Buffalo Wild Wings (Nasdaq: BWLD) reported strong first quarter earnings, with net income up 30.1% to $8.5 million, on revenue that increased 35.3% to $131.6 million from the same period in 2008. CEO Sally Smith gave an equally strong outlook for the remainder of the year, pegging growth targets at a revenue increase of 25% with a net income gain of 20-25%. In addition, she reiterated the company's commitment to an aggressive expansion plan. Investors might wonder if the sizzling company can sustain its wild growth pace.

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Fierce Eating Competition
Buffalo Wild Wings finds itself in a highly competitive convenience restaurant sector, battling, on the one hand, giants such as McDonald's (NYSE: MCD) as well as smaller specialty stores such as Panera Bread (Nasdaq: PNRA). McDonald's recently reported EPS up 7%, operating income down 4% and revenue down 10%, both largely due to currency exchange. Any way you want to call it, the mega fast food leader has finally slowed down in this recession. Burger King (NYSE: BKC), despite its 15% increase in third quarter profits, began facing a slowdown in sales in March, which may continue for the near-term, if not for the rest of the year. Thus, the soft economy in the U.S., along with global effects, is expected to dampen the number one and number two burger joints.

Beyond Burgers
Things are mixed in the non-burger fast food and casual restaurants space. Ruth's Hospitality (Nasdaq: RUTH), owner of Ruth's Chris Steakhouse, has found the going sluggish through this recession. A steak remains pricier than a burrito, taco or burger. Also, with its ownership of Mitchell's Fish Market, and that fish has never been widely popular in the U.S., could be another potential drag on Ruth's.

The sandwich trade has been affected, too. Even though Panera Bread has increased its earnings, it came as a result of price increases due to slower sales growth pace. Expect more slowing, especially given the questionable strategic move of boosting the prices for already cash-strapped consumers. Chipotle Mexican Grill (NYSE: CMG), which also has raised prices in response to tighter consumer spending, has now introduced a "Low Roller" menu to take some of the sting out of its already high-line burrito prices. Chipotle had first quarter earnings that blew past Wall Street estimates. With its net income up 47% and revenue up 16.1%, it has had a stock run-up recently, leaving observers to question whether it can sustain such robust income increases against competition from restaurants that offer lower-priced menus like Taco Bell.

Buffalo Wild Wings, Superstar?
Some observers question Buffalo Wild Wings' aggressive expansion plans for this year, given the plethora of restaurants fighting for their share of consumers' tightly-held dollars. With McDonald's and Burger King sales slowing, the trend may work its way down to the specialty restaurants such as Buffalo Wild Wings and Chipotle. Buffalo Wild Wings, however, seems to have the kicker of added ambiance for sporting events (as in recent March Madness celebrations) and a casual product that differs from, well, burgers.

Bottom Line
Even if the fantastic growth of Buffalo Wild Wings slows down, the company should continue to grow this year, although perhaps not as rapidly. Watch the trends and trajectory. And if you want to buy in, try to catch a better price on the stock. Ultimately, Buffalo Wild Wings remains a good stock that should thrive past the recession. (Read Buy When There's Blood In The Streets to learn how contrarian investors find value in the worst market conditions.)



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Tickers in this Article: BWLD, MCD, BKC, CMG, RUTH, PNRA

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