Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



With March Madness on the Horizon, Is Buffalo Wild Wings a Timely Bet?

College basketball's popular tourney, more affectionately known as March Madness, is once again set to begin which is good news for sports-oriented restaurant chain Buffalo Wild Wings (NASDAQ: BWLD  ) .  The company has put most of its eggs into catering to sports-crazed fans, which included inking a multi-year marketing partnership with the NCAA in 2012 to position itself as an official sponsor of the aforementioned tourney.  While Buffalo Wild Wings remains on a fast growth trajectory, its recent quarterly update was slightly below expectations on the top line which led to a short-lived stock price sell-off.  So, is Buffalo Wild Wings a good bet at current prices?

What's the value?
Unlike some sit-down restaurant operators that have struggled with stagnant customer volumes like Darden Restaurants, Buffalo Wild Wings has leveraged consumers' insatiable demand for sports to create a thriving chain of sports-oriented bar and grills which recently topped 1,000 locations nationwide.  The company's ability to successfully link wings, beer, and watching sports in the minds of its customers has positioned its restaurants as popular gathering spots, a trend that it has facilitated with open layouts and a bevy of televisions which cover every line of sight.  More importantly, the universal love of sports seems to present favorable future growth opportunities in international markets for Buffalo Wild Wings, and this is an area that the company has only begun to tap.

In fiscal 2013, Buffalo Wild Wings has remained on the fast track as it reported a 21.7% increase in its top line, aided by a comparable-store sales gain and a double-digit expansion of its overall store base.  Despite higher restaurant management costs which were due to efforts to enhance customer experiences, the company was able to maintain operating profitability in-line with the prior year, thanks to a notable decline in average chicken-wing prices.  As a result, Buffalo Wild Wings continued to generate healthy operating cash flow during the period which will power its plans for another double-digit increase in its store base in 2014.

Looking for cheaper themes
While Buffalo Wild Wings remains the king of wings, there is a growing list of challengers in the space that includes fast food kingpin McDonald's, which entered the category with its new Mighty Wings offering last September. Buffalo Wild Wings' results to-date seem to have been relatively unaffected by its competitors' forays, but rising competition will likely lead to higher future marketing expenses for the company which will put pressure on its underlying profit growth.  As such, Buffalo Wild Wings' relatively high valuation, evidenced by its 30-plus P/E multiple, should give investors some pause and lead them to search for greater value elsewhere in the themed-restaurant space.

One good alternative would be Cracker Barrel Old Country Store (NASDAQ: CBRL  ) , a hybrid restaurant/retail concept that has leveraged consumers' nostalgia for the U.S.' country-western heritage into a national base of stores.  The company has also taken advantage of an increasingly mobile customer base by predominantly placing its stores near high-traffic freeway exits and travel spots.

While Cracker Barrel has a lower restaurant margin than Buffalo Wild Wings, it benefits from lower-cost word-of-mouth advertising which has allowed the company to generate a comparable level of operating profitability.  It also has a valuable retail operation that extends its restaurant's brand into the at-home market, a focus area for the company evidenced by product partnerships in the area that include a recent deal with meat-processing giant Smithfield Foods. 

Another good alternative in the space is Bloomin' Brands (NASDAQ: BLMN  ) , a diversified restaurant operator that has leveraged interest in the Australian way of life to build a global chain of steakhouses that span nineteen countries.  Despite a generally down year for the sit-down restaurant business in 2013, according to data provider Knapp, Bloomin' Brands posted a comparable-store sales gain for its core Outback Steakhouse franchise as well as varying gains for each of its other concepts.  While the company's Outback Steakhouse concept may be approaching its upper limit in terms of its overall store base, its fast-growing Bonefish grill seafood concept looks capable of powering future profit growth and higher shareholder value.

The bottom line
Buffalo Wild Wings will undoubtedly be a popular dining choice for sports-crazed fans during this year's edition of March Madness. Given the growth expectations baked into its current stock price, though, prudent investors should look elsewhere for restaurant sector opportunities, starting with growing franchises like Cracker Barrel and Bloomin' Brands.

6 more stocks for ultimate growth
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Read/Post Comments (1) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 18, 2014, at 2:55 PM, Eohippus617 wrote:

    Love that a couple days after you say not to pursue Bdubs because of lofty P/E it flies to a new 52 week and all time high. All this without any real news. As the marketing program rolls out for March madness- awareness of Bdubs increases- this is always their best quarter of the year. If you want to lighten up on Bdubs wait until after they announce the Q1 results.

    Of course that may be the time they announce thier investments in other restaurant concepts -In which case all bets are off as this could fly like CMG!

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2871122, ~/Articles/ArticleHandler.aspx, 9/3/2015 9:05:00 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Robert Hanley

Today's Market

updated 11 hours ago Sponsored by:
DOW 16,351.38 293.03 0.00%
S&P 500 1,948.86 35.01 0.00%
NASD 4,749.98 0.00 0.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/2/2015 3:59 PM
BWLD $195.08 Down +0.00 +0.00%
Buffalo Wild Wings CAPS Rating: ****
BLMN $20.74 Down +0.00 +0.00%
Bloomin Brands CAPS Rating: **
CBRL $145.56 Down +0.00 +0.00%
Cracker Barrel Old… CAPS Rating: ****
DRI $68.96 Down +0.00 +0.00%
Darden Restaurants… CAPS Rating: ***
MCD $96.04 Down +0.00 +0.00%
McDonald's CAPS Rating: ***