Buffalo Wild Wings runs up the score

It's Saturday morning at the Buffalo Wild Wings in Dinkytown, just a long punt away from TCF Bank Stadium, and maroon-and-gold-clad fans are gathering. The Gophers don't take the field for an hour, so there's time for beer and chicken wings, breakfast of champions.

The 58 TVs in the bar flicker with everything from college football prognosticators to baseball highlights to global soccer scores -- yes, Argentina vanquished Paraguay 3-1. The scene isn't too different from when the wing king started 30 years ago, just more TVs and a bigger beer selection.

"We have really stayed true to our course," Buffalo Wild Wings' longtime CEO Sally Smith said, sitting at a window table and reflecting on the company's unswerving rise.

Sales -- expected to cross the $1 billion mark this year -- have grown eightfold since the Golden Valley-based company went public in 2003. The stock is up tenfold, as profits have steadily climbed. Great Recession? Buffalo Wild Wings blew right past it.

The company is facing record high prices for chicken wings, a major challenge that investors are monitoring closely. Still, as long as Buffalo Wild Wings continues to grow at a robust pace, stock analysts don't seem too worried.

"They have had a great run and still have a long way to go," said Will Slabaugh, an analyst at Stephens Inc. "They are just now expanding in a lot of larger markets."

The company, which has almost 850 restaurants in 48 states and one Canadian province, should make good on its long-held goal of 1,000 restaurants by 2013. And Smith sees 1,500 outlets within five to seven years as the company continues moving beyond the Midwest to the coasts and Texas.

Chicken wings are a hot business, and there's lots of competition, from Pizza Hut and Domino's to wing chains like Wingstop, a fast-food concept. "Anybody can do wings -- there's nothing to them," said Bob Goldin, executive vice president at restaurant consultant Technomic Inc.

But Buffalo Wild Wings is the clear leader as a wings "pure play," he said. Its growth has regularly topped that of restaurant concepts of all kinds in Technomic's annual rankings. In 2011, Wild Wings was the third fastest-growing full-service chain with revenue over $250 million.

Its success has as much to do with its ambience as its food, Goldin said. "There's kind of an energy to the place. It's family-friendly, but not a kids' place like Chuck E. Cheese." And with its TV density and "buddy food," Buffalo Wild Wings is a magnet for the beer-and-sports crowd, he said.

Buckeye beginnings

The company started in Columbus, Ohio, near the Ohio State campus, as a simple wing joint. By the early 1990s, Wild Wings' two founders expanded it into a chain of about 30 outlets, mostly in Ohio. But they needed cash to expand further, so they turned to Ken Dahlberg, a Twin Cities electronics entrepreneur.

Dahlberg was the father-in-law of one of Wild Wings' founders, and he had cash after selling his Miracle-Ear hearing aid business in 1993 for $138 million. Dahlberg bankrolled the concept, and Dahlberg Inc.'s chief financial officer -- Sally Smith -- became Buffalo Wild Wings CFO in 1994.

Smith, who grew up in Grand Forks, had a numbers background, starting with an accounting degree from the University of North Dakota. By 1996, she had become Buffalo Wild Wings CEO, and was fully immersed in the restaurant business. "I know more about chicken than I thought I ever would," she said.

Smith transformed the chain into a full-service concept. She burnished its identity, too, adopting the now familiar black-and-yellow buffalo logo, which recently got a slight update.

Buffalo Wild Wings did an initial stock offering in 2003 and marched into new states. But the formula remained the same -- wings, beer, sports. Its menu has myriad burgers and appetizers, but traditional wings, boneless wings and alcohol make up just over 60 percent of sales, roughly in equal amounts.

Buffalo Wild Wings has also long been a low-priced player among casual dining chains -- another key to its success. "They're a pretty good value," said Nick Setyan, a stock analyst at Wedbush Securities.

The average check at Buffalo Wild Wings, dollar-wise, is in the low teens, Setyan said, but in the mid-teens at competitors Applebee's and Chili's. Yet wings, even at current high wholesale prices, are "very profitable," he said. Boneless wings, fashioned from chicken breasts, and alcohol also pack high profit margins.

Effective marketing has been essential, too. Wild Wings began national advertising in 2006. Its humorous ads are staples on televised sports, surging in volume with big events like the NCAA's March Madness basketball tournament.

The company took sports marketing a step further recently, inking a deal to sponsor a college football bowl game on Dec. 29 in Tempe, Ariz. The Insight.com Bowl is now the Buffalo Wild Wings Bowl.

Analysts credit Smith and her top managers for much of the firm's uninterrupted success. They've expanded quickly without overextending the company, keeping focused on long-term strategy. "They have dealt with short-term noise more effectively than other public companies," Setyan said.

Indeed, Smith said she doesn't closely follow the company's stock price. "I can't worry about the stock price day-to-day, and it doesn't pop up on my [computer] screen. My job is for the long term."

Smith said a key to Wild Wings' success is the stability and cohesiveness of its management team. The firm's top five officers -- all but one of whom are women -- have a combined 71 years of experience at Wild Wings, the shortest tenure being 10 years.

They work well together, said Bob MacDonald, a Buffalo Wild Wings director who founded insurer Life USA, took it public as CEO, and later sold it to Allianz. "They are not caught up in any sort of competitive deal, and they don't take their success for granted."

Nor have they gotten bogged down in bureaucracy, he said. "Sometimes when companies get big and successful, they kind of get in their own way. They become more interested in process and procedure and what their peer group is doing. Buffalo Wild Wings hasn't done that."

Shareholders have been rewarded. The company's stock was above $90 for a short time in March, an all-time high, and is currently at $83.55.

In July, the stock briefly fell to $70 after Wild Wings fell short of second-quarter profit estimates and lowered its full-year earnings guidance.

The culprit: traditional chicken wing prices of about $1.90 per pound, compared with $1.02 a year earlier. "The biggest challenge for investors right now is wing prices," said stock analyst Slabaugh.

To make matters worse, suppliers are increasingly breeding larger birds, which reduces Wild Wings' "wing per pound yield." The company buys wings by the pound, but sells them in pieces. So it's getting fewer wings per pound because each individual wing is bigger.

Buffalo Wild Wings' menu prices are now about 4 percent higher than a year ago due to increases in recent quarters, including 1 percent in September. So far, there hasn't been customer backlash, Smith said.

Buffalo Wild Wings is also testing a new pricing concept in a few markets: Traditional wings are being sold in single, double or triple sizes measured by weight, not quantity.

Analysts see no near-term relief for high wing prices, but the spike is seen as cyclical. As long as Wild Wings keeps up its "stellar" sales growth, the impact of the surge in wing prices should be muted, said stock analyst Setyan.

The company has begun expanding internationally, and it has plenty of room yet to grow in the United States, notably in California, where it has about 35 restaurants.

Setyan, who's based in Los Angeles, said wing concepts hardly exist in California. "But [Buffalo Wild Wings] flies here. People love it."

Mike Hughlett • 612-673-7003