Buffalo Wild Wings Inc. (BWLD) recently announced a majority investment in Rusty Taco, Inc., which owns and operates Rusty Taco restaurants, headquartered in Dallas, TX. The company’s share price rose almost 2% in response to the news, as investors were particularly encouraged by the long-term growth prospects that Buffalo Wild Wings gained through this investment.
The investment is part of Buffalo Wild Wings’ strategy to collaborate with emerging restaurant concepts, which have significant growth potential. Financial terms of the deal were not disclosed.
Established in 2010, Rusty Taco is a fast-casual restaurant concept, which specializes in street-style tacos. The company currently operates nine locations — two company-owned and seven franchised — in Dallas, Denver and Minneapolis/St. Paul.
Buffalo Wild Wings’ investment comes at a time when the fast causal segment is becoming increasingly popular. Notably, Buffalo Wild Wings initially forayed into this sector through its investment in Los Angeles-based pizza concept — PizzaRev.
The potential of the fast causal sector can be gauged from Technomic’s 2014 Top 500 chain restaurant report which shows that sales for fast casual chains grew 11% and store count 8% in 2013.
Also, NPD group reported that in the 12-month period ended in November last year, the fast casual segment saw an 8% rise in guest count, while traffic count remained flat for quick service restaurants. This popularity is primarily due to consumers’ higher inclination toward quality and hygienic food. This justifies the company’s decision to invest in Rusty Taco.
In the last two quarters, the company posted comps growth of 6.6% and 7.7%, respectively. In our view, Buffalo Wild Wings’ decision to buy a majority stake in Rusty Taco would allow it to sustain this comps growth rate. This investment gives Buffalo Wild Wings an opportunity to gain a larger market share in the rapidly growing fast casual restaurant industry. Fast casual concepts have an additional advantage of higher price points, which may translate into higher profits for Buffalo Wild Wings.
Buffalo Wild Wings currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the same industry include BJ's Restaurants, Inc. (BJRI), Chipotle Mexican Grill, Inc. (CMG) and Jamba, Inc. (JMBA). All these stocks sport a Zacks Rank #1 (Strong Buy).
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