We maintain our Neutral recommendation on casual-dining restaurant chain Buffalo Wild Wings Inc. . While the company’s strong brand name and expansion strategy bode well for future growth, a limited international presence and increasing operating expenses remain reasons for concern.
Reason behind the Reiteration
Minneapolis, Minn.-based Buffalo Wild Wings is famous for its bar concept. Amid uncertain economic conditions, the company has been posting positive comparable store sales (comps) for the past eight quarters. Gaining from top-line growth, easing wing costs in the upcoming quarters and proper labor management, the company expects to achieve a net earnings growth of 25% in 2013, higher than the prior-year growth of 17%.
Buffalo Wild Wings remains better-positioned than many of its peers because of menu innovation, better food presentation and operational efficiency. The company’s ‘guest experience business model’ and new unit design layout will invigorate its potential as a brand and help augment its customer base, going forward.
In addition, the company’s three-year collaboration with National Collegiate Athletic Association (NCAA) will help it to increase its visibility as a brand and attract customers through digital and social media. Moreover, the company’s recent acquisition of the fast-casual pizza restaurant, PizzaRev will likely help broaden Buffalo Wild Wings’ reach in the U.S. quick-service-restaurant industry.
The Zacks Rank #3 (Hold) company is continuously trying to expand its footprint worldwide. Buffalo Wild Wings, which owns, operates, and franchises 891 casual dining restaurants worldwide, though most of them are in the U.S. It has plans to achieve the 1,000-unit milestone by the end of 2013. The company also intends to open 1,500 units over the next five to seven years.
Despite its strong domestic presence, the company seems to be slow on the international front. We believe that it needs to expand beyond the U.S. in order to offset the cut-throat competition in the saturated domestic market.
Moreover, the company’s sales driven initiatives will increase its operating costs in 2013. Apart from this, we believe, the implementation of the Affordable Care Act will drive the company’s overall costs further up, hurting its margins, going ahead. For the time being, these factors keep us on the sidelines.
Other Stocks to Consider
Some other restaurateurs worth considering are CEC Entertainment Inc. , AFC Enterprises Inc. and BJ's Restaurants, Inc. (BJRI - Free Report) . While CEC Entertainment carries a Zacks Rank #1 (Strong Buy), AFC Enterprises and BJ’s Restaurants carry a Zacks Rank #2 (Buy).