Buffalo Wild Wings increased its first-quarter profit nearly 23 percent, but the company will stay aggressive with growth plans and cost management measures in order to hit its 2012 earnings growth target amid high wing inflation, brand officials said.
The brand’s immediate play in the short term will be a small menu price increase.
Chicken wing costs are projected to remain high throughout the year — the average commodity price through April and May is running $1.92 per pound, compared with $1.02 per pound last year, Buffalo Wild Wings officials said during Tuesday’s first-quarter earnings call. The brand will increase the promotional price of Wing Tuesdays to 50 cents per wing, up slightly from the 45-cent price in place at most of its 832 restaurants.
“Our strategy in the past has been to take small price increases as we roll out menus,” said chief executive Sally Smith. “We do this with a menu rolling out in July this year, as opposed to September. Wing Tuesday is an easier thing to adjust to. But we don’t do that lightly. We waited until we saw that we could sustain it.”
The chain has hiked menu prices between 1 percent and 3 percent over the past several years, leaving some room for another small price increase in July, she said.
“We had a number of company and franchise markets that were at 50 cents already,” Smith said. “We’ve begun rolling that out, through mid to late May, but so far in markets where it has already been 50 cents, it hasn’t been a problem.”
Chief financial officer Mary Twinem said the adjustment of Wing Tuesdays’ price, combined with small hikes in food and alcohol prices in previous quarters, would yield a menu price increase of 1.8 percent for the second quarter, which would grow to about 2.1 percent in the third quarter. She added that the rest of Buffalo Wild Wings’ commodities basket was contracted out to a 4-percent increase over last year’s cost of goods sold.
From ‘More March’ to more marketing
Buffalo Wild Wings also increased its media buying in the first quarter and ran its “More March” branding campaign for college basketball’s postseason. The increased marketing spending compared with last year would continue in the second quarter with national radio, Smith said.
“We’re always looking at how we spend our advertising dollars, be it TV, radio or digital,” Smith said. “We do have the ability this year to buy some national radio, so we will have coverage in all our markets, whereas it was 160 markets last year at this time, so there are some efficiencies there.”
A new TV commercial debuted this week to kick off the chain’s new “Iron Fan” campaign.
The contribution rate to the chain’s marketing fund remains 3.5 percent of sales at the store level, the executives said, adding that the incremental spending is coming from increased sales and unit growth kicking more total dollars into the company’s coffers.
Same-store sales rose 9.2 percent at company-owned units and 7.3 percent at franchised locations in the first quarter.
“The increase [in media spending] in our normal promotional periods is pretty similar to our same-store sales increase,” Smith said. “We haven’t done anything dramatically different — maybe broadened a week here and there — but the ability to buy national really helps.”
Growth plans build momentum
The chain plans to open 90 net locations in North America in 2012, Twinem said. Two new locations featuring a new prototype design are expected to open before year-end in San Diego and Cincinnati. Some remodels also will include the new designs, as well as updated graphics and in-store branding.
“We have a new design that will ensure we are providing the ultimate gathering destination and sports-viewing experience,” Smith said. “We want to recreate the energy of a stadium on game day every day in our restaurants.”
During the first quarter, Buffalo Wild Wings remodeled three corporate locations and franchisees remodeled three units. Remodeling plans for 2012 call for 11 more company-owned restaurants and 21 more franchised locations to be refurbished.
Though an acquisition of 15 franchised locations last November was accretive to first-quarter results, Buffalo Wild Wings has no urgent need to purchase more franchised restaurants or another concept with its free cash flow, Smith said.
“We’re looking at it from a really long-term standpoint,” she said. “Is there something out there that’s small and a great concept, but doesn’t have the ability to roll it out? We have the infrastructure here to be able to do that.”
Any acquisition target would have to be able to work nationwide as a franchise concept, she noted. “We’ve received some information from a variety of sources on what to look for,” she said, “so our goal through this year is to take a look at what’s out there.”
Smith added that any concept the brand purchases likely would not compete directly in the wings, beer and sports space with Buffalo Wild Wings, but could occupy adjacent real estate and broaden the company’s base of customers.
“As we refine the plan, it probably won’t be quick-service and probably won’t be fine-dining,” Smith said. “It will be somewhere in that fast-casual or casual-dining niche, something that’s unique. We haven’t found it yet, but it won’t be a consolidation play.”
Minneapolis-based Buffalo Wild Wings operates 327 corporate restaurants and franchises another 505 locations in 48 states and Canada.