The sports bar and restaurant chain, Buffalo Wild Wings (NASDAQ:BWLD) received a takeout offer from a private equity shop for $150 per share of BWLD stock. Will BWLD take the offer, wait for something better, or be wild and go private?
I personally didn’t get what BWLD stock was really about when the IPO hit. It was chicken. The last time I got involved with chicken was a chain in L.A. called Koo Koo Roo, which management ran into the ground. Only after it had soared did I realize what a dunderhead I had been.
BWLD wasn’t about chicken any more than Starbucks Corporation (NASDAQ:SBUX) was just about coffee. Starbucks was formed with an entirely different concept at its core, a social concept that had nothing to do with consumption.
Starbucks was designed as a place people could meet that was in-between work and home, because no standard go-to location really existed. Think about it. If you are out and about and spontaneously need to meet someone, where do you think of first? I rest my case.
BWLD stock was a winner for a similar reason. There were sports bars, but no real go-to sports bar that was always reliable. BWLD isn’t about chicken or food. It’s about sports bars. These places did great business but they were independent and it was a totally fragmented market.
BWLD developed a chain concept offering consistent and reliable big-screen TVs, comfort, typical sports bar food and booze. Perfect.
Challenges for BWLD Stock
BWLD stock did very well for quite a while. However, four things collided to create problems. First, chicken prices rose quite substantially, and didn’t really retreat. When the word “wings” is in the name of your restaurant chain, and this happens, it can’t be good.
Second, labor costs have been rising nationwide, as local and state legislatures have forced minimum wage increases down the throats of businesses. While some basic fast-food chains like McDonald’s Corporation (NYSE:MCD) can axe workers in favor of computer kiosks, BWLD stock suffers because it has traditional wait staff.
Third, same-store sales have been struggling. To me, for a chain like this, it tells me consumers are getting tired of one of the very things that makes BWLD successful: consistency. It may be time for a makeover in store design and menu.
Fourth, and this is a more recent phenomenon, Americans are turning away from NFL football because of the national anthem protests. Most Americans grew up reciting the pledge of allegiance and standing for the anthem.
That is BWLD’s core demographic. Insult them, and they’ll walk. They’ve done exactly that as NFL ratings are showing.
Marcato Capital replaced the CEO with its activist campaign, yet that hasn’t brought much change. The thing about private equity, and we’ve seen this with other restaurant chains like P.F. Chang’s, is that they come in with expertise.
They find ways to cut costs, consolidate operations, alter menus, and improve the customer experience with the goal of improving cash flow. Mercato hasn’t really done that, so perhaps this new player would attempt those changes.
Bottom Line on BWLD Stock
I think it would be good for BWLD stock to have some new vision in BWLD management. As we saw with McDonald’s, vision means a lot in a turnaround.
I think this deal will go through, although it’s possible a bidding war may occur. There may be limited upside here, so I would sell naked puts a few months out on the assumption the deal goes through.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 22 years’ experience in the stock market, and has written more than 1,600 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.