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Wedbush Securities downgrades bullish stance on Wingstop Inc. ahead of second-quarter earnings.

Chicken wing prices rise ahead of Wingstop Q2 earnings

Wedbush Securities downgrades bullish stance on restaurant brand amid concerns about share impact

Prices for wholesale chicken wings are rising, leading analysts at Wedbush Securities Inc. of Los Angeles to downgrade their bullish position on Wingstop Inc., which is scheduled to release second-quarter earnings on Wednesday.

Dallas-based Wingstop, which has moved about 40% of its systemwide sales to boneless product, faces pressures from the rising prices, the Wedbush note said.

Analysts said wing prices have gradually increased more than 30% in the past month, which may impact Wingstop’s shares. Wingstop is not along, as a number of companies have expanded into wing virtual brands, from Brinker International Inc.’s It’s Just Wings to Dine Brands Global Inc.’s Cosmic Wings.

“Throughout [Wingstop’s] life as a public company, periods of high wing costs have been followed by outsized pricing by franchisees, which has led to deteriorating transaction growth,” Wedbush noted.

“During periods of wing cost inflation, [Wingstop’s] share price tends to either stagnate or decline,” it said. “While management has successfully increased the boneless mix in recent years to almost 40%, and is taking steps to increase it further, bone-in will likely continue to dictate franchisee pricing decisions for the foreseeable future.”

The average price target for Wingstop’s shares among analysts tracked by Bloomberg was $204. Wedbush downgraded the chain to neutral from outperform and reduced the stock target price to $185.

Wedbush said it saw “little risk to near-term unit growth expectations, but the above scenario could cap out-year net unit growth.”

For the first quarter ended April 1, Wingstop’s net income increased 80.6% to $15.7 million, or 52 cents per share, up from $8.7 million, or 29 cents a share in the same period last year. Revenues increased 42.7% to $108.7 million, up from $76.2 million in the same quarter last year.

Wingstop, founded in 1994, operates and franchises more than 2,000 locations worldwide.

Contact Ron Ruggless at [email protected]

Follow him on Twitter: @RonRuggless

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