Early this week, Buffalo Wild Wings reported a one-two punch of troublesome news. First, chicken wing prices have risen 30 percent since the third quarter ended in September, to $1.98 a pound. Second, rising minimum wages in many states are increasing labor costs.
Food and labor are restaurants’ two biggest concerns. And yet investors blew those concerns off to give the chain its best post-earnings trading day since the fourth quarter of 2011, according to Yahoo! Finance. Buffalo Wild Wings’ stock rose 13 percent the day after the report.
The chain mitigated those concerns by saying that it will raise menu prices 3 percent. And it noted that its earnings growth this year would be 28 percent. That was higher than the 25 percent analysts expected — which seemed to ease investor worries about those rising chicken wing and labor costs.
Buffalo Wild Wings’ stock had been slumping of late, entering the third quarter report. Its stock price had doubled over the past two years, hitting an all-time high of $167 a share in June. Yet since, the price had fallen by about $30.
During his “Mad Dash” program, CNBC host Jim Cramer said investors doubted whether the chain could still find areas of growth. Yet the company is “not out of gas,” he said. The earnings outlook proved that.
With concerns about costs mitigated and growth “back on the menu,” investors were able to focus on the chain’s strong sales performance. Same-store sales at company-owned restaurants increased 6 percent during the quarter, which led to revenue growth of 18.3 percent.
Cramer said Buffalo Wild Wings “delivered monster results” at a time when wing prices were supposed to “cripple” earnings.
The sales results make Buffalo Wild Wings an outlier in the casual-dining segment, which, despite improved sales of late, is still working hard to recover from weak sales and traffic that have been a mainstay for those chains since 2007.
On the company’s conference call, CEO Sally Smith attributed the performance to various sporting events. The World Cup, she said, introduced a new group of customers to the chain’s sports bars. But the company’s traditional strength, at the outset of the football season, also exceeded expectations.
College football season began, for instance, as did the NFL season and all of its side parties. “We saw a significant increase in fantasy football parties in 2014,” Smith told analysts.
But that wasn’t the only reason. “We have fanatics about certain sauces,” Smith told The Street. She said the company introduced a “Sauce Lab” this year that develops new sauces that are introduced every eight to 10 weeks for a limited time. That’s something the chain plans to continue next year.
Apparently, that’s the company’s “secret sauce.”
Contact Jonathan Maze at [email protected].
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