Wingstop Reports Strong Q3 Growth, Raises Outlook

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Wingstop Reports Strong Q3 Growth, Raises Outlook

Wingstop Inc. (WING) delivered a strong performance in its third-quarter earnings call on October 30, 2024. Domestic same-store sales increased by 20.9%, and total revenue rose by 38.8%, reaching $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, such as Wingstop's partnership with the NBA and contributions to St. Jude's Children's Research Hospital, are enhancing brand visibility and community engagement.

Key Points:

  • Wingstop's domestic same-store sales grew by 20.9%, continuing a 21-year growth streak.
  • Average unit volume (AUV) exceeded $2.1 million, with a long-term target of $3 million.
  • Over 100 new restaurants opened in Q3, contributing to a 17% unit growth rate.
  • Total revenue climbed to $162.5 million, a 38.8% year-over-year increase.
  • Digital sales, driven by MyWingstop, now represent 69% of total sales.
  • The company successfully managed food costs amidst 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 has raised its new restaurant opening target for 2024 to 320-330. The company aims to open over 750 new restaurants in European markets, including France and Australia. It is maintaining guidance for approximately 20% domestic same-store sales growth for 2024. SG&A estimates for 2024 have been updated to $117.5-$118.5 million.

Declining Indicators: Food costs at company-owned restaurants rose to the mid-30s percentage due to higher wing prices. General and administrative (G&A) expenses increased due to scaling capabilities and performance compensation.

Rising Indicators: Wingstop's adjusted EBITDA rose by 39.5% to $53.7 million. Diluted earnings per share increased by 35.4% to $0.88. The company declared a dividend of $0.27 per share to be paid on December 6, 2024. International units like the UK are generating strong cash flow and are comparable to US operations.

Challenges: Despite strong growth, the company acknowledged limited gaming assets and advertising spots. Wing inflation exceeded 100% in Q3, impacting food costs.

Q&A Highlights: Michael Skipworth expects same-store sales growth to remain strong with an increase of over 20%. Alex Kaleida noted that markets nearing the end of 10-year development agreements have doubled their footprints. Concerns were raised over the proportional increase in G&A expenses, with a forecast of 42% adjusted EBITDA growth for the next year. Over 70 brand partners opened new restaurants this year, accounting for 95% of the company’s growth. The company successfully managed wing inflation and expects a decrease in food costs for Q4.

Wingstop's earnings call showcased an ascending company marked by significant sales growth, ambitious expansion plans, and strategic partnerships aimed at enhancing brand recognition. The company’s ability to manage costs and leverage digital platforms like MyWingstop contributes to its positive outlook. With a solid foundation and clear growth trajectory, Wingstop appears poised to continue its success in the competitive fast-food restaurant 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 last twelve months is consistent with the reported 38.8% year-over-year total revenue increase for Q3. This sustainable growth trajectory is reflected in the stock’s 59.11% total return over the past year.

Despite a 19.28% decline in the last week, Wingstop’s fundamentals remain strong. The company’s 26.71% operating income margin highlights its effectiveness in managing costs despite inflationary pressures on wing prices discussed in the earnings call.

InvestingPro tips emphasize Wingstop's continued dividend payments for nine consecutive years, showcasing its commitment to shareholder returns that complement its growth strategy. This is particularly notable given the 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 prospects and aligns with the company's upgraded outlook and long-term goal of expanding to over 10,000 restaurants globally. However, investors should note that the stock is trading at a high earnings multiple relative to near-term growth expectations.

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