Boasting a track record of strong annual growth and a viable strategy, Buffalo Wild Wings (BWLD) is well positioned in our view to attain its annual 25% net income growth over the next three years. A key growth driver will be the company's ability to continue its recent improvement in company-owned average weekly sales and bring it in line with its franchisees.
Despite falling 49% from its 52-week high, the BWLD shares still trade at a slight premium to the restaurant growth group. We think the company's high exposure to the price of chicken wings and rising minimum wage rates offset the premium it deserves owing to a unique concept that has delivered consistent annual EPS growth. Moreover, we would recommend caution in buying restaurant growth stocks while the industry faces significant macro headwinds with murky visibility to recovery.
We think BWLD is well positioned to attain its annual growth targets of 15% for units, 20% for revenue and 25% for net income through the next three years (2008-2010).The management believes the system can support at least 1,000 restaurants.
Buffalo Wild Wings is highly levered to the price of chicken wings. Chicken wings account for about 23% of the company's restaurant sales and were 24% of the cost of goods sold in 2007. The price of chicken wings is often very volatile from quarter to quarter. Clearly, these fluctuations upset the predictability of the company's earnings from quarter to quarter.
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