Buffalo Wild Wings' Indigestion?

You don't have to be a Simon & Garfunkel fan to appreciate the sound of silence. You could be a parent. Or you could be a Motley Fool Hidden Gems investor. Or you could be all three, as I am.

In a bizarre moment on yesterday's third-quarter earnings call for Hidden Gems pick and beer and wings purveyor Buffalo Wild Wings (Nasdaq: BWLD  ) , the operator opened the line for questions from analysts only to find that there were none. Yep, that's right, zilch. Nada.

I'm no mind reader, so I can't tell you why there were no questions. Certainly there could have been a glitch, but I'm not so sure. Indeed, I think analysts may have already given up on this stock. After all, there's plenty of reason to do so if you're thinking short-term.

Net income for the quarter was down year over year, from $0.17 per share to $0.14 per share. The decline was attributed to a $508,000 restaurant impairment charge, which accounted for $0.04 per share, and $291,000 for stock compensation expense, which accounted for $0.02 per share. Operating costs also rose dramatically. After backing out the impairment charge, expenses were up 38% year over year. That's more than the 37% Buffalo Wild Wings grew sales from the same period a year ago; not a good sign.

My greatest source for concern, however, stems from the fact that structural free cash flow has run negative so far this year -- to the tune of $3.8 million. That doesn't compare well with last year's $778,000 earned during the same period. With guidance of $0.17 to $0.19 per share in net income for the fourth quarter I estimate negative structural free cash flow in excess of $6 million.

Certainly, these developments aren't ideal. But do they make for reasons to run away from the stock? No way. Buffalo Wild Wings still has more than $48 million in cash, and its 7% same-store sales growth will aid cash flow as new stores become staples in their communities. New locations in Dallas, for example, are already making their mark (subscription required).

So I hope analysts and other weak-kneed investors are indeed running for the door. Yeah, that's right; don't let it hit you in the back on your way out, guys. Like PF Chang's China Bistro (Nasdaq: PFCB  ) and Cheesecake Factory (Nasdaq: CAKE  ) before it, Buffalo Wild Wings is showing all the signs of a firm with some short-term indigestion from all the growth it's eating up. Does it hurt? Sure, for now. But that doesn't mean the firm will experience the same heartburn the Street appears to think is coming.

For more tasty Foolishness:

Buffalo Wild Wings is just one of Tom Gardner's picks for subscribers ofMotley Fool Hidden Gems, and he's slapping the market silly. It's easy to get in on the action. A free, 30-day trial is yours for the asking.

Fool contributor Tim Beyers owns shares in Buffalo Wild Wings. He's also a regular customer and suggests you try the chicken buffalitos with chili fries. Ummmmm, tasty. You can view Tim's Fool profile and stock holdings here.


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