Buffalo Wild Wings (BWLD): Dropping Wing Costs Should Lead To Upside - UBS

UBS Buffalo Wild Wings, Inc. (NASDAQ: BWLD) analyst, Keith Siegner, noted that wings costs have fallen 16% in the last month. Chicken wing costs had remained stubbornly high through April, not seeing the normal decline post the NCAA tournament, partially because of a large QSR chain stockpiling ahead of a promotion. With that inventory build seemingly over, Urner Barry wing costs have fallen 16% since late April and are now down 4% year over year, which benefits BWLD's costs for June.

They now estimate lower wing costs than consensus for the remainder of 2016 and through 2017 ($1.88 and $1.85 for 2Q and 2016 vs. $1.92 and $1.91 per Consensus Metrix). This also drives favorability in overall reported COGS, even should BWLD dial up promotions near term. (See inside for full details of wing costs, our estimates and consensus). Which might help fund value/promo efforts to stabilize 2-year traffic trends

A primary investor focus is whether pricing is too aggressive (3.5% in 2Q including 0.6% incremental taken May 2nd) given a price sensitive consumer, and whether this could be contributing to 2-year traffic deterioration. The 3rd of BWLD's four sales driving initiatives is improving and promoting its value occasion—lunch, takeout, a revamped Happy Hour and Wing Tuesdays as value events that haven't been advertised much in recent quarters. As wing costs ease, we wonder whether pricing could be walked back (unlikely) or promotions dialled up (quite likely) more intensely to strengthen the value proposition and stabilize traffic trends through this summer's high-profile soccer and Olympics events.

While BWLD recently indicated higher wing prices could be the new normal, work appears ongoing to mitigate cost pressures & volatility. With a new, sophisticated supply chain team now in its third year, we expect continued supply chain efficiencies and savings opportunities. Specifically, they expect a longer-term solution to reduce wing cost volatility remains a focus. While a stabilization in sss and traffic remains the focal point for investors, continued progress around cost structure supports our LT highteens earnings potential.

No change to Buy rating or $185 PT.

For an analyst ratings summary and ratings history on Buffalo Wild Wings, Inc. click here. For more ratings news on Buffalo Wild Wings, Inc. click here.

Shares of Buffalo Wild Wings, Inc. closed at $139.55 yesterday.

You May Also Be Interested In

• Stifel Upgrades Barry Callebaut AG (BARN:SW) (BYCBF) to Buy
• Haitian International (1882:HK) PT Raised to HK$30 at HSBC
• Itau BBA Reiterates Outperform Rating on Lojas Renner SA (LREN3:BZ) (LRENY), Maintain Top Pick