S&P likes Buffalo Wild Wings’ growth prospects and says the company’s stock represents a compelling buying opportunity

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Buffalo Wild Wings—52-week stock price

By Mark Basham From Standard & Poor’s Equity Research

Buffalo Wild Wings (BWLD; latter house price, $28), the growth-minded executor and franchiser of Buffalo Wild Wings restaurants, has excellent long-term growth prospects, in our scan. We think the crew may gain mart participate in from less skilful or less conservatively financed competitors for the time of a recessionary economic environment, as it will well-suited continue its aggressive expansion plans. Furthermore, growth is likely to continue to be financed with cash from operations, and we look forward to Buffalo Wild Wings to last debt free in the state current expansion plans.

Our 5 STARS (strong buy) approbation was prompted through the recent sell-off in the shares following third-quarter income that were below our expectations. However, the shortfall in earning per share relative to anticipated profits had very little to grant through poor operating performance, by our analysis. In performance, much of the difference was due to higher management bonuses and stock compensation expenses of the same kind with a follow of what we view as comparatively exceptional performance; same-store sales at company-operated restaurants rose 6.8% in the third quarter, and average weekly sales increased 10.1%. As our long-term watch for the company remains intact, we view the recent sell-off as a separately compelling buying opportunity.

COMPANY PROFILE

Minneapolis-based Buffalo Wild Wings owns and operates, as well as franchises, a chain of restaurants serving a menu comprised of its Buffalo-style chicken wings and a variety of signature sauces, along with some array of alternative menu items. The Buffalo Wild Wings restaurant universal is that of a neighborhood restaurant and bar, with the feel and atmosphere of a sports bar. Locations also offer calculator and takeout service options similar to those found in a typical quick casual restaurant.

From the in the first place restaurant opened in 1982 in Columbus, Ohio, and subsequent to the company’s initial public oblation in 2003, the restaurant connected series has grown to about 550 locations. Slightly more than half of its restaurants are located in six Midwestern states of Ohio, Michigan, Indiana, Illinois, Wisconsin, and Minnesota, along with Texas. As of mid-2008, we would designate the company’s presence geographically since under-penetrated in the Pacific and Mountain regions, as well as in New England.

We view the Buffalo Wild Wings concept as a hybrid casual dining/quick casual concept, with an added sports bar emphasis. Standard & Poor’s estimates that sales of commercial eating and drinking places in the U.S. will grow 2.3% in 2008 and 1.2% in 2009.

According to the latest information available from the company, wings account for 23% of average restaurant sales, boneless chicken items like as chicken sandwiches and tenders 14%, alcohol 28%, and all other food and beverage items 35%. Bar offerings include approximately 20 domestic and foreign beers, in the same manner with well for the reason that wine and liquor. Kitchen operations accept been designed in an rout line style and can be staffed typically with unskilled hourly workers who, according to the company, require only basic training before reaching full productivity.

Of the company’s 535 locations like of September 2008, 187, or 35%, were company-operated. The tract and buildings are leased for nearly all these locations. Most of the restaurants discursive power in size from 4,500 perpendicular feet to 6,500 square feet. Average money investment in 2007 was $1.4 million, exclusive of $180,000 of pre-opening costs, on medial sum. Restaurants are typically located near retail centers and other high traffic destinations, such as big receptacle retailers and multiplex theaters.

The remaining 348 locations were franchised. Franchisees may initially enter into a franchise agreement or an superficial contents evolution agreement. Initial franchise fees because of the at the outset location are $42,500 but then may vary from $12,500 to $32,500 per location depending on a variety of factors, including proximity of new restaurants to the franchisee’s existing locations.

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