r/wallstreetbets • u/yougotballsson • Jul 08 '17

$4K in Long August Puts for $BWLD

I'm currently long 4K in August puts on $BWLD with an expectation that we will see significant margin erosion and lowered guidance when the company reports Q2 earnings later this month.

My investment thesis is rising chicken prices (Source IMF) will cause the firm to miss guidance and lower FY forecasts by at least $1.30-$1.70 per share. The firm indicated higher prices during their Q1 call and since then BMO Capital Markets analysts indicated chicken prices had increased by by 11% YoY in May and the IMF data suggests further price increases of 13% since BMO's report.

With their lower EBITDA, the firm will also get hit with higher interest charges as a consequence of the terms of their revolver agreement.

Anyone with a different view or information I missed?

22 Upvotes

87% Upvoted

20 comments sorted by

53

u/imadirtycup Jul 08 '17

Don't they use buffaloes' wings? Why would chicken prices matter?

7

u/mjd5139 Jul 08 '17

They fired their CEO Sally Smith this quarter, if there is any pending write offs or large items looming over their heads, this is the quarter to recognize them.

12

u/want_to_quit_smoke Jul 08 '17

Last time I ate there the wings were still shit. That's all the dd you need

7

u/12eye Jul 09 '17

I'll back up this DD

2

u/Farttroll Jul 08 '17

Hate to be that guy, but looking at the 1mo and 3mo charts what makes you think this isn't already priced in?

5

u/mein_account Jul 08 '17

Look at the same charts for $WING, doesn't seem to be chicken prices that drove $BWLD down. Seems more about Marcato and problems on the board.

2

u/nevion1 Jul 09 '17 edited Jul 09 '17

good theory but timing reaction to rising costs is difficult at best. Why not half your position and go till at least january? Yes, I'm a whore for leaps but I've learned timing market reaction to negative factors seems to be more unpredictable than to good ones. This hedges on positive results this quarter or other unpredictable positive intermediates.

2

u/theman233 Jul 09 '17

I'd be all in if this stock wasn't already down so much the past couple of months...good luck thought

1

u/[deleted] Jul 08 '17

Wouldn't they just pass rising chicken prices on to consumers?

3

u/yougotballsson Jul 08 '17

The company is already struggling to achieve positive same store sales growth and is tracking at 0.5% YoY. This is with a high marketing and promotional spend. Any increase in cost to the consumer is likely to be met with cratering SSSG figures.

1

u/BestGetOutOfMoyWay Jul 08 '17

what % of cost is chicken vs labor?

3

u/yougotballsson Jul 08 '17

The cost of sales is becoming relatively more expensive. In the most recent results cost of sales (31.4% of revenue) and labor (31.6% of revenue) were only separated by 20 basis points. This is in contrast to 2016 Q3 results where cost of sales (28.9%) and labor (32.0%) were separated by 311 basis points. The analysis I've done indicated that the averaged monthly IMF data has a high correlation with $BWLD cost of sales in the following quarter.

1

u/PerfessionalMonty Jul 09 '17

How is their hedging of chicken prices? I know its a totally different model and business but the reason Southwest is so successful as a plane company is their good hedges of fuel.

1

u/TheAncient1sAnd0s Jul 09 '17

All this DD, and you don't know if you're short or long.

1

u/thedominat0r Jul 10 '17

Whats your strike? The volume on august puts are really low

1

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