Heard on the Call: Buffalo Wild Wings

Chain benefiting from lower wing prices, improving sales

Executives at Buffalo Wild Wings Inc. said the chain would continue to benefit from lower chicken wing prices, which helped drive a 22-percent increase in fourth-quarter earnings.

During a conference call Tuesday with analysts, executives for the Minneapolis-based chain laid out 2011 goals of 13-percent unit growth and 18-percent earnings growth and expressed optimism that the brand could take advantage of low prices for its principal menu item.

EARLIER: Buffalo Wild Wings 4Q profit up 22% [3]

The cost of traditional wings decreased to $1.49 per pound in the Dec. 26-ended fourth quarter, compared with $1.78 per pound a year earlier, said chief financial officer Mary Twinem. Currently, wing prices are averaging about $1.29 per pound for the Buffalo Wild Wings’ first quarter, compared with $1.91 a year earlier.

“At the average price we’re seeing now [for traditional wings], we haven’t seen them this low for years,” Twinem said. “You have to take advantage of it while you have it and get as many sales in the door as you can. … Where you’d see strength in prices right before the Super Bowl, we haven’t seen that this year.”

Twinem said suppliers have been unwilling to contract with restaurants on chicken wings because prices are so low. The chain renewed its contract on boneless wings through March of 2012, and most of its commodities are contracted through the end of the year, she said.

Same-store sales have improved in the first six weeks of the first quarter from the slightly negative results of the end of 2010, Buffalo Wild Wings officials said. Same-store sales were up 3.8 percent in corporate stores and 1.5 percent in franchised locations to date in the first quarter. In the fourth quarter, same-store sales fell 0.3 percent in corporate units and 1.1 percent in franchised restaurants.

Buffalo Wild Wings took a 2.4-percent menu price increase in January, executives said.

Twinem and chief executive Sally Smith said both noted that the brand’s opportunities for growing sales would come during lunch, late night and happy hour. An upgraded happy-hour program was tested in the fourth quarter of 2010 in Minneapolis, Dallas and Denver and yielded sales increases in appetizers and other food. Buffalo Wild Wings will roll out the program to 65 percent of its corporate stores by the end of the first quarter, in time for the NCAA basketball tournament.

As Buffalo Wild Wings brings the happy-hour program into more stores, officials expect the alcohol portion of its sales mix to improve from a slight fall in the fourth quarter of 2010, when that percentage dipped to 23 percent of sales compared with 25 percent in the fourth quarter of 2009.

“Overall in the stores that we tested the happy hour in December with media, we did see overall positive same-store sales during the time period,” Twinem said, “so we think more broadly rolling that program will help us get our beer and alcohol sales back in line overall.”

Buffalo Wild Wings reaffirmed the 18-percent earnings growth guidance for 2011 that it gave investors last October.

“We’d mentioned before that we would do some investing in international, and that’s included in the 18-percent growth target,” Smith said. “As we looked at the plan for 2011 same-store sales and openings, our goal is to achieve or overachieve that number.”

Buffalo Wild Wings said it expects to open more than 100 locations in 2011, including 55 corporate restaurants and about 60 franchised units. New corporate markets include Philadelphia, Seattle and California, and the first international unit in Canada is set to open in the spring.

“With our national ads, it’s interesting that so many markets are already aware of us,” Smith said. “Landlords are eager to have us there, so the risk of entering new markets is less than it was five or 10 years ago.”

She added that Canada would be Buffalo Wild Wings’ only international market this year, with three units currently under construction in the country and as many as five total openings on the docket for 2011. The brand set a guidance of 50 units in Canada over the next five years.

Buffalo Wild Wings operates or franchises 740 casual-dining restaurants in 44 states.

Contact Mark Brandau at [email protected]