Wingstop Reports Strong Q3 Growth and Raises Outlook

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Wingstop Reports Strong Q3 Growth and Raises Outlook

Wingstop Inc. (WING) announced a strong performance in its third-quarter earnings report on October 30, 2024. Same-store sales increased by 20.9% domestically, while total revenue rose by 38.8% to $162.5 million. The company also raised its new restaurant opening target for 2024 to 320-330 locations. Digital sales now account for 69% of total sales, supported by the company’s technology platform, MyWingstop. Strategic initiatives like the partnership with the NBA and contributions to St. Jude Children's Research Hospital enhance brand visibility and community engagement.

Key Highlights

  • Same-store sales in the domestic market grew 20.9%, continuing a 21-year growth streak.
  • Average unit volume (AUV) surpassed $2.1 million, with a long-term target of $3 million.
  • More than 100 new restaurants opened in the third quarter, with a unit growth rate of 17%.
  • Total revenue increased by 38.8% year-over-year to $162.5 million.
  • Digital sales, supported by MyWingstop, now represent 69% of total sales.
  • The company successfully managed food costs despite fluctuations in commodity prices.
  • The NBA partnership and community initiatives are key brand awareness strategies.
  • Wingstop aims to expand its global presence to over 10,000 restaurants.

Company Outlook

  • Wingstop raised its 2024 new restaurant opening target to 320-330.
  • The company aims to open more than 750 new restaurants in European markets, including France and Australia.
  • It maintains guidance for approximately 20% domestic same-store sales growth for 2024.
  • 2024 SG&A projections have been updated to $117.5-118.5 million.

Negatives

  • Food costs at the company’s restaurants rose to the mid-30% range due to higher wing prices.
  • General and administrative (G&A) expenses increased due to scaling capabilities and performance compensation.

Positives

  • Wingstop's adjusted EBITDA increased by 39.5% to $53.7 million.
  • Diluted earnings per share rose by 35.4% to $0.88.
  • The company announced a dividend of $0.27 per share, payable on December 6, 2024.
  • International units, such as those in the UK, are generating strong cash returns comparable to US operations.

Shortcomings

  • Despite robust growth, the company acknowledged limited game assets and advertising spots.
  • Wing inflation exceeded 100% in the third quarter, impacting food costs.

Questions and Answers

  • Michael Skipworth expects same-store sales growth to remain strong with over a 20% increase.
  • Alex Kaleida noted that markets nearing the end of ten-year development agreements have doubled their footprints.
  • Concerns were raised regarding the proportional increase in G&A expenses, with a projected 42% growth rate in adjusted EBITDA for next year.
  • Over 70 brand partners opened new restaurants this year, contributing to 95% of the company's growth.
  • The company successfully managed wing inflation and expects a decrease in food costs in the fourth quarter.

Wingstop's earnings report reflects a company experiencing significant growth in sales, ambitious expansion plans, and strategic partnerships aimed at increasing brand recognition. The company's ability to manage costs and leverage digital platforms like MyWingstop contributes to its positive outlook. With a strong foundation and clear growth trajectory, Wingstop appears ready to continue its success in the competitive fast-casual dining sector.

InvestingPro Insights Wingstop's impressive third-quarter performance is further illuminated by key metrics from InvestingPro. The company's 31.98% revenue growth over the past twelve months aligns with the reported 38.8% year-over-year total revenue increase for the third quarter. This sustainable growth trajectory is reflected in the stock's total return of 59.11% over the past year.

Despite a 19.28% drop in the last week, Wingstop's fundamentals remain strong. Its 26.71% operating income margin highlights the company’s effective cost management capabilities amid inflationary pressures on wing prices discussed in the earnings report.

InvestingPro also emphasizes that Wingstop has maintained dividend payments for nine consecutive years, showcasing a commitment to shareholder returns that complements the company's growth strategy. This is particularly noteworthy given the company's ambitious expansion plans and increased new restaurant opening targets for 2024.

The stock's high P/E ratio of 91.42 reflects investor optimism regarding Wingstop's growth expectations and is consistent with the company’s elevated outlook and long-term goal of expanding to over 10,000 restaurants globally. However, investors should note that the stock trades with a high earnings multiple relative to short-term growth expectations.

For those looking to delve deeper into Wingstop’s financials and market position, InvestingPro offers 19 additional insights and provides comprehensive analysis to inform investment decisions.