BWLD – SUPPLIER COMMENTS

Sanderson Farms stated today on its earnings call that the 36.4% increase in fiscal 1Q10 average jumbo wing prices was driven largely by continued strong demand for wings in both the food service and retail grocery channels.  BWLD’s same-store sales slowed throughout 4Q09 and restaurant level margin declined 90 bps YOY.  Sanderson Farms’ comment does not bode well for BWLD from a top-line or margin standpoint.

 

Increased Competition:

 

BWLD’s 4Q09 same-store sales came in +2.6% after being up nearly 6% in the first four weeks of the quarter, implying a significant slowdown in November and December.  Comparable store sales trends in the first six weeks of 1Q10 are only up 0.5%.  The company is lapping a +8% number from the same six week period in the prior year, but regardless, the +0.5% is soft relative to expectations.  Management attributed the soft start to the quarter to weather. 

 

Sanderson Farms does not appear to be seeing this same fall off in wing demand, which could signal that BWLD is losing share.  BWLD did comment that it will be promoting a Boneless Wing Thursday during the first quarter, in addition to its long-standing Wing Tuesday, in order to stay competitive as the value equation is top-priority for its guests.

 

BWLD – SUPPLIER COMMENTS - BWLD SSS 4Q09

 

Increasing Costs:


During 4Q09, the cost of traditional wings increased 40% YOY to $1.78 per pound.  Through the first two months of the first quarter, this cost has moved up to $1.95 per pound.  Assuming this $1.95 level for the entire first quarter implies a nearly 20% increase YOY (wing prices started to move relatively higher in 1Q09).  Management guided to 50 bps of YOY cost of sales pressure in 1Q10.  It is important to remember that traditional wings accounted for 22% of BWLD’s restaurant sales in 4Q09, up 100 bps from the prior year. 

 

When asked specifically about its full-year outlook on traditional wing prices, management stated, “We always would like to think there's an opportunity for wing prices to move lower. The average of the first five months was $1.95. We did see it go up from December through just shortly before Super Bowl and then there actually was a little bit of weakness in the market about that time, which typically you don't see. So I mean we'll still watch it and I'm sure everybody else will as we go through the month of February. But knock on wood, you'd like to think that it will start to trail off here as we get into the second quarter.”

 

Sanderson Farm’s comments about continued strong wing demand will have the biggest impact on the BWLD story from the cost side.  If demand continues to be strong, it is unlikely wing prices will start to trail off during the second quarter, putting increased pressure on BWLD’s margins.

 

BWLD – SUPPLIER COMMENTS - BWLD wing prices 1Q10E

 

Howard Penney

Managing Director


Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more