WINGSTOP: Chicken wings are hurting our business

Wingstop is the fastest-growing chicken chain in the United States. Notably, the company achieved the feat without engaging in any kind of disastrous price war, and by keeping its business simple.

Cost pressures in the industry, combined with high growth expectations of analysts, however, have not been too kind on the company.

The company released its earnings report for the fourth quarter of 2016 on Thursday, recording an impressive 20.3% increase in sales compared to Q4 2015.

Net income climbed 13% to $US4.3 million ($US0.15 per diluted share) from $US3.8 million ($US0.13 per diluted share).

However, earnings still beat analyst expectations only marginally, while the impressive sales growth figure missed. Shares are down about 1.3% on Friday.

In the earnings call following the results, Michael F. Mravle, chief financial officer of Wingstop, pointed particularly to cost pressures that have troubled the company.

“Cost of sales increased to $US7 million from $US5.6 million in the prior year fourth quarter. As a percentage of company-owned restaurant sales, cost of sales increased 590 basis points to 76.1% from 70.2%,” he said.

In particular, he pointed to two factors that led to margin pressure: higher chicken wing prices and higher labour costs. “The increase was driven primarily by 13.1% inflation from bone-in chicken wings, a 4% in the average size of the chicken wings and continued labour investments in roster sizes and staffing.”

Mravle added that he expected input costs to continue rising in the coming months. “In Q1 2017, we expect about 10% inflation on our bone-in chicken wings over the prior year quarter,” he said.

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