Net earnings fell 62.9 percent to $8.8 million, or $0.55 per diluted share, in the second quarter ended June 25, compared with $23.7 million, or $1.27 per diluted share, reported in the second quarter of 2016.
Adjusted earnings per share for the second quarter were $0.66, compared to first quarter 2016 adjusted earnings per diluted share of $1.34. Adjusted earnings per diluted share for the year-to-date period declined 31.7 percent to $2.13, compared to $3.12 a year ago.
Sally Smith, president and CEO attributed results to historically high wing costs, lower than expected same-store sales and higher operating expenses.
“As traditional chicken wing costs remain at historically high levels, we’re adapting our value day on Tuesday to feature our boneless wings at company-owned restaurants,” Smith said in a statement. “In addition, we continue to implement our cost savings plan to improve margins and profitability in areas we can control.” Smith is set to leave the company when the board finds a new CEO.
Traditional chicken wing prices increased $0.11 to $2.05 per lb. in the second quarter, which was higher compared with the second quarter of 2016 average of $1.94. Traditional wings as a percent of cost of sales was 30.7 percent in the second quarter, according to the company.
Labor costs during the quarter advanced 40 basis points to 32.4 percent of restaurant sales in the second quarter on increased healthcare costs and management salaries, which were partially offset by lower hourly labor.
Restaurant operating expenses as a percentage of restaurant sales were 15.7 percent, an increase of 110 basis points compared to the second quarter of 2016, driven by an increase in general liability expenses, higher repair and maintenance expenses and third-party delivery commissions.
General and administrative expenses climbed 31.3 percent to $39.2 million in the second quarter, due to increased advisory fees and consulting services as well as stock-based compensation of $3.4 million.
“Due to our disappointing second quarter earnings and an outlook for slowing traffic as we manage through the Tuesday promotional change, we are lowering our 2017 earnings outlook,” Smith said. “We are optimistic about the transition to boneless wings which provides a more stable promotional platform for the future.”
For 2017, the company expects same-store sales growth to ease 1 percent to 2 percent. Traditional chicken wing price inflation is expected to rise 8 percent to 10 percent.
Earnings per diluted share is forecast between $4 and $4.50; adjusted earnings per diluted share is forecast at $4.50 to $5.00.
For the six months ended June 25, net earnings dropped 46.3 percent to $30.3 million, compared with $56.5 million in the year-ago period. Earnings per diluted share retreated 39.3 percent to $1.83 for the first six months of 2017, compared to $3.00 in the same period a year ago.
Operating income was $9.4 million in the second quarter, or 1.9 percent of total revenue, compared to $35.5 million and 7.2 percent in the prior year. For the year to date period, operating income was $43.2 million, or 4.2 percent of total revenue, compared to $82.1 million and 8.2 percent.
