Earnings-Palooza: Buffalo Wild Wings Soared Higher on a Merely Decent Report

By Markets Fool.com

In this segment from theMotley Fool Money podcast, ChrisHill,Jason Moser, Matt Argersinger and Simon Ericsson explain why just good was more than good enough for investors when it comes to a restaurant chain with a previously tepid outlook. Here's how B-Dubs has been heating things up unexpectedly soon.

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A full transcript follows the video.

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This podcast was recorded on July 29, 2016.

Chris Hill: Shares of Buffalo Wild Wings (NASDAQ: BWLD) up more than 17% this week, after second quarter results. Jason, the revenue was pretty good, but same-store sales fell ... This was a fine quarter. There was nothing really spectacular here. Why is the stock spiking like this?

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Jason Moser: Well, expectations were already very low going into the quarter. Management set this up earlier in the year, that we could expect negative same-store sales, basically for the rest of the year, and then they were hopefully going to bring them back to flat by the end of the year. I think they have had a bit of a tough time dealing with a restaurant market that is witnessing some headwinds right now ... The numbers don't lie, we've seen that really has been the theme, all earning season long, but I think that Buffalo Wild Wings ... They are making the right moves here at least to deal with ... One threat we've talked about more and more is the takeout consumer, right? The person that ends up ... They want to stay home and watch the game, so they're firing up their takeout sales, and takeout sales were up 15.7% in the quarter, growing 25% over the prior year.

We're seeing some tailwinds there in wing costs; they're really doubling down, so to speak, on that Blazin' Rewards Loyalty program, that should roll out to about a quarter of all U.S. Buffalo Wild Wings Stores by the end of the year. I think what was very interesting to see was, earlier in the week, there was an activist investor in Mercado Capital Management ... They acquired a 5.1% stake in the company. Typically, when you see that happen, they acquire that stake, thinking that either there's a nice-looking value proposition there, or maybe they can go in and help shore up the operation a little bit, to spur the stock price along. Buffalo Wild Wings does have a history of being an excellent operator; Sally Smith, we know, a great CEO, so just been a tough year, but I think expectations were pretty low.

Chris: I was just going to say, look at Sally Smith's track record. I would be stunned if any activist investor who was sane would look at that and go, "Oh yeah, I can do better than that!"

Jason: I wouldn't want to get on her bad side!

Chris: They've got 21 levels of hot sauce at Buffalo Wild Wings ... Scale of one to 21, where's your spice level?

Jason: I actually researched this, because I wanted to make sure I could give you a number to go along with my ranking here. I will go all the way up to 19; that 19 is Mango Habanero. Now, Mango-Habanero is a spicy wing! I've tried the one higher, and it just wasn't worth it!

Chris: Painful!

Jason: The reward wasn't worth the risk. Nineteen is where I draw the line.

Chris: Simon, what about you?

Simon Ericsson: I'm going to go with 14.7.

Chris: Way to be different, thank you! Matty?

MattArgersinger: I don't know the scale or the ranking here, but I think I might ... Probably 16 or 17. I'm a spicy kind of guy.

Chris: Yeah, I'm probably somewhere in the low teens, in terms of the spice.

The Motley Fool owns shares of and recommends Buffalo Wild Wings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.