.

Bottom line
Buffalo has gotten off to a slow start in 2014, but its prospects look good. The company is undertaking different moves to improve its reach and enhance customer experience. So, investors need to look at Buffalo's long-term prospects and ignore the short-term weakness.

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Neeta Seth has no position in any stocks mentioned. The Motley Fool recommends Buffalo Wild Wings and McDonald's. The Motley Fool owns shares of Buffalo Wild Wings and McDonald's. 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.

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