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We reiterate our long-term Neutral recommendation on casual dining restaurateur, Buffalo Wild Wings Inc. (BWLD - Analyst Report) following the robust second-quarter 2013 results. While the company’s strong market standing, menu innovation and increased media exposure are impressive, higher costs and limited consumer spending scenario remain headwinds.

Why the Reiteration?

On Jul 30, 2013, Buffalo Wild Wings posted solid second-quarter 2013 results. The company’s second-quarter earnings of 88 cents per share beat the Zacks Consensus Estimate of 79 cents by 11.4% and the comparable year-ago quarter’s earnings of 62 cents by 41.9%. The better-than-expected earnings were driven by double-digit top-line growth and lower cost of sales.

Total revenue climbed 27.8% year over year to $305 million, surpassing the Zacks Consensus Estimate by 0.3%. The year-over-year rise in revenues was on the back of 3.8% rise in comps and unit expansion.

Comps in the quarter, gained from the company’s increased promotional and marketing activities for some upcoming basketball competitions (NCAA Final Four tournament and 2013 NBA Playoffs). The time shift of Easter from first quarter of 2013 to second quarter also benefited the company’s comps during the quarter.

In addition to strong second-quarter results, Buffalo Wild Wings’ growth story also looks attractive. Since 1982, it is considered as one of the most popular casual dining full-service as well as limited-service restaurant chains in the U.S. Unruffled by the weak economic condition, Buffalo Wild Wings has been posting positive comps for more than two years.

Buffalo Wild Wings remains committed to product innovation, offering value menu, improving guest experience and execute stronger marketing messages to drive comps. Moreover, the company is one of the few casual dining chains that have been expanding steadily against a bleak economic backdrop. These unit openings are expected to be highly beneficial for the company’s business, going ahead. Focus on refranchising is also positive for the stock.

However, despite these enthusiastic facts, some negatives prevent us from being too optimistic on the stock. Buffalo Wild Wings has become extremely vulnerable to macroeconomic headwinds like government budget cuts, high tax rates and still-tightened consumer discretionary spending.

Increased operating expenses resulting from the company sales-building initiatvies may hurt its margin, going ahead. Further, adverse impact of the Affordable Care Act has also added to the company’s woes.

Other Stocks to Consider

Buffalo Wild Wings holds a Zacks Rank #3 (Hold). Other players in the restaurant industry that look attractive at the current level include AFC Enterprises Inc. , Jack in the Box Inc. (JACK - Snapshot Report) and Domino's Pizza, Inc. (DPZ - Analyst Report). All these stocks carry a Zacks Rank #2 (Buy).

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