The Street is sweet again on Buffalo Wild Wings

It's not exactly a feeding frenzy, but Wall Street's appetite for Buffalo Wild Wings has apparently returned.

At a time when consumers are worried more about filling their gas tanks and grocery carts than eating out, Buffalo Wild Wings Inc. has delivered better-than-expected earnings in back-to-back quarters.

Since February, five analysts have upgraded their view of the Golden Valley-based company, and shares have shot up almost 49 percent this year. By contrast, Famous Dave's is down 28 percent, Granite City is trading in the $2 range -- down from $6 in the fall -- and Buca is little more than a penny stock, trading for less than 50 cents.

As RBC Capital's Larry Miller quipped during the company's first-quarter conference call, are people drowning their recessionary sorrows in sauce-dipped chicken wings?

Perhaps. On Super Bowl Sunday, the chain served a record 4 million wings.

Whether the good feelings will linger, is another question.

The restaurant industry is notoriously volatile, depending as it does on the whims of consumers and the prices of commodities. Neither is predictable these days. The economy isn't expected to pick up for another year to 18 months. And while the cost of wings is good for the time being, corn, which feeds chickens, seems to be hitting record highs daily.

Analysts are divided over which direction Wild Wings' stock will go. Despite recent healthy growth, the price has been somewhat temperamental. Trading at about $35 today, shares were hovering around $19 in January and were more than $41 in October.

"Everything comes down to the macro," said Nicole Miller Regan, an analyst with Piper Jaffray in Minneapolis who is neutral on the stock. "We're a bit more tenacious in our view of the overall economy. We don't feel it's going to turn anytime soon."

Then there are the short-sellers, those investors who gamble that the stock price will fall in the near future. About 30 percent of Buffalo Wild Wings' shares are in the hands of short-sellers.

That's not so uncommon in the restaurant industry, and analysts suspect the short-sellers' interest has more to do with fickle consumer traffic and variable commodities prices than with Buffalo Wild Wings itself.

"There's probably a group out there that lumps Wild Wings in with other casual diners, so that when the stock starts to move, they think it's an illusion," said John Hamburger, president of Franchise Times and publisher of the industry newsletter, the Restaurant Finance Monitor.

But Hamburger and others say there's lots to like about the suburban wing joint that often goes by its urban hipster name, B-Dubs. (That's "dubs," as in double w's.)

The management team, led by accountant-turned-CEO Sally Smith, is stable, fixated on cost-control and committed to measured growth of about 15 percent a year. The company has 510 stores in 37 states.

And instead of taking on long-term debt, Buffalo Wild Wings plows money back into the company to finance its growth, something Wall Street likes. The company also is in the process of upgrading its restaurants, doing such things as putting in HDTVs. Adding platters to the menu has boosted the average ticket price, and expanding the adult-beverage menu is starting to draw in an after-dinner crowd.

No wings for shareholders

Buffalo Wild wings holds the greatest appeal to 18- to 34-year-old males. But with lower prices than Applebee's, Chili's and Ruby Tuesday's, analysts say the wing-centric fare (with a choice of 14 sauces) and sporting atmosphere draws in families and consumers with a diversity of incomes.

"Wild Wings offers something different," Hamburger said. "Chipotle and Jimmy John's are a bit different. Those are the ones that are holding their own in this recession. It's the me-too's, the ones where the price-value relationship has been destroyed, that are feeling the pain."

The biggest question mark for Buffalo Wild Wings is the price of chicken and other agricultural essentials. Said Regan: "Is it a commodity bubble or is it a cycle?"

For a year, Buffalo Wild Wings was locked into a price for its chicken wings, a cost saving that helped offset the cost creep in other commodities, according to Chief Financial Officer Mary Twinem. But the contract expired in March, and the company now will pay market price for its wings. The cost is favorable now, but it's too early to say how that will spin out long-term.

At the shareholders' meeting Thursday at Buffalo Wild Wings headquarters, the mood of the company's future was upbeat -- even as a shareholding member of People for the Ethical Treatment of Animals pushed the company to seek what it says is a more humane way to slaughter chickens.

Though wings weren't served (it was 9 a.m., after all), the small group of board members, shareholders and employees gathered in the 16th-floor conference room and watched a short video on the life of early investor and World War II fighter pilot Ken Dahlberg, who reinforced the appeal of the company and why he sank so much into it.

"America was worshiping its gladiators, and they needed a place to do that," he said of the fans who rally behind football, basketball, hockey and other sports. Dahlberg said Buffalo Wild Wings was "the right concept at the right time."

Not that Dahlberg's timing is always right. In February he cashed out nearly $9.1 million of stock when shares were in the mid-$20s. He still owns 1.1 million shares.

Jackie Crosby • 612-673-7335