Buffalo Wild Wings (Nasdaq: BWLD) reported earnings results last week to conclude its 2010. Sales for the year grew 13.1% on the back of a 12.3% increase in store count, operating margin improved by a full percent, and earnings for the year ended up 25%. Yet the company's same-store sales results have been a major overhang on the share price.

For the year, Buffalo Wild Wings saw an increase of only 0.6% in company restaurants open for more than a year. Rival Chipotle Mexican Grill (NYSE: CMG) saw a 9.4% jump in its comps. Improvements such as that have led Chipotle's stock to gain 156% over the last year, compared to Buffalo Wild's 33% gain.

A Foolish opportunity?
Pessimists argue that Buffalo Wild Wings may be reaching a plateau. It's bad enough to imagine that same-store sales growth may no longer continue, or worse yet, that the company's expansion opportunities have begun to dwindle.

Thankfully, both fears are overblown. Barring this year, the company boasts a highly respectable comparable-sales history, with growth rates closely matching those of its red-hot rival. It also far exceeds the growth of the industry in general:

Same-store sales growth







Buffalo Wild Wings 10.4% 6.9% 5.9% 3.1% 0.6%
Chipotle Mexican Grill 13.7% 10.8% 5.8% 2.2% 9.4%

Initial signs suggest that 2010 was just a blip. On the conference call, management noted that the first six weeks of 2011 saw a return to same-store sales growth of 3.8%.

Besides, it's small-f foolish to read too much into one year's worth of sales data. The table below compiles several examples of companies which have reported same-store sales growth below 1% for a given year, followed by their results for the two years afterwards. The results are incongruous, and they seem to have little correlation with the long-term value of the business. After all, McDonald's (NYSE: MCD) reported an average decline of 1% in annual same-store sales between for three years from 2000, but it then continued on to become a great growth story again.

Annual changes in same-store sales

Company Name

Year 1

Year 2

Year 3


McDonalds, 2000-2002 0.6% (1.3%) (2.1%) The stock has appreciated 460% since the start of 2003.
Burger King, 2004-2006 1% 5.6% 1.9% The company would run into trouble again in 2010 before being bought out.
Red Robin, 2008 to YTD 2010 (1.4%) (11.1%) (1%) The company has invested significantly in marketing to boost restaurant sales.
Sonic, 2003-2005 0.3% 6.5% 6% The famous burger chain bounced back briskly after this sales slowdown...
Sonic, 2008-2010 0.9% (4.3%) (7.8%) ... But its share price has stagnated over the last eight years.

The Foolish bottom line
Both Chipotle and Buffalo Wild Wings will grow unit counts by 13% this year, but the market is valuing Chipotle at 47 times its earnings, while Buffalo Wild Wings trades at only 27 times. To put that in more perspective:

  • Yum! Brands (NYSE: YUM) trades at 22 times earnings, and last year it grew sales by 4%. Its International division grew units by 6%, while China -- the big story -- grew units by 13%.
  • Jack In The Box (Nasdaq: JACK) trades at a 19 P/E, and this year grew units by less than 1%.

Astute investors may see the relative opportunity that exists here. After all, what really matters in this industry are a good strategy, good execution, and a proven concept with high returns. Buffalo Wild Wings has all three: It is well-run, expanding into new markets, and generating a 23% return on its new store investments. And with its franchising business growing briskly, there are solid reasons to believe that margins will improve.

A year from now, Mr. Market may wake up and see what it actually has with Buffalo Wild Wings: a business with a solid history of same-store sales growth, a brand with double-digit expansion, and a continued improvement in the company's profit margins. That would certainly deserve a rich multiple.

For related Foolishness:

Fool contributor Nick Nejad does not own any shares in the above mentioned companies. Chipotle is a Motley Fool Rule Breakers selection. Buffalo Wild Wings and Chipotle are Motley Fool Hidden Gems recommendations. The Fool owns shares of Chipotle, Jack in the Box, and Yum! Brands. 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.