Wingstop (WING, Financial), a high-growth franchiser and operator of restaurants, recently reported fourth quarter and full-year 2016 results. Domestic same-store sales increased 1% and there was an18.3% increase in the number of franchised restaurants.
Headquartered in Dallas, the company has its presence felt across United States, Mexico, Singapore, the Philippines, Indonesia and the United Arab Emirates. It is one of the largest fast-casual restaurant chains speicalizing in chicken wings in the world. It is focused on delivering strong, consistent growth on a national scale.
Fourth-quarter performance
Total revenue during the fourth quarter was $24.8 million, which was an increase of 20.3% from $20.6 million in the prior-year quarter.
Royalty revenue and franchise fees increased by $3.1 million to $15.6 million, which was $12.5 million in the year before.
Company-owned restaurant sales increased by $1.1 million to $9.1 million, which was $8 million in the comparable quarter the year prior.
Cost of sales increased 23.4% to $7 million, which was $5.6 million in the prior-year quarter. As a percentage of company-owned restaurant sales, cost of sales increased by 590 basis points to 76.1%, which was 70.2% in the prior-year quarter.
Selling, general and administrative expenses increased 13.4% to $8.7 million, which was $7.7 million in the prior-year quarter.
Net income increased to $4.3 million, or 15 cents per diluted share, which was $3.8 million, or 13 cents per diluted share, the year before.
Adjusted net income increased 15.5% to $4.4 million, or 15 cents per pro-forma diluted share, which was $3.8 million, or 13 cents per pro-forma diluted share in the prior-year quarter.
Fiscal 2016 performance
Total revenue for fiscal year 2016 increased 17.2% to $91.4 million, which was $78 million in the prior-year period.
Royalty revenue and franchise fees increased by $10.4 million and were $57.1 million, which was $46.7 million in 2015.
Same-store sales increased by 3.2%.
Company-owned restaurant sales increased by $3.0 million to $34.3 million, which was $31.3 million in the prior fiscal year.
Cost of sales increased 13.9% to $25.3 million, which was $22.2 million in the prior fiscal year. As a percentage of company-owned restaurant sales, cost of sales increased 280 basis points to 73.8%, which was 71.0% the year before.
Selling, general and administrative expenses increased 1.5% to $33.8 million, which was $33.4 million the year before.
Net income increased to $15.4 million, or 53 cents per diluted share, which was $10.1 million, or 36 cents per diluted share, in 2015.
Adjusted net income increased 24.2% to $16.9 million, or 58 cents per pro-forma diluted share, which was $13.6 million, or 47 cents per pro-forma diluted share, the year prior.
Expectations for fiscal 2017
| Â | Range |
| Adjusted EBITDA growth | To be between 13% and 15% |
| Net income | To be between $18.5 million and $18.8 million |
| System wide unit growth | To range between 13% and 15% |
| SG&A expenses | To range between $34 million and $35 million |
| Fully diluted EPS growth | To range between 8% and 10% |
Focus
- Reaching out for the first time to smaller and newer markets.
- In plans to open 30 new restaurants over the next five years in Colombia and Panama.
- Innovation in flavors.
- Investing in technology to grow online ordering.
Conclusion
2016 was a good year for Wingstop as it marked the 13th consecutive year of positive same-store sales growth. This was also the year for unit openings. There were 23.2% and 24.2% increases in adjusted EBITDA and adjusted net income. It performed strongly in 2016. As of the end of the year, the company had 998 restaurants worldwide. Wingstop is trying to reach out to more customers through the rolling out of national advertising. Growth in online channels is also going to position the company well in the industry.
As per research from consulting firm Technomic, the fast-casual segment will exceed $54 billion in annual sales by 2018. This means Wingstop has lots of room to grow. Although its profits were impacted by new store openings, the company may benefit from increased traffic in the long run. The company offers various flavors, thus creating a niche for itself. Adding this stock may reap significant returns.
Disclosure: I do not hold any position in the company.
Start a free 7-day trial of Premium Membership to GuruFocus.
