The restaurant space is a treacherous industry for investors, with many seemingly promising concepts turning out to be short-term flashes in the pan that quickly fizzle into major losses for shareholders. In the case of Buffalo Wild Wings (NASDAQ:BWLD), however, the combination of its well-known wings and its sports-bar atmosphere has brought the restaurant chain huge success. The stock has hit all-time highs, and more than doubled since early 2013.
Yet, with gains of more than 40% since early October, some investors wonder whether Buffalo Wild Wings can sustain its current growth path and keep rewarding longtime shareholders. Let's take a closer look at Buffalo Wild Wings' success story and whether the chain can up its current pace.
Buffalo Wild Wings keeps building on its good news
The good news for Buffalo Wild Wings actually came late in October, when the company reported its third-quarter earnings. Revenue for the quarter rose more than 18% from year-ago levels, with increased sales coming from roughly 6% growth in comparable-store sales along with the company's inexorable expansion strategy. Earnings per share jumped 20%, and Buffalo Wild Wings projected that its full-year 2014 earnings growth would be at least 28%.
Since then, a favorable market has restored confidence in momentum stocks like Buffalo Wild Wings. Even with its big move in the past month-and-a-half, Buffalo Wild Wings has only now recovered beyond its early highs in July.
Moreover, many investors hope that Buffalo Wild Wings, in particular, and the restaurant industry, more broadly, will benefit from consumers having more discretionary income. At the same time that the overall economy has improved, the reduction in gasoline prices promises to put more money in potential customers' pockets. The recent plunge in crude oil could lead to even more dramatic savings at the pump in the near future. If patrons spend only a fraction of that hard-earned savings on entertainment and dining, then Buffalo Wild Wings has a chance to get a short-term boost to its growth rate.
Can Buffalo Wild Wings keep serving up great results?
Buffalo Wild Wings faces its share of difficult challenges. One issue that has hit the restaurant hard is the rise in prices of wings, with a recent 30% increase bringing its raw ingredient costs to nearly $2 per pound, up from just more than $1.50 per pound during the third quarter. Nevertheless, Buffalo Wild Wings has responded with plans to implement price increases, and the company believes that it has the pricing power to pass through higher costs to customers without sacrificing too much revenue.
Yet, Buffalo Wild Wings also has ambitious plans for its future. In 2015, the company expects to open almost 100 new locations, with 50 company-owned restaurants, 40 franchises in the U.S., and between eight and 10 international franchised restaurants. In addition to its namesake restaurants, Buffalo Wild Wings is also betting on its Rusty Taco and PizzaRev concepts, with plans to expand their franchise opportunities as part of the company's larger goal of having 3,000 restaurant locations under its corporate umbrella in the long run.
Buffalo Wild Wings has also invested heavily in technology designed to improve the customer experience, and thereby collect more revenue. With initiatives like adding tablets as part of the ordering process, giving servers handheld devices, and enabling mobile-payment options, Buffalo Wild Wings believes it can get its customers to stay longer at each visit, and come into its restaurants more frequently. Moreover, by integrating entertainment options into its restaurants, Buffalo Wild Wings can help customers have more fun, which also encourages repeat visits.
All that said, investors shouldn't get used to the pace of gains that they've seen recently, as the recent surge in Buffalo Wild Wings stock will be hard to sustain at its current pace for very long. Even if the share price stops rising as quickly, Buffalo Wild Wings still has plenty of momentum to help satisfy a long-term investor's appetite for growth.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Buffalo Wild Wings. 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.