Q1 2020 Earnings Call
Good morning, ladies and gentlemen, thank you for standing by.
Welcome to the week stopping the school first quarter 2020, <unk> earnings Conference call. Please note that this conference is being recorded today Wednesday may six 2020.
On the call, we have Charlie Morrison, Chairman and Chief Executive Officer, and Michael Skip, our executive Vice President and Chief Financial Officer.
I'd now like to current conference African Michael Please go ahead.
Thank you and welcome everyone should have access to our fiscal first quarter 2020, <unk> earnings release, a copy is posted under the Investor Relations tab on our website at <unk> IR Dot Wingstop Dot com.
Discussion today includes forward looking statements. These statements are not guarantees of future performance and are subject to numerous risks and uncertainties that could cause our actual results to differ materially from what we currently expect or FCC filings describe various risks that could affect our future operating.
Results in financial condition.
We use certain non-GAAP financial measures that we believed can be useful in evaluating our performance.
Syndication of such information should not be considered in isolation or as a substitute for results prepared in accordance with gap.
Reconciliations to comparable GAAP measures are contained in our earnings release.
Today, we will be discussing preliminary sales results for the first four weeks of the second fiscal quarter.
We have not completed closing procedures for the second quarter and our independent registered public accounting firm has not reviewed our results. Accordingly, all preliminary results discuss today are subject to change pending finalization and actual results could differ materially.
Lastly for the queuing <unk> session. We ask that you. Please each keep to one question and a follow up to allow as many participants as possible to ask a question.
With that I would like to turn the call over to Charlie.
Thank you Michael and good morning, everyone. We appreciate you joining us for our call. This morning, and hope everyone is safe and well.
These are certainly unprecedented times, especially for Wingstop and those in the restaurant business.
Before I comment on recent trends and how wingstop is navigating the ever changing cobot 19 crisis I would like to thank the thousands of team members working in Wingstop restaurants around the world for their continued commitment to our mission to serve the world flavor.
These amazing people have been on the frontline providing safe access for our guests to continue to enjoy the bold and craveable flavors of our fresh Cook to order wings fries inside.
I'd also like to thank our franchisees, whom we affectionately refer to as our brand partners, who have done an exceptional job navigating this challenging situation by adhering to the strict standards, we have implemented to ensure the safety of our guest and our team members.
On April seven are you issued an open letter outlining how wingstop as navigating its journey through the cobot 19 crisis.
And this morning, we are providing an update that includes recent trends for the first four weeks of the second quarter, which Michael will share in more detail later.
Well, we're still early into our second quarter recent trends in sales highlights the resiliency of the Wingstop brand and the continued hard work of our team members brand partners and supplier partners to address the demand we have seen from our guest.
We remain truly humbled by the result, and we'll continue our efforts that are intended to help mitigate the spread of cold at 19.
I mentioned in my open letter that we truly believe our success has been the result of anchoring our response to the pandemic in our core values, which include maintaining our and authenticity.
Remaining steadfast in our service minded attitude and respecting our entrepreneurial routes.
We refer to our value system as the Wingstop way.
I believe at any time, but especially in times like these are shared behaved values are the best indicator of the past present and future success of any company.
For Wingstop authenticity, not only speaks to our high quality Cook to order food, but includes our aspiration to be transparent and genuine and every decision we make.
We formed a cobot 19 task force that met every day and included team members from all parts of the organization.
As information becomes available in this ever changing climate. It has been rapidly assessed and disseminated to our team members brand partners and get in an authentic and transparent manner, while recognizing those things, we can and cannot control.
To be service mind that means that the needs and safety of all our stakeholders are at the forefront.
We have placed a sense of urgency to ensure that we acted quickly in every implementation cascading, our communications frequently and necessary repetition. So that clarity was achieved by all involved.
Our brand partners have expressed to us their pleasure with the increased frequency and clarity of our communications that helped act quickly at the restaurant level to implement changes responsive to the cobot 19 crisis.
And finally, our business has been built on the backs up entrepreneurs, including our founder and our brand partners.
Our roots remain strong to the original format of our great brands, our focus on simplicity scratch recipes and a takeout orientation have served us well in this difficult time.
Entrepreneurs make decisions quickly by relying on clarity over certainty.
Wingstop, we embraced our entrepreneurial spirit to pivot quickly to modify our operations and service approach redirect our advertising and implement rapid changes to our technology that ensure our guest experience meets the needs of this extraordinary time.
Leveraging our core values, our response to the crisis focused on three key priorities, which include supporting the wellbeing and safety of our team members Ram partners and guest.
Continuing to serve our wingstop fans flavor in a safe and clean environment.
And giving back to our communities, where we operate.
These remain the foundation of our operations for our 1400, plus global restaurants, each day as we navigate through this crisis.
As I mentioned, we made the decision to close our domestic dining rooms and offer carry out in the delivery only on March 16th 2020, which represented approximately 80% of our domestic sales prior to that time.
As we shared in our business update on April seven we saw slight acceleration in our domestic same store sales during the last two weeks of the first quarter.
The first four weeks of the second quarter, where even stronger.
Prior to the outbreak of Cobot 19 digital sales consisted of just over 40% of our sales.
Since closing our dining rooms, digital and delivery orders now account for more than 65% of our sales.
We believe that the strategic investments that followed our strategy to build a world class digital platform plus the rollout of national delivery in 2019 provided a strong foundation for us and have led to the success we have seen during this time.
To quantify the impact our domestic same store sales growth exceeded 30% for the first four weeks of the second quarter, which is well beyond even our own expectations.
Our brand partners supplier partners led by our friends at performance Food group and our delivery partner door Dash have not missed a beat with the substantial change in volume.
We are humbled by our performance and remain confident in the solid positioning of our brand in life during and after the cobot 19 pandemic.
Our international business, However has been adversely affected by Cobot 19.
As of the end of the first quarter, our international footprint consisted of 160 restaurants in nine countries outside the U.S.
Our model has relied more heavily on dining rooms for locations in larger malls or in Mexico casual dining sports bars.
Despite the adversity, our international team and brand partners have reacted well by leveraging our domestic experience and our core values to swiftly provide access to takeout and delivery in markets, where restaurants are allowed to remain open.
We have also worked closely with our international brand partners by providing financial support to help mitigate the impact of lower sales levels. So they can read emerged stronger and well positioned for continued unit growth.
This pandemic has further validated our international growth strategy, we unveiled in January which prioritize its future growth in markets that can support higher off premise sales a premium price positioning and leverages, our efficient operating model to deliver a high quality flavor experienced similar to our domestic operations.
[music].
Our strong domestic topline performance comes at a time when prices for bone in wings have been at record lows falling below a one dollar per pound for a short period.
Over the past week, however, with shortages and meet supply across the country. We have seen prices begin to rise, but still well below the levels pre cobot 19.
That's our domestic brand partners are seen strong four wall performance and their restaurant.
With this good fortune and anchored in our commitment to corporate responsibility, we launched a flavor for good week, beginning April 19th and lasting through April 25th.
During this time, we engaged our brand partners as well as the support of Wingstop charities to identify ways to give back and serve the world flavor to teachers healthcare workers and first responders in our communities who are on the front lines of this pandemic.
Our generous brand partners, along with Wingstop charities provided more than 1 million meals to those impacted by the pandemic through cash and food donations.
In addition to our community outreach, we supported our brother and and the restaurant industry by joining forces with the National restaurant associations Educational Foundation, and Guy Fieri to support the restaurant employee relief fund.
Wingstop donated $1 million to the restaurant employee relief fund to provide access to 500 dollar grants per person per restaurant workers, who are desperately need aid in the coming weeks and months as our industry gets back on its b.
I'm truly humbled by the generosity of our team and our brand partners.
While we are humbled by our results at the beginning of the second quarter. There remains uncertainty about shelter in place orders reopening timing for businesses School Reopenings and so many other factors.
Yes, we do not have clarity around that ongoing magnitude of the impact of this pandemic on our performance or the restaurant industry.
Because of the lack of clarity we are withdrawing our 2020 guidance.
We believe our recent performance validates the strength of our brand however, trying to predict the outcome of this unprecedented year would not be prudent.
We will maintain our typical level of transparency as a means to provide clarity as to how our business is performing and provide timely updates to our trends when we feel it is necessary.
I would like to close by again thanking our team members brand partners supplier partners and guests for their continued supportive wingstop I'd also like to thank our shareholders many of whom had been with us for our five years as a public company for your support and confidence during this time.
At Wingstop, we recognize the responsibility we have to all the various stakeholders, we serve including our team members brand partners supplier partners shareholders and the communities in which we operate.
We appreciate how all of these stakeholders have come together in a supportive way to enable us to continue our mission to serve the world flavor and achieve our vision of becoming a top 10 global restaurant brands.
With that I'll turn it over to Michael.
Thank you Charlie today I will provide brief highlights on our first quarter results, but focus most of my comments on our performance for the first four weeks of the second quarter of 2020.
In the first quarter, we opened 28 net new restaurants, resulting in 1413 system wide restaurants.
Royalties franchise fees and other revenue increased by $2.9 million to $24.2 million for the first quarter driven primarily by our domestic same store sales growth of 9.9% and 137 net franchise openings since the year ago comparable period.
The company owned restaurant sales increased $1.7 million to $15.2 million for the first quarter. This increase is due primarily to same store sales growth of 6.2%.
The acquisition of one franchise restaurants since the second quarter of 2019, and the opening of two company owned restaurants in the Kansas City market.
These revenue increases translated to adjusted EBITDA, a non-GAAP measure of $16.4 million, representing an increase of 17.8% over the same period and the prior fiscal year. There is a reconciliation table between adjusted EBITDA and net income, it's most directly comparable GAAP measure and.
Included in our earnings release net income in the first quarter was $8.1 million or 27 cents per diluted share upfront from 22 cents in the prior year first quarter. Please refer to today's press release for additional details on the first quarter.
With that I would like to provide more detail on our performance and preliminary domestic same store sales growth for the first four weeks of the second quarter. As a reminder, we experienced a slight uptick in domestic same store sales in the last two weeks of the first quarter and as you heard from Charlie The first four weeks of April have been here.
Even stronger.
Domestic same store sales increased 33.4% in the first four weeks of the second quarter far exceeding our own expectations company owned restaurant same store sales increased 32.6% during the same time period.
When we closed our dining rooms in mid March we initially experienced a decline in transactions. While we did not initially replace all of those transactions with off premise orders, we did see a higher average check as most of our dine in sales have a smaller average check and support individual gas more than group occasion.
As April progressed, we experienced an acceleration in our same store sales growth. This acceleration was due primarily to average check growth, resulting from a higher mix of digital and delivery channels, which typically have a five dollar higher average check than our traditional channels when compared to dine ins.
Transactions digital transactions can be as much as $10 higher.
The strategic investments, we have made to establish a world class digital platform along with the rollout of national delivery in 2019 provided a strong foundation for our brand. During this time and has led to the success we have seen.
We entered 2020 with a national TV advertising campaign focused on highlighting our unique flavor experience and showcasing delivery as a new way to experienced the brand through Wingstop dot com and our Wingstop out.
That's what the first time, we leveraged national advertising to promote delivery as a channel.
As we navigated the initial days of this crisis, we quickly pivoted and partnered with door dash to offer free delivery via Wingstop Dot com and our Wingstop app to ease the burden of delivery fees forget.
The promotion continued through April Thirtyth.
We ended the first quarter with 47% of ourselves through digital channels. We saw this accelerate to over 65% of sales. During April we believe that the message of delivery will play a key role as we continued to execute against our goal of digitizing every transaction as 100% of delivery or.
Orders our digital.
In addition to the message of delivery. We also quickly pivoted and repositioned advertising that was initially planned for live sports to areas such as video streaming and gaming platforms, social and paid search and other areas, where we believe guest would be consuming content, while sheltering at home.
Well, we enjoyed strong same store sales growth in our domestic business. We did have a small number of restaurants that temporarily closed as a result of the closing of casinos malls in college campuses due to its local and state guidelines.
Outside of the U.S. There are currently 26 restaurants temporarily closed however across our entire global system temporary closures represent less than 3% of all system restaurants.
In addition to the strong topline performance. We also experienced the good fortune of strong retail demand for chicken breast meat, which created an excess supply of jumbo chicken wings, resulting in deflation of wing prices.
This provides an immediate personnel and cash benefit to our brand partners as we purchased swings off the spot market weekly.
We're making investments both at the restaurant level in our team members and our communities. During this time of crisis, including frontline incentive pay enhance sick leave policies for our team members investments in critical supplies to protect our team and guest such as thermometers faced coverings and globe and sharing.
Well contributions and outreach our team member incentive pay for full time in part time workers.
Where team members can earn up to an extra $150. A week started in March and was initially planned to end in April but has been extended through the end of May to continue to support our restaurant team members on the front line.
I also want to highlight for modeling purposes, the 1 million dollar contribution to the National restaurant associations restaurant employee relief fund that Charlie referenced earlier, we'll hit SGN a in the second quarter.
As Charlie mentioned, the majority of our international restaurants rely more heavily on dining rooms and have been adversely impacted by this pandemic.
Most international restaurants are experiencing sales declines in the 50% range due to the dining room closures.
With the uncertainty surrounding the developments of cobot 19, and as they precautionary measure and mid March we borrow up to $16 million under our outstanding variable funding notes to enhance our cash position, providing us with an unrestricted cash balance of approximately $31 million at the end of the first.
Fiscal quarter.
We have not had I need to access that capital, but out of an abundance of caution we do not currently intend to repay the variable funding notes.
We remain committed to returning capital to shareholders through our quarterly dividend, which is targeted at 40% of free cash flow. Our board of directors has declared a dividend of 11 cents per share of common stock dividends totaling approximately $3.2 million will be paid on June 25th to stockholders of record.
As of June 18th.
We're consistently evaluating the best use of excess capital and we feel our quarterly dividend, it's an important part of our commitment to our shareholders.
I would also like to comment on two transaction is expected to close in the second quarter that you will see disclosed in our 10-Q.
Subsequent to the ended the first quarter, we entered into two separate arrangements to Refranchise two company owned restaurants in the Houston market and five company owned restaurants in the Kansas City market.
Or aggregate proceeds of approximately $4.8 million.
At closing in the Kansas City transaction will include a development agreement for an additional 20 restaurants in that market.
We are encouraged by the resiliency of the Wingstop business model as we have navigated this crisis in our humbled by our overall result.
This combined with our strategy continue to support our confidence in our long term growth and our vision of becoming a top 10 global restaurant brand with that I would like to turn the call over for <unk>.
Thank you we will now begin the question answer session asked the question May Press Star then one touched down south and he's had speakerphone. Please pick up your handset if a press in the key to withdraw your question. Please press Star then.
Please limit yourself to one question and one follow up.
The first question today comes from David Tarantino with Baird. Please go ahead.
Hi, Good morning, Oh, Yeah, both are doing well and.
Congratulations on the results are delivering a truly impressive.
My question, Charlie is really on the sales strength.
Seen in April.
And I'm wondering if you could give your thoughts on the sustainability of some of the sales gains you pad. It seems like there are a lot of crosscurrents, there's no government stimulus.
Potentially helping so just wondering if there's anything inside your data that could help us understand.
How much of the sales gain you might be able to hold onto a zero.
Thanks.
Good morning, David certainly helped US find you will as well. Thank you for the question. Yeah. We we were certainly encouraged by the pace at which our same store sales grew in the month of April.
And I think largely that was driven by a couple of factors number one growth related to delivery as we had mentioned before and in the script, we introduced free delivery during.
The month of April and late part of March as well.
And saw a great take rate from our guests, both new and existing guess on the delivery.
And as we've mentioned before that delivery check is substantially higher than a traditional dining occasion that we see a in fact, it a delivery against dining alone can be as much as $10 higher.
That has ABS, absolutely fueled a check growth for the brand while also achieving transaction growth through the offer a free delivery, we exited that promotion at the end of April but we're still encouraged by all of the different drivers that can continue to.
Helped wingstop grow into the future.
Certainly things like the stimulus money.
Have probably had a factor in this as it has for others.
In our space.
But really we think that our preparation for the migration to a heavy digital format.
Even losing the dine in business, which only represented about 20% of our sales.
As a key indicator for what we think the future holds for the brand.
Thanks for that and one quick follow up on on the surge you're seeing I got some delivery sales.
Is there anyway for you to.
Determine whether those are new customers to the brand.
But are there perhaps being introduced in the system for the first time.
Or anything in your data that that would be helpful to understand what what type of consumer dynamic that's going on underneath the surface.
Sure.
To remind you prior to the rollout of delivery advertising. This year, we experienced about an 80% to 20% mix of market place orders.
To our what we call Wingstop dot com or dispatch orders, we call them internally.
That that mix has shifted rather nicely to about 50 50 during the month of April driven by the fact that we did this promotion on Wingstop dotcom orders only.
And when we do that we gain all of the insights of who to the consumers are that are choosing delivery. We have found that a large number of these are new guests to our business.
But also existing customers as well and so that rich information, we gain from that 50 50 split between the marketplace and the Wingstop Dot com orders encourages us that we are bringing new guests into the business.
Great. Thank you very much.
The next question comes from Catherine Fogarty with Goldman Sachs. Please go ahead.
Great. Thank you hope everybody is doing well what my question is around the franchisees system here you alluded to the wing price deflation being helpful for their economics, but can you kind of quantify that benefit that they're seeing here both from that and then you are they eligible.
Year to get a PPP under the cares program and if you could also talk about how that Dan.
Right away, but the pipeline for unit growth just remind us what the average profile is it your franchisee and if there's any cap on and how big that franchisee Ken. Thank you.
Good morning, Katy hope, you're well as well.
Let me answer those in order so the.
The strength of the unit economics for our brand partners is great right now, they're experiencing strong topline growth as well as substantially improved economics through food cost.
Driven by those lower wing prices and as we noted in the call.
Those were somewhat temporary but theres still well below where we were pre cobot. So give perspective pre cobot when prices were hovering in the dollar 60, a pound range.
They fell as far as 97 cents, a pound and I think today have risen back with some of the.
Tight meet supply back into the mid dollar twentys, so they're experiencing they can experience anywhere from.
Three to six.
I mean, some improvement in food costs during that timeframe, which is meaningful some franchisees have.
Reinvested that money into their payroll line to help provide incentives for their team members.
To retain their staff and.
And thank them for their hard work and commitment during this difficult time, so theres a little bit of.
Fluctuation in the PML in that regard and you'll see that in the company store performance as well.
But overall it does 0.2 strong cash flow.
Which then the question is what do they do with that and.
Once the market.
Starts to open back up and specifically, what we mean by that is the ability to build restaurants to obtain permits to obtain the.
All that all the licenses and everything we need to operate.
We do expect to see our franchisees get right back into the swing of things on delivery, there's going to be a temporary slowdown in that as we've noted.
Simply because of things, we cannot control, but on the back side of this looking out longer term certainly it all of this points to the strength of the of the Wingstop brand it's resiliency.
And its ability to continue to grow even during the most difficult times.
To your question on the PPP loans like anyone else, yes, I believe our franchisees are eligible as any small business would have been.
During this timeframe. So certainly there is eligibility.
Okay.
Great. Thanks, and just one follow up.
If the free delivery promotions were working so well and what what did that thought behind a stopping notes here.
Well I think we wanted to better understand how much of a stimulus this was for the business.
It does come with a cost because those fees have to be.
Born by our franchisees and or the company and so.
We wanted to while we love the promotion.
Taking in all of those fees and paying for those on behalf of the guest is can be rather expensive. So we like to what we saw during this process, we want to see what the business can sustain from there and then use that as an opportunistic promotion down the road as needed.
Thank you.
The next question comes from Jeffrey Bernstein with Barclays. Please go ahead.
Great. Thank you very much.
Two questions one just.
On the heels of [noise].
Hello, good scary enough, but it seems like recession has omnicom.
It would seem like most of your peers.
Not to say would welcome that but their comps likely wouldn't fall as much worse or the same magnitude as the impact from coated.
And your case does seem like the comps are currently.
And but I would think you would be more vulnerable targeting a lower income customer, especially if we're to see like 20% unemployment, which people are talking about so kids talk about.
The transition from covert headwinds, we see today to a potential recession going forward, maybe any past experience as you've seen a slowdown or any concerns you have around that lower income vulnerability and then I had one follow up.
Thanks, Jeff Good morning.
No I don't I don't believe this brand.
Has any more or less risk necessarily associated with the potential of a recession.
If you look back our experience during no eight or nine the brand grew through that timeframe as well and I think the differentiator for Wingstop is that we do exist in the category all by ourselves. We don't have a direct competitor we tend not to have to find a price war if one exists.
Yes, and us in an environment like that and our customers clearly tell us and Weve research. This even during this timeframe. The reason they come to Wingstop is because of that crave because of that unique product positioning that nobody else has and so it becomes a real advantage for us so.
We're pretty confident we can grow through this and I think our current performance even if it were to subside slightly.
I would still be fantastic for our franchisees.
Absolutely and then just a follow up on an earlier question regarding franchisee development.
Presumably when development is permitted once again.
I mean your results from I mean, if another chicken chain with very strong results for you that's without actually a new product launch. So all the more impressive. So I'm just wondering the thoughts on the franchise demand for new unit growth and that you guys talk about 10% plus annually, but is that something that you look to kind of cage at that 10% level or greater high quality.
The demand is there that's not something that you would cap a 10% what would keep you from a lot when that growth to accelerate from here. Thanks.
Okay.
Yeah, It's a fantastic question.
Feedback we're hearing from our brand partners is very bullish and confident excited to get back in and develop restaurants.
Certainly as I mentioned before and you mentioned as well we have to wait for.
Quote unquote, the markets to open to be able to get that done.
But there are few ways. We can we can capitalize on that one is we can assist our franchisees if needed to help accelerate the pace of development.
With our strong position and arm and potentially our cash similar to what we've done in the Kansas City market as an example, which Michael commented on.
That gives us an opportunity to look at select markets as opportunities to accept accelerate growth and refranchise. If we choose to do so so I think we're evaluating all the possible opportunities, but it goes without saying that.
This appears to be for Wingstop, a great opportunity to accelerate the pace of growth.
Thank you very much.
The next question comes from John Glass Morgan Stanley. Please go ahead.
Thanks, Good morning, good to hear everyone's voices Charlie can you just help maybe just understand a little bit more on.
What the components of the comp growth in April we're from a check in traffic standpoint, I know you don't have been broken out specifically, but these are unusual dynamics than usual Titans can you just help maybe just on Pat can you give us some pieces around that but is that largely check growth. Miss is just family meal replacement or any way to better understand the under underneath the 30%.
Hi, John Good morning, Great to hear your voice as well.
Let me let me.
I think this picture as best I can without we don't sites specifics as you know, but I'll give you some context to it certainly the majority of our growth.
In the comp is associated with check lift but to give some added perspective, we shut down our dining rooms lost all of our dine in business.
And that represents about 20% of our sales.
On a one to one almost trade off we replace that with carry out business.
And so if you look at delivery delivery is really the big growth driver for the brand and it comes at a very nice.
Hi, check average and that can be as much as $10 as I mentioned before $10 higher than a dining occasion appeared dynamic cage not the average occasion for the brand, but that dine in occasion.
So that that is fueling two things one new customers coming to the business by way of transaction growth, but at a much higher check than we normally see so again just to rephrase.
Carry out growth replaced the dine in loss delivery is the big driver delivery comes with a very high check that's how to reconcile the growth.
That's helpful. Thank you and then just you talked about new users coming to the brand do you have numbers around what percentage of transactions to the extent you know our impact new users to the brand and how how you intend to retain those customers I presume that's very very valuable client. This customer acquisition costs is dropped presumably fairly dramatically.
Yeah.
Excellent question, it's too early right now John to give any numbers to that but directional indication is that there are definitely new users coming into the business hopefully, we can quantify that a little bit better when we get into our next read out.
Just a little early with only one month under our belts really quantify that.
Thank you.
The next question comes from Andy Barish with Jefferies. Please go ahead.
Hey, guys if anything.
Different on the menu with you know.
Promotional a during this period other than the free delivery.
Assuming you skewed more family meals, but was there any any additions to the menu from that side and then.
Just your thoughts on.
As additional restaurants kinda reopened.
What you guys are thinking with.
With your own dining areas or.
Maybe more importantly, just how other restaurant options become available what do you think that that looks like going forward for.
For your off premise sales pace.
Good morning, Andy.
First of all.
As it relates to the product question, we really have done nothing different product wise during this timeframe other than we've seen.
Definitely a mix shift from individual occasions, where they might get a piece or Tempe swing combo too much more of a family pack, which might have a mix of bone and boneless wings or our tenders.
And the various flavors to provide to the family. Our internal research suggests that that really is a key driver for people to choose Wingstop theres no negotiation over a pizza, it's not a drive through but yet it gives everybody flexibility to order and I think thats always been.
You know a real strong point for the positioning of our menu in the brand, but no no other changes there.
As it relates to the reentry of.
Dining room oriented brands are casual dining them and the rest.
I really don't know that it's going to have.
A big impact it certainly could take away some occasions, just based on the fact that there were only a few convenient options and it may have been more difficult to go to those concepts.
But going back to that research, we have I really feel strong that.
Our consumers come to our brand because of our products and because of the ease and simplicity of ordering and most of the research would suggest that people are going to be still quite tentative.
Get back out into dining rooms.
Thats a good reason why we are going to hold back as long as we need to probably longer than most to reopening our dining rooms, because we feel like the occasion that we're providing is the safest.
Compared to a dynamic Asian.
And I think consumer support that.
Thanks, guys you will.
You too Andy Thank you.
The next question comes from Andrew Charles with Cowen and company. Please go ahead.
Great and glad to hear that you guys are staying safe.
You mean supply chain has missed a beat I just think just given what's going on with some parts of the protein market. If we could just diving just talk about the assurances that you have in place for your vendors, but the supply of bone in wings, which are obviously never frozen in bust can't be stopped out as much as if they were as well as white meat for boneless will be secured and just curious as well.
Well I know youre, giving guidance, but you can share what do you what do you think from vendors on their outlook for the for inflation in chicken. Thanks.
Okay.
Good morning, Andrew Thanks for the question.
Yes, I mentioned, they didnt Miss a beat and I have to certainly continue to pay a complement to all of our supplier partners.
As well as performance food group.
All of them have been hit pretty hard by the the shutdown and all of them have been fantastic in their support a wingstop we've been growing.
We were we have been bringing in more chicken than we've ever brought before.
And they really haven't missed a beat.
As relates to the strength of our supply chain.
We have a very diversified approach to our supply.
While we have maybe nine different companies have supplied chicken that chicken comes from almost 20 different places so the risk of any sort of impact to a particular plant is mitigated by the availability of supply and other areas. So we built this chain to be diverse.
And while we don't prefer to have frozen wings in our system. We do have the ability to get those if we need to and stockpile. Those so I just want to clarify that point. It is a product that we can do that with if needed it's not our preference, but it is possible.
And then.
The indication from our suppliers is.
Is really centered around making sure that they have availability of supply which were comfortable with.
As it relates to the prognosticator pardon prognosticators and what they think about the market hard to tell.
It will all have to do with the supply of chicken against the competing meets of beef and pork.
Chicken supplies appear to be Reemerging after us after a pullback.
Beef and pork still seem to be dropping so chicken is always a substitute for that.
We are confident we're gonna have supply into our restaurants as needed during this this challenging.
That's helpful. Thank you.
Next question comes from Jeff Farmer with Gordon Haskett. Please go ahead.
Hi, Good morning, just a couple of follow ups from some earlier question. So I didn't hear your comments on free delivery and stimulus payments being some of the things that we're obviously, helping april be quite strong but in terms of the impact that we could see moving forward from people beginning to get out and about more driving more going back to work in coming months how.
Do you think that dynamic with the consumer will play out on your business.
Well again I think is thank Andy after similar question.
It is.
Hard to say of course, but again I go back to the research that we have done with our own guests as to why they chose wingstop.
In the things that stand out above and beyond.
Theres nothing else open for example have everything to do with.
Convenience accessibility delivery quality craveability like those are the things that are driving the occasions into wingstop more so than everybody else is closed and so we're going to we're going to stand confident that our brand is able to remain resilient even.
As the market opens back up and I would say one other comment just to add to this week. We did note that we ended the first quarter, even before a lot of this co that impact at 9.9% same store sales growth. So the brand was already performing at a very high level.
That's helpful. In just one more than again, you touched on but just a little bit more granularity. So I completely understand that most of your traditional advertising options are completely off the table was virtually every sports league or on the plan is shut down right now.
Nice pivot to to delivery that did very well for you guys over the last two months and some other things but.
In terms of thinking about the balance of 2020 any high level strategy in terms of staying in front of these customers over the balance of the year without having to too heavily rely on on the free delivery.
Yes, Jeff.
I think if anything the strength and performance of the brand. During this time is perhaps the best indicator of something I know I've been trying to say for many many years, but sadly we get positioned against other wing oriented sports bars that don't that are relevant, but wingstop doesn't need the sports the case.
And in order to be strong and I think theres no better testament to that than what's happening right now.
If you go back to our analyst day presentation in January we called out very clearly that our approach strategically was to capture a huge segment of the population that are heavy QSR users that are generally on a way.
There or not users of wingstop and convert them into our brand.
If anything I would say that strategy is sound and effective now during this timeframe. We did have some media positioned against sports, but the vast majority of our media is pointed towards lifestyle occasions, and so this gave us a great opportunity to pivot even more dollars.
As we could towards places like Twitch, who Lou.
In other places where people are consuming content right now so again just to reinforce this is an example of the strength of this brand and not being one that has to be tied to sports occasions.
Thank you.
The next question comes from Nicole Miller with Piper Sandler. Please go ahead.
Thank you good morning.
Same store sales in terms of.
What time of day.
Comps are coming out so I'm curious if there is coming at peak periods or essentially being spread out different parts of the day and to the extent. They are at peak meal periods, then that is amazing throughput and I keep thinking back to your January analysts day in the presentation, where you have it very targeted approach to building your time.
So what do you learning about your teams right now thank you.
Yes.
Good morning, and thank you for the questions.
I do want to.
Talk about talent, but first.
Let me address the other question.
I think that from a daypart perspective.
We have seen growth across all dayparts fairly consistently the only area, where we saw less growth was in late night and only because many of our brand partners wisely close their restaurants earlier than normal. So our typical operating hours are 11 eight.
12 midnight many have changed their hours. During this time to a 10 P.M. closure, which has just taken away those last couple of hours and reduced our growth. So I don't consider that indicative of anything other than that decision that they made wisely.
On the people side I mentioned in my commentary.
We've always believe we have a solid and strong culture here and.
Donnie Upshot had a great job of presenting.
What is that makes this place so unique and.
I got to tell you him and I'm really really proud of our team and how fast we reacted how quickly we came together how seamless the process was to immediately provide information to our brand partners in the field and prepare them for navigating this change and without the strength of the culture we have.
Here at Wingstop, the transparency the trust the things that are necessary for any business to be highly successful I don't know that we would have been in the same position. So I think it has everything to do with the strength and success that we've seen during this time.
Thank you.
The next question comes from Michael Thomas with Oppenheimer. Please go ahead.
Hey, Thanks quick question on the digital side of the business, obviously, you guys and a lot of other restaurants are seeing huge surge and digital sales during the so what are some of the key things you guys can do coming out of this as consumer start to have like other choices other ways to order intake keep consumers.
On the digital platform and to keep coming back to dies through that.
Good morning, well I think if you look back over our history, we've only been growing our digital platform and we've done it organically, meaning we have not provided an incentive prior to our free delivery promotion and with that we we move digital our digital mix up to 65 per se.
Yeah.
During the month of April which is squarely right in the position of large pizza chains as a competitor right and I think if you look at other brand.
They certainly will be for define their digital efforts.
For Wingstop, we've made substantial investments over the past few years to position ourselves this way.
So I think coming out of this will take some of the learnings, which really have more to do with how we can tweak enhance and make it better for the guest so that that experience is pretty seamless, but the good news is we walked into this situation with an app rating that was.
Above four and a half stars typically.
As well as our web ordering platforms. Our team has done an exceptional job of making it easy which again I go back to the research. We've done guests are confident commenting on that now very easy to order wingstop.
Okay.
Gotcha. Thanks, a quick follow up I think you'd mentioned that.
You have greater confidence in the international growth in this off premise type of model. Just curious you know any thoughts on on timing of that relative to what you're thinking at the analyst day and.
That opportunity sort of been pushed out maybe a little bit with everything going on.
Just any general thoughts there thanks.
Yes, and you you've you a phrase that properly we are confident in modifying our approach to new markets and existing markets with our growth in international certainly those markets out there today have been adversely affected by covert 19 with the closure of a lot of dining rooms and or just.
Mandatory closures in markets like the UK and France. Those two markets for example have reopened but only for digital.
Delivery off premise occasions, but they're coming back nicely. So I think it just speaks to the strength.
Of that approach. So we will see a delay simply because we have to wait for those markets to reopen to move forward.
But again I think.
The strategy is sound in terms of where we'll go next so slight delay, but I mean, I'm excited to get back and.
Reopen those markets and start to grow aggressively.
Great. Thank you best of luck.
Next question comes from Chris Ocull with Stifel. Please go ahead.
Thanks, Good morning, guys.
Charlie did the free delivery promotion generate a good returns for the weeks it was available or do you need to see continued follow through from the guess they use the promotion to justify the return on that type of promotion.
Yes, it's a good question it I would say it did a great job of.
Anchoring the business in delivery and building the business arguably faster than we would have expected under our.
Pre co that 19 strategy.
So I would call that a fantastic return on investment, we certainly do need to see repeat the beauty of it is most of that all of that business in the free delivery was through Wingstop dot com, which means we have complete access to who those customers are we can engage our CRM platform to market directly to them and encourage them to come back.
Okay. So time will tell but it's certainly.
Squarely.
How we're going to approach this strategically.
Great and then I assume the National marketing fund is seeing more gross and you guys expected given the sales lift. So I was wondering if you need to spend at the same rate as the contribution growth or if you can save some of the funds for more strategic periods.
We could do either or quite frankly.
And to be determined, but we're getting into the.
The planning mode for the back half of the year as well as.
2021, so we'll be making those decisions here pretty quick but it's the possibility exists for both but we haven't made a determination of what would change.
Great. Thanks, guys.
The next question comes from John Tire with Wells Fargo. Please go ahead.
Great. Thanks to the few from me quick I think you'd mentioned earlier in the call.
Essentially providing some assistance to international franchisees can you just elaborate on that specifically and then just a couple of laughter.
Sure there a number of ways, we can support them.
One is through.
Oilseed deferrals, which is very common in our industry to due to just say hey, you know what when when you're ready.
You know and things reemerge, we can start to receive royalties again.
That helps put cash in their pockets. The other is leveraging our supply chain capabilities, providing access to food products as needed.
The deferred payment schedule. So those are two examples of things we can do to help provide cash infusions.
Into our franchisees hands.
Okay, and then in the U.S. I believe at your Investor Day, you talked about going forward the potential mix of new stores in kinda captive locations stepping up like sporting arenas or airports et cetera does this crisis, either alter that thinking or perhaps just delay those types of.
New store openings.
Well.
Many of those types of venue is notably the sporting.
The the sports stadiums the casinos malls places like that have been closed down so those that's where we're experiencing actually restaurants that have to close because of this.
Temporarily however, it does reinforce our thinking around.
Our kitchens or cloud kitchens, as they're called in some cases, and we've already been heading down that path and we consider that a non traditional location, but it certainly helps too.
Confirm our thinking that.
Restaurants without seats.
Can be easily deployed in the Wingstop system and with Great results I mentioned earlier, but we already have won in the UK.
Doing well we have some planned here in the us so little more color on that'll come in future calls, but we are we are excited about the opportunity of formats that have fewer seats.
Great and then just lastly from me I know historically the company has paid a special dividend when leverage levels kind of hit in that four to five just under 4% or four times range and given the pace of growth business now.
Just curious to see how you're thinking about a potential special dividend given that balancing cash preservation against the idea that your business is growing at such a rapid clip.
Hey, John This is this is Michael.
I think as it relates to our leverage level in light of the current situation.
We don't have.
Traditional I guess as we signaled earlier in the year that we would likely explore increasing our leverage the middle of this year at this time in light of the backdrop I don't think Thats something we currently have planned.
That being said, obviously, we continue to pay a regular dividend as part of our overall return on capital strategy for our shareholders in our board of directors did announce.
Or declare a dividend this morning as you as you saw in our release.
That being said I'm will continue to monitor the situation.
But that but at this time, we don't have any immediate plan to increase our leverage great. Thank you good luck.
The next question comes from Andrew Delta with BMO capital markets. Please go ahead.
Hey, good morning, Thanks for taking my question with the strong comp trends in the advertising bids have you had the opportunity to take a look at kind of broadly how <unk> brand awareness levels and changed and within that maybe maybe can you give little bit of color on what you're seeing in terms of gorgeous margins versus newer markets in terms of whether its comps or did you.
Penetration or any other metrics.
Yeah, I think one.
It's only been a month.
Maybe six weeks eight weeks and so hard to gauge where awareness levels have modified during this time, we'll know more and we tend to look at that at the end of.
Each quarter and so we can look at Q1, but thats really not relevant to.
The until that 19 experience so more to come on that as it relates to the differentiated markets a fortress non fortress and so on and performance I would only say that performance has been really consistent across all markets. There's only been one or two markets, where we've seen any sort of meaningful change and we've addressed those.
By way of supporting the markets through some value offerings. Good example of that would be.
Very far South, Texas near border communities, as well as Las Vegas, where they shut down the entire.
Casino strip right. So those are two extreme examples otherwise it's been very consistent across all markets.
Great. Thank you very much.
The next question comes from Nick Setyan with Wedbush. Please go ahead.
Thank you.
I guess.
The cluster Alaska's.
April can you just maybe talk about the cadence.
The April comp or you have to restart out sort of in the in maybe low teens the way we ended [noise].
Or you know.
The next dollar rate and the second question is.
You guys had talked about a strategy suits me, maybe mitigate the volatility around when costs.
And where are we with that strategy and maybe just an update there.
Okay.
Yes, so to give you perspective on the comp acceleration.
It did accelerate through the month.
Somewhat ratably week by week.
To give perspective coming out of the first quarter.
And then can you repeat your second question I was looking at data on that.
I'll jump in on the weakest Mt Logan cost volatility I mean, obviously that's something.
We're very familiar with as well as our brand partners.
And as we talked about before we've obviously built our model to be able to whether that type of volatility and as you heard earlier on the call from Charlie you know our brand partners when when when prices fell near to the dollar per pound range. Our brand partners were seeing food cost.
Roughly 30% and so really enjoying strong four wall margins, but at the same time, our our brand partners are aware of the that's a temporary and temporary change and so we've got.
We've got them I guess familiar with that type of volatility in how to continue to execute the business.
Thank you.
Next question comes from Brian Vaccaro with Raymond James. Please go ahead.
Hi, Thanks, and hope everyone is well unhealthy I'm just wanted to follow up on the pace of U.S. development. This year and could you provide a little more context on the impact of construction and permitting constraints are currently seeing where there any openings in April and maybe what a reasonable range of potential openings might be over the next couple of quarters.
Thank you.
Hey, Brian.
I can give you as much as possible, but essentially things have pretty much shutdown I will I will say that and complement one of our.
Entrepreneurial team members, who actually got a restaurant opened in California by way of face time video inspections, which I thought was genius.
So we're doing everything we can to try and get restaurants open but it's hard.
You know some municipalities to start working or doing anything and so it's very difficult to get them out to sites.
We opened three restaurants in the month April I was thrilled with that too in the U.S. one international and.
As we see things start to reemerge markets reopening through the month of May.
You know maybe in June.
July we start to see some restaurants come back online, but as you can imagine there's going to be a glut of.
Demand put upon a lot of these municipalities and so it's hard to say how fast they will react but know that we will be out there as aggressively as we can and the only other thing is as you know the banks.
Have really stopped a lot of development oriented funding so that they can be out there helping support stimulus plans.
That is a small impact, but not not a big one.
We can offset that with our balance sheet strength, if need be in areas, where we feel like we want to accelerate growth as I mentioned before so we're watching it every single day, we're going to move as aggressively as we can to get back.
All right that's helpful. Thanks, Charlie.
The next question I'm, sorry, Peter delay with BT, Inc. Please go ahead.
Great. Thanks, and thanks for taking my question, how do you guys well I just want to come back to that conversation.
Next I think you guys said in April.
Right.
65% of sales I think that's you know three times was too.
No.
What else you just fish how much of that.
Next we'll be able to hold onto one yeah kind of pulled back a little bit more aggressive delivery offers and as we go forward do you anticipate holding onto Boston.
Historically have you seen.
Switch to digital stick with that there are a little kind of a switch back and forth.
Well I definitely think theres, a stickiness to switching to digital it's easier for the guest it's easier for the team in the restaurant.
And a lot of it is just training consumer behavior in this regard and again I go back to the research we did or guess complemented. The fact that it was so much easier to execute a digital transaction its hands off.
If simple for us it comes with a higher check average so it's a win win I would also remind us of our stated goal, which is to digitize every transaction and wingstop. So.
My hope is that it sustains and gross I'd love to see it at 100% and I think thats achievable over.
Over the long over the long run.
I just wanted to follow up I know couple of quarters.
Talking about the kitchen equipment.
Process.
Hi.
Given that it sounded like you pulled back a little bit on on how aggressive you may want to be with that.
Oh, sorry, you filled out that went to search sales that are visiting.
Process or off.
Well, let's say hot.
Well it I'll remind us of the positioning of that equipment. It has more to do with.
Locations that would fall into non traditional spaces or areas with very high footfall. So that we can provide a faster transaction in terms of the individual transaction speed to our guests, but as it relates to whether or not that has an impact going forward for the traditional does.
Mastic business.
We have restaurants that are operating in the three and a half to 4 million dollar a year sales range with a very similar footprint to what our typical restaurant is so we don't believe we have a capacity constraint.
Nor have we seen a capacity constraint with this strong comp growth I think we're far from it. So we don't need that that cooking platform to help alleviate any strain in the business. However, it does create a.
Great opportunity for us to put restaurants in areas like.
Airports and other types of high density locations that we normally would not have done that's really what its position for.
All right. Thanks, I appreciate that.
The next question comes from Jake Bartlett with Suntrust. Please go ahead.
Great. Thanks for taking the question.
Michael My first question is really on Gionee I know, there's a lot of uncertainty about the business with the co big outbreak going on but in terms of Gionee is or is there a.
A little more certainty there kind of his side you know the million dollar.
Charitable contribution you made should be kind of think of prior guidance is.
It is valid going forward.
I think Jake.
I think theres still a fair amount of an.
Actable components within Gionee examples would be how quickly we hire and fill roles in this new environment as well as how quickly we turned travel.
Back on and so without without clarity at this time kind of into.
Kind of how those components of DNA will play out.
We're going to continue to monitor it and as we said earlier on the call as soon as we have a little bit more clarity into that will definitely make sure that we provide updates.
Okay and then the next question is just on restaurant level margins and some of the moving pieces I know the kind of near term increase in hourly pay.
And also the big surgeon delivery, but you can help us maybe kind of frame what.
You have been level of comp, what what what margins would be or maybe help us.
In terms of what percentage of comp is worth in terms of restaurant level margins.
During the current structure.
Yeah, Jake I think I think probably you know everything we know today I would probably say 2018 is probably a good proxy for for restaurant margins.
Okay. Thank you very much appreciate it.
Thank you.
The next question comes from Matt effect, though Guggenheim. Please go ahead. Thank you.
Thank you very much congratulations on strong quarter I'll keep this summer quick it was just regarding delivery.
I know you've been saying, 65% digital.
Is that correct and you assume almost all of that is delivery or can you sort of break that out on how much is our walking up and getting that digitally preorder.
Yes.
Appreciate the question.
And the answer is roughly 30% during the month of April of.
Our sales was deliveries so the rest was.
Carrier.
Excellent and then I guess, just last question with respect to that digital and the delivery component.
Obviously, you're you've said you were going to look at maybe stores with less seeding almost no seeding.
In a couple of U.S. openings as well I think that's obviously something from Paul Good you're learning from here I got your succeeding very well with that.
Is there also then they are you seeing a growing number of franchisees I'm looking to do their own deliberate and maybe to improve on speed time or even lower some of the costs associated with delivery or the fees related to <unk>.
Yes to the answer of franchisees and our focus on restaurants with fewer seats driving more off premise mix I think is going to be something we will explore into the future here.
But as it relates to delivery on our own no discussion on that very happy with our partnership with door Dash.
Thrilled with their execution, especially if you think about how much their business had to adjust to execute during this tough time I think they did a fantastic job for our business.
There's always opportunity.
To get better on all fronts, but I was really pleased with our partnership there.
And a great investment we made in committing to that a while back as it relates to.
Where we go from here on that I think that.
You know you will continue to focus on building and deepening that relationship to improve our service times, our margins already as it relates to digital are quite strong or delivery quite strong compared to anybody else in a lot of that's driven by the high check average that I mentioned before that Wingstop enjoys but also.
We've done a lot of work internally and in partnership with door dash to minimize the amount of wait time in the restaurant and.
Also minimize therefore, the delivery time with our guests we have we share a lot information we monitor it every single day and I think we can only get better.
Our approach here, so I don't see a need for us to have to do it on around.
Do you mind since you brought it up to sharing that way Tom.
No we hear from a pizza guys, sometimes that number's always around 30 minutes or 20 minutes as their goal.
What is your wait time right now for a not round trip on a door desk delivery order.
Yes, let me, let me break down my comment a little bit. So one one of the elements of wait time is.
How long the door dash driver what they call. Their dasher is has to wait and the wingstop restaurant to get their order and leave and we try to get that down to.
Almost none, but we try to keep it under two minutes as best we can.
Then once they get to the to the consumer we try to make that timing somewhere around 14 to 15 to 20 minutes stops.
Because we restrict the trade areas. So all in we target somewhere around 35 minutes, which has been pretty consistent on average.
Excellent. Thank you so much.
The next question comes from James Anderson with Northcoast Research. Please go ahead.
Hey, guys. Congratulations on a great start to 42 I just wanted to get a little bit more feedback on the international segment. I think you mentioned that sales volumes were down about 50% if I understood correctly, but 27 stores were still closed just wanted to if you could help us understand how that trend has flowed over the past four to six weeks and whether you into.
Is it paid any type of drag on operating cash flow from any type of a royalty relief for your international partners.
Good morning, Thank you for the question the.
The answer we're not sure.
Along some of those.
Stores will remain closed we hope that they will reopen and during the month of April we did see.
Improvement across international platform.
In a number of market some of which associated with.
Complete closure is like in London, as well as in France that have reopen with off premise only occasions and they're very much of that so we're pleased with that.
But we don't really have good visibility into markets like Mexico in Indonesia, our two biggest markets as to when reopening will occur. The one thing we're happy about is that they have.
Invested previously in delivery.
And off premise by way of digital transactions that helping their business, but certainly they rely on the dining room, so more to come on that as it relates to the cash drag don't expect that to be.
Material at all.
Smaller part of our business, but at the same time, we're going to do what is right and necessary to take care of our.
International brand partners, so that they can emerge strong and ready to grow.
Hey, Charlie can I ask just one quick follow up question that would be you've got in a great example of a ghost kitchen of UK any feedback on how that business has performed over the past four to six weeks as well.
Again, it had to close like everything else.
It has reemerged and is building back its volume, but again it was it was doing very well prior to covert 19. So we're really encouraged by what the potential is there.
Thank you.
Take care.
This concludes our question and answer session and also concludes the conference. Thank you for attending today's presentation. You may now disconnect.