We maintain our Neutral recommendation on casual dining
Buffalo Wild Wings Inc.
). While we prefer the company's strong brand potential and
ongoing expansion strategy, an uncertain economic condition and
cost inflation keeps us on the sidelines at the current
Why the Reiteration?
Buffalo Wild Wings, one of the most recognized casual dining
has been consistently witnessing positive company-owned
restaurants' comparable store sales (comps) of 0.6%, 6.1% and
6.6%, respectively in the past three years, which validates that
it was unruffled by the economic slowdown. Buffalo Wild Wings is
well positioned to sustain its comps growth in 2013, driven by
improved guest traffic.
Buffalo Wild Wings is continuously investing in its food and
beverages lineup to drive traffic as well as sales. In addition,
the company's various proactive initiatives such as menu
innovation, increasing focus on Happy Hour, advertising
initiatives, operating enhancements, remodeling program and
technology upgrades continue to spur growth.
Buffalo Wild Wings also remains committed in its goal to
continuously expand its business worldwide. The company opened 85
and 74 new restaurants in 2011 and 2012, respectively and
achieved a unit growth of 11.6% in 2011 and 9.1% in 2012 and it
plans to unveil nearly 100 units in 2013. Buffalo Wild Wings is
also striving hard to expand its presence beyond the U.S.
Currently, more than 57% of the company's total restaurants
are franchised, which is expected to provide a boost to its
earnings per share growth and ROE expansion. With its enhanced
productivity, the company now expects net earnings growth of 25%
in 2013, higher than the prior year growth of 17%.
However, higher food costs and macroeconomic pressure can act
as headwinds to its growth story. Continuous increase in wing
costs remains a major headwind for 2013, thereby affecting the
profitability of Buffalo Wild Wings.
Moreover, consumers in the U.S. are burdened with higher
gasoline prices, a 2% payroll tax increase and delayed tax refund
checks. These external forces might restrict consumers'
discretionary spending further, which in turn can put pressure on
the company's sales.
Hence, at the current level, we remain cautious and prefer to
take a wait and see approach till we find some greater evidence
of an outperformance.
Buffalo Wild Wings carries a Zacks Rank #2 (Buy).
Other Stocks to Consider
Some other restaurant industry stocks with a favorable Zacks
Red Robin Gourmet Burgers Inc.
Burger King Worldwide Inc.
Cracker Barrel Old Country Store Inc.
). While Red Robin and Cracker Barrel carry a Zacks Rank #1
(Strong Buy), Burger King carries a Zacks Rank #2 (Buy).
BURGER KING WWD (BKW): Free Stock Analysis
BUFFALO WLD WNG (BWLD): Free Stock Analysis
CRACKER BARREL (CBRL): Free Stock Analysis
RED ROBIN GOURM (RRGB): Free Stock Analysis
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