Cold Beer+Spicy Wings=Super Hot Recession Stock
While most investors were watching stocks like Bank of America, Citigroup and General Motors, and looking at recession plays like Wal-Mart and Kraft , an unsuspecting stock ran off with the recession ball: Buffalo Wild Wings.
Buffalo Wild Wings is a fast-growing sports-themed bar and restaurant chain, founded by a couple of guys from Buffalo, NY, birthplace of the wing, who couldn't find good wings when they moved to Ohio, so they decided to make them themselves. There are 581 locations in 40 states—and counting.
BWLD shares have nearly tripled since scraping the bottom of the pan at $15.52 on November 21. And first-quarter earnings shot up 30 percent.
How is that possible? Are chicken wings the key to making money in a recession?
Jeff Farmer, an analyst at Jefferies & Co. said the recipe is a little more complex than that.
“Think about what they’re selling: It’s sports and alcohol,” Farmer said. “That’s not recession-proof, but it’s certainly recession-resistant.”
Plus, their key demographic is men 18 to 40, which tend to be “less sensitive to wealth-effect issues,” he explained.
And, since their target is so specific, they only have to advertise on a few channels, such as ESPN, CBS and FOX, during sporting events.
From a customer perspective, a night out at a Buffalo Wild Wings restaurant is pretty cheap: The average check is about $12. And, they encourage you to stay for the entire game. That fits in with any recession budget.
And, if you were going to pare back, would you really want to pare back in the sports-beer-wings category?
(Buffalo Wild Wings CEO Sally Smith talks about the secret to the chain's success. Click on the video at left.)
The chain defied the recession odds in more ways than one: It was the only restaurant chain that saw new restaurants outperform existing restaurants. Typically, new restaurants open at 80 percent the volume of existing restaurants.
It’s still barreling forward with aggressive expansion plans, prompting Wing watchers to wonder if it’s a brilliant or foolish move.
For now, investors are backing off: The stock has fallen in the past few days since peaking at $42.98 on Tuesday when it reported earnings. And, it’s trading at about 28 times earnings — somewhat pricey for the sector, which has an average of about 20. McDonald’s, by contrast, has a P/E ratio of about 14.
Currently, there are five “strong buy” ratings, seven “hold” and one “sell” on BWLD, according to Thomson Reuters. The average price target is $40.70. Farmer’s target is $44.
By those standards, you may not be able to squeeze much more spicy deliciousness out of this recession trade on a straight play but take heed for next time: Get your recession with a side of blue cheese!
A Wing Is Born. It was late on a Friday night in 1964. Teressa Bellissimo was in the kitchen at Anchor Barin Buffalo, NY, when her son came in with some friends, famished. There wasn't much food left, so she improvised, whipping up a sauce to put on some of the leftover chicken parts—the wings. The rest is, as they say, deep-fried history.
Chicken Wing Festival. Every Labor Day, wing lovers come from far and wide to celebrate the Buffalo Wing Festival, featuring the Running of the Chickens (humans dressed as chickens), a Miss Wing Pageant and—what else—a wing-eating contest.
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