Buffalo Wild Wings shouldn’t be worried about activist investors, it should be concerned with chicken wing prices.
Although the brand reported increases in sales and revenue for the first quarter of 2017, the chicken brand faces challenges in its cost of sales.
The brand’s Half-Price Wing Tuesdays, coupled with other promotions like Fastbreak Lunch and Blazin’ Rewards, increased same-store sales by 0.5 percent and company wide sales by 5.2 percent amidst a challenging casual dining segment.
READ MORE: Why Buffalo Wild Wings' latest earnings are likely to add fuel to its ongoing battle.
But the popularity of half-price wings and higher wing prices raised the company’s cost of sales, resulting in lower restaurant level and operating margins. Cost of sales for the quarter were 31.4 percent of restaurant sales, compared to 29.7 percent in Q1 2016. Net earnings decreased 34.2 percent to $21.5 million.
“When we initiated half price Wing Tuesday … we anticipated based on chicken experts out there that wing prices would come down, and that we would see the normal progression off of the highs that we see typically in January and February,” CEO Sally Smith said in a conference call Wednesday. “That didn't happen.”
Buffalo Wild Wings has been testing the promotion of items other than bone-in wings, such as boneless wings, but Smith says the “only thing that moves the needle on Tuesdays is the traditional wing.”
“When Half-Price Wing Tuesdays was developed last summer, wings were $1.70 and external commodity experts were anticipating a 10 percent decline in wing prices in 2017,” she said. “Today, wing prices remain elevated and we're increasing our wing price forecast to include an 8-to-10 percent increase. As such, we're aggressively evaluating other offers for Half-Price Wing Tuesdays that still offer a value to our fans, but help protect our margins.”
Along with the rise in prices, Buffalo Wild Wings has experienced a lower yield on the product, as heavier birds come from distributors and farms, leading to fewer wings per pound.
Smith says Buffalo Wild Wings will adjust specifications in the kitchen across its locations for different order sizes to address the yield challenges.
“Unfortunately you can't serve half a wing, you have to serve that whole wing, so as the weight has continued to increase, if our small was always 10, nine now weighed the same as 10 did last year and [employees] were still putting 10 in,” she said. “That's one of the initiatives that we will get out there in the next 45 to 60 days, so that we move down the number of wings for anything above a snack to take care of that yield issue.”