Dueling Fools: Buffalo Wild Wings Bear Rebuttal

First, Chuck, I'd like to say congratulations. I'm glad to see a fellow Fool profiting from smart, well-timed investments. Have any advice for getting my wife interested in picking stocks?

Like Starbucks? Uh, no
I agree that Buffalo Wild Wings (Nasdaq: BWLD  ) , a Motley Fool Hidden Gems offers a good meal. It's also a good place to gather, down a few beers, and commiserate with the buddies for a while. Clearly a good choice for the softball after-party.

But that's where our agreement ends. It's like Starbucks (Nasdaq: SBUX  ) ? Not a chance, Chuck! Buffalo Wild Wings (a) doesn't sell an addicting product, (b) can't be marketed as an experience, and (c) can't diversify into other areas nearly as easily as the latte king can. Fortunately, it needs none of these characteristics to make for a compelling investment. It just needs growth, yet even that's in question.

Quality growth matters
Indeed, company-store openings are already lagging, probably because of the "inefficiencies" that dragged down cash flow from operations by 33% in the first quarter.

You can bet that Buffalo Wild Wings doesn't want growth to slow. I'm hoping management will do the safe thing and moderate new store construction slightly while improving the fundamentals. But there's a chance that the executives will seek to please the Street and go whole hog on franchising. That's not necessarily bad, but as fellow Fool Bill Mann pointed out in a recent issue of Hidden Gems, it's not great if the core business isn't highly profitable.

I won't repeat all of Bill's calculations here, but it's enough to say that he estimated pre-tax profits for company stores at $5 million. That's a 3% margin, which is OK except that it compares poorly with other specialty food chains like Cheesecake Factory (Nasdaq: CAKE  ) , which keeps 6.8% on the bottom line.

Buffalo Wild Wings is a great place to eat. But it's entirely unclear whether it's a great way for a franchisor to get rich. If not, look out below.

Want to see how this duel unfolded? Start with Chuck Saletta'sbullishobservations, followed by Tim'sbearishview and Chuck'srebuttal. Then, don't forget tocast your votefor this week's winner.

Fool contributor Tim Beyers owns shares of Buffalo Wild Wings. You can find out what else is in his portfolio by checking Tim's Fool profile. The Motley Fool has a disclosure policy.

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