Over the past few months I've covered one bland performance after another in the food service industry. Restaurateurs O'Charley's (NASDAQ:CHUX) and Landry's (NYSE:LNY) served up weak sales, and not even magical brownies could salvage the quarter for pizza maker Domino's (NYSE:DPZ). So when Buffalo Wild Wings (NASDAQ:BWLD) blasted expectations with the help of ultra-spicy revenue growth, I was eager to dig deeper. Today I'm investigating the hot-wings specialist's quarterly earnings conference call to see how management pulled it off and how it plans to keep the winning strategy going.
The key to Buffalo Wild Wings' recent success may surprise some -- it can be attributed in no small part to a smart advertising campaign. Therefore, Fool on Call will focus on the company's advertising efforts, highlighting these three areas:
- Advertising in the third quarter
- Advertising plans for the fourth quarter
- Advertising plans for fiscal year 2007
1. The importance of smart advertising
I am a longtime skeptic when it comes to the usefulness of advertising. The nauseating redundancy and seeming ineffectiveness of many campaigns makes me wonder if some companies wouldn't be better off diverting advertising dollars toward R&D, thus improving products rather than trying to hustle mediocre ones.
That said, when CEO Sally Smith opened the call by stating, "Wow! What a quarter," and then immediately followed by attributing much of the outstanding performance to an "increased media presence" as well as "local marketing efforts," I'll admit, it caused me to check my assumptions.
As a percentage of restaurant sales, Buffalo Wild Wings increased advertising expenses by 50 basis points in the quarter versus the year-ago period. The increased cost paid off handsomely, as comparable same-store sales shot through the roof with an 11.8% jump for company-owned units and a 6.4% increase for franchised sites.
B-dubs launched two new TV commercials in September on Disney's (NYSE:DIS) ESPN and ESPNU. With NFL and College Football fans firmly entrenched on the sofa for the football-rich September month, the timing and placement of the advertisements makes perfect sense.
2. No reason to change a winning recipe
If it isn't broke, there's no need to fix it, so look for more of the same in the fourth quarter. Management is looking for comps in company-owned and franchised units to increase 11% and 3%, respectively. Smith said there will be an even larger media presence in the period than there was in the third quarter.
In the month of October, ESPN and ESPNU will continue to see coverage, and News Corp.'s (NYSE:NWS) Fox Sports Net, as well as other regional and local networks, will also be airing their spicy wings. As the advertising campaign moves into November, look for the company to begin touting their new gift cards, now dressed in a holiday theme.
I imagine Buffalo Wild Wings will get its money's worth in November, with key college football games airing during the month. These include this Thursday's pitting of unbeaten conference foes in West Virginia and Louisville, pivotal SEC match-ups, and the granddaddy of them all, a heavyweight bout featuring the No. 1-ranked Ohio State Buckeyes and the No. 2-ranked Michigan Wolverines. With tickets already going for $1,000 to $3,000 for the annual rivalry appropriately named The Game, it is a good bet that football fans from all over the country will be drooling over B-dubs' hot wings.
3. Sticking with the game plan
The company will stick with the same game plan for the next fiscal year as well. In 2007, Buffalo Wild Wings will open its 500th site, and investors can expect an even greater utilization of media leading up to the milestone.
The company is "enhancing" its national media coverage with CBS' (NYSE:CBS) Sports Net. This relationship gives it a great presence for the wildly popular NCAA college basketball tournament. Sunday night and Monday night NFL broadcasts will also be beneficiaries of B-dubs advertising dollars.
The expanded media campaign makes sense as the company rapidly becomes a nationwide concept. In 2007, restaurant expansion is going to be concentrated in states like Iowa, Kansas, and North Carolina, as well as in major markets like Chicago, Dallas, Denver, and Houston. These growth plans are important in keeping momentum going in burgeoning markets -- in the Q&A portion of the call, Denver, Dallas, and North Carolina were highlighted as areas of significant strength during the third quarter.
Capitalizing on the opportunity
I have followed the quarterly performance of many restaurant stocks, and in my experience it is rare to see a company lay out such a detailed marketing campaign in a quarterly conference call. That management at Buffalo Wild Wings felt compelled to do so suggests just how important they consider advertising to be in helping the company meet its business objectives.
The company's successful game plan is reflected by a winning stock. A quarterly conference call that revolved around that game plan may be as strong an indicator as any that Buffalo Wild Wings' winning days are far from over.
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Fool contributor Jeremy MacNealy has no financial interest in any company mentioned. The Motley Fool has a disclosure policy .
