How Buffalo Wild Wings Can Afford to Offer Half-Priced Wings

By Markets Fool.com

Traditional wings are now half price on Tuesday at B-Dubs Image source: Buffalo Wild Wings

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Buffalo Wild Wings (NASDAQ: BWLD) stock has risen nearly 20% since the company releasedbetter-than-expected second-quarter 2016 resultsin July. But if B-Dubs' newest promotion is any indication, it's apparent that the wings, beer, and sports-centric restaurant chain isn't resting on its heels just yet.

More specifically, Buffalo Wild Wings is now offering half-price traditional wings every Tuesday at more than 1,100 locations nationwide.

To be fair, this shouldn't be entirely surprising. Buffalo Wild Wings did, after all, note in its earnings press release last quarter that it would be "highlighting [its] value offering on Wing Tuesdays" in the third quarter, namely to take advantage of the return of American football and its new fall media campaign.

The multimillion-dollar question

But as a longtime Buffalo Wild Wings investor myself, that also raises the question: How can Buffalo Wild Wings possibly afford to offer half-priced wings -- even if only on a single day of the week -- without sacrificing its profitability or goals for sustained earnings growth?

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For one, keep in mind that the average cost for traditional wings in the first two months of the third quarter was $1.69 per pound, marking a 5.6% decline from $1.79 per pound in the same year-ago period. And while those costs do fluctuate from quarter to quarter, Buffalo Wild Wings enjoys reasonable visibility into this variable expense; this past April, Buffalo Wild Wings renewed modified pricing contracts that narrow the potential price range it pays for around two-thirds of its traditional wing supply.

Management also revealed to investors during the subsequent Q2 earnings conference call that it was alreadytesting the concept of half-priced traditional wings at 80 restaurants.And the 50%-off deal represents only a "slight" discount, according to Buffalo Wild Wings CEO Sally Smith, from the $0.60 to $0.65 traditional wing promotion Buffalo Wild Wings has long offered at its locations nationwide.

"It's easier for our restaurant teams to execute and simpler for our fans to understand," Smith elaborated during the call. "We've seen a significant traffic lift with the half-price offer."

That's fair enough, as the price of the various sizes of traditional wing orders has climbed along with moderate menu price increases over the past year, making it difficult for all but the most frequent patrons to know exactly how much money they were saving on any given Wing Tuesday.

Looking forward

And such lifts in traffic are increasingly challenging to achieve in today's difficult casual-dining environment. Last quarter, for example, Buffalo Wild Wings saw same-store sales decline 2.1% and 2.6% at company-owned and franchised locations, respectively. But thanks to a combination of new locations, reduced capital expenditures, and an ambitious share repurchase authorization, Buffalo Wild Wings was able to reiterate its outlook for full-year 2016 earnings per share in the range of $5.65 to $5.85, representing year-over-year growth of 13.7% to 17.7% from 2015.

In the end, if Buffalo Wild Wings is able to combine those earnings-growing efforts with a simultaneous lift in traffic without sacrificing margins,I think its new 50%-off Wing Tuesdays are a win for the company, investors, and diners alike.

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Steve Symington owns shares of Buffalo Wild Wings. The Motley Fool owns shares of and recommends Buffalo Wild Wings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.