Buffalo wild wings analysis (3-6-2011)

BWLD has PE over 20 and viewed as a growth stock. The restaurant looks really sporty and as their own words put it: wings, beer, & sports. I hope they can eventually adopt the healthy idea of organic chickens:). Well, you know, Chipotle does it and investors are really buying into it. But I'm not worried about Buffalo wings not being too healthy as I assume the value proposition leans on sports environment more than just wings.

The restaurant just released their latest quarterly and 2010 yearly results.
 http://phx.corporate-ir.net/phoenix.zhtml?c=146403&p=irol-newsArticle&ID=1526559&highlight=
The numbers are pretty good and the recent Super bowl does help the outlook of the chain. And it plans to open 100 new stores in 2011 (both owned and franchised). The historical data shows that they own 35% of stores and franchise 65%. The royalty fee is about 5% of the franchise sales. I'm graphing the number of stores and the new open for the past few years.

The table in the graph just listed the Same Store Sales (also called comps). Retail industry view this measure as very important. It essentially tells you how a store's sales performed compared with last same period (A store has to be opened for over a year to be counted)

BWLD's comps are trending down although most of time in the positive territory which is a good thing: growth is still there. Considering the recession impact their performance looks good. And if you believe in the consumer confidence's coming back the comp sales should start to go north. 

Now let's look at the financial summary.

Most of the number looks good and top line growth is consistent there. There are two type of sales growth: same store sales growth and addition of new stores. 2010's growth is mainly the new stores they added. And the growth strategy is intact. If there is one thing investors should be concerned I would say the chicken price as you see the food price inflates all over the world now. Increase of chick cost would depress BWLD's margin for sure. Then the counter argument depends on the consumer's spending capability to see if the restaurant can pass on the cost to consumers. I say they can but we'll see.

The stock price spikes after the earning report but then start to pull back (see graph below). The short ratio is pretty high on the stock ~16.4% (from Yahoo Finance) and institution holding is around 87%. So it looks like there are many believers but also quite some disbelievers being short on it. 

I'm still bullish on it in the long term based on what the numbers are telling me. So I'll hold my long position. However if you take BWLD as trading stock, swing trade seems works pretty well. (Just personal opinions/observations, as always, your money your decision:)