Q2 2020 Wingstop Inc Earnings Call
[music].
Good morning, ladies and gentlemen.
Thank you for standing by welcome to the Wingstop Inc. fiscal second quarter 2020, <unk> earnings Conference call. Please note that this conference is being recorded today Wednesday July 29 2020.
On the call, we have Charlie Morrison, Chairman and Chief Executive Officer, and Michael Skipworth, Executive Vice President and Chief Financial Officer.
I'd like to turn the conference over to Michael. Please go ahead.
Thank you and welcome everyone should have access to our fiscal second quarter 2020 earnings release, a copy is posted under the Investor Relations tab on our website at <unk> Dot Wingstop Dot com.
Our 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 could differ materially from what we currently expect.
Let me see filings described various risks that could affect our future operating results and financial condition.
Well use certain non-GAAP financial measures that we believe can be useful in evaluating our performance.
Presentation 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.
Lastly for the Q and a session. We ask that you. Please keep to one question and a follow up to allow for his many participants to ask the question as possible.
With that I would like to turn the call over to chart.
Thank you Michael and good morning, everyone. We appreciate you joining us for this call. This morning, I hope everyone is safe and well.
Our world has changed so much where we were five months ago. When the cobot 19 pandemic started in our prayers go out to all who have been impacted by the virus.
Before I comment on our business results and recent trends I'd like to thank our nearly 25000 team members across the world. Our franchisees. So we affectionately refer to as our brand partners and our supplier partners for their hard work and commitment every day that aligns with our core values.
I'm proud to work alongside all of you during these challenging times and I'm tremendously inspired by the results we have achieved together.
I'm humbled by the continued strong performance in our business during these difficult times, which demonstrates the resiliency of the Wingstop brand.
The strength of our brand is the results of our focus on our core values, we remain steadfast in our service minded attitude, maintaining our authenticity and harnessing our entrepreneurial routes.
We refer to our value systems has the Wingstop way and believes our culture and our team members are what differentiate us from every other brands.
It Cobot 19 was not enough to challenge our resolve on May 25th our country was put to the test again with the senseless, killing of George deployed by former police officers and Minnesota.
On June 1st I tend to note that letter to the when you stop organization regarding our stance on the social and racial injustice that continues to be prevalent in our country.
That included my challenge to leaders across the industry to leverage their voice and challenge each other to open the dialogue in their companies in an effort to listen learn and take action.
At Wingstop, we direct our efforts and leverage our voice through our newly formed social injustice Task Force, we hold weekly town halls, EU meetings, we call speak your flavor, where team members share their thoughts and ideas and then open forum centered on actions, we can take to improve the overall education and recognition of social.
And just as issues.
We recently completed a comprehensive unconscious bias training attended by all corporate team members. This will roll out two restaurants across the Wingstop system in the coming weeks.
Finally, I'm proud to announce that I have joined the CEO action for diversity and inclusion coalition along with more than 1000, Ceos, who are working to change the world as we know it through our companies and treat those we serve.
We are passionate about using wingstop voice to take action against social and Justice and we will do our part to make this a movement not a moment.
At the end of the first quarter, we shared that like many other restaurant brands, we had some near term uncertainty around our new restaurant development, because if uncontrollable delays, resulting from limited access to permitting construction and inspections.
However, as a country began to reopen in June our brand partners quickly mobilized to reignite the restaurant development pipeline, but I'm pleased to report that we opened 23 net new restaurants during the second quarter 17 of which opened in the month Jim.
We now have a robust development pipeline building quickly which points to a healthy outlook for the new restaurant openings in the balance of the year.
Based on our current pipeline, we anticipate net system wide openings of between 120 and 130 in 2020.
The overall unit economics, the Wingstop have continued to strengthen in 2020 as our industry, leading same store sales growth has increased our domestic average unit volumes to almost $1.4 million.
This coupled with favorable wing prices has resulted in strong cash flows for our brand partners.
Although some who cover the restaurant space May believe access to capital is constrained for restaurant development overall that is not the case for wingstop.
Our brand partners of price to build new restaurants, as they leverage cash from operations and continue to have access to capital from excellent basically banking relationships that reward our brands strong performance.
We believe that's great momentum will set up a strong development year in 2021.
I mentioned that our strong development has been fueled by strong topline performance of 31.9% domestic same store sales growth. This is on top of a 12.8% comp in the second quarter of last year.
We believe that our relentless focus on executing our strategy of sustaining same store sales growth through a world class digital platform.
Rollout of national delivery, and an elevated national advertising investment, we'll maintain our strong position as we navigate this difficult environment.
And the topline momentum in our business has continued into July with quarter to date domestic same store sales up 28.7% again lapping double digit growth in the third quarter of the prior year.
Before I hand, it over to Michael Let me comment on our international operations, which consist of 162 restaurants in nine markets.
During our last call I shared that our international business has been adversely impacted by cobot 19, as it generally rely more heavily on dining rooms for locations in malls or in Mexico, a casual dining sports bar.
I'm pleased to report we have we only have seven international restaurants temporarily closed as of today.
Since this pandemic hit we have opened five new restaurants in four countries, even with the challenging operating environment.
That concludes two restaurants in the UK of which one is there seconds goes kitchen.
We are working alongside our international brand partners to ensure their financially prepared to fully reopen in all markets and emerge stronger and better positions for continued unit growth.
We are encouraged by the recent sales trends as each market starts to reopen dining rooms, and continues to leverage and grow their off premise business, which bolsters our confidence in our long term strategy for our international business.
We recorded our strongest overall quarters since our IPO in 2015, both from a sales and profit standpoint.
Since our IPO investors have enjoyed a total shareholder return of over 600%.
Our balance sheet is in a very strong position and we remain committed to returning cash to our shareholders and to that end our board of directors approved a 27% increase in our quarterly dividend to 14 cents per share a common stock, which has a demonstration of our confidence in the business and the stalled strong cash flow gens.
Duration of our asset light model, while being cognizant of the operating challenges that covert 19 endemic has created.
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.
I would like to close by again thanking our team members brand partners supplier partners and guests for their continued support of Wingstop and hope everyone space baseband well during this difficult time and with that I'll turn the call over to Michael.
Thank you Charlie.
As you just heard we delivered another strong quarter across the board, including 31.9% same store sales growth.
44.7% on a two year basis.
Despite the challenging backdrop of Cold 19, we opened 23 net new restaurants, resulting in 1436 system what restaurant at the end of the second quarter, which represents a 10.2% growth rate.
Royalties franchise fees and other revenue increased by $6.7 million to $27.9 billion for the second quarter, driven primarily by our domestic same store sales growth and 132 net franchise openings since the year ago comparable period.
Advertising fees in the release related income increased $6.4 million to $19.9 million due primarily to at 37% increase in system wide sales compared to the second quarter in 2019.
Our company owned restaurant sales increased $4.4 million to $18.3 million for the second quarter. This increase is due primarily to same store sales growth of 24.7%. The acquisition of one franchise restaurant on the opening of two company owned restaurants since the second quarter of 2009.
Team.
Cost of sales as a percentage of company owned restaurant sales decreased by 300 basis points compared to the second quarter last year. This decrease was primarily due to a 22.7% decline and the cost of bone in chicken wings, and our ability to leverage.
This was partially offset by higher labor costs due to performance based bonuses and incentive pay associated with Covance 19 for our team members and within the restaurant advertising expenses increased $5.6 million to $18.6 million in conjunction with the increase in system sales.
Also remind everyone advertising expenses are recognized at the same time the related advertising revenue is recognized and does not necessarily correspond to the actual timing of the related advertising.
Selling general and administrative expenses were $13.2 million in the quarter, which is a 0.2 million dollar increase decrease versus the second quarter in 2019.
This is primarily due to a 2 million dollar gain we recognized on re franchising two company owned restaurants in the Houston market. This gain was largely offset by a one time $1 million donation to the educational foundation of the National Restaurant Association the restaurant employee the lease line.
Also 0.6 million dollar encoded related expenses and zero point $3 million associated with additional expenses to support our national advertising campaign, which has an equal in offsetting contribution in the revenue.
No the $2 million gain on sale is excluded from adjusted EBITDA.
Subsequent to the end of the second quarter, we completed the previously announced sale of five company owned restaurants in the Kansas City market joined existing brand partner for proceeds of $2.5 million. This transaction included a development agreement for 20 additional restaurants in the Kansas City market.
Adjusted EBITDA, a non-GAAP measure increased 54.2% to $20.9 million for the second quarter, our highest quarter, yes I.
I would like to highlight that the $1.1 million donation to the restaurant employed relief fund I referenced earlier, while nonrecurring in nature has not been added that for adjusted EBITDA purposes.
There's a reconciliation table between adjusted EBITDA and net income its most directly comparable GAAP measures included in our earnings release.
Effective tax rate for the second quarter was 24.7% net income in the second quarter was $11.5 million or 39 cents per diluted share.
As of the end of the second quarter, we had $282.9 million a net debt. We ended the quarter second quarter with our net debt to trailing 12 month adjusted EBITDA at 4.2 times, which is almost the full turn lower that's in the first quarter up 2020, underscoring our ability.
To quickly de lever through a combination of adjusted EBITDA growth and strong free cash flow generation.
We remain committed to returning capital to shareholders through our quarterly dividend, which is targeted at approximately 40% of free cash flow as you heard from Charlie Our board of directors approved the 27% increase in our quarterly dividends to 14 cents per share common stock up from 11 cents per share. This did.
Then totaling approximately $4.1 million that we paid on September 11th to stockholders of record as of August 28.
We are consistently evaluating the best use of excess capital and we believe our quarterly dividend, it's an important part of our commitment to our shareholders.
Given the ongoing uncertainty with totaled 19, and the broader impact on the U.S. economy, we're not providing fiscal 2020 guidance with the exception of our estimate for net new restaurant development.
Our Wingstop business model has has demonstrated its resiliency as we have navigated this crisis in our thankful to all of the Wingstop team members and brand partners for their hard work dedication during these challenging times.
We remain focused on our vision of becoming a toxin in global restaurant brand and we believe we are well positioned to grow our global market share both during and after this pandemic as we look to answer the second half of 2020 and beyond.
Our long term strategy remains unchanged anchored by our three main growth pillars.
Thanks same store growth by growing brand awareness Mason best in class unit economics for our brand partners and continuing to expand our global footprint.
With that we're happy to answer to take your questions. Operator, Please open the lines for questions.
We will now begin my question to answer session.
To ask a question. Please press Star then one on your Touchtone phone.
You are using a speakerphone please pick up your handset before pressing mckee.
Withdraw your question. Please press Star then too.
Please limit yourself to one question and one follow up at this time, we will pause momentarily to assemble our roster.
The first question will come from David Tarantino of Baird. Please go ahead.
Hi, good morning.
Excellent.
First our results Charlie I was wondering if you could give us an update on how you're thinking about.
Saying ability of the spring.
Sales.
And now I got secondarily, given that a lot of vessels coming to the goods gold channel.
Could you maybe give an update on how you're planning to the data you're collecting or.
As we get this transacts or.
Developing a CRM.
And and.
Marketing efforts going forward.
Sure Good morning, David.
Yeah I think.
As evidenced in the quarter.
Where we're comfortable.
With the sustaining momentum that we had coming out of Q1.
And that sustained for us through the quarter and as we noted as well into July and I think it's the result of the fact that we have made such investments in our digital and delivery capabilities that it's so easy to access our product that product fits so well with all occasions.
More importantly family occasions, with the varieties that we offer and so I think as you look forward.
Thats going to be the thing that would sustain our momentum barring any unforeseen macro challenges that we will then we would encounter.
Yes, I think about.
Me not to Q1 in Q2, we we had a promotion for free delivery, we gained a lot of new customers into our databases. We ended that promotion at the end of April.
And still maintain really strong results. So we're very happy with that but as we continue to gain a lot of new customers. We are now engaging them and watching their patterns.
They buy with us and some of that would include waiting for that next purchase cycle evaluating whether or not they hit that milestone and if not perhaps leveraging our CRM platform to bring them back in but the indications early our that we've had strong results from our core customers. We have continued.
New customers coming into the business and we're seeing those purchase occasions.
The which is another good indicator for long term potential of our performance.
Great. Thank you.
The next question will be from John Glass of Morgan Stanley.
Hi, Thanks, very much but my first question just a couple of details can you, maybe just update where digital penetration.
Stood at the ended the quarter currently I think last quarter. You said it was about 16, 64% can you also talk about the dynamic between shack and transactions, how many QSR peers are noting that as transaction starting to rebuild.
Case, so different dynamic, but maybe the check average is coming down is that what does that dynamic stand between check in transaction growth in that total digital penetration.
As of now.
Hey, John Good morning, This is Michael.
On your first question around digital we we held that pretty strong digital mix north of 60% as you heard in their comments I think in the some of the release it was 63.7% for the quarter, we held that pace pretty pretty well throughout throughout the entire quarter. So we didn't see it really tell all in any material regard.
As it relates to what we saw in kind of the components of the comp the strong comp growth of 31.9%.
We did see a little bit of what those other brands referred to we didnt see the growth the check growth in our comp moderate a little bit thing. We saw some nice strength building in transaction growth, which is what we really want to see and so we're we're encouraged by that in a lot of that transaction growth. We're seeing this Charlie mentioned repeat from a lot of these new guests were also seeing.
Some lapsed users come back into the brand and then another element that really excited about is our corporate slight uptick in frequency with our core so across the board are really encourages what we're seeing in with the transaction growth.
Thanks for that and maybe as a follow up can you talk about competition right. It's now becoming clear to the market the chicken wings as a very good category to be and so we've seen.
Traditional QSR player Domino's enter the category since in non traditional entrance in the cases like brinker and they're using your partner door dash to essentially enable that growth.
What's the how do you assess first of all what that dynamic is how pleased are you that you're you're one of your delivery partners essentially helping others get into this business. How do you defend that position how do you think about competition more broadly as we've seen these changes start to unfold over the last month or so.
Sure John Hi.
As you know we've always felt as if we are in a category all by ourselves and.
Although chicken wings are on the menu of almost every restaurant in America, especially casual dining players as you mentioned.
The players they've had among our menus for a long long time, what sets us apart is the focus on quality and the authenticity of our product everything starts with fresh swings, we cook to order, we had excess potatoes to make our Fridays we.
And prepare for every single order and we know that that's not the case with others in the marketplace.
As it relates to our partners that door dash.
They've been really great with us they've been strong and promoting our brand.
Yes, they do have a business or rather the so covers the entirety of the industry and so we don't see that is a challenge for US just as we haven't seen but we have a true direct competitor at all.
In the past or going forward, we don't.
Thank you.
The next question will come from Jeffrey Bernstein of Barclays.
Thank you very much.
Just thinking about the the real estate and the unit side of things I appreciate the guidance in terms of openings for this year.
As we think going forward I'm, just wondering what you're seeing in terms of real estate opportunities with the franchisees are finding better sites or maybe that's not the case.
When you're looking at more B and C sites.
And perhaps kind of along those lines. It sounds like you already have a pretty good pipeline for 2021, so any color in terms of what could be an acceleration whether using your traditional design or whether you're maybe perhaps creating a new design of more purely to go and pick up type locations.
Good morning, Jeff. Thanks to the question, Yes, we were very pleased with.
The result, notably in June where we opened 17.
Let me restaurants, and good momentum, we expect to continue and hence why we provided.
Range for the year to make sure everybody understood that we do have a really solid pipeline in place for development or franchisees have come out of.
The initial stage stages of this pandemic.
Recognizing what we all have known for so long as frankly this brand, but in a sense are doubling down in capitalizing on this opportunity.
To put restaurants in the ground and hence the flurry of activity that we've seen and we expect that to continue.
Solid pipeline in place, we do not see any challenges with access to real estate right now if anything given the nature of our type of real estate, we like which is other people's B B minus the C plus real estate, that's going to bode well for our traditional restaurants that we bill.
We have certainly recognized in this world, where all all indications are off premise that says the concept of it as it goes kitchen makes sense for our business and we believe that so far in fact, we opened two goes kitchens.
You know over the past two months outside the U.S.. We've also opens a them here in the U.S. and right now we're in a mode, it's really understanding what those.
Look like so that we get an idea of how they start up how we gained traction and ultimately how they perform but you can expect that real estate cost is even lower than our already low costs and the availability of that real estate is like.
To access as well and so and then the operating economics are stronger so all in all we think Thats a great strategy to play season areas, where we otherwise would not have one of our traditional retail locations and we'll update more as we go as to what we think the potential is for those.
Both in view us as well as overseas.
Got it and then just a follow up on the cash usage very impressive to see the dividend increase confidence the board has and the momentum I know you mentioned.
You know your leverage levels, having four and I think as you said one turn just in the last quarter. So I'm just wondering your thoughts on potential another round of leverage increase and the current environment or whether perhaps.
That wouldn't be ideal and perhaps should let it the leverage levels for a lower rather than take on incremental debt in the current uncertain environment. Thank you.
Hey, Jeff This is Michael good morning.
We're really excited about.
The strength of the brand that was demonstrated both through the increase the 27% increase in our regular dividend, but also the strong.
De leveraging that we demonstrated in the quarter combination of EBITDA growth with strong cash flow generation from our asset light model really just demonstrated house quickly we can't de lever with almost a full turn in one quarter and so we're encouraged by that but I think in this environment, we're going to we're going to Mont.
Sure.
I'm not sure how things develop and make sure we're being prudent but I would say one thing we know for sure as we're going to generate a lot of cash and we've talked about it before last quarter's call.
The opportunity we have with how the brand performs in this environment and Charlie just talked about the real estate landscape. That's out there. We really believe we have an opportunity to accelerate development in 2021, and I think we you could see us essentially do something similar to what we did in Kansas.
Sitting where we leverage our balance sheet as a way to to accelerate development. So that could be away that we use some of the cash that we're building on the balance sheet.
Thanks next question will come from Andrew Charles of Cowen.
Great. Thanks, Charlie obviously coming into 2020, you weren't budgeting same store sales. This magnitude thats produced robust surplus your AD fund budget.
What are you in the franchise Council view at the best use of the surplus is perhaps a third flight of TV advertising 2020 isn't another free delivery campaign.
Are you thinking about spending that surplus in 2020 or perhaps holding onto it in 2021 win lapping the tough compares you'll love your insights on how you're thinking about this.
Hi, Good morning, Andrew a great question. Thank you.
We we have talked about this sort of said and we are as you mentioned generating.
Cash that goes into <unk>.
Let me ultimately will make the decisions as to where we go but in the advisement with our account. So could you talk about what's best for the Brandon.
You know you don't know what.
Next year is going to look like compared to where we are now so it would make sense too.
The wise about how we.
Allocate our dollars between now and into the future.
But right now we've made we've made no specific decisions. So our end of year rest of year calendar lines up exactly as we originally intended to be.
As you mentioned, we certainly could use some of that surplus or another free delivery message. If we felt it was necessary.
As of right now we don't have any plans to do that either just given the momentum that we've been able to demonstrate here so more to come on that we might speak a little bit more about that after the next quarter or into Q4.
Gotcha and that's helpful and just following up on one other question stores around the amount of competition. This isn't the first national QSR first national competitor, that's obviously your lunch wings.
Recent memory do you know from past, we launched from competitors and the advertising behind that they have you seen incidence of do you think that raises awareness the category and that's served as a tailwind for you guys.
Yes, it's a second glad you brought that thought out it has historically been beneficial to us historically, meaning you know.
345 years ago or more at least during my tenure that when we saw for instance, a pizza company promote wings.
They're large advertising budget it does bring attention to the category it has been beneficial to wingstop.
It certainly is not what is feeling any of our current growth. We don't think thats, having a meaningful impacted it never had a major impact but it can help.
Yeah first assert so.
We're not we're not worried about it we're going to continue to play out.
Our playbook the way, we designed it and have been managing against it over a number of years now and continue to focus on unit development.
As our means to continue to expand the spread into a top 10 status and truly maintain our position as a category by itself.
That's helpful. Thanks, Charlie.
The next question comes from Andy Barish of Jefferies.
Hey, good morning, guys.
Just.
Update on your thoughts on dining rooms, reopening where are you.
Given the results.
Doesn't seem like you really need them, but are there any.
You know kind of labor model advantages in your in your box to to not opening dine in at this point.
On an Andy.
We have not made a decision as to when we would open the dining room. So I think our focus will remain on our we've stated this term before our silo strategy for the first to close in the last to open.
Because we do feel like kits and the best interest of our guests as well as our team members from a safety perspective, so make sure that there is little.
Interaction as possible and so we have been able to perform quite well it doesn't present, a labor opportunity or or problem, one way or the other quite frankly, it's it's probably a wash either way more importantly, it's about safety and taking care of our guests. So at this point no.
Current plans to reopen the dining rooms.
And just a quick follow up can you give us anymore.
You know concrete numbers on sort of new store opening volumes as we move through the first half obviously, there's been a lot of.
A lot of changes, but kind of what you're seeing and sort of what percentage of openings are in fortress markets.
Yes, if volumes on their stores continue to be quite strong and of course, you know they benefit from this tailwind effect we've had since.
The pandemic began.
So that's a little different than what where we were just prior to that but continuing to strengthen.
Again, most of our development pipeline exists in those fortress markets as much as 75% of it and so that means that yes. Most of these restaurants are opening in those markets and we're maintaining a pretty strict discipline towards that.
So that it's much more efficient and effective for the brand long term and I would expect that has seen our momentum carried into Q3 in Q4 that would remain the site.
Thank you very much.
The next question comes from Nicole Miller of Piper Sandler.
Thank you good morning, I wanted to ask about the unit that has actually gotten open if you think about all the complexities in the current environment frankly opening 23 stores is.
Pretty amazing so I guess a question let me just because India positive comps doesn't mean, you didn't have the hurdles that others are having could you talk a little bit about the creativity and the hassle that your teams have executed Sally stores open.
Sure Good morning, Nicole.
No I thought for the team and to our brand partners because they did an exceptional job of being very entrepreneurial and focusing their efforts on ways to.
Again, the essential of the local municipalities to be able to.
These restaurants opened in lot of that came through just getting permits and having those offices opened but we had some enterprising team members that actually figured out how to face time permits and get those taking care of so that people to physically have to be president and the shared those best practices across the inner.
Price and it's worked well and.
As you noticed noted we opened 23, but 17 alone in the month of June was a very very strong most for the brand. So it gives us comfort as to what our potential is certainly if we can keep this momentum going.
Thank you.
The next question will come from Chris So called of Stifel.
Thanks, Good morning, guys.
Charlie I know you started the year out with a focus on attracting heavier QSR users. So with the data you're collecting from increased digital orders can you give us an update on how much maybe of the comp growth you're seeing from this from new trial from this segment and then I had a follow up.
Hey, Chris its Michael Good morning, we're seeing some really nice progress obviously as we're bringing in.
A lot of new gas so in that what we refer to it spots 12, and 13 that heavy QSR user we are seeing some really nice progress as we move them up the.
The customer segmentation study that we have around levels of frequency and so were encouraged by that but as I mentioned earlier, we're seeing some really nice growth and in other areas as well.
We're seeing lapsed users returned to US and then as a reference we're seeing nice uptick in frequency with our core and so it's kind of all three of those are really the what's helping fuel that strong comp growth.
Okay, and then that the company's investor presentation at the start of the year I think identified the best fit and international markets based on price.
And off premise usage has the pandemic affected your international growth plans at all or meet certain countries more or less attractive.
Not not at all has it changed our outlook.
Nor has it changed that particular markets. We would go to I think we still feel comfortable that the decisions. We made in some of the pivots to certain markets are going to be very.
Productive for US we mentioned on the calls that we opened two new restaurants in the UK boats has come out of the gate very strong as we expected one what was our kitchen one was regular retail locations both quite strong. So I think that some just another testament to the fact that we we feel like we're dialing in this model.
And as we find the right partners and expand into new markets, it's going to yield the growth outlook that we presented at that point in time.
Thank you.
The next question comes from Michael Tomorrow of Oppenheimer and company.
Great. Thanks.
Yes, Weve free delivery gave you guys are nice booster sales and it doesn't seem like you've seen much deceleration. After that ended so once you move off the free delivery are you seeing customers just continuing to use delivery and I guess pay for it or what do they shift towards pickup I'm just wondering can comment on that.
Hey, Michael.
It's Michael Good morning, we.
We are seeing a little bit of ship. This I reference were seen we're seeing some nice frequency with our core little uptick there, but we have seen a little bit up an uptick and and make digital carry out business as that free delivery promotion.
Spire and so you could see some some users switching over to carry out but what we did I think what helps kind of sustain that momentum is one that value expired at the free delivery promotion at the same time, we launch see all in bundle.
Which is a 1999 bundle offer that's a nice value offerings. So we introduce something else that end to end. The mix. If you will to provide value to gas, which helps continue to to drive the growth that we saw and we've we've been able to sustain a delivery mix you know that you know when we compare to.
Pretty covered levels, even after the free delivered promotion is two times kind of where we were but for before coveted.
Alright, Thanks, and then when you think about some of the state scenario that have had been rolled back some of their reopening plans just curious if theres been any noticeable change in your trends and some of those areas relative to the rest here system.
No nothing I'd call out Michael to really that's material.
A significant to the business.
Perfect. Thank you.
The next question will come from Jared Garber of Goldman Sachs.
Good morning, Thanks for taking the question I just wanted to obviously be unit growth pipeline remains really strong and very encouraging, especially with everything that's going on just wanted to get a sense of that you're seeing more interest from sort of non current franchisees looking to answer the brand and get it can get involved with wingstop or is it still primarily current franchise.
These reinvesting into the Brad Thanks.
Good morning, Gerard is the primary experts has in the past there continues to be from existing franchisees, that's where we focus most of our efforts unless theres a strategic need for a net new.
Opportunity at a particular market, but those existing franchisees are the ones that are investing.
Massively in our business by though.
Thanks, and I guess, a follow up to that would be I'm. Just how are you guys thinking about kind of a fortress and strategy versus entering new markets strategy.
I think.
Consistent with the comment earlier Jared if you look at our pipeline that's in the mix today about 75% of it.
And then fortress markets with the balance and new or emerging markets and so that's a good indication of kind of how we would anticipate near term development playing out.
Great. Thanks, so much.
The next question will come from John Tower of Wells Fargo.
Great. Thanks for taking the question a lot of men and answered already but I am curious now I think there's a little bit of trepidation building in the market regarding industry same store sales as supplemental unemployment insurance starts to Wayne and and the government hasn't quite come up with another solution yet so can you.
Discuss perhaps how your your customer base, which has historically skewed a little bit lower income relative to others in the fast casual space, how that's transitioned over time, particularly as you've grown across the country.
You know I think it's still is generally represented.
You know that middle of the lower income a little bit more ethnically diverse as we sit here today, but obviously as we described heavy QSR user and it's a little bit higher income.
Little bit younger as well and so that's starting to work kind of into our overall consumer base, but as we think about you know what's in front of US I think as Charlie reference earlier, we still are brand is well positioned to to navigate.
The kind of the various scenarios you can play out for the balance of the year and you know what I think guest arbor, awarding us for the quality and convenience when they use us and if you think about.
The fact that 29 seen marked our 16th consecutive year of positive same store sales growth. There's clearly a few recessions in that in that range. If you will.
We were able to continue to grow.
The brands, because guess typically use us Essen indulgent occasion, and that seems to be an occasion that are less likely to give up and maybe the.
More frequent QSR visit.
And then just a kind of a follow up on the near term. Obviously your your business is doing quite well with a disjointed sports calendar, but were coming into a period now in the fall, where I think when consumption spikes.
And as remains relatively high so you know how are you thinking about the sports calendar. This fall, particularly if college football indoor professional football is in place and how you plan on potentially marketing to consumers to ensure that your business doesn't really slip all that much throughout this period.
Yeah, John Thanks for that thanks for the follow up actually as we look at our business. We don't see a lot of seasonality when we think about call sports. It's it's been pretty it's pretty consistent throughout the calendar year.
That being said, we we created the flexibility and our marketing calendar and strategy to if there is sports we can be there as part of the mix, it's not a heavy mix of our advertising that we can be there and if there is not sports.
In the in a scenario, you'll see us steel probably what we did earlier this year and that show.
Some agility and able to pivot our advertising to other areas, where we believe guests are consuming content.
Great. Thank you.
The next question will come from Matthew Difrisco of Guggenheim.
Thank you most of my questions were answered, but I just had a it doesn't bookkeeping. One did you disclose what delivery was as a percent of sales I think there was a rough for instance to acts as a two x. I'm pretty told it or is that two X year over year.
Hi.
Yeah. Thanks, Matt that was that was pretty told it took me if you refer to some of our comments prior to cover the matching hit hitting we where are you likely mixes running low to mid teens and so we've seen kind of throughout the quarter. It sustained kind of qx that mix level.
So 30% around.
That would be mathematically within the range I provide yes.
Okay, and then I'm just also another clarification did you actually spend than less and given that there were no live sports during most of two Q did you spend less in absolute dollars in marketing or put to work into the marketplace venue did a in twoq your 19th.
No we did not cutback.
Against our original advertising plan.
Which was an increase if you think about how system sales grew year over year north of 20%.
We spent the plan dollars, obviously conservative on where we spent those but we sense against budget I think what we've talked about earlier as this strong topline growth is actually bringing more dollars into the at some point originally plans.
Okay, and then one real quick easy when I guess, where you're at the labor side I. Thank you for calling that out I think you said you.
Did a co bid compensation into Q is that correct to assume in the company owned stores that would sunset in the second house as well do the franchisees pay something similar and also well that's on a sometime in the second now.
Yeah, I think you know as the situation out there was pretty fluid you know we're going to continue to reward our team members who are on the front line, taking care of our guests and providing that great wingstop experience.
So well see it sent it to play today.
How much longer saved in the mix and we have shared this as the best practice with with our brand partners throughout the system and quite a few of them are adopting at or something similar.
Excellent. Thank you so much.
The next question will come from Jeff Farmer of Gordon Haskett.
Thank you just following up on on Matts question relative relative to in restaurant pick up can you guys give us a sense of what the delivery margin looks like for both marketplace orders and your white label or dispatch orders, just any sort of order of magnitude in terms of margins would be helpful.
Yeah, just for competitive reasons, Jeff we don't we don't disclose that one thing to make clear as based on some changes we made in late 2019.
The economics on a marketplace delivery order or a delivery order through a wingstop dot com there at parity. So our brand partners on the T. and now we're agnostic on kind of from an economics perspective.
Which channels the order comes from.
Okay, and then a they another follow up just trying to understand a little bit of the case study here, So just choosing Houston.
As the case studies.
For one of the major Wingstop markets use a dramatic jumping jumping covert kids counts.
How did the wingstop customers interaction with the concept evolve or change in that market. So as again into coaches counts jumped did you see transactions from your your core customers move up or what happened. There. That's that's interesting to understand how this will then it plays out in the covert backdrop for us.
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Yeah top of mind, Jeff I can't call anything out specific but then the Houston market as it relates to any recent spikes and coated cases.
I do know that obviously you know guests are continuing to use wingstop because of the social distancing measures, we put in place because of the carry out takeout.
Abilities that we have and then obviously delivery and so we're well positioned for consumers when they think they've demonstrated that throughout the quarter to continue to use us because they.
Yeah, I feel comfortable interacting with the brands.
Thank you.
The next question will be from Andrew Strelzik of BMO.
Hey, good morning. Thanks for taking my question had a question about how you're thinking about when costs from here. After what was a very favorable corridor.
Now that you've got the sports to the earlier question the sports counter kind of ramping and you know when you think about the new entrance to the category does that incremental purchasing have the potential to move the market at all do you have any historical perspective around that.
Yeah.
Andrew Thanks for the question.
Yeah, I think where we sit today the price of wings as the dollar 68 pounds. It's it's still lower than it was last year and there is there is traditionally some seasonality into the fall with when price.
So.
As of right now, we would expect to follow that traditional seasonal curve.
But that being said, we're well where prices are today and where they could seasonally kind of move too is still really far from a level that could impact development as an example.
I think as you referred to some of these recent entrance into instant Wayne's really kind of what we saw.
Was you know we offer a jumbo wing on our menu and we actually saw prices go up for the smaller burn wanes, which I think might be smaller to medium size burdens or what a lot of these other brands of using.
But I think one thing we've seen from history is if we do see inflation brands, who are committed to wings Austin.
Treat quickly because of the cause of the volatility in commodity.
Okay. That's extremely helpful. Thank you and then just one other one for me if I could squeeze it in and if you could talk about the the spread between the company stores and the franchise stores from a comp perspective is that.
You know just geographic mix or kind of cycling delivery or what are the dynamics that caused that wider spread than we've seen kind of over the last several quarters.
You know, it's it's tough to overstate 30 restaurants out of you know system a 1436.
We're pretty excited about the.
The conference, 24.6% for the quarter for a company owned stores and probably more exciting is the fact that Pat you be approaching $2 million.
Which which is really encouraging and we're also seeing they use for the whole system climb up and quickly approach 1.4 million so were.
Well, we're excited about the results.
Understood and as you should be thank you very much.
And this concludes our question and answer session and also concludes today's conference call. We want to thank you all for attending today's presentation. You may now disconnect your lines have a great day.
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