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Buffalo Wild Wings to buy 15 franchised units

Buffalo Wild Wings Inc. said Thursday it intends to acquire 15 franchised restaurants in Ohio and South Carolina in a cash transaction to close by the end of the year.

The locations currently belong to Dayton, Ohio-based ThreeWitt Enterprises, whose principals — David Fisher, Eric Lundgren, John Slaughenhaupt and Brad Haber — opened their first Buffalo Wild Wings restaurant in 1994. Terms of the deal were not disclosed.

“The strong performance of this group of restaurants presented a very attractive acquisition opportunity for us,” Sally Smith, chief executive of Minneapolis-based Buffalo Wild Wings, said in a statement. “We look forward to welcoming them into our company-owned operations.”

Minneapolis-based Buffalo Wild Wings operates 288 restaurants and franchises an additional 498 units. During its third-quarter earnings call, the company said it expects to open 21 corporate stores and 19 franchised units in the fourth quarter. It also reported at the end of the Oct. 2-ended quarter that it held about $91 million in cash on hand, excluding restricted assets, and officials indicated that the company could be opportunistic with moves like the acquisition of franchised restaurants.

Same-store sales at Buffalo Wild Wing’s company-owned locations have trended higher than those for franchised locations recently. Through the first three quarters of 2011, same-store sales at corporate units rose 3.9 percent, 5.9 percent and 5.7 percent, respectively, compared with gains of 1.6 percent, 2.7 percent and 4.2 percent, respectively, at franchised restaurants.

“It is bittersweet to leave the system as we pursue new challenges,” Fisher said. “But we leave with very positive relationships with the company and are pleased that our restaurant team members will now be part of a national organization with its resources and career opportunities.”

Securities analysts said the acquisition, if closed, would be accretive to Buffalo Wild Wings’ bottom line in fiscal 2012.

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David Tarantino of Robert W. Baird & Co. estimated that the 15 locations added to the brand’s corporate-store roster could bring between 6 cents to 9 cents per share to Buffalo Wild Wings’ annual earnings per share next year, assuming the locations have average unit volumes and restaurant-level margins consistent with the brand’s averages. The company earned $2.10 per share in 2010.

Tarantino also wrote in a research note that the chain has a compelling brand and a large unit-growth opportunity.

“Management sees the long-term potential for 1,500 North American locations, which we consider achievable based on penetration levels already reached in some markets and a relatively limited presence in densely populated coastal regions,” he wrote. “In upcoming years, we anticipate system unit growth of 12 percent or more annually, via development of company and franchised sites.”

During the third quarter, Buffalo Wild Wings opened 10 company-owned locations in North America, including one in Toronto, and purchased two franchise locations, while closing one. The company announced Oct. 31 that it had opened its 800th location.

“The addition of these units will grow Buffalo Wild Wings’ company-owned store base by about 5 percent,” Lynne Collier, securities analyst for Sterne Agee, said. “While we do not have the specific details of the transaction, we believe the benefit to earnings will be very modest in fiscal 2012.”

Collier added that her investment firm’s most recent channel checks indicated same-store sales momentum at Buffalo Wild Wings through October and mid-November. The brand disclosed during its third-quarter earnings call that same-store sales rose 8.3 percent at company-owned restaurants and 6.7 percent at franchised locations for the first three weeks of the fourth quarter.

Contact Mark Brandau at [email protected].
Follow him on Twitter: @Mark_from_NRN

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