BWLD Buffalo Wild Wings, Inc. (delisted)

Buffalo Wild Wings Inc. (BWLD) recently announced plans to buy 15 franchised units in Ohio and South Carolina and include these in the company-owned operations. The deal is expected to be sealed before the end of this year. Though financial terms were not disclosed, management seeks to fund the acquisition through cash.

The faster-moving growth witnessed in these franchised units makes them a lucrative target for acquisition. Hence, we view the deal as strategically positive in an industry that depends largely on franchising. Although Buffalo Wild Wings continues to focus on franchising to ensure a stable growth profile, the recent deal was a trend reversal. Currently, there are 288 company-owned and 498 franchised restaurants in the Buffalo Wild Wings portfolio. Notably, Buffalo Wild Wings also aims to open 1,000 new units in the United States by 2013. 

Buffalo Wild Wings is not the only company which has walked this path. In April 2011, Panera Bread Co. (PNRA) acquired 25 franchised locations in Illinois and Wisconsin from its Milwaukee franchisee. 

Buffalo Wild Wings’ company-owned operation remained steady as against some of its peers. In the recently concluded third quarter, sales at company-operated restaurants increased 32.2% to $181.0 million, fueled by 44 new restaurant openings and higher same- restaurant sales. The company has also kicked off the ongoing fourth quarter to a good start, clocking 8.3% company-operated same-restaurant sales growth in the first three weeks.

Buffalo Wild Wings remains well positioned with a debt-free balance sheet that allows flexibility in its use of cash. This also provides Buffalo Wild Wings with ample scope to broaden its footprint through unit growth and acquisitions.

However, on the flip side, a continued rise in traditional wing prices in which Buffalo Wild Wings is highly levered and a modest increase in other commodity costs will be of some concern in 2012. Buffalo Wild Wings currently retains a Zacks #3 Rank, which translates into short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.

 
BUFFALO WLD WNG (BWLD): Free Stock Analysis Report
 
PANERA BREAD CO (PNRA): Free Stock Analysis Report
 
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