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There is deflation in some items as Wingstop notes dropping chicken wing prices – CNBC

There is deflation in some items as Wingstop notes dropping chicken wing prices - CNBC
Written by admin sati

Three months ago, Wingstop put a shocker in its earnings release: It was seeing DEFLATION in bone-in chicken wing costs.

The chicken chain reiterated the trend with its latest results Thursday morning and its stock rallied 20% on the news.

“We are benefiting from meaningful deflation in bone-in wings,” CEO Michael Skipworth said.

At a time when many consumers may have forgotten what deflation is, Wingstop explained that bone-in chicken wing prices have plunged 19% year-over-year in the latest quarter.

Chicken wings were a popular menu item during the early days of the Covid-19 pandemic. Stuck at home, consumers ordered them in dozens as the tasty treat transported well for a contactless drop off at the door. The higher demand ushered in what would become a pattern as the pandemic wore on: shortages and higher prices

Fast-forward to Wingstop’s latest results: The lower wing costs helped Wingstop to handily beat earnings estimates, despite a revenue miss.

Net income rose to $13.3 million, or 44 cents per share, from $11.3 million, or 38 cents per share, a year ago. Excluding items, the company earned 45 cents per share, solidly outpacing the 36 cents per share, analysts surveyed by Refinitiv were expecting.

Revenue climbed to $83.8 million from $74 million last year, but was shy of the $86.1 million analysts predicted.

Wingstop wasn’t alone. The fast-casual chain Noodles & Co. reported results Wednesday afternoon. Guess what it said?

“We have recently seen key commodity prices such as chicken decline substantially from record highs,” CEO Dave Boennighausen said.

But here is what is a little odd. Earlier this week, the U.S. Department of Agriculture raised its wholesale poultry price estimate to a gain of 26% to 29% this year from a prior forecast of up 20% to 23%.

The increased forecast suggests chicken prices may be poised to continue to rise in the back half of the year. However, the country’s biggest poultry producer, Pilgrim’s Pride, shed some light on this when it reported second-quarter earnings after the close on Wednesday.

In its conference call presentation, the company provided details about inventories and prices. The situation drastically varies depending on chicken parts.

Here’s a sampling: Chicken breast inventories are down 7% year over year while dark meat inventories are 15% below the five-year June average. However, wing inventories are substantially higher – they grew in the latest quarter and are now 31% above the five-year June average.

All that is impacting pricing. According to Pilgrim’s Pride, prices of chicken breasts, tenders and leg quarters are trending higher than other recent years – but wing prices have slumped.

The reason may have its roots in a cost-cutting measure many quick-service restaurants took many months ago. As wing prices soared, the companies took wings off the menu and swapped in boneless wings, which is actually made from chicken breast meat, Pilgrim’s Pride said on its call. Wingstop also launched a virtual restaurant called Thighstop.

“So with that, we saw a very fast decline in the price of wings to the prices that we have today,” Pilgrim’s Pride explained. The company added that some seasonality is at play in wing prices as well since the football and basketball seasons are over, and those sporting events tend to boost demand for chicken wings.

Pilgrim’s Pride said it expects wing prices to start rising again as those sports gear up for their next seasons.

But at the moment, restaurants have a bit of pricing relief, and investor will see how it play out when KFC parent Yum Brands reports results next Wednesday and Popeyes parent Restaurant Brands release its results on Thursday.

As for Noodles & Co., it also made a strategic decision that helped its results. Boennighausen told CNBC it now uses a more efficient cut of chicken breast that produces less waste and boosts profit margins.

—CNBC’s Amelia Lucas contributed to this report.

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