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Sally Smith is the CEO of Buffalo Wild Wings.

David Joles, Star Tribune

Buffalo Wild Wings profits fall 11% as chicken costs spike

  • Article by: Mike Hughlett
  • Star Tribune
  • April 30, 2013 - 5:42 AM

 

Buffalo Wild Wings Inc.’s quarterly profits dropped 11 percent, falling short of Wall Street’s forecast, as the company said Monday it was again vexed by high wholesale chicken wing prices.

The sports-themed chain said it is dealing with one aspect of the nettlesome wing cost issue by changing its portions. Beginning this summer, the company will base portions on wing weight, not the number of wings, meaning customers are likely to see five- and 10-piece meals, for instance, instead of six or 12.

The company buys wings by the pound and has sold them by the piece, but chicken growers are producing bigger birds — with bigger wings, of course — leaving Wild Wings with fewer wings per pound.

Golden Valley-based Buffalo Wild Wings posted first-quarter net earnings of $16.4 million, or 87 cents per share, down from $18.2 million, or 98 cents per share, a year ago. Stock analysts polled by Thomson Reuters were on average estimating profits of 99 cents per share.

“They did miss the estimate by a wide margin, but their business is picking up in April,” said Larry Miller, an analyst at RBC Capital Markets. In addition, the company noted that wing prices are declining noticeably in the current quarter.

Buffalo Wild Wings’ earnings were released after the stock market closed Monday. In after-hours trading, its shares were at $95.50, up $1.17, after dropping 72 cents in regular trading.

Buffalo Wild Wings’ revenue of $304.4 million topped analysts’ forecasts of $303 million, and rose 21.2 percent over last year’s first quarter.

Same-store sales at company-owned restaurants — a gauge that adjusts for new outlets — were up 1.4 percent. Same-store sales at Wild Wings’ franchisee-owned stores increased 2.2 percent during the first quarter.

But the pace has picked up in the second quarter. Same-store sales at company-owned and franchisee-owned restaurants have to date risen 5.2 percent and 5.8 percent respectively. “We continue to outpace the casual dining industry,” Buffalo Wild Wings CEO Sally Smith said in a statement.

She reaffirmed the company’s goal of increasing its annual profits by 17 percent in 2013. Buffalo Wild Wings, which features a wings/beer/sports motif at its 900 outlets, has been one of the nation’s fastest-growing restaurant chains in recent years.

Last year, the company was squeezed by record-high wing prices, a trend that continued into 2013. Its wing costs in the first quarter averaged $2.10 per pound, compared with $1.92 a year earlier, Chief Financial Officer Mary Twinem told stock analysts in a conference call.

But so far in the second quarter, wing prices have dropped to $1.75 per pound compared with $1.90 a year ago, Twinem said. By June, the company might see prices below $1.50 per pound.

The “bigger bird” issue continued to dog Buffalo Wild Wings during the quarter. While the company’s wing prices per pound were 9 percent higher than a year ago, its price per wing was up nearly 30 percent because it’s getting fewer wings per pound, Twinem said.

The problem has been going on for several quarters, and Wild Wings has been testing new portioning in about 40 markets. The company will begin implementing the new portioning at all of its restaurants in July, and plans to have it completed by the start of football season.

Currently, Wild Wings serves portions with 6, 12, 18 and 24 wings. Under a portion system based on weight, those servings currently would translate into 5, 10, 15 and 20 wings, Twinem told analysts.

Smith told analysts that customers would be getting a similar amount of chicken to what they were getting “before we had this huge increase in size of wing.”

 

Mike Hughlett • 612-673-7003

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