Here's Why Buffalo Wild Wings Is Set to Fly Higher

After a terrific first-quarter report, Buffalo Wild Wings can improve further.

May 30, 2014 at 8:53AM

Buffalo Wild Wings (NASDAQ:BWLD) ended fiscal 2013 on a weak note. In February it released fourth-quarter results which were behind analysts' expectations and provided a weak outlook. However, Buffalo has made a strong comeback with its recently released first-quarter report. The company has been under pressure from peers such as McDonald's (NYSE:MCD) and DineEquity (NYSE:DIN), which are focusing on technology and menu innovations. So Buffalo's strong report indicates that the company is making some good moves, and further improvement might be on the way.

A robust performance
Buffalo reported solid results mainly because of the Winter Olympics, which drove more guests to visit its restaurants. Various sporting events took place during the quarter and the company utilized these opportunities to boost its sales.

Revenue for the first quarter increased 20% year-over-year to $367.9 million. Net earnings increased 72.9% to $28.3 million from $16.4 million in the year-ago period. Buffalo's royalty and franchise fee revenue for the first quarter increased by around 15% to $22.9 million from $19.9 million last year. Buffalo's strategic moves to improve the guest experience should enable it to sustain this positive momentum going forward.

Enhancing the guest experience
With its "Guest Experience" business model Buffalo aims to offer the ultimate social experience to its guests. It believes that this will help it differentiate its brand from those of rivals. The company offers tabletop tablets at a number of franchises which have engaging features such as trivia, arcade games, a news stand, and poker. So while order preparation takes place, guests won't be waiting uselessly and will remain engaged in some activity.

This is a smart move from Buffalo, as peer DineEquity has already seen some success with an identical move. DineEquity started installing tablets at its Applebee's locations last year, and plans to equip all its locations with tablets by the end of the year. DineEquity believes that the installation of tablets will reduce its labor costs and increase its service speed. In fact, the 50 Applebee's restaurants where it initially tested the tablets reported higher appetizer and dessert sales. 

Moreover, Buffalo is looking to tap the excitement around the upcoming soccer World Cup in Brazil. According to management, "We will promote Buffalo Wild Wings as the place to watch the 2014 FIFA World Cup tournament through increased advertising spend." Buffalo has also partnered with Budweiser and Heineken to create two unique games centered on the World Cup. 

Expansion and innovation
Apart from improving the customer experience, Buffalo is also focused on expanding its reach. It opened 19 new stores during the first quarter, and with its expansion into Rhode Island the company now has locations in 50 states. 

In the long run, Buffalo aims to open 3,000 restaurants worldwide, and management believes that it will open 400 international Buffalo Wild Wings restaurants in the next 10 years. Keeping this in mind, the company is investing in franchises worldwide.

In addition, Buffalo is also investing in its PizzaRev chain, part of its portfolio of emerging brands. It has opened its first PizzaRev location in Minnesota. Also, as reported by Bloomberg, Buffalo is looking to invest in another company. Although management has not named the brand, it is carrying out the necessary due diligence on the concept. 

Apart from store numbers, Buffalo is also improving its product offerings by bringing out limited-time offers. It will launch two flavors of sauce that will include its Honey Ginger Kick, along with a Buffalo grilled cheese sandwich and a Prime Rib Philly.

These moves should enable Buffalo to counter competition from McDonald's in the chicken-wings space. McDonald's made an aggressive move into the chicken-wings segment with Mighty Wings. However, the company didn't find much success with this move for a couple of reasons. First, the prices of Mighty Wings were identical to those of Buffalo's offerings. Second, the wings were too spicy. As such, McDonald's was unable to price its product efficiently and Buffalo managed to stay ahead.

The bottom line
Buffalo has made a solid comeback after a poor start to the year. It should be able to sustain its new-found momentum on the back of expansions and improvement in the customer experience. So investors should consider Buffalo Wild Wings for their portfolios as it looks set to fly higher.

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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. 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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Aug 7, 2015 at 11:26AM

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