On Lower Profits, Buffalo Wild Wings Reprices Wings

The company’s first-quarter earnings dropped due to high poultry costs, prompting it to change the way it determines prices for its wings.

Buffalo Wild Wings, Inc., said Monday that its first-quarter earnings declined due to higher chicken wing prices and the timing of the NFL season—and it also revealed plans to launch an in-house beer and adjust the way it prices its chicken wings. 
 
The Golden Valley-based sports bar chain announced that profits for the first quarter, which ended March 31, totaled $16.4 million, down 10.2 percent from $18.2 million during the same period in 2012. Earnings per share totaled $0.87, down 11.2 percent from $0.98 per share. Earnings per share were $0.12 lower than what analysts polled by Thomson Reuters had expected.
 
Revenue, meanwhile, increased 21.2 percent to $304.4 million, up from $251.1 million in the first quarter of 2012. First-quarter revenue topped analysts’ projections of $303 million.
 
Buffalo Wild Wings attributed its earnings decline in part to the rising cost of chicken wings. A 9 percent increase in the cost of wings per pound, as well as an increase in the average size of the wings, caused the company's cost per wing to be about 30 percent higher during the first quarter than in 2012, CEO Sally Smith said in a Monday conference call.
 
“Poultry production, product specs, demand, commodity costs, seasonality and weather are all factors in the evolving wing marketplace and create inconsistency in the size of wings in our fresh wing supply,” Smith said.
 
Another factor that hurt sales, according to Smith, was the lack of any regular-season NFL games during the first quarter of this year, whereas 2012 included the last week of the regular season, which helped boost sales.
 
To adjust to the changing market prices and sizes, Buffalo Wild Wings said it will begin pricing its wings based on weight rather than number of wings beginning in the company’s third quarter, which starts at the end of June.
 
“Our new servings will allow us to serve a consistent portion of chicken to our guests when the size of wings fluctuates,” Smith said.
 
Also beginning this summer, Buffalo Wild Wings will add its own new in-house craft beer, called Game Changer, to its drinks menu. The company has teamed up with Seattle-based brewer Redhook to create a beer that the company claims is designed to complement its wings. According to Smith, the price of the beer is expected to be somewhere between domestic and imported draft beer.
 
The sale of alcohol made up 22 percent of Buffalo Wild Wings’ revenue in the first quarter, similar to the first quarter of 2012, according to Smith. The company has also increased the number of tap handles in some restaurants from 24 to 30 in order to accommodate more regional and local craft beers, at the request of local managers.
 
During the company’s second quarter, Smith said Buffalo Wild Wings also plans to add, for the first time, a line of brats to its menu, as well as “Hog Wild French Fries,” which will consist of French fries covered with queso dip and the company’s signature wild sauce.
 
Shares of Buffalo Wild Wings’ stock closed down 0.77 percent at $94.33 on Monday. Shares were trading down 4.58 percent at $90.01 mid-day Tuesday.
 
The company opened 20 new restaurants throughout North America, including its 900th location, in the first quarter. It expects to open more than 100 additional restaurants this year, according to Smith.