After Moving Higher, Does Buffalo Wild Wings Still Have Room to Fly?

Source: Buffalo Wild Wings

After Buffalo Wild Wings (NASDAQ: BWLD  ) reported revenue and earnings for the first quarter of its 2014 fiscal year, shares rose 5% on April 29, 2014 to close at $140.14. Now, with shares of the chicken wing establishment trading 61% above their 52-week low of $86.96, should investors consider leaving the roost and jumping into Texas Roadhouse (NASDAQ: TXRH  ) ? Or can the restaurant's success continue flying higher?

Buffalo Wild Wings's high flying quarter
For the quarter, Buffalo Wild Wings reported revenue of $367.9 million. In addition to beating the $363 million analysts anticipated, the company's top-line performance was a jaw-dropping 21% higher than the $304.4 million management reported in the same quarter last year. According to the company's earnings release, the increase in revenue was driven by a combination of a higher store count and rising comparable-store sales.

Over the past year, Buffalo Wild Wings added 101 restaurant locations, bringing its store count from 911 to 1,012. Fifty five of these restaurant additions were franchised operations, while the remaining 46 additions were company-owned. Despite this disparity in growth, the company-owned locations enjoyed a stronger growth rate, with comparable-store sales increasing 6.6% compared to the 5% sported by its franchisees.

Source: Buffalo Wild Wings

From a profitability perspective, Buffalo Wild Wings did even better. For the quarter, the company reported earnings per share of $1.49. This handsomely surpassed the $1.35 Mr. Market wanted to see and was 71% higher than the $0.87 the company reported during the first quarter of 2013.

On top of enjoying a higher level of sales, the company saw its cost structure fall in relation to revenue. One of the primary drivers behind this improvement was the company's cost of sales, which fell from 30.6% of revenue to 26.5% as chicken prices dropped and the company's method for pricing chicken was modified.

How does Buffalo Wild Wings compare to the competition?
Over the past three years, Buffalo Wild Wings has been a strong growth story. Between 2011 and 2013, the company saw its revenue increase 61% from $784.5 million to $1.3 billion. In large part, this was due to a 22% rise in store count from 817 to 993; but it was also attributable to an aggregate 18% increase in company-owned comparable-store sales and a 14% lift in franchisee-owned metrics.

BWLD Revenue (Annual) Chart

Buffalo Wild Wings revenue (annual) data by YCharts

This growth rate is vastly superior to that of Texas Roadhouse, which saw its revenue rise 28% from $1.1 billion to $1.4 billion. Like Buffalo Wild Wings, Texas Roadhouse enjoyed attractive growth in both store count and comparable-store sales but not to the same extent that Buffalo Wild Wings did. Between 2011 and 2013, the company increased its store count by 15% from 366 to 420, while its comparable-store sales rose by an aggregate 13%.

From a profitability perspective, the difference between Buffalo Wild Wings and Texas Roadhouse was even greater. Between 2011 and 2013, Buffalo Wild Wings saw its net income jump 42% from $50.4 million to $71.6 million. On top of benefiting from higher revenue, the company saw its bottom line increase due to selling, general, and administrative expenses falling from 11.1% of sales to 8.7%.

BWLD Net Income (Annual) Chart

Buffalo Wild Wings net income (annual) data by YCharts

Texas Roadhouse also performed well over this time frame but not to the same degree that Buffalo Wild Wings reported. Between 2011 and 2013, the company's net income increased only 26% from $64 million to $80.4 million, driven largely by its rising sales but negatively affected by a general rise costs.

Foolish takeaway
Based on the data provided, it's clear that Buffalo Wild Wings had an excellent quarter. This past quarter's metrics suggest that management has been successful in continuing the company's long-term growth. This is especially true when you consider that the company has grown far more rapidly than Texas Roadhouse.

However, this fast pace comes with a cost: a more expensive investment. Using April 29's prices and 2013's earnings, Buffalo Wild Wings is trading at 37 times earnings, far higher than the 21.5 times investors would have to pay for its rival. While this doesn't necessarily make the company a bad investment compared to Texas Roadhouse, the Foolish investor who buys into Buffalo Wild Wings needs to remain cognizant of how much they are paying for the company's growth.

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Daniel Jones

Dan is a Select Freelance writer for The Motley Fool. He focuses primarily on the Consumer Goods sector but also likes to dive in on interesting topics involving energy, industrials, and macroeconomics!

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Related Tickers

9/2/2015 3:59 PM
BWLD $195.08 Up +4.03 +2.11%
Buffalo Wild Wings CAPS Rating: ****
TXRH $36.91 Up +1.16 +3.24%
Texas Roadhouse CAPS Rating: *****