Buffalo Wild Wings, Inc. (BWLD, $158.18): “Bring on March Madness at BW3”
By: Avery D. Flyte, AIM student at Marquette
University
Disclosure: The AIM Equity Fund currently holds this position.
This article was written by myself, and it expresses my own opinions. I am not
receiving compensation for it and I have no business relationship with any
company whose stock is mentioned in this article.
Summary
- Buffalo Wild Wings, Inc. (NASDAQ: BWLD) is an established and growing owner, operator, and franchisor of sports bar and grill restaurants in the United States and Canada.
- Management announced weaker-than-expected fourth quarter 2015 results, although they continued to outpace the casual dining industry.
- The company’s new brand strategy focused on unit growth and operational diligence will boost shareholder value in the near term.
- BWLD could be heading to new 52-week highs on the back of a stock buyback/restructuring announcement.
Key Points:
Buffalo Wild Wings wrapped up 2015 with a 24.4% surge in earnings. The company achieved total revenue growth of 19.9% to
$490.2 million during the fiscal year 2015, driven by same-store sales
increases of 1.9% at company-owned restaurants and 0.1% at franchised locations
relative to the same period in 2014. Despite these seemingly impressive
figures, they fell short of analysts’ expectations.
Sally Smith, President and Chief Executive Officer,
explained on the company’s fourth quarter earnings call that the sluggish
performance was likely due to the holiday shifts for Halloween and Christmas.
Even though the company’s overall results were less than desired, they
continued to outpace the casual dining industry. Management stressed that they
believe the company’s new brand strategy focused on unit growth and operational
diligence, with ongoing upgrades to its national advertising campaign, will drive
sales for 2016 and deliver earnings growth for its shareholders.
As part of its brand
transformation, BWLD enacted a set of measures within the last year that
included a more courageous attempt to cut operating expenses, transition to
company-owned locations, and additional stock buybacks. BWLD has refranchised
54 units since its late-spring 2015 announcement that it would achieve a
greater balance between franchise and company ownership of restaurants. The
initiative has already produced measurable results. Franchised units converted
to company-owned status experienced a 21.3% increase in sales over the same
period in 2014, to $466.4 million. The acquisition of these restaurants can be
expected to approach or even surpass in practice the 40% efficiency level,
which will provide further revenue and net earnings growth in 2016 and beyond.
In addition, the
company initiated a share repurchase program of up to $200 million in November
2015 as part of its overall capital allocation strategy. Since the approval of
the share repurchase program, BWLD has purchased 155,623 shares of common stock
at an aggregate cost of $25 million. The new share repurchase authorization not only displays the
firm’s financial strength but its ongoing commitment to increasing shareholder
value as well. The stock might even climb to new 52-week highs on the
back of such an announcement.
What has the stock done lately?
Since being added to the AIM Equity Fund on February 2, 2016,
Buffalo Wild Wings’ stock is up ~6%. That may not sound like much, but BWLD has
consolidated in the high $160/low $150s for the better part of the last four
months, and not gone anywhere really. The company’s additional investments in
emerging brands, franchise acquisitions, and share repurchases should push the
stock price back to record highs in the coming year.
Past Year Performance: Over the
past year, BWLD has decreased 19.44% in value following the company’s third
quarter fiscal 2015 earnings results that missed analysts’ expectations. The company reported net income of
$19.2 million or $1.00 per diluted share. This compares to $21.8 million or
$1.14 per diluted share in 2014; 11.6 and 12.2 percent decreases, respectively.
The earnings reduction was exclusively attributed to a shift in the sports
calendar resulting in one less week of football and fewer pay-per-view events
than last year. BWLD’s market valuation implies a ~36%
discount to its 52-week high of $205.83/share.
Source: FactSet
My Takeaway
Buffalo Wild Wings is a multifaceted enterprise that is strongly
positioned to compete in the highly fragmented and competitive restaurant and
casual dining market. The company has displayed above average financial
performance and has a strong cash position which will enable the company to
finance the majority of its dividends, capital expenditures, acquisition
activity, and share repurchases going forward. With momentum steadily on its
side right now, Buffalo Wild Wings is undoubtedly poised to enter new
52-week-high territory in the coming year.
Source: FactSet
