What's Next for Buffalo Wild Wings?

After reporting solid fourth-quarter results, and once again bucking the trend of so many casual dining restaurants, Buffalo Wild Wings (BWLD +0.00%) stock still sold-off on Wednesday.

While the results were no doubt solid, Wall Street expected more and Goldman Sachs lowered its price target on shares, which sent the stock down over 9%. Still, now is probably not a good time to sell your shares.

This is a rare restaurant, along with fellow heavy-weights Chipotle (CMG 4.15%) and Starbucks (SBUX 4.83%), that should be depended on to innovate. Three key principles that these restaurants share in common, give me confidence.

Examining the quarter
While many headlines said that the results were "mixed," they were only mixed because analysts expected slightly more revenue. One piece of Foolish advice I'd recommend is to ignore analysts expectations, which are wrong nearly half the time; rather, you should focus on the organic growth of the business in question.

Buffalo Wild Wings bucked the "bad weather" trend that has hammered most retail, and even restaurant establishments, by posting strong comps. The only two names that did as well this quarter are Chipotle, which posted a staggering 9.3% comparable sales figure, and Starbucks posted comparable sales of 6% on a 4% increase in store traffic.

Buffalo Wild Wings same-store sales growth was at 5.2%. While total revenue's came in at 12%, the same-store (or comparable) increase means more. Restaurants are relatively simple businesses to analyze; comparable store sales, new store openings, and overhead costs, will tell you about 90% of the story.

With nice comparable sales and a plan to open 13 franchise restaurants this quarter, Buffalo Wild Wings is doing well. Can it last?

Buffalo Wild Wings: a Rule Breaker?
Most people wouldn't think of Buffalo Wild Wings as a stock that could be in The Motley Fool's Rule Breaker's Newsletter, but perhaps they should. In their book Million Dollar Portfolio Motley Fool Co-Founders, David and Tom Gardner, explained that "rule breaking stocks" disrupt competitors or create markets that didn't exist.

There are a select few restaurants that disrupt industries. Starbucks created an American market for a premium coffee brand, with scale, that simply didn't exist. Chipotle, through its food with integrity campaign, is disrupting the food industry by shedding light on GMO's.

As wild (pun intended) as this may sound, Buffalo Wild Wings disrupted Hooter's and the prototypical sports bars. They did this by creating an environment the entire family could enjoy. By providing a clean and family friendly environment they fully capitalized on the beautiful union of wings and sports, and doubled their customer "net" (women and children actually are customers).

Why does all of this old news matter? Well, Buffalo Wild Wings is currently in growth mode and plans to open 700 additional North American stores, but at some point the market will reach saturation. At that point, international growth and Buffalo Wild Wings pizza concept will need to take-off, and the innovation of this management team will matter.

Lack of true competitors

There are few real competitors for Buffalo Wild Wings. The one's that attempt to compete are the following:

1. Sports bars and Hooter's.

These competitors remind me of Taco Bell's "competition" with Chipotle, meaning, most true Buffalo Wild Wings fans can't get the experience they're seeking from them. Until the average Dad feels comfortable taking his Daughters soccer team to Hooter's (as so many do at BWLD), they're not real competition. Again, it's like trying to get fresh Mexican food at Taco Bell.

2. Local concepts.

Some of my friends who are "coffee snobs" love to tell me that Starbucks coffee is nowhere near as good as some hole in the wall place, that's 40 miles away, that they seek out on Sundays. They may be true, but local and independent providers of quality food and drink are not really a threat to Starbucks, nor are similar wing concepts to Buffalo Wild Wings.

Besides not being able to readily find these local spots, there's the habituation that a large-scale brand creates. In most people's mind, when they're in the mood for a family friendly wing and sports joint, Buffalo Wild Wings is what they think of first.

Buffalo Wild Wings, like Starbucks, has a tremendous advantage because you think of them first, when it comes to what they do best. Consistency is a huge key to restaurant success, consumers want a consistent experience, you can't guarantee that by trying out places you're un-familiar with. Unless quality suffers, BDubs' has too far of a lead on smaller competitors.

What's next for Buffalo Wild Wings

I am not telling you to go out and buy a bunch of shares in Buffalo Wild Wings today, even though a forward P/E of 22 is hardly pricey.

What I think we all need to figure out is how long this business can continue to crush competitors. Here are the questions we need to ask when valuing B-Dubs:

1. Is the "rule breaking" brand concept still "sticking"

2. Is their still a lack of true competitors (of scale)

3. Are comparable sales growing, and is there room to grow (open new shops) in the U.S. and overseas going forward

Do your own homework, but if you think the answers to these questions are "yes," you may (still) have a winner on your hands.

I'm watching this one closely, but I think anyone would have to bet on this company over 90% of restaurants operating today. If the shares continue to pull-back, I may consider adding a small "one-third" position in Buffalo Wild Wings.

What's Next for Buffalo Wild Wings?

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