The Rosenberg Center Franchise 50 Index, which tracks a diverse set of 50 publicly traded U.S. companies engaged in business format franchising, had good news for investors in Buffalo Wild Wings (NASDAQ: BWLD).
In its most recent report, issued Dec. 27, it was noted that the index dipped a mere 0.4% in the third quarter, while the S&P 500 dropped 9% in the same period.
BWLD was the principal contributor to the performance of the index. The company actually saw an increase in value of 62.3% during the quarter. The next best positive contributor to the index performance was McDonald's (NYSE: MCD), with an increase in value of 9%.
The company is in a strong capital position to take the next steps toward its goal of having 1,000 owned or franchised locations. With a current ratio of over 1.5 and a debt-to-equity ratio of 0.08%, compared with an industry average of 208%, BWLD should have little difficulty raising the necessary capital to grow.
In 2008, there were 24 company-owned restaurants added and 45 franchised locations opened. These additions bring the total owned or franchised units to more than 500.
Third-quarter same store sales increased by 8.3% at company owned operations and 4.5% at franchised locations. BWLD reported an increase in total revenues of 28.8%. BWLD had an impressive increase in net earnings for the period of 46%. The company was able to increase prices 3.5% without a negative impact on traffic.
BWLD missed analysts' earnings estimates by 6 cents a share, creating some sale pressure on the company's stock. DineEquity (NYSE: DIN) the parent of the 3,000-plus unit combination of IHOP and Applebee's, on the other hand, reported a positive earnings surprise with a 47-cent-per-share earnings versus the estimated loss of 9 cents per share.
The market reaction to these two reports was to drop the sale price of BWLD stock while increasing the price of DIN.
The reactions to these two competitors earnings reports reflect the failure of analysts to look beyond the numbers, as DIN is heavily laden with debt incurred to finance the acquisition of Applebee's, while BWLD remains relatively debt free. In comparison with the same store sales report of BWLD, DIN reported 0.2% sales comps for IHOP and -3.1% from Applebee's.
With most of the negative earnings surprise at BWLD coming from growth, which is what is supposed to happen at a restaurant chain operation, and with additional negative impact on earnings from depreciation, which is, in reality, a source of cash, one would expect the market to respond favorably to the BWLD report.
The fact that it hasn't creates an opportunity for the astute investor that should not be missed.
Jamie Dlugosch is a contributor to InvestorPlace.com.