So what: The culprit was a first-quarter earnings report on April 28 that included surprisingly low profits. B-Dubs booked a mere 3% earnings improvement, compared to a 31% gain over the prior 12 months. CEO Sally Smith explained in a press release that higher labor costs, combined with rising chicken wing prices, were to blame for the weak result.
Labor expenses did jump higher by 25%, which outstripped the sales growth gain of 20%. But this move shouldn't be a major concern for investors given that it reflects wage rate increases in a few states. Additionally, B-Dubs has been rolling out "guest experience captains," new positions aimed at improving diners' engagement with the brand. Management has been talking about its plan to increase labor spending for several quarters, and so this spike should come as no surprise.
At the same time, B-Dubs' cost of sales jumped higher by 30%, again trouncing that 20% sales growth figure. Chicken wing prices were the reason behind that costly bounce. Per pound, the price of wings rose 41% in the quarter.
Now what: Those nasty cost swings should even out beginning in the second half of this year as pricing contracts come online for most of the company's wing supply. That will lower some of the variability, but Buffalo Wild Wings will always be sensitive to cost changes for that critical ingredient.
Growth trends look strong for the coming year. Comps were up a healthy 7% last quarter, compared to 5% in the prior quarter. And Buffalo Wild Wings' management doesn't see the first-quarter earnings pinch as reason to lower its 2015 profit growth target. Instead, Smith and her executive team still expect earnings to jump by roughly 18% for the full year.