There’s deflation in some articles as Wingstop notes lower chicken wing prices

Three months ago, Wingstop put a shock in its earnings release: it saw DEFLATION in the costs of bone-in chicken wings.

The chicken chain repeated the trend with its latest earnings Thursday morning and its stock rebounded 20% on the news.

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

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

Chicken wings were a popular menu item at the start of the Covid-19 pandemic. Stuck at home, consumers ordered them by the dozens as the delicious treat shipped well for contactless drop-off at the door. Higher demand ushered in what would become a trend as the pandemic continued: shortages and higher prices

Fast forward to Wingstop’s latest results: Lower wing costs helped Wingstop easily beat earnings estimates, despite losing revenue.

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, well ahead of 36 cents per share, analysts polled by Refinitiv expected.

Revenue climbed to $83.8 million from $74 million last year, but was lower than the $86.1 million forecast by analysts.

Wingstop was not alone. Fast food chain Noodles & Co. announced its results on Wednesday afternoon. Guess what he said?

“We have recently seen prices for key commodities such as chicken drop significantly from record highs,” CEO Dave Boennighausen said.

But here’s what’s a little weird. Earlier this week, the US Department of Agriculture raised its wholesale poultry price estimate to a 26% to 29% gain this year from an earlier forecast of 20% to 23%.

The increased forecast suggests that chicken prices could continue to rise in the second half of the year. However, the country’s largest poultry producer, Pilgrim’s Pride, shed some light on that when it released its second-quarter results after Wednesday’s close.

During its conference call presentation, the company provided stock and pricing details. The situation varies greatly depending on the chicken pieces.

Here’s a sample: Chicken breast inventories are down 7% year-over-year, while dark meat inventories are 15% below the five-year average in June. However, wing inventories are significantly higher – they have increased over the last quarter and are now 31% above the five-year average for June.

All this has an impact on prices. According to Pilgrim’s Pride, prices for chicken breasts, tenderloins and thigh quarters tend to be higher than other recent years – but prices for wings have fallen.

The reason may have its origins in a cost-cutting measure that many quick-service restaurants took several months ago. As wing prices skyrocketed, companies took the wings off the menu and replaced them with boneless wings, which are actually made from chicken breast meat, Pilgrim’s Pride said in its appeal. Wingstop has also launched a virtual restaurant called Thighstop.

“So with that, we’ve seen a very rapid drop in wing prices from the prices we have today,” Pilgrim’s Pride explained. The company added that some seasonality is also at play in wing prices since football and basketball seasons are over, and these sporting events tend to drive demand for chicken wings.

Pilgrim’s Pride said it expects wing prices to start rising again as these sports prepare for their upcoming seasons.

But for now, restaurants are getting a little price relief, and investors will see how that plays out when KFC’s parent company, Yum Brands, reports results next Wednesday and Popeyes’ parent company, Restaurant Brands, will publish its results on Thursday.

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

—CNBC Amelie Lucas contributed to this report.

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