High-priced chicken wings chew up profit

  • Article by: MIKE HUGHLETT , Star Tribune
  • Updated: October 23, 2012 - 9:11 PM

Buffalo Wild Wings' latest results featured disappointing earnings and sales.

The wholesale price for wings has risen from $1.16 a pound a year ago to $2.07 this month.

Photo: Richard Tsong-Taatarii, Star Tribune

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Buffalo Wild Wings Inc. posted a disappointing third quarter on Tuesday, its profit declining 5 percent from a year ago and earnings and sales falling short of Wall Street's expectations.

The Golden Valley-based chain, one of the nation's hottest restaurant concepts in recent years, recorded quarterly net earnings of $10.7 million, or 57 cents per share, down from $11.3 million, or 61 cents, a year earlier.

Analysts polled by Thomson Reuters were expecting a profit of 60 cents per share. But once again, high chicken wing costs ate into Buffalo Wild Wings' bottom line, as they have in previous quarters.

The company's sales tallied $246.9 million, up 25 percent from a year ago -- but less than the $253.9 million expected by stock analysts.

Buffalo Wild Wings, a bar-and-grill chain with a sports motif, released its earnings after the market closed Tuesday. But in after-hours trading, its stock was down $8.96 or 11 percent, trading at $74.50.

Third-quarter same-store sales, a closely watched gauge, increased 6.2 percent over a year ago at Buffalo Wild Wings' company-owned restaurants. They rose 5.8 percent at franchised outlets.

But the sales pace is slowing in October. Compared with a year ago, same-store sales were up 3.8 and 5.6 percent respectively at company and franchised stores during the first four weeks of the fourth quarter.

"The stock is really down [in after-hours trading] because people are upset about the October sales performance," said Larry Miller, a stock analyst at RBC Capital Markets.

Part of the problem: a slowdown in the restaurant trade, Miller said. "The industry backdrop is moderating."

The National Hockey League lockout also had an effect on Buffalo Wild Wings' October performance. CEO Sally Smith told analysts that while televised NHL games are not a "huge driver" of customer traffic, there are some markets where pro hockey games matter.

Smith said the company's net earnings growth for all of 2012 will be 15 percent. However, that is at the low end of the 15 to 20 percent range given just three months ago.

And three months prior to that, the estimate was simply earnings growth of 20 percent for 2012. The company Tuesday forecast 20 percent annual earnings growth for 2013.

During its third quarter, Buffalo Wild Wings was once again battered by high chicken wing prices. The company's wholesale, traditional wing costs were $1.97 per pound during the quarter, up from $1.16 a year ago. So far during the fourth quarter, wholesale wings prices have been $2.07 per pound.

Wing prices are expected to stay high through the rest of the year and into the first part of 2013, Buffalo Wild Wings Chief Financial Officer Mary Twinem told analysts in a conference call. "Most industry reports see moderation in the latter half of next year."

Mike Hughlett • 612-673-7003

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