There is deflation in some objects as Wingstop notes dropping hen wing costs

Three months in the past, Wingstop put a shocker in its earnings launch: It was seeing DEFLATION in bone-in hen wing prices.

The hen chain reiterated the pattern with its newest outcomes Thursday morning and its inventory rallied 20% on the information.

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

At a time when many customers could have forgotten what deflation is, Wingstop defined that bone-in hen wing costs have plunged 19% year-over-year within the newest quarter.

Chicken wings had been a preferred menu merchandise throughout the early days of the Covid-19 pandemic. Stuck at residence, customers ordered them in dozens because the tasty deal with transported nicely for a contactless drop off on the door. The increased demand ushered in what would grow to be a sample because the pandemic wore on: shortages and better costs

Fast-forward to Wingstop’s newest outcomes: The decrease wing prices helped Wingstop to handily beat earnings estimates, regardless of a income miss.

Net revenue rose to $13.3 million, or 44 cents per share, from $11.3 million, or 38 cents per share, a yr in the past. Excluding objects, the corporate earned 45 cents per share, solidly outpacing the 36 cents per share, analysts surveyed by Refinitiv had been anticipating.

Revenue climbed to $83.8 million from $74 million final yr, however was shy of the $86.1 million analysts predicted.

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

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

But here’s what is a little bit odd. Earlier this week, the U.S. Department of Agriculture raised its wholesale poultry value estimate to a acquire of 26% to 29% this yr from a previous forecast of up 20% to 23%.

The elevated forecast suggests hen costs could also be poised to proceed to rise within the again half of the yr. However, the nation’s largest poultry producer, Pilgrim’s Pride, shed some mild on this when it reported second-quarter earnings after the shut on Wednesday.

In its convention name presentation, the corporate supplied particulars about inventories and costs. The state of affairs drastically varies relying on hen components.

Here’s a sampling: Chicken breast inventories are down 7% yr over yr whereas darkish meat inventories are 15% beneath the five-year June common. However, wing inventories are considerably increased – they grew within the newest quarter and at the moment are 31% above the five-year June common.

All that’s impacting pricing. According to Pilgrim’s Pride, costs of hen breasts, tenders and leg quarters are trending increased than different current years – however wing costs have slumped.

The purpose could have its roots in a cost-cutting measure many quick-service eating places took many months in the past. As wing costs soared, the businesses took wings off the menu and swapped in boneless wings, which is definitely produced from hen breast meat, Pilgrim’s Pride stated on its name. Wingstop additionally launched a digital restaurant referred to as 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 defined. The firm added that some seasonality is at play in wing costs as nicely for the reason that soccer and basketball seasons are over, and people sporting occasions have a tendency to spice up demand for hen wings.

Pilgrim’s Pride stated it expects wing costs to begin rising once more as these sports activities gear up for his or her subsequent seasons.

But for the time being, eating places have a little bit of pricing aid, and investor will see the way it play out when KFC father or mother Yum Brands reviews outcomes subsequent Wednesday and Popeyes father or mother Restaurant Brands launch its outcomes on Thursday.

As for Noodles & Co., it additionally made a strategic resolution that helped its outcomes. Boennighausen instructed CNBC it now makes use of a extra environment friendly minimize of hen breast that produces much less waste and boosts revenue margins.

—CNBC’s Amelia Lucas contributed to this report.