Buffalo Wild Wings: Will the Super Bowl Be Enough?

It's a great U.S. driver, but down the road, international will matter

   
Buffalo Wild Wings: Will the Super Bowl Be Enough?

There’s a restaurant down the street from where I live that specializes in chicken wings. It’s not a very large place (maybe 12 tables) with most of its revenue from takeout or delivery. On Super Bowl Sunday, it shuts down the sit-down portion of the restaurant so it can focus on getting the orders out.

Buffalo Wild Wings (NASDAQ:BWLD) is a just a touch bigger, but much like my local wing-slinger, this giant chain also cherishes the NFL’s annual extravaganza.

Still … is Super Bowl Sunday really a reason to get in? Let’s examine.

The Big Game

How big is Super Bowl Sunday for BWLD? Well, last year it sold 6.5 million chicken wings on game day. This year, across its 854 restaurants, it should fry up 6.8 million.

Unlike the little restaurant in my neighborhood, BWLD is focusing a lot of its efforts on the dine-in experience — that’s where 53% of its gameday business came last year, after all. Clearly, with many patrons ordering alcohol during the game, BWLD management sees dollar signs on dinner tables, not takeout slips. It’s a lot of work for one day of business, but the benefits clearly outweigh the logistical snafus of having so much going on at one time.

According to the National Chicken Council, roughly 1.23 billion chicken wings will be consumed over Super Bowl weekend, prompting some to speculate that the rumored wing shortage will affect the customer experience this weekend.

Nothing could be further from the truth.

There will be no wing shortage on Sunday; restaurants simply will pay more to procure those wings. The wholesale cost for wings is 14% higher than at this time last year, and eventually, those costs will be passed on to consumers.

The increasing cost of wings has definitely hurt BWLD’s profitability in 2012. For the first nine months of 2012 through Sept. 23, BWLD paid an average of $1.97 per pound — a 71% increase over the same period in 2011. Chicken wing prices for the first nine months accounted for 27% of its restaurant cost of sales, 900 basis points higher than a year earlier. As a result of this negative contribution, its overall expenses increased by 160 basis points to 92% of revenue and its operating margin dropped 160 basis points to 8%.

Fortunately, chicken wing prices tend to fluctuate both ways. In the past six years, they’ve gone from a low of $1.13 per pound in 2011 to a high of $1.93 in 2012, averaging $1.47 per pound. It seems to me that wing prices are spiking, and eventually they’ll come down to more reasonable prices.

When they do, BWLD will have more stores open to take advantage.

The Big Expansion

Buffalo Wild Wings first announced its international expansion back in August 2010. At the time, it said it would open 50 locations in Canada by the end of 2015. The first opened on May 15, 2011, in a Toronto suburb. As of Jan. 30, it had six locations open in Canada.

The company also plans to open as many as 22 locations in the Middle East over the next six years with potential for more should the initial development plans meet revenue and other goals. An existing franchisee that owns nine locations in Central Florida will be opening four units in Puerto Rico over the next four years. All told, BWLD plans to have 3,000 outlets open globally by 2023, with 1,700 of those in North America.

Here’s a little math, assuming Buffalo Wild Wings achieves its expansion plans for the next decade:

  • Gross revenues (company-owned and franchise locations) by 2023 should be approximately $13.5 billion, compared to an estimated $2.8 billion in 2013.
  • Considering 40% of its restaurants are company-owned and the rest generate franchise fees and royalties, I’m going to estimate its net income in 10 years will be $300 million.
  • BWLD’s share count has increased 12% annually over the past decade. Using that rate for the decade ahead, its earnings per share in 2023 work out to be $5.08.
  • That’s about 6% annual EPS growth; since share prices follow earnings, even conservatively, you could be looking at a doubler over the next decade.

The Caveat

While the Super Bowl provides the company with its biggest selling day in the U.S., the same won’t be possible in countries other than Canada. In fact, one has to wonder about the pull such a sports-centric restaurant will have outside of sports-crazy America. It’s likely the 1,300 or so international restaurants it plans to have open by 2023 will have to rely on other means to drive revenues.

At current prices, BWLD’s valuation is similar to McDonald’s (NYSE:MCD) and many other of its peers, so that’s attractive. But because overseas success isn’t necessarily a given, I’d be careful about your expectations for its stock. Long-term, I think you’ll do fine, but I could say the same about owning McDonald’s.

It’s your call.

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/2013/01/buffalo-wild-wings-will-the-super-bowl-be-enough/.

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