Shares of This Restaurant Chain Still Look Spicy

Buffalo Wild Wings is planning to triple in size over the next few years. If management achieves their goals, shares could deliver big returns.

Apr 14, 2014 at 9:45AM

Sally Smith, the CEO of Buffalo Wild Wings (NASDAQ:BWLD), is showing no signs of slowing down. Smith is not only looking to continue expanding the Buffalo Wild Wings brand but also the company's PizzaRev franchise -- and possibly invest in or start new concepts. The plan over the next few years is to become a global restaurant company and triple the number of locations. This quest for growth will not only boost sales and profits but the company's share price as well.

Look for Buffalo Wild Wings to continue growing
At the beginning of this year, the company had slightly more than 1,000 Buffalo Wild Wings locations. Of them, 565 were franchised and 438 company-owned. All told, these locations generated $2.8 billion in systemwide sales last year. There's still plenty of room for Buffalo Wild Wings to grow. After all, its core concept is based on wings, beer, and sports. It's tough to argue with that formula.

Eventually, the company expects to have 1,700 Buffalo Wild Wings locations in the U.S. and Canada. International growth will come from franchising. Here there is plenty of room to grow, as the company opened its first international location in Mexico last year. Going forward, Buffalo Wild Wings has agreements to enter Saudi Arabia, the United Arab Emirates, and the Philippines.

Results are still impressive
While other casual-dining chains were affected by the winter weather, Buffalo Wild Wings had a solid fourth quarter. It reported a same-store sales increase of 5.2% at company-owned locations and a 3.1% gain at franchised locations. Earnings beat analysts' expectations by $0.03 a share. Revenue grew 12.4% year over year to $341.5 million. The company forecasts 20% net earnings growth this year.

Looking to improve the customer experience
A good move by Buffalo Wild Wings is continuing to roll out tablets to each table. Currently, the tablets are in use at 150 company-owned restaurants. By the end of this year 500 restaurants will have the tablets, and by the end of 2015 all of its locations will have the tablets.

These tablets allow customers to order and pay the checks on their own. This is an added benefit to diners, especially during game days when the noise is quite loud and the restaurants are the busiest. While diners wait, they can also play games on the tablets.

There's plenty of potential with PizzaRev 
Currently, there are only eight PizzaRev locations in California. But as an investor in the chain, Buffalo Wild Wings is looking to change that. There are 15 planned locations in the works. Buffalo Wild Wings will open two locations in the Minneapolis market as a franchisee this year.

The key to the concept is that it allows diners to customize their pizzas and watch food being cooked in a 900-degree Fahrenheit fire-deck oven. The ingredients are fresh, and each pizza is the same price -- no matter what ingredients are added. Basically, PizzaRev is looking to do for pizza what Chipotle Mexican Grill (NYSE:CMG) did for Mexican food.

Chipotle wants in on the pizza market as well
Chipotle isn't going to sit idly by and let another company copy its formula, especially when it comes to a market as big as pizza. In December, the Mexican chain became an investor in Pizzeria Locale after more than 10 years of discussions between Chipotle Chairman Steve Ells and the Pizzeria Locale founders.

The Pizzeria Locale concept focuses on fresh ingredients, similar to PizzaRev, but its oven can cook pizzas in less than two minutes. The speed at which the oven cooks pizzas could be a decided advantage during times of high customer traffic. The menu includes pizzas, salads, meatballs, sliced orders of prosciutto, red wine, and desserts.

Chipotle will provide its expertise in sourcing ingredients, scouting locations, marketing, and management. Chipotle has an equity investment and has provided the capital for expansion. If the concept is successful, Chipotle will most likely become the majority owner. The first location has already opened in Denver, and the company has identified more locations in the Denver area for expansion.

How do shares compare?
Shares of Buffalo Wild Wings are trading at 24 times next year's earnings and at only 2 times sales. Its market cap is $2.6 billion, and shares have risen more than 60% in the past year. To fund expansion, the company has $65 million in cash and no debt.

Chipotle Mexican Grill shares are more expensive. The stock trades at 33 times next year's earnings and 5 times sales. Its market cap is $16.6 billion, and shares are up more than 61% in the past year. Chipotle has no debt on its balance sheet and has more than $578 million in cash to fund its growth plans.

Foolish assessment
I still see plenty of growth ahead for Buffalo Wild Wings and its share price. If the company is able to triple its locations over the next several years, it could possibly triple its share price as well. This would still put its market cap at less than half of Chipotle's.

While both chains are entering the pizza business, Chipotle has the slight edge with a faster-cooking oven. Both chains know how to take a concept and grow it. Eventually, it will all come down to which chain makes the better pizza, and that's going to be the key ingredient for investors.

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Mark Yagalla has no position in any stocks mentioned. The Motley Fool recommends Buffalo Wild Wings and Chipotle Mexican Grill. The Motley Fool owns shares of Buffalo Wild Wings and Chipotle Mexican Grill. 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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