BWLD… How’d you get in my investment portfolio?

BWLD

 

Buffalo Wild Wings (BWLD)… welcome to the Dividend Project investment portfolio!

After I sold my Starbucks call options for a 204% profit, I mentioned that I would buy some Starbucks out-of-the-money call options and invest the remaining cash into my dividend fund. Plans kind of changed…

I did buy some Starbucks call options with a $65 strike expiring in 2017, but what I did not plan on doing was also buying a BWLD call option.

Why BWLD earned a spot in my investment portfolio

Let Buffalo Wild Wing’s growth speak for itself if you don’t believe that it’s a strong business:

Metric20102011201220132014
Revenue$ 613,256,000$ 784,478,000$ 1,040,530,000$ 1,266,719,000$ 1,516,223,000
Net Income$ 38,400,000$ 50,426,000$ 57,275,000$ 71,554,000$ 94,094,000
EPS (diluted)$ 2.10$ 2.73$ 3.06$ 3.79$ 4.95
Avg Shares (diluted)18,270,00018,483,00018,705,00018,872,00019,002,000
Assets$ 380,357,000$ 495,359,000$ 591,087,000$ 705,728,000$ 853,466,000
Liabilities$ 123,536,000$ 177,373,000$ 207,715,000$ 239,920,000$ 279,167,000
Equity$ 256,821,000$ 317,986,000$ 383,372,000$ 465,808,000$ 574,299,000
Store count7328178919931,082

Some things worth mentioning about Buffalo Wild Wing’s growth:

  • Revenue and Net Income growth at an avg of 25% over the past 4 years
  • Asset growth outpaces increase in liabilities
  • Organic growth… almost no dilution in weighted average shares outstanding
  • No long term debt
  • Store count growing at 11% 5-year CAGR (cumulative annual growth rate)

You should know that customers love Buffalo Wild Wing’s core brand… “Wings. Beer. Sports.” and as an investor you should love the stock. The company has proven its core brand focus is profitable.

Buffalo Wild Wings also has lots of other stuff going for it:

  • They are focused on ensuring customers have a great experience… customer-centric businesses will always win
  • Sauce lab with “limited time only” flavors to drive the thinking of “must try before it’s gone”
  • NCAA sponsor… they are a sporting event destination for those who want to enjoy food and drink while watching a game
  • Fast Break lunch service to provide speed and value for quick lunch stops
  • Tabletop tablet ordering to be piloted in Q3 2015… all to increase speed and value for customers (they are also testing similar technologies for servers to place orders with)
  • Gamebreak app to engage customers in sport related games and challenges
  • Growing internationally with franchises (Dubai, Saudi Arabia, Philippines)
  • Diversified portfolio of emerging brands including minority interests in Rusty Taco and Pizza Rev (craft your own pizza)

You can read more about Buffalo Wild Wings in the May 2015 Investor Presentation, the 2014 Annual Report and the company’s investor relations page.

When the market discounts a business…

Opportunities come and go. Some opportunities might only be once in a lifetime. Some people make things happen, some watch things happen, and others ask “what happened”?

When opportunity knocks… do you answer?

From Buffalo Wild Wing’s 52-week high of $195 to the recent low of $149, the market shaved approx. $875 million of the company’s market cap. The way I see it, the market just handed investors an opportunity. Although… the recent 25% selloff does beg the question “why did this happen?” so lets break down Buffalo Wild Wing’s Q1 2015 earnings announcement released on April 8, 2015:

  • Total revenue increased 19.8% to $440.6 million
  • Samestore sales increased 7.0% at companyowned restaurants and 6.0% at franchised restaurants
  • Net earnings increased 2.6% to $29.1 million from $28.3 million
  • EPS diluted increased 1.7% to $1.52 from $1.49

So why the 25% selloff?

Analysts, on average, were expecting earnings of $1.66 per share on sales of $451.9 million.

You have to keep in mind that Buffalo Wild Wings hasn’t diluted its share count over the past 5 years. Investors should see the 25% selloff as a buying opportunity because a company so focused on creating shareholder value will only keep delivering results as it continues to expand and innovate.

There are 2 things that happened:

  1. Increase in the cost of sales… price per pound of traditional wings increased + 41% in Q1 2015 compared to Q1 2014, but Sally Smith (Buffalo Wild Wing’s CEO) commented that wing prices were unusually low in Q1 2014.
  2. Increase in the cost of labor… as a result of minimum wage increases in several states and the roll-out of higher paid “Guest Experience Captain” positions.

How do you fix these 2 problems?

  1. Buffalo Wild Wings entered into modified price agreements for about 2/3 of its traditional wing supply which should begin to provide some stability against historically high and low prices. In Q2 2015 wing prices have already started to drop and the company anticipates further price drops into the 2nd half of 2015 when they do their most business. Fantastic! 🙂
  2. There’s no fixing a minimum wage increase but the “Guest Experience Captain” positions are there to drive customer engagement and satisfaction which should translate into loyalty and sales.

And so BWLD… here we go!

This daily chart shows that BWLD is on the move.

BWLD_daily

I don’t have a crystal ball to figure out what this stock will do next, but I hope I can rely on this weekly chart for BWLD to continue pushing higher.

BWLD_weekly

There is no way to predict the market so you make a good investment decision and then manage your risk. Lets see if the market agrees with my investment 🙂

Fellow investors, remain disciplined and keep your cool!