HEDGEYE ANALYST: Howard Penney, Managing Director of Restaurants (@HedgeyeHWP)
Buffalo Wild Wings has been on our short list for two weeks now. There are many drivers behind our bearish call, but a big one is the price of chicken wings. Chicken wings are simple, cheap and have great margins for restaurants. How do you think your neighborhood bar is able to get away with 25 cent wing night?
Right now, the price of a pound of chicken wings is about $1.80 when it should be more like $1.40 a pound based on historical data. The price of corn, which is what chickens eat, has skyrocketed as of late. As the cost to feed chickens increases, so will the price of the chickens eating said corn and being sliced and diced into delicious wings. We’d like to highlight a quote from our weekly Commodity Chartbook that lays out the situation behind the scenes with the buyers and suppliers of wings.
“It seems that the peak in wing price inflation may be in but, as positive as that sounds for BWLD, it may be a slow grind lower; wing prices are stubbornly hanging in north of $1.80 and management at food processing companies that we talk to are suggesting that rebalancing the relationship between chicken wing supply and demand may take some time.”