Wingstop Inc. (WING, Financial), headquartered in Dallas, delivered strong results and increased its annual guidance in the third quarter. It witnessed margin improvement and domestic same-store sales growth (4.1%) to which growing brand awareness contributed.
This high-growth franchiser and operator of restaurants has been in the restaurant and multiunit retail industry for about 20 years. The results are an indication of strong, consistent growth on a national scale. Wings, fries and sides account for around 90% of its sales. It boasts of compelling restaurant economics, the key driver of its growth.
Strong third quarter
Selling, general and administrative expenses (SG&A) increased by 21.5% and were $8.9 million ($7.3 million in the prior-year quarter).
Revenue during the quarter increased by 14.0% and was $21.8 million ($19.1 million in the prior-year quarter).
Royalty revenue and franchise fees increased by $2.1 million and were $13.7 million ($11.6 million in the prior-year quarter).
Domestic same store sales increased by 4.1%.
Company-owned restaurant sales increased by $700,000 during the quarter and were $8.2 million ($7.5 million in the prior-year quarter).
Net income during the quarter decreased to $2.8 million, or 9 cents per diluted share (a net income of $3.2 million, or 11 cents per diluted share, in the prior-year quarter).
Adjusted net income increased by 17.6% and was $3.7 million, or 13 cents per diluted share during the current quarter ($3.2 million, or 11 cents per diluted share, in the prior-year quarter).
Cost of sales increased by 14.3% and was $6.1 million during the quarter ($5.3 million in the prior-year quarter).
Restaurant update
The company ended the quarter with 949 Wingstop restaurants systemwide.
Expectations for 2016
| Ă‚ | Range |
| SG&A expenses | To be between $34.0 million and $34.5 million |
| Total revenue | To be between $90.5 million and $91.5 million |
| Net income | To be between $14.6 million and $15.1 million |
| Income tax expense | To be between $8.9 million and $9.1 million |
| Restaurant openings | To be between 145 and 155 |
| EBITDA | To be between $31.1 million and $31.6 million |
Focus
- Revenue growth.
- Brand positioning.
- Unit development.
- Profitability.
- Create efficiencies at store level.
- Flavor innovation.
Industry
The restaurant industry is highly dynamic, and this company is subjected to the changing preferences of its customers. According to research and consulting firm Technomic, the fast casual segment will exceed $54 billion in annual sales by 2018. So this restaurant chain holds a lot of opportunities to grow in the future. Another plus point that goes in favor of this chain is that it focuses completely on wings whereas its competitors offer wings as side items. It has already distinguished from the competitors through diverse flavor offerings. Wingstop constantly ramps up its menu and with its price-value relationship and flexible service model it is gearing up to face the challenges in the industry.
Conclusion
With 949 restaurants and franchises, it has its presence felt in the United Arab Emirates, Indonesia, U.S., Singapore, Mexico and Philippines as of now. Ranking No. 3 on the “Top 100 Fastest Growing Restaurant Chains” by Nation’s Restaurant News (2016), this restaurant chain is on a growing spree. Online ordering and increase in expenditure for advertising attributed to this growth.
During the quarter, there was a 17.9% increase in the number of franchised restaurants. Expenses have jumped during the quarter due to a rise in labor costs. The increase in expenses also has to do with investments the company is making to sustain its future growth. The company already is creating shareholder returns in the form of strong and consistent free cash flow and capital-efficient growth.
This is a growth stock and is better positioned to provide future growth. The company aims to increase its international presence by focusing on markets that are known for high per capita chicken consumption. As per a new agreement, it is in its plans to open 30 new restaurants over the next five years in Colombia and Panama. With loyal fan base and best-in-class franchise returns, it is poised to grow. Adding this company will generate shareholder returns.
Disclosure: I do not hold any position in the company.
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