Buffalo Wild Wings Inc. stock surged more than 10 percent Wednesday, after the Minneapolis-based casual-dining operator said it would work with an activist investor and send more cash to shareholders.
Since closing at $134.65 last Thursday, Buffalo Wild Wings stock has soared 22 percent. Investors have rallied largely on the news that activist investor Marcato Capital Management LP has taken a position in the company.
Buffalo Wild Wings CEO Sally Smith said the company would work with the investor.
“The board of directors welcomes input from all shareholders, and [is] open to evaluating ideas to achieve our mutual goal to enhance shareholder value,” Smith said during the company’s earnings call Wednesday.
Executives said Buffalo Wild Wings is generating cash, and is exploring ways to pass that cash onto shareholders in the form of either stock buybacks or dividends. Such plans are usually the driving force behind activist campaigns. The company is expected to reveal what it plans to do with the cash at an investor event next month.
“We do know that we’ve entered into a stage where we generate a lot of cash,” Smith said, noting that the company’s recent acquisitions of franchised restaurants have “quickly repaid themselves.”
“In addition to opening restaurants, we have an ability to return value to shareholders, either through stock repurchases or dividends,” Smith said.
Smith’s comments came as the chain works to reverse a recent decline in same-store sales, which have fallen in each of the past two quarters for the first time since 2010. Same-store sales fell 2.1 percent at company locations in the second quarter ended June 26, and dropped 2.6 percent at franchised locations.
Executives on the call indicated that sales problems are coming both from broader industry concerns — same-store sales suddenly weakened this spring — and “company-specific items.”
Among those company-specific items: Chicago sports teams’ playoff performance. Smith said that the Blackhawks hockey team and the Bulls basketball team “played 28 fewer playoff games than the prior year.” Both teams have national followings, and Chicago is a strong market for the chain.
Absent a reversal in Chicago pro sports teams’ fortunes, company executives said they have an opportunity to compete for the “casual guest” who only comes to Buffalo Wild Wings every so often.
One way is through takeout orders, which increased 25 percent year over year, and now account for 15.7 percent of orders at the chain. More takeout orders — 16 percent in all — are coming through the chain’s digital platforms.
In addition, the company is working on delivery. Buffalo Wild Wings has started testing delivery in two restaurants, and believes the service has considerable potential to generate sales.
“We know there is demand for Buffalo Wild Wings in the delivery format,” Smith said, noting that an analyst recently suggested the chain ranked fourth, behind pizza and sandwich concepts, from where customers most want delivery.
Smith said Buffalo Wild Wings is generating more sales at lunch with its new FastBreak lunch program, which comes with a guarantee of a free meal if it’s not delivered to the table within 15 minutes.
Executives said they are “encouraged by sales from the program,” and that they’ve given out half as many free meals as they expected since the program began.
“We’ve been pleased with the execution around lunch,” Buffalo Wild Wings chief operating officer James Schmidt said. “It’s been exciting that our teams have really embraced it and have been very competitive. They take a lot of pride in meeting that guarantee.”
Another way the company hopes to generate sales is through value. Executives noted that the chain is offering half-price chicken wings on Friday, which is National Chicken Wing Day, and is also testing half-price wings on Tuesdays in 80 locations.
“We’re seeing a nice traffic lift as a result of that promotion,” Schmidt said.
Buffalo Wild Wings also plans to expand its loyalty program, with loyalty available in a quarter of the chain’s 1,100 locations by the end of the year. Executives expect loyalty to generate sales while also providing vital customer information.
“It really allows us to see when that guest comes in, what they use us for, who they come in with,” Smith said. “That’s worth a lot, just thinking about the metrics. But we do expect it to be a driver of sales, and not be a cost to the company overall.”
Executives also discussed technology. Buffalo Wild Wings is rolling out ordering and payment from tabletop tablets, but executives suggest that it’s more of a “guest enhancement vehicle” at this point rather than a labor savings device.
Wage inflation at the chain has risen 4.5 percent to 5 percent, executives said.
One strategy Buffalo Wild Wings uses to save on labor is handheld tablets, which are currently used in 50 restaurants in high-cost states.
“We do see some savings on labor,” Schmidt said. “It exceeds our cost, and so it gives us a positive rate of return on handhelds.”
The company is expanding that program to another 50 restaurants but, Schmidt said: “It’s an expensive investment. So it only makes sense in restaurants in high-cost areas.”